<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-K
_______________
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
_______________
For the fiscal year ended May 31, 1995 Commission file number 0-10665
SofTech, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts #04-2453033
(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
460 Totten Pond Rd., Waltham, MA 02154-1960
(Address of principal (Zip Code)
executive offices)
(617) 890-6900
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part II of this Form 10-K or any
amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $17,806,538 as of August 11, 1995.On August 11, 1995, the
registrant had outstanding 4,060,047 shares of common stock of $.10 par
value, which is the registrant's only class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Annual Report to Stockholders for fiscal year ended May 31, 1995,
filed as Exhibit 13 to this report, incorporated by reference into
Part II of this report, to the extent set forth in said Part II.
<PAGE> 2
(2) Definitive Proxy Statement to be filed in connection with the
registrant's 1995 annual meeting is incorporated by reference into
Part III of this report, to the extent set forth in said Part III.
(Exhibit Index included on Pages 9 - 11)
PART I
Item 1 - Business
GENERAL
SofTech, Inc.( the "Company" ) was founded in Massachusetts on June
10, 1969. The Company had an initial public offering in August 1981 and a
secondary offering in December 1982. For much of its past, the Company's
primary business was that of designing and developing custom software and
providing systems engineering and integration services under contract with
the U.S. Government, primarily the Department of Defense. In December 1993
the Company sold its Government Services Division ("GSD") to CACI
International, Inc. ("CACI") and exited that business. (See description of
this transaction under the "Discontinued Operations" section below.)
SofTech, subsequent to the GSD divestiture, has been a commercial
systems integration company that provides a wide array of computing
solutions, both off-the-shelf and custom developed, to solve complex
business problems. The Company is organized into three business units to
accomplish its objectives. The Products Group is composed of eleven branch
offices within the United States that market hardware, off-the-shelf
software, and service offerings to commercial customers primarily within a
100 mile radius of the respective office locations. The Systems Integration
Services Group is composed of two offices that market "high-end" service
offerings throughout the United States. The Massively Parallel Software
Division is a group that was formed during fiscal 1994 to capitalize on
technology previously developed by the Company. This group operated from two
locations in the U.S. during fiscal 1995. This Division's development efforts
were halted subsequent to fiscal year end.
On July 26, 1995, in conjunction with the release of fourth quarter
results, the Company announced that it had retained an investment banker to
seek alternative strategies aimed at enhancing shareholder value including,
but not limited to, the sale of all or part of the business. It is
impossible to predict, at this time, the final outcome or even the eventual
structure of such a transaction or transactions, as the case may be; nor the
potential effect on results of operations or financial position.
THE PRODUCTS GROUP
The Products Group markets its products (off-the-shelf hardware and
software) and services through eleven operating locations in six states. The
average branch office has been in operation for more than ten years and has
been successful in transitioning product line offerings as technology
changes. These offices provide a full range of computing solutions to their
long time customers. Marketing is performed through direct sales, seminars,
and bid response. Repeat business is critical to the long term viability of
each office.
<PAGE> 3
Product offerings include hardware and software products offered from
leading technology providers such as Compaq, IBM, Sun, Silicon Graphics,
Apple, Oracle, Informix, Lotus, Parametric Technology, Keyfile, CMS, Hewlett
Packard, Synoptics, Cisco, Proteon, Novel, and Banyan. In addition to
offering technology providers' hardware and software products, these offices
also provide a full array of services to meet their customers' computing
needs. The ability to provide a high level of service that spans the full
spectrum of offerings in an efficient, cost effective manner is critical to
the success of these offices.
The Products Group is organized under a wholly-owned subsidiary of the
Company, Information Decisions, Inc. (IDI). Within IDI, business is
conducted through two divisions; the Network Systems Group (NSG) and the
Computer Aided Design group (CAD).
NSG offers a wide variety of well known hardware and off-the-shelf
software networking products to its customers through six offices located in
Michigan and North Carolina. The North Carolina sites were added to the
group at the beginning of fiscal year 1995 through the acquisition of
Carolina Computer Stores ("CCS").(See the section entitled "ACQUISITIONS"
below). NSG also provides, from local offices, a full array of service
offerings related to the products they sell such as network consulting and
systems analysis, installation and implementation, maintenance, and
training. In addition, "high-end" services are marketed to the customer base
by the local sales representatives and delivered from the Company's Systems
Integration Services Group (See below).
The CAD group is the second largest reseller in the U.S. of
proprietary CAD software products developed by Parametric Technology
Corporation. Our CAD group presently has seven offices in six states;
Indiana, Kentucky, Michigan, Texas, North Carolina and Pennsylvania. The CAD
group also sells and services the workstations, primarily from Silicon
Graphics and Sun Microsystems, on which the Pro/ENGINEER software operates.
