SBN Softbrands

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2009

Or

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

For the transition period from                      to

Commission file number 001-32711

SoftBrands, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		41-2021446 (I.R.S. Employer Identification No.)
800 LaSalle Avenue, Suite 2100 Minneapolis, Minnesota (Address of principal executive offices)		55402 (Zip Code)

(612) 851-1500

(Registrant’s telephone number, including area code)

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  þ      NO  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES  o      NO  o

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES  o      NO  þ

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, par value $.01 per share (Title of class)		44,866,535 (Outstanding at July 31, 2009)

 

 

SoftBrands, Inc.

Quarterly Report on Form 10-Q

Table of Contents

		Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements			3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			34
Item 4. Controls and Procedures			34
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			35
Item 1A. Risk Factors			35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			36
Item 3. Defaults Upon Senior Securities			36
Item 4. Submission of Matters to a Vote of Security Holders			36
Item 5. Other Information			36
Item 6. Exhibits			36
Signatures			37
EX-31.1
EX-31.2
EX-32

PART I. — FINANCIAL INFORMATION

Item 1. Financial Statements

		Page
Consolidated Balance Sheets as of June 30, 2009 (unaudited) and September 30, 2008			4
Consolidated Statements of Operations for the three and nine months ended June 30, 2009 and 2008 (unaudited)			5
Consolidated Statements of Cash Flows for the nine months ended June 30, 2009 and 2008 (unaudited)			6
Notes to Consolidated Financial Statements (unaudited)			7

SoftBrands, Inc.

Consolidated Balance Sheets

		June 30,				September 30,
		2009				2008
(In thousands, except share and per share data)		(Unaudited)				(See Note 1)
ASSETS
Current assets:
Cash and cash equivalents		$	14,967			$	11,948
Accounts receivable, net			19,400				21,665
Prepaid expenses and other current assets			4,213				4,791
Total current assets			38,580				38,404
Furniture, fixtures and equipment, net			1,772				2,095
Goodwill			35,411				35,591
Intangible assets, net			2,272				4,346
Other long-term assets			323				425
Total assets		$	78,358			$	80,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term obligations		$	3,264			$	3,407
Revolving loan			8,074				7,782
Accounts payable			2,858				5,194
Accrued expenses			6,970				7,474
Deferred revenue			21,560				21,500
Other current liabilities			1,751				2,820
Total current liabilities			44,477				48,177
Long-term obligations			10,240				12,667
Other long-term liabilities			516				487
Total liabilities			55,233				61,331
Commitments and contingencies (Note 5)
Stockholders’ equity:
Series A and undesignated preferred stock, $.01 par value; 10,647,973 shares authorized; no shares issued or outstanding			—				—
Series B convertible preferred stock, $.01 par value; 4,331,540 shares authorized, issued and outstanding; liquidation value of $4,591			5,068				5,068
Series C-1 convertible preferred stock, $.01 par value; 18,000 shares authorized, issued and outstanding; liquidation value of $18,000 plus unpaid dividends of $724 and $368, respectively			18,000				18,000
Series D convertible preferred stock, $.01 par value; 6,673 shares authorized, 6,000 shares issued and outstanding; liquidation value of $6,000 plus unpaid dividends of $241 and $123, respectively			5,051				5,051
Common stock, $.01 par value; 110,000,000 shares authorized; 44,866,535 and 41,931,386 shares issued and outstanding, respectively			448				419
Additional paid-in capital			175,043				174,348
Accumulated other comprehensive loss			(1,067	)			(939	)
Accumulated deficit			(179,418	)			(182,417	)
Total stockholders’ equity			23,125				19,530
Total liabilities and stockholders’ equity		$	78,358			$	80,861

The accompanying notes are an integral part of these consolidated financial statements.

SoftBrands, Inc.

Consolidated Statements of Operations

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
(In thousands, except per share data)		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues:
Software licenses		$	2,229			$	4,278			$	11,791			$	11,287
Maintenance and support			12,726				14,360				38,249				41,437
Professional services			4,676				7,177				14,304				16,794
Third-party software and hardware			1,001				1,548				3,196				3,749
Total revenues			20,632				27,363				67,540				73,267
Cost of revenues:
Software licenses			355				499				1,949				1,677
Maintenance and support			3,596				3,907				10,965				12,063
Professional services			3,835				4,199				12,500				12,214
Third-party software and hardware			612				1,535				2,418				3,452
Total cost of revenues			8,398				10,140				27,832				29,406
Gross profit			12,234				17,223				39,708				43,861
Operating expenses:
Selling and marketing			3,140				4,578				10,775				14,498
Research and product development			3,514				4,305				11,447				12,150
General and administrative			4,409				4,556				13,499				15,437
Restructuring related charges			—				—				—				25
Total operating expenses			11,063				13,439				35,721				42,110
Operating income			1,171				3,784				3,987				1,751
Interest expense			(259	)			(303	)			(831	)			(1,291	)
Other income (expense), net			(145	)			183				(47	)			693
Income from continuing operations before provision for income taxes			767				3,664				3,109				1,153
Provision for income taxes			22				3,236				472				1,013
Income from continuing operations			745				428				2,637				140
Income from discontinued operations, net of tax			—				—				362				—
Net income			745				428				2,999				140
Preferred stock dividends			(485	)			(485	)			(1,456	)			(1,461	)
Net income (loss) available to common shareholders		$	260			$	(57	)		$	1,543			$	(1,321	)
Weighted-average common shares outstanding:
Basic			49,298				41,880				48,257				41,708
Diluted			49,412				41,880				48,352				41,708
Basic and diluted earnings (loss) per common share:
Continuing operations		$	0.01			$	—			$	0.02			$	(0.03	)
Discontinued operations			—				—				0.01				—
Net income (loss)		$	0.01			$	—			$	0.03			$	(0.03	)

The accompanying notes are an integral part of these consolidated financial statements.

SoftBrands, Inc.

