SOFT SofTech Inc (CE)

Ends Quarter with Cash and Receivables of $4.43M;

EBITDA for Current Quarter of $3.37M; and

Enters into Five-Year Lease for New HQ Office Space

SofTech, Inc. (OTCQB: SOFT), a proven provider of Product Lifecycle Management (PLM) solutions today announced its second quarter fiscal year 2014 operating results. Revenue for the three months ended November 30, 2013 was approximately $1.41 million as compared to approximately $1.77 million for the same period in the prior fiscal year. Net income (loss) for the current quarter was about ($44,000) or ($.05) per share compared to net income of $252,000 or $.25 per share for the same period in the prior fiscal year. The sale of the Company’s CADRA product line was completed on October 18, 2013, which accounted for most of the revenue decline.

EBITDA for current quarter was about $3.37 million as compared to about $369,000 for the same period in fiscal year 2013. The EBITDA in the current quarter was generated from the sale of the aforementioned CADRA product line.

As disclosed in the Form 10-Q filed with the Securities and Exchange Commission and in our Form 8-K filed on December 11, 2013, subsequent to the end of the fiscal quarter, the Company entered into an agreement with its lender to amend its loan agreement pursuant to which a portion of the cash generated from the CADRA product line sale was used to reduce the principal of the loan by $1.7 million.

“The current management team purchased a controlling equity interest in the business in March 2011 when the Company was facing what appeared to be insurmountable issues on multiple fronts,” said Joe Mullaney, SofTech’s CEO. “The sale of the CADRA product line during the current quarter and the resulting improved liquidity represents a transformative event for the shareholders. The management team is committed to continuing its efforts to carefully and systematically explore alternatives for maximizing shareholder value,” he added.

Mullaney continued: “Since March 2011 we have completed the following actions that we believe have enhanced shareholder value:

• Sold the AMT product line in May 2011;
• Sold the CADRA product line in October 2013;
• Sold five patents in the PLM space to Acacia Research Group and retained a 30% interest in future recoveries in two transactions in early fiscal 2013;
• Filed or acquired four new patent applications;
• Developed and launched the Connector technology platform that provides a bi-directional bridge between third party CAD and PLM technologies;
• Entered into partnership agreements with Aras and SpaceClaim;
• Increased our market opportunity for our professional services resulting in profitable revenue growth for our Consulting business group; and
• Repurchased approximately 16% of our outstanding shares.

The above actions have significantly increased our liquidity, reduced our debt and our financial risk. We have a fantastic customer base, solid recurring revenue, future cash flow from the CADRA product line both as a reseller and from contingent royalty payments, new products coming on-line and tax assets with a value in excess of $20 million. We will continue to strive to unlock the value of these assets for the benefit of our shareholders.”

The Company also announced that it entered into a five-year office lease for about 9,100 square feet for its new corporate headquarters at 650 Suffolk Street, Lowell, MA. The office is part of the historic Wannalancit Mills, a 19th century textile mill located alongside the Northern Canal in Lowell. “The 14 foot ceilings, high windows and brick-and-beam design were very appealing,” said Bob Anthonyson, Vice President, Business Development. “The close proximity to downtown Lowell and the University of Massachusetts Lowell Campus are added benefits that we hope to take advantage of in the future,” he added.

FINANCIAL STATEMENTS

The Statements of Operations for the three and six-month periods ended November 30, 2013 compared to the same period in the prior fiscal year are presented below. A reconciliation of Net income (loss) to EBITDA, a non-GAAP financial measure, is also provided.

 

Statements of Operations

(in thousands, except % and per share data)

    For the three months ended     Nov. 30,   Nov. 30, Change   2013       2012       $     %   Product revenue $ 376 $ 478 $ (102 )   -21.3 % Service revenue 1,038 1,194 (156 ) -13.1 % Royalties on sale of patents   -       100       (100 )   -100.0 % Total revenue   1,414       1,772       (358 )   -20.2 %   Cost of sales   292       347       (55 )   -15.9 % Gross margin 1,122 1,425 (303 ) -21.3 % Gross margin % 79.3 % 80.4 %   R&D 304 323 (19 ) -5.9 % SG&A 866 789 77 9.8 % Gain on sale of CADRA product line   (91 )     -       (91 )   -     Operating income 43 313 (270 ) -86.3 % Interest expense 104 69 35 50.7 % Other income   (17 )     (8 )     (9 )   112.5 % Income (loss) from operations before income taxes (44 ) 252 (296 ) -117.5 % Provision for income taxes   -       -       -     -   Net income (loss)   (44 )     252       (296 )   -117.5 %   Weighted average shares outstanding   875       995       (120 )   -   Basic and diluted net income per share: $ (0.05 )   $ 0.25     $ (0.30 )   -119.9 %   Reconciliation of Net income (loss) to EBITDA:   Net income (loss) $ (44 ) $ 252 $ (296 ) -117.5 % Plus interest expense 104 69 35 50.7 % Plus tax expense - - - - Plus non-cash expense related to product line sale 3,261 - 3,261 - Plus other non-cash expense   44       48       (4 )   -8.3 % EBITDA $ 3,365     $ 369     $ 2,996     811.9 %     For the six months ended       Nov. 30,   Nov. 30,   Change   2013       2012       $     %   Product revenue $ 618   $ 693 $ (75 ) -10.8 % Service revenue 2,172 2,359 (187 ) -7.9 % Royalties on sale of patents   -       290       (290 )   -100.0 % Total revenue   2,790       3,342       (552 )   -16.5 %   Cost of sales   634       680       (46 )   -6.8 % Gross margin 2,156 2,662 (506 ) -19.0 % Gross margin % 77.3 % 79.7 %   R&D 639 567 72 12.7 % SG&A 1,747 1,547 200 12.9 % Gain on sale of CADRA product line   (91 )     -       (91 )   -     Operating income (loss) (139 ) 548 (687 ) -125.4 % Interest expense 199 134 65 48.5 % Other income   (28 )     (11 )     (17 )   154.5 % Income (loss) from operations before income taxes (310 ) 425 (735 ) -172.9 % Provision for income taxes   -       -       -     -   Net income (loss)   (310 )     425       (735 )   -172.9 %   Weighted average shares outstanding   888       995       (107 )   -10.8 % Basic and diluted net income per share: $ (0.35 )   $ 0.43     $ (0.78 )   -181.7 %   Reconciliation of Net income to EBITDA   Net income (loss) $ (310 ) $ 425 (735 ) -172.9 % Plus interest expense 199 134 65 15.3 % Plus tax expense - - - - Plus non-cash expense related to product line sale 3,261 - 3,261 - Plus other non-cash expense, net   92       95       (3 )   -3.2 % EBITDA $ 3,242     $ 654       2,588     395.7 %  