The ability of the Products Group to provide a full array of service
offerings to complement their traditional hardware and software products in
order to solve customers computing problems is what will continue to permit
this group to compete effectively against high volume, low margin
competitors.
THE SYSTEMS INTEGRATION SERVICES GROUP
The Systems Integration Services Group ("SISG") provides "high-end"
service offerings to its customers as well as to the customers of the
Products Group. These services are provided from offices in Waltham,
Massachusetts and New York City, New York. These "high-end" service
offerings include custom application development; systems reengineering,
analysis and consulting; and conversion of legacy software from proprietary
mainframe to open systems. The Company's ability to deliver this type of
offering was greatly enhanced with the acquisition of System Constructs,
Inc. ("SCI") at the beginning of fiscal year 1995.( See the section entitled
"ACQUISITIONS" below).
SISG markets and delivers its services through two divisions.
<PAGE> 4
The Open Systems Division was formed in April 1993 to offer customers
an automated approach to migrating and re-engineering legacy mainframe
applications to open systems platforms. The migrations are accomplished
through the use of software that the Company licenses from a European
technology provider. License payments are due only when the software is
utilized. In fiscal 1994, its first full year of operation, this Division
generated approximately $1.0 million of consulting revenue. Fiscal 1995
revenue from this Division was $440,000.
SCI, the Company's other "high-end" services division, is a group of
15 versatile and experienced software engineers that have worked closely
with IDI over the last three years to deliver custom software development
and systems engineering services to IDI's customers. Approximately $1.6
million of service was performed by SCI for IDI's customers during fiscal
1995 as compared to about $1.2 million in 1994 and $400,000 in fiscal 1993.
( For information regarding the acquisition of SCI, see the section entitled
"ACQUISITIONS" below).
THE MASSIVELY PARALLEL SOFTWARE DIVISION
The Massively Parallel Software Division ("MPSD") was established in
fiscal 1994 to capitalize on technology previously developed by Compass
prior to the closedown of that subsidiary in fiscal 1992. During fiscal 1995
this Division expended approximately $1.0 million in the development and
marketing of High Performance FORTRAN compiler software initially targeted
towards massively parallel machines and distributed networks of workstations
utilizing the Power PCtm processor chip. This development effort was
discontinued in June 1995 due to the additional investment and time required
from that point to introduce a product and the high degree of risk
associated with generating adequate returns for the effort.
ACQUISITIONS
During fiscal 1995, three acquisitions were completed.
Effective June 24, 1994 SofTech acquired all of the outstanding shares
of System Constructs, Inc. for approximately $1.7 million in cash and 50,000
shares. SCI is a New York City based, services only company that
specializes in re-engineering, downsizing and client/server development
projects employing both local and wide-area networks, and advanced imaging,
voice response, bar-coding, CD-ROM, and Geographic Information System
technologies. Over the previous two years, IDI partnered with SCI to market
and deliver SCI-type services to IDI's customer base.
Effective June 29, 1994 SofTech acquired the net assets of
Computersmith Corporation, a twelve year old computer distributor and
reseller located in North Carolina, that operates under the trade name of
Carolina Computer Stores, for approximately $3.4 million in cash. CCS is a
distributor of Apple, Compaq, Hewlett-Packard and IBM computer products as
well as industry standard networking software. CCS provides sales and
service to both corporate accounts and retail clientele through three
locations in North Carolina.
<PAGE> 5
Effective January 5, 1995 SofTech acquired the net assets of Micro
Control, Inc., a distributor of Parametric Technology Corporation's
mechanical design software, the hardware on which the software product
operates, and the related services to install and maintain the hardware and
software as well as train the users. The purchase price of
approximately $2.7 million was composed of $1.0 million in cash and
281,497 shares of SofTech stock, of which 1,729 shares were issued
subsequent to year end.
The purchase of Micro Control in January 1995 provides for certain
contingent payments in May 1997 if specified operating income growth goals
are attained for each of the Micro Control group and the Company's existing
CAD Division over certain periods ending in 1996 and 1997. The contingent
payments would be equal to the difference between certain defined stock
prices less the market value of the 281,497 shares of SofTech stock issued
to the seller in the transaction. Contingent payments, if due, would be
payable in cash at specified periods subsequent to the goal attainment. The
following table specifies the entity for which the goal applies, the profit
goal, the defined stock price, the performance period, the measurement
period and the payment due date for each of the events.
