SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8
AMENDMENT TO APPLICATION OR REPORT
Filed pursuant to Section 12, 13 or 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
SofTech, Inc.
(Exact name of registrant as specified in charter)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Form 8-K Report filed on January
20, 1995 as set forth in the pages attached hereto:
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
(a.) Financial Statements of Acquired Business
Audited financial statements as required to be filed
pursuant to Item 7(a.) of Form 8-K filed on January 20,
1995.
(b.) Pro Forma Financial Information
Pro forma financial information, required to be filed
pursuant to Item 7(b.) of Form 8-K filed on January 20, 1995
reflecting the acquisition of Micro Control, Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized
SofTech, Inc.
(Registrant)
By: \s\Joseph P. Mullaney
Joseph P. Mullaney
Vice President and Chief Financial Officer
Date: March 20, 1995
Item 7(a.) Financial Statements of Acquired Business
Audited financial statements of Micro Control, Inc. including the
Balance Sheet as of December 31, 1994; the Statements of Operations and
Retained Earnings and Cash Flows for the year ended December 31, 1994; and
manually signed Report of Independent Accountants.
Item 7(b.) Pro Forma Financial Information
SofTech, Inc. and Subsidiaries
INTRODUCTION TO PRO FORMA COMBINED
CONDENSED FINANCIAL INFORMATION (Unaudited)
The Pro Forma Combined Condensed Statement of Income for the year ended
May 31,1994 and the six months ended November 30, 1994 present the combined
results of the continuing operations of SofTech, Inc. (the "Company") and
Micro Control, Inc. ("MCI") assuming the acquisitions had been consummated as
of the beginning of the periods indicated. The Pro Forma Combined Condensed
Balance Sheet as of November 30, 1994 presents the financial position of the
Company and MCI assuming the acquisition had been consummated as of the
balance sheet date. The statements include all material adjustments necessary
to present the combined historical results under these assumptions.
The pro forma information does not purport to be indicative of the
results of operations or the financial position which would have actually been
obtained if the acquisition had been consummated on the date indicated. The
pro forma information does not purport to be indicative of results of
operations or financial positions which may be obtained in the future.
The pro forma financial information has been prepared by the Company
based upon assumptions deemed appropriate by the Company. Certain of these
assumptions are set forth under the Notes to Pro Forma Combined Condensed
Financial Statements.
The pro forma financial information should be read in conjunction with
the Company's historical Consolidated Financial Statements and Notes thereto
contained in the 1994 Annual Report on Form 10-K and Form 10-Q for the second
quarter of 1995.
SOFTECH, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF NOVEMBER 30, 1994
<TABLE>
<CAPTION>
SofTech, Inc. and Micro
Subsidiaries Control, Inc.
As Of As Of Pro Forma Pro Forma
30-Nov-94 30-Nov-94 Adjustments Combined
(Historical-Unaudited) (Historical-Unaudited) (Unaudited) Condensed
<S> <C> <C> <C> <S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,333,468 $182,562 $ (182,562) E $ 1,333,468
Marketable securities, at cost which
approximates market 3,046,616 (1,031,000) E 2,015,616
Accounts receivable 10,531,512 238,027 10,769,539
Inventory 3,172,901 137,835 3,310,736
Prepaid expenses and other assets 1,631,134 97,104 (69,493) E 1,658,745
Deferred income taxes 592,114 592,114
Net assets of discontinued operations 750,620 750,620
----------- -------- -----------
Total current assets 21,058,365 655,528 20,430,838
----------- -------- -----------
Property and equipment, at cost 4,741,516 297,315 (72,505) E 4,966,326