The Balance Sheets as of November 30, 2013 and our fiscal year ended May 31, 2013 are presented below.

 

Balance Sheets

(in thousands)

    As of Nov. 30,   May 31,   2013     2013 Cash $ 3,018 $ 1,288 Accounts receivable 1,091 895 Receivable from sale of product line 320 - Other current assets   157     299 Total current assets   4,586     2,482   Property and equipment, net 70 61 Goodwill 992 4,249 Other non-current assets   903     922 Total assets $ 6,551   $ 7,714   Accounts payable $ 237 $ 137 Accrued expenses 947 602 Deferred maintenance revenue 1,002 2,147 Current portion of long term debt 135 - Other current liabilities   59     102 Total current liabilities   2,380     2,988   Other non-current liabilities 76 39 Long term debt   2,520     2,700 Total liabilities   4,976     5,727   Redeemable common stock   275     275   Stockholders' equity   1,300     1,712

Total liabilities, redeemable common stock and stockholders' equity

$ 6,551 $ 7,714  

About SofTech

SofTech, Inc. (OTCQB: SOFT) is a proven provider of product lifecycle management (PLM) solutions, including its ProductCenter® PLM solution and its Connector technology offering.

SofTech’s solutions accelerate productivity and profitability by fostering innovation, extended enterprise collaboration, product quality improvements, and compressed time-to-market cycles. SofTech excels in its sensible approach to delivering enterprise PLM solutions, with comprehensive out-of-the-box capabilities, to meet the needs of manufacturers of all sizes quickly and cost-effectively.

Over 100,000 users benefit from SofTech software solutions, including General Electric Company, Goodrich, Honeywell, AgustaWestland, Sikorsky Aircraft and the U.S. Army. Headquartered in Lowell, Massachusetts, SofTech (www.softech.com) has locations and distribution partners in North America, Europe, and Asia.

SofTech and ProductCenter are registered trademarks of SofTech, Inc. All other products or company references are the property of their respective holders.

Forward Looking Statements

This press release contains forward-looking statements relating to, among other matters, our outlook for fiscal year 2014 and beyond. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions intended to identify forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results. Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) generate sufficient cash flow from our operations or other sources to fund our working capital needs and growth initiatives; (2) maintain good relationships with our lenders; (3) comply with the covenant requirements of the loan agreement; (4) successfully introduce and attain market acceptance of any new products and/or enhancements of existing products; (5) attract and retain qualified personnel; (6) prevent obsolescence of our technologies; (7) maintain agreements with our critical software vendors; (8) secure renewals of existing software maintenance contracts, as well as contracts with new maintenance customers; (9) secure new business, both from existing and new customers; and (10) complete any required restructuring of the business subsequent to the sale of our CADRA product line.

These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2013 and its Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2013. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this press release also contains non-GAAP financial measures. Specifically, the Company has presented EBITDA, which is defined as Net income (loss) plus interest expense, tax expense, non-cash expenses such as depreciation, amortization, non cash loss (gain) and stock based compensation expense. The Company believes that the inclusion of EBITDA helps investors gain a meaningful understanding of the Company’s core operating results and enhances comparing such performance with prior periods, without the effect of non-operating expenses and non-cash expenditures. Management uses EBITDA, in addition to GAAP financial measures, as the basis for measuring our core operating performance and comparing such performance to that of prior periods. EBITDA is also the most important measure of performance in measuring compliance with the Company’s debt facility. EBITDA is not meant to be considered superior to or a substitute for results of operations prepared in accordance with GAAP. Reconciliations of EBITDA to the most directly comparable GAAP financial measures are set forth in the text of, and the accompanying tables to, this press release.

SofTech, Inc.Joseph P. Mullaney, 978-513-2700President & Chief Executive Officer