<TABLE>
<CAPTION>
Entity Profit Defined Performance Measurement Payment
Measured Goal Stock Price Period Period Due Date
- -------- ------ ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Micro Control $ 703,000 $ 9.60 2/1/95-2/28/96 4/18-5/15/97 5/20/97
Micro Control 778,000 16.80 3/1/96-2/28/97 4/18-5/15/97 5/20/97
Existing CAD 4,087,000 24.00 2/1/95-1/31/97 4/18-5/15/97 5/20/97
</TABLE>
In any event, regardless of whether the operating income growth goals
are satisfied, the Company will make a payment to the seller in an amount
equal to the amount, if any, by which the 281,497 shares of SofTech stock
received by the seller as part of this transaction and held at May 20, 1997,
have a fair market value of less than $6.00 per share during the measurement
period from April 18, 1997 to May 15, 1997. This payment would be due on May
20, 1997.
The contingent payments that could be due under this Agreement, if the
profit goals are attained, can not be determined at this time. These
payments could be material if profit goals are attained and the market price
of the SofTech stock does not equal or exceed the defined stock price.
Each of the acquisitions have been accounted for as purchases.
<PAGE> 6
DISCONTINUED OPERATIONS
On December 1, 1993, the Company completed the sale of the GSD to
CACI. CACI purchased substantially all the active GSD contracts and certain
defined assets, primarily computer equipment with a net book value of
approximately $900,000, for $4.2 million in cash. In addition, CACI assumed
building leases with future minimum lease payments of approximately $2
million. This transaction resulted in an after tax gain of approximately
$1.0 million.
Accounts receivable related to services performed, and accounts
payable for liabilities incurred, by the GSD prior to the transaction date
were generally not included in the transaction and therefore have been
retained by the Company. Although the active contracts of the GSD were
successfully novated to CACI in fiscal 1994, the Company remains ultimately
liable to the Government should CACI fail to perform its contractual
obligations. The period of time by which CACI could seek indemnification
from the Company for misrepresentations and such related to the transaction
has expired with no such claims presented.
At May 31, 1995 there remains approximately $2.1 million in gross
receivables due from the U.S. Government. The Company expects to complete
the billing and collection of these receivables during the first half of
fiscal 1996.
During fiscal year 1995, the Defense Contract Audit Agency ("DCAA") of
the U.S. Government completed their audits of the overhead and G&A rates
submitted for all fiscal years through 1994, the last year for which such
audits will be required, with immaterial adjustments.
On October 31, 1991, the Company announced the cessation of ongoing
operations of its wholly-owned subsidiary, Compass, Inc. Compass was a
provider of compiler software and software engineering services for
supercomputers and other advanced architecture computers. There remain no
known liabilities related to this business.
The consolidated financial statements and accompanying notes have been
restated to reflect the net assets and operating results of GSD and Compass
as discontinued operations.
CUSTOMERS
A single customer, the State of Michigan, accounted for revenue of
$12.3 million, $7.1 million, and $1.5 million in fiscal 1995, 1994, and
1993, respectively. The Company does business with thirteen of the seventeen
Michigan State Agencies which reduces the risk associated with this
significant revenue stream dissipating. Currently, the Company has two on-
going contract vehicles with the State. None of the fiscal year 1995, 1994,
or 1993 revenue was from foreign customers.
<PAGE> 7
MARKETING
The Products Group markets its offerings, primarily in and around its
office locations, to commercial accounts through direct sales, seminars, and
bid response. The North Carolina offices generated approximately $2.6
million in revenue for fiscal 1995 through five retail locations. This
retail operation was closed down in April 1995. A significant portion of the
sales representatives' compensation (on average seventy percent) is variable
in nature and is earned based on a percentage of gross margin generated.
The Systems Integration Services Group markets its service offerings
primarily within the U.S. In that the offerings are more complex than the
traditional services performed by the Products Group, the successful
marketing of this type of business is dependent on a few key individuals
that have a technical background. These services are marketed both through
the Product Group's salesforce as well as directly to the customer base of
the two divisions that make up the SISG.
COMPETITION
The Company competes with a large number of companies, both large and
small, within its geographic markets. Approximately seventy seven percent of
its revenue in fiscal 1995 was generated from the sale of hardware and off-
the-shelf software. Several large, national retail chains and mail order
houses that have a cost advantage on the Company based on their purchasing
power compete for a portion of this products business. The competition in
the services business, which made up approximately twenty three percent of
the Company's revenue in fiscal 1995, is also intense with several large,
international, and well respected firms aggressively pursuing that market.
Many of the Company's competitors in both the products and services
businesses have substantially more resources and greater geographical
coverage than does the Company. The Company also directly competes against
the direct salesforce of the manufacturers and technology providers as well
as the in-house capabilities of some of its customers.