Consolidated Statements of Cash Flows

		Nine Months Ended June 30,
		2009				2008
(In thousands)		(Unaudited)				(Unaudited)
Cash flows from operating activities:
Income from continuing operations		$	2,637			$	140
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Deferred income taxes			249				1,013
Amortization			2,068				2,442
Depreciation			724				1,065
Stock-based compensation			1,186				1,706
Provision for doubtful accounts			903				775
Other			7				40
Change in operating assets and liabilities:
Accounts receivable			1,439				(9,600	)
Prepaid expenses and other current assets			578				(609	)
Accounts payable			(2,336	)			(432	)
Accrued expenses			(978	)			110
Deferred revenue			60				5,628
Other current liabilities			(1,069	)			62
Other long-term assets and liabilities			77				(299	)
Net cash provided by continuing operations			5,545				2,041
Net cash provided by discontinued operations			362				—
Net cash provided by operating activities			5,907				2,041
Cash flows from investing activities:
Purchases of furniture, fixtures and equipment			(470	)			(583	)
Purchase of intangible assets			—				(129	)
Change in restricted cash			—				63
Net cash used in investing activities			(470	)			(649	)
Cash flows from financing activities:
Short-term borrowings, net of repayments			292				5,530
Repayment of long-term obligations			(2,570	)			(2,643	)
Net proceeds from issuance of common stock from stock options			—				76
Preferred stock dividends paid			—				(981	)
Net cash provided by (used in) financing activities			(2,278	)			1,982
Effect of exchange rates on cash balances			(140	)			(34	)
Change in cash and cash equivalents			3,019				3,340
Cash and cash equivalents:
Beginning of period			11,948				8,682
End of period		$	14,967			$	12,022

The accompanying notes are an integral part of these consolidated financial statements.

SoftBrands, Inc.
Notes to Consolidated Financial Statements

Note 1. General

Basis of Presentation

     The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America. We have included all normal recurring adjustments considered necessary to give a fair statement of our consolidated financial position, results of operations and cash flows for the interim periods shown. Operating results for these interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The September 30, 2008 balance sheet data was derived from our audited financial statements at that date. For further information, refer to the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2008.

Consolidation

     The accompanying unaudited consolidated financial statements include the accounts of SoftBrands, Inc. and all of its subsidiaries. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Use of Estimates

     The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts. Due to the inherent uncertainty involved in making estimates, actual results in future periods may differ from those estimates.

Fiscal Periods

     Our fiscal year is from October 1 to September 30. References herein to our third quarter and third quarter year-to-date relate to the three and nine month periods ended June 30. References to the years 2009 and 2008 relate to our fiscal years ended September 30, 2009 and 2008, respectively.

Liquidity

     We were profitable in fiscal year 2008 and the first nine months of fiscal year 2009; however, prior to these periods we have incurred losses before income taxes for several years. We have negative working capital, due primarily to deferred revenue, and have a significant accumulated deficit. We believe that cash flows from operations together with our cash and cash equivalents and borrowing capacity under our revolving credit facility will be sufficient to meet our commitments and our cash requirements for at least the next twelve months. At June 30, 2009, our borrowing capacity was $0.9 million under the revolving credit facility, which expires in August 2013. Our credit agreement requires us to satisfy specific financial and operational covenants, including the requirement to maintain, at the end of each calendar quarter, a minimum level of earnings before interest, taxes, depreciation and amortization (“EBITDA”) measured for the twelve months then ended.

     On June 11, 2009, we amended our credit agreement to reduce the minimum EBITDA requirement for the twelve months ended June 30, 2009 from $12.0 million to $10.75 million. Our actual EBITDA, calculated according to the credit agreement, was $12.0 million for the twelve months ended June 30, 2009. The minimum EBITDA requirement for each quarter thereafter, is $12.0 million. On July 21, 2009, we executed a limited waiver to our credit agreement whereby our lender waived our non-compliance, solely for May and June 2009, with a requirement that prohibits us from having cash outside of the United States and China in an aggregate amount in excess of $5.0 million at any one time.

     While we are currently in compliance with the covenants in our credit agreement, and expect to be in the future, we have been required to renegotiate debt agreements in the past when we violated certain covenants. We cannot be certain that, if we were to violate the credit agreement in the future, the lender would be agreeable to renegotiation. If they were not, we would be required to find alternative financing to repay the debt, or risk that the lender would seek to dispose of some or all of our assets to repay the debt. We currently do not have arrangements for alternative financing, and if we were forced to obtain financing in a short period of time to avoid default, financing might not be available, or the terms of that financing might be very disadvantageous to us and to our stockholders.

Concentrations of Credit Risk

     At June 30, 2009, we had one customer that represented approximately $5.2 million, or 27%, of our consolidated accounts receivable balance. At September 30, 2008, we had one customer that represented approximately $4.2 million, or 19%, of our consolidated accounts receivable balance.

Subsequent Events

     In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165, Subsequent Events (“SFAS 165”). SFAS 165 establishes general accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or available to be issued. This statement also outlines the circumstances under which an entity would need to record transactions occurring after the balance sheet date in the financial statements. These new disclosures identify the date through which the entity has evaluated subsequent events. SFAS 165 is effective for interim or annual financial periods ending after June 15, 2009. We have adopted SFAS 165 in our third quarter 2009 and there was no impact on our consolidated financial statements. We have evaluated subsequent events through August 6, 2009, the filing date of this Quarterly Report on Form 10-Q.

New Accounting Pronouncements

     In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. However, the application of SFAS 157 may change current practice for some entities. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years (our fiscal year 2009). In February 2008, the FASB issued FASB Staff Position FAS 157-2 (“FSP FAS 157-2”) Effective Date of FASB Statement No. 157 which delays the effective date of SFAS 157, for non-financial assets and non-financial liabilities that are recognized or disclosed in the financial statements on a nonrecurring basis, to fiscal years beginning after November 15, 2008 (our fiscal year 2010). These non-financial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test and non-financial assets acquired and non-financial liabilities assumed in a business combination. We have not applied the provisions of SFAS 157 to our non-financial assets and non-financial liabilities in accordance with FSP FAS 157-2. In April 2009, the FASB issued FASB Staff Position SFAS 157-4, Determining Whether a Market Is Not Active and a Transaction Is Not Distressed (“FSP FAS 157-4”) which further clarifies the principles established by SFAS 157 and is effective for periods ending after June 15, 2009. We have adopted FSP FAS 157-4 in our third quarter 2009 and there was no impact on our consolidated financial statements.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R expands the definition of a business and a business combination and will significantly change the accounting for business combinations in a number of areas including the treatment of contingent consideration, contingencies, acquisition costs, IPR&D and restructuring costs. In addition, under SFAS 141R, changes in deferred tax asset valuation allowances and acquired income tax uncertainties from a business combination after the measurement period will impact income tax expense. SFAS 141R is effective for fiscal years beginning after December 15, 2008 (our fiscal year 2010). With the adoption of SFAS 141R, our accounting for future business combinations, if any, will change on a prospective basis beginning in the first quarter of fiscal year 2010. In relation to previous acquisitions, the provisions of SFAS 141R will require any release of valuation allowance recorded through purchase accounting to be included as a decrease in income taxes or an increase in tax benefits in our consolidated statement of operations. Furthermore, as a result of the expansion of the definition of a business, for goodwill impairment testing purposes we may have additional reporting units under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets , upon adoption of SFAS 141R.