Less accumulated depreciation and amortization 2,593,695 211,356 (24,686) E 2,780,365
----------- -------- -----------
2,147,821 85,959 2,185,961
Goodwill 2,762,094 2,382,227 E 5,144,321
Other assets 464,656 58,900 523,556
Deferred income tax 272,000 272,000
----------- -------- -----------
$26,704,936 $800,387 $28,556,676
=========== ======== ===========
Liabilities and Stockholders' Equity:
Current Liabilities:
Current portion of long-term debt $ --- $ 15,000 (12,041) E $ 2,959
Accounts payable 2,493,322 100,906 2,594,228
Accrued expenses 1,068,370 68,419 (1,736) E 1,135,053
Deferred maintenance revenue 890,680 890,680
Federal and state income taxes 280,548 280,548
----------- -------- -----------
Total current liabilities 4,732,920 184,325 4,903,468
----------- -------- -----------
Long term debt, net of current portion 19,522 (16,938) E 2,584
Commitments and contingencies
Stockholders' equity
Common stock 416,757 1,000 26,977 D,F 444,734
Capital in excess of par value 14,641,948 30,000 1,620,631 D,F 16,292,579
Retained earnings 8,394,826 565,540 (565,540) F 8,394,826
Less treasury stock (1,481,515) (1,481,515)
----------- -------- -----------
Total stockholders' equity 21,972,016 596,540 23,650,624
----------- -------- -----------
$26,704,936 $800,387 $28,556,676
=========== ======== ===========
</TABLE>
See accompanying notes to pro forma financial information.
SOFTECH, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1994
<TABLE>
<CAPTION>
SofTech, Inc. and Micro
Subsidiaries for Control, Inc.
The Six Months For the Six Months Pro Forma Pro Forma
Ended Ended
30-Nov-94 30-Nov-94 Adjustments Combined
(Historical-Unaudited) (Historical-Unaudited) (Unaudited) Condensed
<S> <C> <C> <C> <S> <C>
Revenue $23,138,265 $1,155,460 $ $24,293,725
Cost of sales 17,153,587 623,569 17,777,156
Selling, general and administrative 5,069,985 508,622 237,500 B 5,816,107
----------- ---------- --------- -----------
Income from operations 914,693 23,269 (237,500) 700,462
Interest income 77,929 0 (20,620) A 57,309
Other income/(expense), net 0 (3,974) (3,974)
----------- ---------- --------- -----------
Income from continuing operations before
income taxes 992,622 19,295 (258,120) 753,797
Provision for federal and state income taxes 297,786 7,718 (103,248) C 202,256
----------- ---------- --------- -----------
Net income $ 694,836 $ 11,577 (154,872) $ 551,541
=========== ========== ========= ===========
Net income from continuing operations per
common share $ 0.18 $ 0.13
=========== ===========
Weighted average common shares outstanding 3,889,827 279,768 D 4,169,595
</TABLE>
See accompanying Notes to Pro Forma Financial Information.
SOFTECH, INC. AND SUBSIDIARIES
PRO FORMA COMBINED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 1994
<TABLE>
<CAPTION>
SofTech, Inc. and Micro
Subsidiaries for Control, Inc.
The Year Ended For the Year Ended Pro Forma Pro Forma
31-May-94 31-May-94 Adjustments Combined
(Historical) (Historical-Unaudited) (Unaudited) Condensed
<S> <C> <C> <C> <S> <C>
Revenue $24,178,325 $4,055,653 $ $28,233,978
Cost of sales 17,627,804 2,402,569 20,030,373
Selling, general and administrative 5,469,179 889,979 475,000 B 6,834,158
----------- ---------- --------- -----------
Income from operations 1,081,342 763,105 (475,000) 1,369,447
Interest income 293,901 0 (41,240) A 252,661
Other income/(expense), net 0 (8,735) (8,735)
----------- ---------- --------- -----------
Income from continuing operations before
income taxes 1,375,243 754,370 (516,240) 1,613,373
Provision for federal and state income taxes 255,877 301,748 (206,496) C 351,129
----------- ---------- --------- -----------
Net income $ 1,119,366 $ 452,622 (309,744) $ 1,262,244
=========== ========== ========= ===========
Net income from continuing operations per
common share $ 0.29 $ 0.31
=========== ===========
Weighted average common shares outstanding 3,810,331 279,768 D 4,090,099
</TABLE>
See accompanying Notes to Pro Forma Financial Information.