RESEARCH & DEVELOPMENT
The Company spent approximately $935,000 and $347,000 during fiscal
years 1995 and 1994, respectively, developing High Performance FORTRAN
Compiler technology that was expected to result in an off-the-shelf software
product during the latter half of the fiscal year 1995. This development
effort was discontinued in June 1995 due to the additional investment and
time required from that point to introduce a product and the high degree of
risk associated with generating adequate returns for the effort. Research and
development expenditures in fiscal year 1993 were not material.
PERSONNEL
As of May 31, 1995, the Company employed 177 persons.
<PAGE> 8
BACKLOG
Backlog as of May 31, 1995 and 1994 was $2.1 million and $510,000,
respectively. In addition, deferred maintenance revenue, which represents
maintenance services to be performed during the next year, totaled $1.7
million and $1.2 million at May 31, 1995 and 1994, respectively. In
addition, during fiscal 1995 the Company was awarded a $4.0 million contract
with the Michigan Department of Disability Services to install network
equipment at five of that Agency's sites throughout the state. As of May 31,
1995 only one of those sites had been installed and there remains
approximately $3.0 million in additional revenue to realize under this award
as the other sites are ready for installation. This $3.0 million is not
included in backlog as no purchase orders have yet been issued for the four
remaining sites. It is expected that all of the backlog and the deferred
revenue would be recognized as revenue during the subsequent year.
SEASONALITY
The first quarter which begins June 1 and ends August 31, has
historically been the slowest quarter of the fiscal year. Management
believes this weakness is due primarily to the buying habits of the
customers and the fact that this quarter falls during prime vacation
periods.
First quarter revenue as a percent of full year revenue for fiscal
years 1995, 1994, and 1993 was 20.8%, 18.2%, and 19.1%, respectively.
Item 2 - Properties
The Company leases approximately 9,800 square feet of office space for
its corporate and administrative offices in Waltham, Massachusetts. IDI
leases space in Ann Arbor, Grand Rapids, Kalamazoo, and Lansing, Michigan;
Raleigh, Charlotte, and Greensboro, North Carolina; Indianapolis, Indiana;
Covington, Kentucky; Austin and Houston, Texas; and Yardley, Pennsylvania.
SCI leases space in New York City. The total space leased for these
locations is approximately 63,000 square feet. The fiscal 1995 rent was
approximately $910,000. The Company's office space is adequate for current
and anticipated levels of business activity.
As part of the acquisition of CCS, the Company purchased a 10,000
square foot, two story office building in Raleigh, North Carolina that
serves as that Company's headquarters.
On August 5, 1991 the Company finalized an amendment to its office
space lease in Alexandria, Virginia which reduced its rented space. This
amendment to the lease eliminated the Company's risk of subleasing its
excess space in the depressed Washington, D.C. real estate market. In
consideration for reducing its aggregate non-cancelable lease commitment by
approximately $5.8 million, the Company paid approximately $3.1 million in
fiscal 1992.
Item 3 - Legal Proceedings
The information in Note I "Discontinued Operations" contained on pages
19-20 of the Registrant's Annual Report to Stockholders for fiscal year
ended May 31, 1995 (Exhibit 13 to this Report) ("Annual Report") is
incorporated by reference herein.
<PAGE> 9
The Company is not a party to any other material legal proceedings.
Item 4 - Submission of Matters to a Vote of Stockholders
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of the Stockholders of SofTech.
PART II
Item 5 - Market for the Registrant's Common Stock and Related Stockholders
Matters
The information in the "Dividend and Market Information" contained on
page 23 of the Registrant's Annual Report to Stockholders for fiscal year
ended May 31, 1995 ( Exhibit 13 to this report) ( "Annual Report") is
incorporated by reference herein.
Item 6 - Selected Financial Data
The information in the "Five Year Financial Information" of
"Comparative Summaries" contained on page 3 of Registrant's Annual Report to
Stockholders year ended May 31, 1995 (Exhibit 13 to this report) is
incorporated by reference herein.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained on pages 4 to 8 of the
Registrant's Annual Report (Exhibit 13 to this report) is incorporated by
reference herein.