     In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. This new consolidation method will significantly change the accounting for transactions with minority interest holders. SFAS 160 is effective for fiscal years beginning after December 15, 2008 (our fiscal year 2010). We have not yet determined the impact, if any, of SFAS 160 on our consolidated financial statements.

     In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133 (“SFAS 161”). SFAS 161 requires enhanced disclosures regarding derivatives and hedging activities, including (a) the manner in which an entity uses derivative instruments, (b) the manner in which derivative instruments and related hedged items are accounted for under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities , and (c) the effect of derivative instruments and related hedged items on an entity’s financial position, financial performance and cash flows. SFAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008 (our second quarter of fiscal 2009). As SFAS 161 relates specifically to disclosures, and historically we have not had any hedging activities, it will have no impact on our consolidated financial statements.

     In April 2008, the FASB issued FASB Staff Position 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets . FSP 142-3 is effective for fiscal years beginning after December 15, 2008 (our fiscal year 2010). We have not yet determined the impact, if any, of FSP 142-3 on our consolidated financial statements.

     In June 2008, the FASB ratified the consensus reached on Emerging Issues Task Force (“EITF”) Issue No. 07-05, Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF 07-05”). EITF 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities . EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008 (our fiscal year 2010). Early adoption for an existing instrument is not permitted. We have not yet determined the impact, if any, of EITF 07-05 on our consolidated financial statements.

Note 2. Pending Merger

     On June 11, 2009, SoftBrands, Inc. (“SoftBrands”), Steel Holdings, Inc. (“Steel Holdings”) and Steel Merger Sub, Inc., a wholly owned subsidiary of Steel Holdings (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Steel Holdings has agreed to acquire all of our outstanding common stock for $0.92 per share in cash and purchase or redeem all of our outstanding preferred stock for cash as outlined below. Under the terms and conditions of the Merger Agreement, Merger Sub will merge with and into SoftBrands (the “Merger”), with SoftBrands continuing as the surviving corporation and as a wholly owned subsidiary of Steel Holdings. Steel Holdings is a wholly owned subsidiary of investment funds managed by Golden Gate Private Equity, Inc. and is an affiliate of Infor Global Solutions Holdings Ltd., one of the largest privately held software companies in the world.

     Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger:

	•		Each share of our common stock issued and outstanding will be converted into the right to receive a cash amount of $0.92, without interest;
	•		Each share of our Series B Convertible Preferred Stock issued and outstanding will be converted into the right to receive a cash amount of $1.06, without interest;
	•		Each share of our Series C-1 and Series D Convertible Preferred Stock issued and outstanding will be converted into the right to receive a cash amount of $1,000.00 plus any accrued but unpaid dividends, without interest;
	•		Each warrant outstanding to purchase our common stock that has not been canceled or exercised at such time will be canceled and converted into the right to receive a lump sum cash payment, without interest, equal to the excess, if any, of: (i) $0.92 multiplied by the number of shares of common stock subject to such warrant; over (ii) the exercise price per share multiplied by the number of shares subject to such warrant;
	•		Each option to purchase our common stock or stock appreciation rights outstanding, whether or not vested or exercisable, will be accelerated and canceled, and converted into the right to receive a lump sum cash payment, without interest, equal to the excess, if any, of: (i) $0.92 multiplied by the number of shares of common stock subject to such option or stock appreciation right; over (ii) the exercise price per share multiplied by the number of shares of subject to such option or stock appreciation right; and
	•		Each of our unvested restricted stock units, restricted shares and similar stock-based awards outstanding will be accelerated and canceled, and converted into the right to receive a lump sum cash payment, without interest, equal to product of: (i) $0.92 multiplied by (ii) the number of shares of common stock subject to issuance upon settlement of such stock-based awards.

     In accordance with the terms of the Merger Agreement, immediately prior to the effective time of the Merger, we will transfer, on a pro rata basis (with the Series B Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock counted on an as-converted-to-common stock basis), our 10% interest in the net proceeds of the AremisSoft liquidating trust to the holders of our stock at such time and warrant holder Capital Resource Partners IV, L.P. (“CRP”). Any future distributions pursuant to the 10% interest in the net proceeds of the AremisSoft liquidating trust will be made to those stockholders who owned our stock immediately prior to the effective time of the Merger and to warrant holder CRP. We engaged an independent appraisal firm to assist in determining the fair market value of our 10% interest in the trust. Based on the information provided by the independent appraisal firm, we have determined that fair value, on a per share basis, to be $0.02 per share as of July 21, 2009. The amount of future cash distributions from the AremisSoft liquidating trust, if any, is uncertain.

     Subject to certain exceptions, unless approved by Steel Holdings, prior to the completion of the Merger or termination of the Merger Agreement, SoftBrands, among other things, agrees that it:

	•		will carry on our business in the usual, regular and ordinary course substantially in the same manner as it was conducted prior to entering into the Merger Agreement and in compliance with all applicable legal requirements and the requirements of all material contracts;
	•		will not issue, authorize for issuance, sell, grant, pledge, encumber, deliver or otherwise dispose of any of our securities, except for the issuance and sale of our common stock pursuant to options to purchase our common stock or stock-based awards outstanding prior to the date of the merger agreement; and
	•		will not declare, set aside or pay any dividend on, or other distribution (whether in cash, shares or property) in respect of, any of our capital stock.

     If the Merger is completed, our common stock will no longer be traded on the NYSE Amex Equities and will be deregistered under the Securities Exchange Act of 1934, as amended, as soon as practicable following the completion of the Merger.