SofTech, Inc. and Subsidiaries
NOTES TO PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS (Unaudited)
The Pro Forma Combined Condensed Statements of Income for the year ended
May 31, 1994 and the six months ended November 30, 1994, and the Pro Forma
Combined Condensed Balance Sheet as of November 30, 1994 are derived from the
historical financial statements of the Company incorporated in the 1994 Annual
Report on Form 10-K, the historical financial statements (unaudited) of the
Company incorporated in the Form 10-Q for the second quarter of fiscal 1995
and the historical financial statements (unaudited) of MCI. The pro forma
financial information includes adjustments to reflect the purchase of MCI
including the consideration paid and the resulting goodwill.
The Pro Forma Combined Condensed Financial Statements should be read in
conjunction with the Company's historical Consolidated Financial Statements
and Notes thereto contained in the 1994 Annual Report on Form 10-K and the
Form 10-Q for the second quarter of fiscal 1995. The Pro Forma Combined
Condensed Financial Statements do not purport to be indicative of financial
position or results of operations if the acquisition had been consummated on
the date indicated or which may be obtained in the future.
Notes to pro forma financial statements:
A. To record the reduction of interest income as a result of
lower invested balances for the cash component of the purchase price,
assuming a 4% return on invested cash.
B. To record the amortization of goodwill ($475,000) resulting
from purchase accounting adjustments relating to the acquisition of
Micro Control, Inc. on a straight line basis over five years. See Note
F below.
C. To record the estimated income tax effects of the pro forma
adjustments referred to in Notes A and B above, assuming a 40% tax rate.
D. To reflect the increase in the number of common shares
outstanding (279,768) for the equity component of the purchase price of
MCI.
E. To record the cash payments by the Company for the
acquisition of certain defined assets of Micro Control, Inc. The
purchase price of MCI totaled $2,709,600 and consisted of $1,031,000 in
cash and 279,768 shares of SofTech common stock valued at $1,678,600.
The net assets acquired totaled approximately $400,000, resulting in
goodwill of approximately $2.3 million which will be amortized over a
period of five years on a straight line basis.
F. To eliminate the stockholders' equity of the acquired
companies.
MICRO CONTROL, INC.
-------------------
FINANCIAL STATEMENTS
for the year ended December 31, 1994
MICRO CONTROL, INC.
-------------------
INDEX
Page(s)
Report of Independent Accountants 2
Financial Statements:
Balance Sheet as of December 31, 1994 3
Statement of Operations and Retained Earnings for the year
ended December 31, 1994 4
Statement of Cash Flows for the year ended December 31, 1994 5
Notes to the Financial Statements 6-9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Micro Control, Inc.:
We have audited the accompanying balance sheet of Micro Control, Inc. as
of December 31, 1994, the related statements of operations and retained
earnings and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in material respects, the financial position of Micro Control, Inc.
as of December 31, 1994 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ Coopers and Lybrand L.L.P.
Boston, Massachusetts
March 3, 1995
MICRO CONTROL, INC.
BALANCE SHEET
December 31, 1994
-------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 211,144
Accounts receivable (net of allowance for doubtful
accounts of $7,000) 393,190
Inventories 115,194
Prepaid expenses and other assets 59,088
----------
Total current assets 778,616
Property and equipment, net 128,686
Other Assets:
Shareholder loan 71,020
Deposits 8,900
Asset held for sale 50,000
----------
Total other assets 129,920
----------
Total assets $1,037,222
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 14,550
Accounts payable 285,623
Accrued expenses 118,599
----------
Total current liabilities 418,772
Long term debt, less current portion 20,638
Commitments and contingencies (Note 7) ---
Stockholders' Equity
Common stock, no par value, 10,000 shares authorized,
1,000 shares issued and outstanding ---
Additional paid in capital 31,000
Retained earnings 566,812
----------
Total stockholders' equity 597,812
----------
Total liabilities and stockholders' equity $1,037,222
==========
</TABLE>
The accompanying notes are an integral part of the financial statements
MICRO CONTROL, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
for the year ended December 31, 1994
-------------------
<TABLE>
<S> <C>
Revenue $3,147,240
Cost of revenue 1,837,577
----------
Gross margin 1,309,663
Selling, general and administrative expenses 870,393
----------
Operating income 439,270
Other expense, net:
Other expense 87,466
Interest expense, net 12,860
----------
Total other expense 100,326
----------
Net income 338,944
Retained earnings, beginning of year 227,868
----------
Retained earnings, end of year $ 566,812
==========
</TABLE>
The accompanying notes are an integral part of the financial statements
MICRO CONTROL, INC.