Item 8 - Financial Statements and Supplementary Data
The following financial statements, together with the report thereon
of Coopers & Lybrand L.L.P., dated July 26, 1995 are incorporated herein by
reference to Registrant's Annual Report (Exhibit 13 to this report):
Report of Independent Accountants (Page 22 of Annual Report)
Consolidated Balance Sheets (Page 10 of Annual Report)
Consolidated Statements of Operations and Retained Earnings (Page 9
of Annual Report)
Consolidated Statements of Cash Flows (Page 11 of Annual Report)
Notes to Consolidated Financial Statements (Pages 12 to 21 of the
Annual Report)
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE> 10
PART III
Item 10 - Directors and Executive Officers of the Registrant
The information under "Election of Directors" in the Company's
definitive proxy statement to be filed in connection with the Company's 1995
annual meeting is incorporated by reference herein.
Executive Officers of the Company and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <S>
Norman L. Rasmussen 66 President and Chief Executive Officer,
Director
Mark R. Sweetland 46 Vice President of the Company, President
and Chief Executive Officer, Information
Decisions, Inc.
Joseph P. Mullaney 38 Vice President, Treasurer and Chief
Financial Officer
Jean J. Croteau 40 Vice President, Business Operations
Sean Q. Flynn 33 Vice President of the Company, President and
Chief Executive Officer, System Constructs, Inc.
</TABLE>
Officers are elected at the first Board of Directors meeting following
the Stockholders' meeting at which the Directors are elected.
Following is biographical information with respect to those Executive
Officers not identified in the Proxy Statement:
Mark R. Sweetland
Mr. Sweetland was appointed Vice President of the Company on March 29,
1994. Since March 1992 he has served the Company as President of Information
Decisions, Inc., a wholly-owned subsidiary of SofTech. He was appointed to
the additional position of Chief Executive Officer of IDI in June 1992. Mr.
Sweetland has been employed by IDI since 1980 in various account
representative and management roles.
Joseph P. Mullaney
Mr. Mullaney was appointed Vice President, Treasurer, and Chief
Financial Officer of the Company in November 1993. He started with the
Company in May 1990 as Assistant Controller and was promoted to Corporate
Controller in June 1990. Prior to his employment with SofTech he was
employed for seven years at the Boston office of Coopers & Lybrand as an
auditor in various staff and management positions.
<PAGE> 11
Jean J. Croteau
Mr. Croteau was appointed Vice President, Business Operations of
SofTech in November 1993. He has been employed at the Company since 1981 and
has held various staff and management positions. Immediately preceding his
promotion to Vice President he held the position of Director of Contract
Administration.
Sean Q. Flynn
Mr. Flynn was appointed Vice President of the Company upon completion
of SofTech's acquisition of System Constructs, Inc. in June 1994. From
December 1992 through June 1994 he served as President and Chief Executive
Officer of System Constructs after having formed that company. From 1983 to
December 1992 Mr. Flynn was employed at Teleprocessing, Inc. holding various
staff and management positions including Vice President.
Item 11 - Executive Compensation
The information required under this item is included in the Company's
definitive proxy statement, to be filed in conjunction with the Company's
1995 annual meeting, is incorporated by reference herein.
Item 12 - Security Ownership of Certain Beneficial Owners and Management
The information under "Election of Directors" and "Principal
Stockholders" in the Company's definitive proxy statement, to be filed in
connection with the Company's 1995 annual meeting, is incorporated by
reference herein.
Item 13 - Certain Relationships and Related Transactions
The information under "Election of Directors" in the Company's
definitive proxy statement, to be filed in connection with the Company's
1995 annual meeting, is incorporated by reference herein.
<PAGE> 12
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) There are filed as part of this Form 10-K the following:
Financial Statements:
The following financial statements, together with the report thereon
of Coopers & Lybrand dated July 25, 1995, are included in Item 8, by
incorporation by reference to Registrant's Annual Report to Stock-
holders for the fiscal year ended May 31, 1995 ("Annual Report"):
o Report of Independent Accountants (Page 22 of Annual Report)
o Consolidated Balance Sheets (Page 10 of Annual Report)
o Consolidated Statements of Operations and Retained Earnings
(Page 9 of Annual Report)
o Consolidated Statements of Cash Flows (Page 11 of Annual
Report)
o Notes to Consolidated Financial Statements (Pages 12 to 21
of Annual Report)
Schedules:
The following additional financial statements are filed as
financial statement schedules to this Report, pursuant to Item
14(d).
Page
----
II. Valuation and Qualifying Accounts 14
Schedules other than those listed above have been omitted
because they are either not required or not applicable or because the
required information has been included elsewhere in the financial
statements or footnotes.
Exhibits:
(2)(i) Acquisition Agreement, dated as of December 1, 1993, by
and among SofTech, Inc., CACI International Inc., and CACI
Inc., filed as Exhibit 7(c) to Form 8-K dated December 1,
1993 is incorporated by reference.