     The closing of the Merger is subject to customary closing conditions, including antitrust review and the approval of our stockholders. We received notification on July 6, 2009 that the U.S. Department of Justice and Federal Trade Commission had granted early termination of the Hart-Scott-Rodino waiting period for the proposed transaction. The Special Meeting of Stockholders is scheduled to be held on August 12, 2009 for stockholders to consider and vote on the proposal to adopt the Merger Agreement. If approved, we currently anticipate that the closing of the Merger will take place shortly thereafter.

     We have filed with the Securities and Exchange Commission (“SEC”) a definitive proxy statement and other relevant materials relating to the proposed Merger with Steel Holdings. The definitive proxy statement was filed with the SEC on July 13, 2009 and mailed on or about that date to our stockholders of record as of the close of business on July 8, 2009. A more detailed description of the Merger Agreement and the Merger can be found in these materials.

Note 3. Goodwill and Intangible Assets

Goodwill

     The carrying amount of goodwill by reporting unit was as follows (in thousands):

		June 30,				September 30,
		2009				2008
Manufacturing		$	20,494			$	20,674
Hospitality			14,917				14,917
		$	35,411			$	35,591

     The change in the carrying amount of goodwill from September 30, 2008 to June 30, 2009 was primarily the result of the utilization of pre-acquisition net operating loss carry forwards in our manufacturing segment for which a valuation allowance had been established in purchase accounting for our Fourth Shift acquisition in 2001.

     In accordance with Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets , we are required to assess the carrying amount of our goodwill for potential impairment annually or more frequently if circumstances indicate that impairment may have occurred. Historically, our market capitalization has been well above the carrying value of our equity and there has been no indication of potential impairment. The results of our most recent annual assessment performed at the end of fiscal 2008 did not indicate any impairment of our goodwill.

     During the first three quarters of 2009 the price of our common stock has been significantly impacted by the volatility in the U.S. equity markets. The market price of our common stock has ranged from a low of $0.15 per share to a high of $1.00 per share during this time. The market value of our consolidated equity was calculated at

$55.6 million as of June 30, 2009, based on the closing price of our common stock on that date, which exceeded the carrying value of $23.1 million. As discussed in Note 2, the terms of our pending merger further demonstrate that there has been no indication of potential impairment as the purchase price exceeds the carrying value of our consolidated equity.

     The continued market volatility, and the volatility in our stock price, does not indicate to us that there has been a significant and permanent decline in our market capitalization where our goodwill would be impaired. However, continued uncertainty in market conditions may continue to negatively impact our market capitalization, and we will continue to monitor and evaluate the carrying value of our goodwill.

Intangible Assets

     Intangible assets were as follows (in thousands):

		June 30, 2009												September 30, 2008
		Gross								Net				Gross								Net
		Carrying				Accumulated				Carrying				Carrying				Accumulated				Carrying
		Amount				Amortization				Amount				Amount				Amortization				Amount
Acquired technology		$	21,215			$	(21,111	)		$	104			$	21,216			$	(20,923	)		$	293
Capitalized software development			3,707				(3,600	)			107				3,707				(2,950	)			757
Consulting and non compete agreements			2,952				(2,943	)			9				2,952				(2,244	)			708
Customer relationships			2,700				(1,475	)			1,225				2,700				(1,085	)			1,615
Other			2,057				(1,230	)			827				2,059				(1,086	)			973
		$	32,631			$	(30,359	)		$	2,272			$	32,634			$	(28,288	)		$	4,346

     Total amortization expense for intangible assets was $0.7 million for third quarter 2009 and $0.8 million for third quarter 2008. Total amortization expense for intangible assets was $2.1 million for third quarter year-to-date 2009 and $2.4 million for third quarter year-to-date 2008. Amortization of acquired technology and capitalized software development used for resale is recorded as cost of revenues related to software licenses.

     The estimated future annual amortization expense for intangibles subject to amortization is as follows (in thousands):

Remainder of 2009		$	349
2010			731
2011			655
2012			110
2013			100
Thereafter			327
		$	2,272

Note 4. Accrued Expenses

     Accrued expenses were as follows (in thousands):

		June 30,				September 30,
		2009				2008
Compensation and benefits		$	2,932			$	2,815
Preferred stock dividends			965				491
Lease obligations			581				912
Sales taxes			434				584
Professional services			403				263
Other			1,655				2,409
		$	6,970			$	7,474

Note 5. Commitments and Contingencies

     On July 16, 2009, a purported class action lawsuit was filed in the Court of Chancery of the State of Delaware concerning the proposed merger. The class action was instituted by Lawrence Elder and Lucille Elder, individually and on behalf of all public stockholders of SoftBrands, against SoftBrands, our board of directors, Steel Holdings, Inc., Steel Merger Sub, Inc., Golden Gate Private Equity, Inc. and Infor Global Solutions Holdings Ltd. The complaint alleges breach of fiduciary duty by SoftBrands and the members of our board of directors arising out of the attempt to sell SoftBrands by means of unfair process with unlawful deal protection devices, and at an unfair price of $0.92 in cash for each share of our common stock. The complaint further alleges that the members of our board of directors breached their fiduciary duties by engaging in self dealing in connection with the proposed merger. The complaint also alleges that Golden Gate and Infor aided and abetted the breach of fiduciary duties. The complaint seeks costs and disbursements of the action, declarative and injunctive relief to prevent the consummation of the proposed merger, and a direction to the board of directors to exercise fiduciary duties to obtain a transaction in the stockholders’ best interests.

     On July 30, 2009, the defendants reached an agreement in principle with the plaintiffs regarding settlement of the lawsuit. In connection with the settlement contemplated by that agreement in principle, the lawsuit and all claims asserted therein will be dismissed. Although the terms of the settlement contemplated by the agreement in principle do not have a material impact on the Company, there can be no assurance that the final settlement agreement will not have different terms. Therefore, we cannot predict the final outcome of this lawsuit and whether the impact will be material to the Company.