STATEMENT OF CASH FLOWS
for the year ended December 31, 1994
-------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $338,944
--------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 25,736
Write down of asset held for sale 46,000
Provision for doubtful accounts 7,000
Change in current assets and liabilities:
Accounts receivable 992,363
Inventories (90,095)
Prepaid expenses and other assets 69,556
Accounts payable (759,985)
Accrued expenses 86,339
--------
Total adjustments 376,914
--------
Net cash provided by operating activities 715,858
--------
Cash flows from investing activities:
Capital expenditures (47,069)
Leasehold improvements (63,000)
--------
Net cash used by investing activities (110,069)
--------
Cash flows from financing activities:
Decrease in shareholder loan 21,317
Borrowings on line of credit 179,000
Repayments on line of credit (479,000)
Repayments on short term loan (100,000)
Principal payments on long-term debt (30,595)
--------
Net cash used by financing activities (409,278)
--------
Net increase in cash 196,511
Cash, beginning of year 14,633
--------
Cash, end of year $211,144
========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest paid $ 16,881
Income taxes paid $ 2,149
</TABLE>
The accompanying notes are an integral part of the financial statements
MICRO CONTROL, INC.
NOTES TO THE FINANCIAL STATEMENTS
-------------------
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business Description
Micro Control, Inc., (the "Company"), a Pennsylvania Corporation, is
engaged in the sale of hardware and computer aided design ("CAD") systems
and service. Sales are made principally in Pennsylvania and New Jersey to
manufacturers, engineers and local government agencies. In January 1995,
certain assets and liabilities of the Company were acquired SofTech, Inc.
for cash and stock.
Revenue Recognition
Revenue from computer systems sales is recognized upon shipment, or
upon completion of installation, when required.
Nonrefundable license fees are recorded as revenue upon execution of
the license agreement and the delivery of the software, if collectibility
is probable and no significant obligations exist.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentration of credit risk consists primarily of cash and trade
receivables. The Company maintains cash in the bank from which it has its
borrowing. Trade receivables are concentrated within two customers. At
December 31, 1994, the accounts receivable from one customer comprised 27%
of the balance, while a second customer accounted for 13%. To reduce
credit risk, the Company performs ongoing credit evaluations of its
customers' financial condition.
Inventories
Inventories consist principally of computer hardware held for resale
and are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are provided using the straight line method over the
estimated useful lives of the respective assets which range as follows:
<TABLE>
<CAPTION>
Description Years
<S> <C>
Equipment 5
Furniture and fixtures 5
Vehicles 5
Leasehold improvements Term of lease or life of asset
</TABLE>
Maintenance and repairs are charged to expense as incurred. When
assets are sold or retired, the related cost and accumulated depreciation
are removed from the respective accounts and any resulting gain or loss is
credited or charged to income.
Income Taxes
Effective January 1, 1993, the Company elected to be taxed as an "S"
Corporation. The Company remains subject to Pennsylvania capital stock
taxes and New Jersey corporate income taxes and the amounts are not
material.
2. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1994 is comprised of the
following:
<TABLE>
<S> <C>
Equipment $125,766
Vehicles 85,991
Furniture and fixtures 67,080
Leasehold improvements 63,000
--------
341,837
Less accumulated depreciation and amortization (213,151)
--------
Net property and equipment $128,686
========
</TABLE>
3. ASSET HELD FOR SALE
The asset held for sale represents an automobile. During 1994,
the automobile was written down from $96,000 to $50,000 to reflect its
estimated fair value. This write down is included in other expenses.
4. LONG TERM DEBT:
Long term debt outstanding at December 31, 1994 is comprised of the
following:
<TABLE>
<CAPTION>
Current Long-term
<S> <C> <C>
Bank term loan payable in monthly
installments of $460 including
interest at 7.5% through August 1997,
with a balloon payment of $10,750
due September 1, 1997. $ 4,001 $18,080
Auto loan payable in monthly installments
of $248 including interest at 9.25%,
through November 1996, collateralized by
the automobile. 2,396 2,558
Bank term loan payable in monthly
installments of $2,075, including interest
at 11.2% through May 1995. 8,153 ---
------- -------
Total $14,550 $20,638
======= =======
</TABLE>
The outstanding term loans are collateralized by security agreements
covering substantially all assets of the Company and personal guarantees
of the Company's stockholders.
During 1994, the Company had a $300,000 bank line of credit. Advances
under the line of credit bear interest at the Bank's prime rate plus
.75%. The average borrowing rates during the year were between 6.75% and
8.0%. During 1994, the line of credit was repaid and not renewed.
The Company had an outstanding short term loan with a bank at December
31, 1993 of $100,000. This short term borrowing was secured by a mortgage
lien on personal property owned by the shareholders of the Company.
During 1994, this borrowing was repaid
Interest expense under these loans was approximately $16,880 during
1994.
The following table presents the approximate annual maturities of
long-term debt:
<TABLE>
<C> <C>
1995 $14,550
1996 6,870
1997 13,768
-------
Total $35,188
=======
</TABLE>
5. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31, 1994:
<TABLE>
<S> <C>
Accrued legal settlement $ 41,466
Sales tax 38,249
Accrued commissions 21,550
Other 17,334
--------
Total accrued expenses $118,599
========
</TABLE>
6. MAJOR CUSTOMERS:
Approximately 41% of the Company's total 1994 sales were
concentrated in two customers. In 1994 the revenue derived from a single
customer was approximately $930,000 (29% of revenue) and revenue derived
from a second customer was approximately $374,000 (12% of total
revenue).
7. COMMITMENTS/RELATED PARTY TRANSACTIONS:
The Company holds a note from a shareholder with a principal amount
of $67,000. This note has a 6% annual simple interest rate and interest and
principal are payable on December 31, 2001. Interest income on the note
receivable amounted to approximately $4,020 for the year ended December
31, 1994. The outstanding note plus accrued interest is included in the
shareholder loan.
The Company leases its operating facilities from a trust, of which a
shareholder of the Company is trustee. The agreement is a noncancellable
lease which is subject to escalation for increases in real estate taxes
through 2000 with an option to extend through 2002. Prepaid expenses and
other assets include $7,350 of prepaid rent to the trust. Rent expense
for the year ended December 31, 1994 was approximately $88,200. In
relation to the operating lease for facilities, the Company paid $63,000
for leasehold improvements to the trust. The Company also leases operating
equipment from unrelated parties.
At December 31, 1994, minimum annual rental commitments under the
noncancellable leases were as follows:
<TABLE>
<C> <C>
1995 $119,100
1996 120,800
1997 128,110
1998 123,560
1999 and thereafter 230,560
--------
Total $722,130
========
</TABLE>
8. LITIGATION:
On February 15, 1995, the Company agreed to settle a lawsuit
initiated by Douglas Marks Association for the amount of $37,500 in full
satisfaction of all claims and demands arising out of a joint venture
between the two parties from October 1992 through September 1993. This
settlement amount and related legal fees of $3,966 have been recorded in
other expense in the 1994 statement of operations and retained earnings.