(2)(ii) Stock Purchase Agreement by and among SofTech, Inc.,
System Constructs, Inc. and the Stockholders of System
Constructs, Inc., filed as Exhibit 2.1 to Form 8-K dated
June 24, 1994 is incorporated by reference.
<PAGE> 13
(2)(iii) Asset Purchase Agreement by and among Information
Decisions, Incorporated, SofTech, Inc., Computersmith
Corporation, and Stockholders of Computersmith
Corporation, filed as Exhibit 2.2 to Form 8-K dated
June 24, 1994 is incorporated by reference.
(2)(iv) Asset Purchase Agreement by and among Information
Decisions, Inc. and SofTech, Inc. as buyer and Micro
Control, Inc. as seller and Stockholders of Micro Control,
Inc., filed as Exhibit 2.1 to Form 8-K dated
January 5, 1995 is incorporated by reference.
(3)(i) Articles of Organization filed as Exhibit 3(a) to
Registration Statement No. 2-73261 are incorporated herein
by reference. Amendment to the Articles of Organization
filed as Exhibit (19) to Form 10-Q for the fiscal quarter
ended November 28, 1986 is incorporated by reference.
(3)(ii) By-laws of the Company, filed as Exhibit (3)(b) to 1990
Form 10K are incorporated herein by reference.
(4) Reference is made to Exhibit (3)(a) above, which is
incorporated by reference. Form of common stock
certificate, filed as Exhibit 4(A), to Registration
statement number 2-73261, is incorporated by reference.
(10)(i) Board resolutions relating to 1981 Non-qualified Stock
Option Plan, 1981 Incentive Stock Option Plan, and forms
of options, filed as Exhibits 28(A) and 28(B) to
registration statement No. 2-82554, are incorporated by
reference. Also, the Company's 1984 Stock Option Plan is
incorporated by reference to Exhibit 28(c) to Registration
Statement 33-5782. Also, the Company's 1994 Stock Option
Plan is incorporated by reference to the 1994 Proxy
Statement.
(10)(ii) Employment Agreement dated as of January 1, 1994, between
SofTech, Inc. and Norman L. Rasmussen filed as Exhibit
10(ii) to the 1994 Form 10-K is incorporated by reference.
(10)(iii) Amended Employment Agreement between SofTech, Inc. and
Norman L. Rasmussen filed as Exhibit 10(I) to Form 10-Q
for the quarter ended February 28, 1995 is incorporated
by reference.
(11) Statement re: computation of per share earnings.
(13) Annual Report to Stockholders.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Accountants.
(27) Financial Data Schedule as required by Article 5 of
Regulation S-X.
<PAGE> 14
Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission for the fourth quarter of fiscal 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SofTech, Inc.
By /S/ Norman L. Rasmussen
Norman L. Rasmussen, President
Date: August 25, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <S> <C>
/S/ Norman L. Rasmussen President and Chief Executive and 8/25/95
Norman L. Rasmussen Officer (Principal Executive Officer
Director)
/S/ Joseph P. Mullaney Vice President, Treasurer, Chief 8/25/95
Joseph P. Mullaney Financial Officer
/S/ Joseph C. McNay Director 8/25/95
Joseph C. McNay
/S/ Glenn P. Strehle Director 8/25/95
Glenn P. Strehle
</TABLE>
<PAGE> 15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of
Directors of SofTech, Inc.:
Our report on the consolidated financial statements of SofTech, Inc.
has been incorporated by reference in this Form 10-K from page 22 of the
1995 Annual Report to Stockholders of SofTech, Inc. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule on page 14 of this Form 10-K.