     On July 31, 2009, a purported class action lawsuit was filed in the District Court of the State of Minnesota County of Hennepin concerning the proposed merger and amended on August 4, 2009. The class action was instituted by Robert Helpert, individually and on behalf of all public stockholders of SoftBrands, against SoftBrands, our board of directors, Steel Holdings, Inc., Steel Merger Sub, Inc., Golden Gate Private Equity, Inc. and Infor Global Solutions Holdings Ltd. The complaint contains substantially similar claims to those contained in the lawsuit filed in the Court of Chancery of the State of Delaware and seeks costs and disbursements of the action, declarative and injunctive relief to prevent the consummation of the proposed merger. Because of the unpredictable nature of litigation, we cannot predict the outcome and whether the impact, if any, would be material.

     We are periodically engaged in litigation in the ordinary course of business, including litigation seeking return of software licensing and servicing fees. We do not believe that any of such litigation is material to our ongoing operations.

Note 6. Stockholders’ Equity

     On December 31, 2008, in a non-cash transaction, we issued 2,336,507 shares of our common stock, $0.01 par value per share, to the holders of our Series C-1 and Series D convertible preferred stock in lieu of the approximately $1.0 million of cash dividends required to be paid on that date. The shares were issued at $0.42 per share calculated pursuant to a Dividend Payment Agreement. Such shares were issued without registration under the Securities Act of 1933, as amended, and applicable state securities laws in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933 and under state securities laws.

     In connection with the issuance of common stock described above, the amount of common stock into which our outstanding convertible preferred stock can be converted, pursuant to the original agreements, was adjusted as follows (in thousands):

		Before								After
		Adjustment				Adjustment				Adjustment
Series B convertible preferred stock			4,332				103				4,435
Series C-1 convertible preferred stock			8,955				210				9,165
Series D convertible preferred stock			3,593				79				3,672
Total			16,880				392				17,272

     The holders of our Series C-1 and Series D convertible preferred stock also had the option to receive shares of our common stock in lieu of the approximately $1.0 million of cash dividends required to be paid on June 30, 2009. At June 30, 2009, we had recorded an accrued liability of approximately $1.0 million for these dividends, which were paid in cash on July 1, 2009.

     Additional information about our convertible preferred stock is presented in Note 12 to Consolidated Financial Statements in our 2008 Annual Report on Form 10-K.

Note 7. Stock-Based Compensation

     The SoftBrands, Inc. 2001 Stock Incentive Plan (the “2001 Plan”), as amended, reserves a total of 16,900,000 shares of our common stock for issuance under stock options, restricted stock units, stock appreciation rights, dividend rights and other share-based awards. Upon issuance, the estimated fair value of stock-based awards granted is recorded as compensation expense in accordance with Statement of Financial Accounting Standards No. 123R, Share-Based Payment , as interpreted by SEC Staff Accounting Bulletin No. 107. Additional information regarding our stock-based compensation arrangements can be found in Note 3 to Consolidated Financial Statements in our 2008 Annual Report on Form 10-K.

     In February 2009, our stockholders approved an amendment to the 2001 Plan to authorize a stock option and stock appreciation right exchange program for employees. The exchange program has not commenced and the Compensation Committee of our Board of Directors will determine if, and when, the exchange program will commence. The exchange program must be commenced prior to September 30, 2009 and the Compensation Committee has the discretion to terminate, amend or postpone the exchange program at any time prior to expiration of the exchange program.

     Our total stock-based compensation expense was $0.4 million for third quarter 2009 and $0.4 million for third quarter 2008. Our total stock-based compensation expense was $1.2 million for third quarter year-to-date 2009 and $1.7 million for third quarter year-to-date 2008. The expense was allocated as follows (in thousands):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Cost of revenues		$	52			$	38			$	154			$	199
Selling and marketing expense			42				30				121				116
Research and product development expense			61				68				179				231
General and administrative expense			205				265				732				1,160

     The activity for stock options was as follows:

						Weighted				Weighted-Average				Aggregate
		Number				Average				Remaining				Intrinsic
		of Options				Exercise				Contractual				Value
		(in thousands)				Price				Life (Years)				(in thousands)
Outstanding, September 30, 2008			8,245			$	2.21				4.1			$	—
Cancelled			(785	)			1.57
Outstanding, June 30, 2009			7,460				2.27				3.4				—
Exercisable, June 30, 2009			7,447				2.27				3.4				—

     The activity for restricted stock units and stock-settled stock appreciation rights was as follows:

		Restricted Stock Units								Stock Appreciation Rights
						Weighted								Weighted
		Number				Average				Number				Average
		of Awards				Grant Date				of Awards				Grant Date
		(in thousands)				Fair Value				(in thousands)				Fair Value
Outstanding, September 30, 2008			1,504			$	1.78				3,062			$	0.89
Granted			1,164				0.52				1,180				0.35
Vested			(571	)			1.48				—				—
Cancelled			(266	)			1.61				(471	)			0.98
Outstanding, June 30, 2009			1,831				1.09				3,771				0.71

     At June 30, 2009, there was approximately $2.7 million of total unrecognized compensation expense related to stock-based arrangements granted under the 2001 Plan. This expense is expected to be recognized over a weighted-average period of approximately two years.

Note 8. Income Taxes

     We recorded a provision for income taxes of $22,000 for third quarter 2009 and $3.2 million for third quarter 2008. We recorded a provision for income taxes of $0.5 million for third quarter year-to-date 2009 and $1.0 million for third quarter year-to-date 2008. We record our interim provision for, or benefit from, income taxes based on our estimated annual effective tax rate for the year. Our tax provision or benefit is primarily related to state and foreign income taxes, and is impacted by our net operating loss carry forwards and our ability to use them. As a result of these circumstances, and due to significant changes in our period to period results, we have experienced significant fluctuations in our effective tax rate and respective tax provisions or benefits over the past several quarters and expect such fluctuations to continue over the next several quarters.

     Based upon available evidence, there is uncertainty regarding our ability to realize our deferred tax assets and we have therefore recorded a full valuation allowance against the deferred tax assets in our consolidated financial statements. Based on our estimates of taxable income for the remainder of 2009 and beyond, we believe the uncertainty regarding the ability to realize our deferred tax assets may diminish to the point where the recognition of our deferred tax assets, to a certain level, may be warranted in the future. If we determine that it is more likely than not that we will be able to realize our deferred tax assets in the future, an adjustment to the deferred tax asset valuation allowance would be recorded in the period when such determination is made.

     Prior to any changes in our overall assessment in the realizability of our fully reserved deferred tax assets, as discussed above, if we generate taxable income in the U.S. or certain other international jurisdictions, and utilize pre-acquisition net operating loss carry forwards to offset this income, we will recognize income tax expense at the applicable statutory rate in our consolidated statement of operations, as the reduction in the related valuation allowance for these pre-acquisition net operating loss carry forwards will reduce goodwill rather than offset income tax expense. As discussed in Note 1, when we adopt SFAS 141R in our fiscal year 2010, changes in deferred tax asset valuation allowances from a business combination after the measurement period will impact income tax expense and not goodwill. Due to the age of the respective net operating loss carry forwards, we first must use carry forwards related to our acquisition in 2006 of MAI Systems, Inc. (“MAI”), subject to Section 382 limitations, followed by our carry forwards from Fourth Shift which we acquired in 2001. The MAI and Fourth Shift carry forwards both had a full valuation allowance against them at the time of acquisition, so the applicable purchase price was allocated to goodwill and not to net deferred tax assets.

     At June 30, 2009, we had approximately $0.5 million of gross unrecognized tax benefits. If all of our unrecognized tax benefits were recognized, there would be no significant impact to our effective tax rate as the vast majority of our unrecognized tax benefits relate to pre-acquisition deferred tax assets with a full valuation allowance which, if realized, would reduce goodwill. We recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense and there were no such items in the first three quarters of 2009.

     We file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. With the exception of carry forward tax attributes, we are no longer subject to U.S. federal tax examinations for years before 2005. State jurisdictions that remain subject to examination range from 2004 to 2007. We do not believe there will be any material changes in our unrecognized tax positions over the next 12 months.

Note 9. Discontinued Operations

     In December 2008, we received a cash distribution of $0.4 million, net of income taxes, from the AremisSoft liquidating trust which was recorded as income from discontinued operations.

     AremisSoft Corporation was our former parent company and, in connection with approval of its plan of reorganization in bankruptcy in 2002, the former parent entered into a liquidating trust agreement pursuant to which the trust is entitled to any and all of the proceeds from the former parent’s litigation claims and sale of certain other assets of the former parent. Securities class action plaintiffs are entitled to all of the beneficial interests in the liquidating trust, but we are entitled to 10% of the net distributions from the trust. Previously, in December 2003 and in June 2005, we received distributions from the trust, which were reported as income from discontinued operations, net of expenses and income taxes. Future receipts of cash, if any, will also be accounted for as income from discontinued operations.

Note 10. Earnings (Loss) Per Share

     Net income (loss) per share is computed in accordance with Statement of Financial Accounting Standards No. 128, Earning per Share . Basic earnings (loss) per share is computed using income (loss) from continuing operations available to common shareholders or net income (loss) available to common shareholders, as applicable, and the weighted average number of common shares outstanding. Net income (loss) available to common shareholders includes the impact, as applicable, of dividends on our convertible preferred stock. Diluted earnings (loss) per share reflects the weighted average number of common shares outstanding plus any potentially dilutive shares outstanding during the period, calculated using the “treasury stock” method.

     In accordance with EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128 , and EITF 04-8, The Effect of Contingently Convertible Instruments on Diluted Earnings per share , our Series B convertible preferred stock is considered in both the basic and diluted earnings (loss) per share calculations, subject to the applicable antidilution provisions. However, since our Series B convertible preferred stock does not have the obligation to share in any losses of the company, it is excluded from the per share calculations in periods where we incur a net loss. Similarly, for periods where we incur a net loss, outstanding stock options, warrants, stock appreciation rights, restricted stock units and our Series C-1 and Series D convertible preferred stocks are excluded from the calculation of basic and diluted earnings (loss) per share because they are antidilutive in such periods.

     For the three and nine months ended June 30, 2009, the calculation of basic and diluted earnings per share was as follows (in thousands, except per share amounts):

		Three Months Ended June 30, 2009
		Basic												Diluted
		Income				Shares								Income				Shares
		(Numerator)				(Denominator)				Per Share				(Numerator)				(Denominator)				Per Share
Income from continuing operations		$	745				—							$	745				—
Preferred stock dividends			(485	)			—								(485	)			—
Weighted average common shares outstanding			—				44,863								—				44,863
Series B preferred			—				4,435								—				4,435
Non-employee stock options			—				—								—				42
Restricted stock units			—				—								—				72
Income from continuing operations available to common shareholders			260				49,298			$	0.01				260				49,412			$	0.01
Income from discontinued operations, net of tax			—				49,298				—				—				49,412				—
Net income available to common shareholders			260				49,298			$	0.01				260				49,412			$	0.01

		Nine Months Ended June 30, 2009
		Basic												Diluted
		Income				Shares								Income				Shares
		(Numerator)				(Denominator)				Per Share				(Numerator)				(Denominator)				Per Share
Income from continuing operations		$	2,637				—							$	2,637				—
Preferred stock dividends			(1,456	)			—								(1,456	)			—
Weighted average common shares outstanding			—				43,856								—				43,856
Series B preferred			—				4,401								—				4,401
Non-employee stock options			—				—												14
Restricted stock units			—				—								—				81
Income from continuing operations available to common shareholders			1,181				48,257			$	0.02				1,181				48,352			$	0.02
Income from discontinued operations, net of tax			362				48,257				0.01				362				48,352				0.01
Net income available to common shareholders			1,543				48,257			$	0.03				1,543				48,352			$	0.03

     Since we incurred a net loss for the three and nine months ended June 30, 2008, both basic and diluted loss per share is computed using the net loss available to common shareholders and the weighted average number of common shares outstanding for each period.

     The impact of the following potential common shares was excluded from the calculations of earnings (loss) per share because to include them would have been antidilutive (in thousands):

		Three and Nine
		Months Ended
		June 30,
		2008
Employee and non-employee stock options			8,904
Warrants			6,114
Restricted stock units			1,504
Stock-settled stock appreciation rights			2,737
Series B convertible preferred stock			4,332
Series C-1 convertible preferred stock			8,955
Series D convertible preferred stock			3,593
			36,139

Note 11. Comprehensive Income

     Comprehensive income, as defined by Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income , includes net income and items defined as other comprehensive income including foreign currency translation adjustments and certain adjustments related to defined benefit pension plans. Total comprehensive income was as follows (in thousands):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Net income		$	745			$	428			$	2,999			$	140
Foreign currency translation adjustments			164				(36	)			(128	)			(53	)
Comprehensive income		$	909			$	392			$	2,871			$	87

     Foreign currency translation adjustments are not adjusted for income taxes as substantially all translation adjustments relate to permanent investments in our non-U.S. subsidiaries. Accumulated other comprehensive loss, a separate component of stockholders’ equity on the consolidated balance sheets, was $1.1 million at June 30, 2009 and $0.9 million at September 30, 2008.