In our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a
whole, present fairly, in all material respects, the information required to
be included therein.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
July 26, 1995
<PAGE> 16
SOFTECH, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ----------- ------------ ----------------------------- ---------- ----------
Balance at Charged to Charged to Balance at
beginning of costs and other accounts end of
Description period expenses Deductions period
- ----------- ------------ ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Fiscal 1995
Allowance for
uncollectible
accounts
receivable $42,254 $ --- $ --- $ --- $42,254
Fiscal 1994
Allowance for
uncollectible
accounts
receivable $25,153 $25,709 $ --- $ 8,608 $42,254
Fiscal 1993
Allowance for
uncollectible
accounts
receivable $59,076 $24,858 $ --- $58,781 $25,153
</TABLE>
<PAGE> 17
EXHIBIT 11
CALCULATION OF NET INCOME PER COMMON SHARE BASED
ON EXERCISE OF DILUTIVE STOCK OPTIONS
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------- ------ ------ ----- -------
<S> <C> <C> <C> <C> <C>
Dilutive options outstanding at
end of period (000) -0- 625 478 204 -0-
Proceeds of dilutive options if
exercised (000) $ -0- $3,260 $1,123 $ 335 $ -0-
-Shares assumed to have been
repurchased from proceeds of
options if exercised (assuming
average share price) (000) -0- 446 379 189 -0-
Increase in shares (000) -0- 179 110 15 -0-
Weighted average common shares
outstanding (000) 3,848 3,631 3,804 3,803 3,816
------- ------ ------ ----- -------
Weighted average common shares
outstanding for calculation of
primary and fully diluted earnings
per share (000) 3,848 3,810 3,914 3,818 3,816
------- ------ ------ ----- -------
Net income (loss) (000) $(2,321) $2,684 $1,745 $ 450 $(6,018)
------- ------ ------ ----- -------
Net income (loss) per common
share as set forth in the
"Statements of Operations" based on
weighted average common shares
outstanding during each period $ (.60) $ .70 $ .45 $ .12 $ (1.58)
------- ------ ------ ----- -------
Additional Primary and Fully
Diluted Earnings per Share
Computations*
Primary earnings per common share $ (.60) $ .70 $ .45 $ .12 $ (1.58)
------- ------ ------ ----- -------
Fully diluted earnings per common
share $ (.60) $ .70 $ .45 $ .12 $ (1.58)
------- ------ ------ ----- -------
<FN>
<F1> * This calculation is submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083 although not required by footnote 2 to paragraph
14 of APB No. 15 because it results in dilution of less than 3%.
</FN>
</TABLE>
<PAGE> 18
EXHIBIT 13
Annual Report to Stockholders for Year Ended May 31, 1995 to the
extent specifically incorporated by reference into Part II of this Report.
SofTech Annual Report 1995
To Our Shareholders:
Following our disappointing third quarter performance, I wrote to you with a
detailed report on SofTech's restructuring activities and a commitment to
keep you informed as the Company evaluated its progress against its business
plan. For all public companies, including SofTech, management's primary
imperative is to maximize shareholder value in the company, because it is
you whom we work for. The one constant benchmark against which all of our
plans and activities must be measured is our ability to provide a strong,
consistent and growing rate of return for your investment in SofTech. So it
is with this solely on the top of my mind, that I inform you today that
SofTech's Board of Directors and management have determined that it is in
the best interests of our shareholders to seek alternative strategies aimed
at enhancing shareholder value. These include, but are not limited to, the
sale of all or part of SofTech. The Company has retained the services of an
investment banker for this purpose.
This decision did not come easily, but it did come thoughtfully, and with
your investment in mind. What were the key factors in reaching this decision
and what has changed since I last wrote to you?
At the conclusion of the third quarter I expressed confidence in SofTech's
core strategy of aggressively increasing market access for our high-end,
centrally provided service offerings through well established, regional
computer companies with a strong local market presence. This confidence in
our strategy was and is based on our experience with our Information
Decisions, Inc. subsidiary and is shared by our entire management team. This
confidence, however, has been offset by our collective belief that our
ability to execute the strategy with a corresponding growth in
profitability, is greatly impaired by the Company's relative lack of size.
This is particularly important in a market that is dominated by numerous,
large players, all of whom offer far greater economies of scale with savings
that can be passed on to customers.
So, in order to grow the business to a sufficient size to compete in highly-
competitive markets, it became clear to us that SofTech would have to embark
on an aggressive acquisition strategy funded by an accompanying debt
structure incompatible with our long-standing tradition of solid,
conservative balance sheet management. So we believe that lack of scale
would be a barrier to increased profitability for the foreseeable future.
<PAGE> 19
Another key issue has been our inability to further develop and market a
commercial software product based on our proprietary technologies. This has
resulted in both lost investment and lost opportunity to strategically
differentiate the Company. And, while the cost-savings measures that we
announced at the conclusion of the third quarter would have greatly enhanced
SofTech's profitability for fiscal year 1996, we continued to be concerned
about our overhead structure, which, while appropriate for a publicly-held
company, is not appropriate for a company of SofTech's size, today.
In reaching the decision to pursue alternatives on how to best maximize
shareholder investment, it was apparent to both the Board and management
that the issue was not one of profitability. Despite our size, the
competitive marketplace, and lack of a unique software product, we firmly
believe that fiscal 1996 would have been profitable and a distinct
improvement from the fiscal 1995 results that we announced today. Rather,
the central question that we grappled with was: Can we assure our
shareholders with confidence that their continued investment in SofTech
would yield a steady and consistent growth in return in the years ahead?
After intense analysis and introspection we simply could not make this
assurance to you, and this is the essence of why we have made this decision.