Note 12. Segment Reporting

     We disclose segment information in accordance with Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information , which defines an operating segment as a component of a company for which operating results are reviewed regularly by the chief operating decision-maker to determine resource allocation and assess performance. We have two reportable segments, manufacturing and hospitality, which each derive their revenues from licensing proprietary software systems; providing customer support, training, consulting and installation services related to this software; and through the resale of complementary third-party software licenses and hardware. Total assets are not allocated to the manufacturing and hospitality segments for internal reporting purposes.

     Corporate costs associated with the overall management of our business, including accounting, legal, human resources, information technology, directors, insurance, financing, public company compliance and other overhead costs, are allocated to the manufacturing and hospitality segments based on their average headcount.

     Financial information by segment was as follows (in thousands):

		Three Months Ended June 30,
		2009												2008
		Manufacturing				Hospitality				Total				Manufacturing				Hospitality				Total
Revenues		$	10,146			$	10,486			$	20,632			$	12,463			$	14,900			$	27,363
Operating income (loss)			2,415				(1,244	)			1,171				2,708				1,076				3,784
		Nine Months Ended June 30,
		2009												2008
		Manufacturing				Hospitality				Total				Manufacturing				Hospitality				Total
Revenues		$	30,904			$	36,636			$	67,540			$	36,939			$	36,328			$	73,267
Operating income (loss)			5,484				(1,497	)			3,987				6,706				(4,955	)			1,751

     Our revenues by geographic location were as follows (in thousands):

		Three Months Ended								Nine Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
United States		$	13,496			$	17,670			$	46,486			$	45,006
United Kingdom			2,775				4,086				8,171				12,712
Other			4,361				5,607				12,883				15,549
		$	20,632			$	27,363			$	67,540			$	73,267

     Our long-lived assets by geographic location were as follows (in thousands):

		June 30,				September 30,
		2009				2008
United States		$	1,055			$	1,093
Other			717				1,002
		$	1,772			$	2,095

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

      The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q . This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in more detail in our 2008 Annual Report on Form 10-K . We undertake no obligation to update any information in our forward-looking statements.

Fiscal Year

     Our fiscal year is from October 1 to September 30. References to our third quarter and third quarter year-to-date relate to the three and nine month periods ended June 30. References to the years 2009 and 2008 relate to the fiscal years ended September 30, 2009 and 2008, respectively.

Pending Merger

     On June 11, 2009, SoftBrands, Inc. (“SoftBrands”), Steel Holdings, Inc. (“Steel Holdings”) and Steel Merger Sub, Inc., a wholly owned subsidiary of Steel Holdings (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Steel Holdings has agreed to acquire all of our outstanding common stock for $0.92 per share in cash and purchase or redeem all of our outstanding preferred stock for cash as outlined below. Under the terms and conditions of the Merger Agreement, Merger Sub will merge with and into SoftBrands (the “Merger”), with SoftBrands continuing as the surviving corporation and as a wholly owned subsidiary of Steel Holdings. Steel Holdings is a wholly owned subsidiary of investment funds managed by Golden Gate Private Equity, Inc. and is an affiliate of Infor Global Solutions Holdings Ltd., one of the largest privately held software companies in the world.

     Subject to the terms and conditions of the Merger Agreement, at the effective time and as a result of the Merger:

	•		Each share of our common stock issued and outstanding will be converted into the right to receive a cash amount of $0.92, without interest;
	•		Each share of our Series B Convertible Preferred Stock issued and outstanding will be converted into the right to receive a cash amount of $1.06, without interest;
	•		Each share of our Series C-1 and Series D Convertible Preferred Stock issued and outstanding will be converted into the right to receive a cash amount of $1,000.00 plus any accrued but unpaid dividends, without interest;
	•		Each warrant outstanding to purchase our common stock that has not been canceled or exercised at such time will be canceled and converted into the right to receive a lump sum cash payment, without interest, equal to the excess, if any, of: (i) $0.92 multiplied by the number of shares of common stock subject to such warrant; over (ii) the exercise price per share multiplied by the number of shares subject to such warrant;
	•		Each option to purchase our common stock or stock appreciation rights outstanding, whether or not vested or exercisable, will be accelerated and canceled, and converted into the right to receive a lump sum cash payment, without interest, equal to the excess, if any, of: (i) $0.92 multiplied by the number of shares of common stock subject to such option or stock appreciation right; over (ii) the exercise price per share multiplied by the number of shares of subject to such option or stock appreciation right; and
	•		Each of our unvested restricted stock units, restricted shares and similar stock-based awards outstanding will be accelerated and canceled, and converted into the right to receive a lump sum cash payment, without interest, equal to product of: (i) $0.92 multiplied by (ii) the number of shares of common stock subject to issuance upon settlement of such stock-based awards.

     In accordance with the terms of the Merger Agreement, immediately prior to the effective time of the Merger, we will transfer, on a pro rata basis (with the Series B Preferred Stock, Series C-1 Preferred Stock and

Series D Preferred Stock counted on an as-converted-to-common stock basis), our 10% interest in the net proceeds of the AremisSoft liquidating trust to the holders of our stock at such time and warrant holder Capital Resource Partners IV, L.P. (“CRP”). Any future distributions pursuant to the 10% interest in the net proceeds of the AremisSoft liquidating trust will be made to those stockholders who owned our stock immediately prior to the effective time of the Merger and to warrant holder CRP. We engaged an independent appraisal firm to assist in determining the fair market value of our 10% interest in the trust. Based on the information provided by the independent appraisal firm, we have determined that fair value, on a per share basis, to be $0.02 per share as of July 21, 2009. The amount of future cash distributions from the AremisSoft liquidating trust, if any, is uncertain.

     Subject to certain exceptions, unless approved by Steel Holdings, prior to the completion of the Merger or termination of the Merger Agreement, SoftBrands, among other things, agrees that it:

	•		will carry on our business in the usual, regular and ordinary course substantially in the same manner as it was conducted prior to entering into the Merger Agreement and in compliance with all applicable legal requirements and the requirements of all material contracts;
	•		will not issue, authorize for issuance, sell, grant, pledge, encumber, deliver or otherwise dispose of any of our securities, except for the issuance and sale of our common stock pursuant to options to purchase our common stock or stock-based awards outstanding prior to the date of the merger agreement; and
	•		will not declare, set aside or pay any dividend on, or other distribution (whether in cash, shares or property) in respect of, any of our capital stock.

     If the Merger is completed, our common stock will no longer be traded on the NYSE Amex Equities and will be deregistered under the Securities Exchange Act of 1934, as amended, as soon as practicable following the completion of the Merger.

     The closing of the Merger is subject to customary closing conditions, including antitrust review and the approval of our stockholders. We received notification on July 6, 2009 that the U.S. Department of Justice and Federal Trade Commission had granted early termination of the Hart-Scott-Rodino waiting period for the proposed transaction. The Special Meeting of Stockholders is scheduled to be held on August 12, 2009 for stockholders to consider and vote on the proposal to adopt the Merger Agreement. If approved, we currently anticipate that the closing of the Merger will take place shortly thereafter.

     We have filed with the Securities and Exchange Commission (“SEC”) a definitive proxy statement and other relevant materials relating to the proposed Merger with Steel Holdings. The definitive proxy statement was filed with the SEC on July 13, 2009 and mailed on or about that date to our stockholders of record as of the close of business on July 8, 2009. A more detailed description of the Merger Agreement and the Merger can be found in these materials.

Critical Accounting Policies and Estimates

     We prepare our financial statements in accordance with accounting principles generally accepted in the United States of America. We are required to make estimates and judgments in preparing the financial statements that affect the reported amounts of our assets, liabilities, revenues and expenses. We base our estimates on our historical experience and on various other assumptions that we believe are reasonable under the circumstances. If our assumptions prove inaccurate or if our future results are not consistent with our historical experience, we may be required to make adjustments that could have a significant impact on our reported financial results.

     We believe there are several accounting policies that are critical to an understanding of our historical and future performance, as these policies affect the reported amounts of revenues, expenses and significant estimates and judgments applied by management. While there are a number of accounting policies, methods and estimates affecting our consolidated financial statements, areas that are particularly significant include:

•

revenue recognition;

	•		the valuation of deferred tax assets;
	•		the valuation of accounts receivable; and
	•		the valuation of goodwill and intangible assets.

     We discuss our accounting policies, estimates and disclosures in detail in Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 to Consolidated Financial Statements of our 2008 Annual Report on Form 10-K, which you should read for a better understanding of our financial statements. There have been no significant changes to these items in the first three quarters of 2009.

Results of Operations

      Revenues. The following tables summarize revenue by reportable segment and revenue type for third quarter and third quarter year-to-date 2009 and 2008 (in thousands):

		Three Months Ended June 30,
		2009												2008
		Manufacturing				Hospitality				Total				Manufacturing				Hospitality				Total
Software licenses		$	657			$	1,572			$	2,229			$	1,346			$	2,932			$	4,278
Maintenance and support			7,153				5,573				12,726				7,873				6,487				14,360
Professional services			2,193				2,483				4,676				3,015				4,162				7,177
Third party software and hardware			143				858				1,001				229				1,319				1,548
Total		$	10,146			$	10,486			$	20,632			$	12,463			$	14,900			$	27,363

		% Change
		Manufacturing				Hospitality				Total
Software licenses			-51.2	%			-46.4	%			-47.9	%
Maintenance and support			-9.1	%			-14.1	%			-11.4	%
Professional services			-27.3	%			-40.3	%			-34.8	%
Third party software and hardware			-37.6	%			-35.0	%			-35.3	%
Total			-18.6	%			-29.6	%			-24.6	%

		Nine Months Ended June 30,
		2009												2008
		Manufacturing				Hospitality				Total				Manufacturing				Hospitality				Total
Software licenses		$	2,816			$	8,975			$	11,791			$	4,077			$	7,210			$	11,287
Maintenance and support			21,885				16,364				38,249				23,786				17,651				41,437
Professional services			5,863				8,441				14,304				8,588				8,206				16,794
Third party software and hardware			340				2,856				3,196				488				3,261				3,749
Total		$	30,904			$	36,636			$	67,540			$	36,939			$	36,328			$	73,267

		% Change
		Manufacturing				Hospitality				Total
Software licenses			-30.9	%			24.5	%			4.5	%
Maintenance and support			-8.0	%			-7.3	%			-7.7	%
Professional services			-31.7	%			2.9	%			-14.8	%
Third party software and hardware			-30.3	%			-12.4	%			-14.8	%
Total			-16.3	%			0.8	%			-7.8	%

     The following tables summarize revenue by region for third quarter and third quarter year-to-date 2009 and 2008 (in thousands):

		Three Months Ended June 30,
		2009												2008
		Manufacturing				Hospitality				Total				Manufacturing				Hospitality				Total
Americas		$	6,394			$	7,283			$	13,677			$	7,659			$	10,270			$	17,929
Europe, Middle East and Africa (EMEA)			2,498				1,267				3,765				3,243				2,103				5,346
Asia Pacific (APAC)			1,254				1,936				3,190				1,561				2,527				4,088
Total		$	10,146			$	10,486			$	20,632			$	12,463			$	14,900			$	27,363

		% Change
		Manufacturing				Hospitality				Total
Americas			-16.5	%			-29.1	%			-23.7	%
Europe, Middle East and Africa (EMEA)			-23.0	%			-39.8	%			-29.6	%
Asia Pacific (APAC)			-19.7	%			-23.4	%			-22.0	%
Total			-18.6	%			-29.6	%			-24.6	%

		Nine Months Ended June 30,
		2009												2008
		Manufacturing				Hospitality				Total				Manufacturing				Hospitality				Total
Americas		$	19,422			$	27,643			$	47,065			$	22,330			$	23,506			$	45,836
Europe, Middle East and Africa (EMEA)			7,457				3,745				11,202				9,904				6,437				16,341
Asia Pacific (APAC)			4,025				5,248				9,273				4,705				6,385				11,090
Total		$	30,904			$	36,636			$	67,540			$	36,939			$	36,328			$	73,267