We have also developed alternative strategies for the possible sale of the
company that include several options. It is too early to predict, but it is
possible that the company may be sold either in its entirety or in two
separate components--our Network Systems Group (NSG) and our Computer Aided
Design (CAD) Division.
We believe that there is a good market for a company with SofTech's
geographic market presence, human capital, and strong balance sheet,
particularly among similar companies of larger scale seeking established
points of market entry. Presently, we have no preconceived timeline for the
completion of the sale of SofTech, but are guided by the dual objectives of
completing the transaction(s) expeditiously while receiving the highest-
possible market price.
In conclusion, I would like you to know that while this decision is
personally disappointing, I am heartened by the fact that it was made with
the best interests of the owners of SofTech in mind.
As always, thank you for your continued support of SofTech.
Sincerely,
/s/ Norman L. Rasmussen
Norman L. Rasmussen
President and CEO
<PAGE> 20
COMPARATIVE SUMMARY
FIVE-YEAR FINANCIAL INFORMATION
<TABLE>
<CAPTION>
(in thousands, except per share data) 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue from continuing operations $49,801 $24,178 $15,232 $14,717 $14,533
Income(loss) from continuing operations (1,963) 1,119 505 (442) (154)
Earnings per share:
Income (loss) from continuing operations (.51) .29 .13 (.12) (.04)
Net income (loss) (.60) .70 .45 .12 (1.58)
Weighted average number of shares outstanding 3,848 3,810 3,914 3,803 3,816
Working capital 13,615 17,893 16,737 14,592 13,549
Total assets 28,745 25,104 22,652 19,579 20,367
Total liabilities 8,051 4,262 3,696 2,371 3,609
Stockholders' equity 20,694 20,842 18,956 17,208 16,758
<FN>
<F1> Note: The Five-Year Financial Information for fiscal 1993 and prior fiscal
years have been restated to reflect the operating results of the
Government Services Division as a discontinued operation. The Five-
Year Financial Information for fiscal 1991 has been restated to
reflect the operating results of Compass, Inc. as a discontinued
operation.
</FN>
</TABLE>
<PAGE> 21
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Income Statement Analysis
The table below presents the relationship, expressed as a percentage,
between income and expense items and total revenue, for each of the three
years ended May 31, 1995. In addition, the change in those items, again
expressed as a percentage, for each of the two years ended May 31, 1995 is
presented.
<TABLE>
<CAPTION>
Items as a percentage of revenue Percentage change year to year
1995 1994 1993 1994 to 1995 1993 to 1994
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Products 76.6% 69.2% 73.3% 128.2% 49.9%
Service 23.4 30.8 26.7 56.1 82.9
----- ----- -----
Total 100.0 100.0 100.0 106.0 58.7
Cost of sales
Product 63.0 53.0 54.8 145.0 53.5
Service 13.7 19.9 17.1 41.2 85.3
----- ----- -----
Total 76.7 72.9 71.8 116.6 61.1
----- ----- -----
Gross margin 23.3 27.1 28.2 77.4 52.7
Selling, general &
administrative 27.6 22.6 25.6 151.2 40.1
Interest income 0.3 1.2 1.3 (52.6) 53.4
Income(loss) from
continuing operations
before income taxes (4.0) 5.7 3.8 (244.1) 138.5
Tax provision
(benefit) (0.1) 1.1 0.5 (107.6) 255.5
----- ----- -----
Income(loss) from
continuing operations (3.9)% 4.6% 3.3% (275.3)% 121.8%
----- ----- -----
</TABLE>
<PAGE> 22
Description of the Business
The Company's revenue is derived from the sale and integration of computer
systems, the development of custom software for computer applications, and
the delivery of a full array of computing services to its customers. The
Company is organized around two distinct operating units. The Network
Systems Group ("NSG") designs, implements, tests, and supports computer
information systems based on open-architectured, distributed network
computing platforms. Within the NSG Division, a centrally located
development group composed of 20 engineers known as the Systems Integration
Group markets its specialized consultative and development capabilities to
the NSG customer base. The Automated Engineering Group ("AEG" or "CAD
Division") provides total solutions for automating the manufacturing process
by integrating CAE/CAD/CAM tools into a company's existing infrastructure.
It is the second largest reseller of Parametric Technology Corporation's
software products in North America.
Three acquisitions were completed during fiscal 1995. Each of those
transactions was accounted for as a purchase and, accordingly, the assets,
liabilities, and results of operations have been consolidated with those of
the Company since the acquisition dates. Where applicable, the analysis
below identifies changes in fiscal 1995 results due to those acquisitions.
On July 26, 1995, in conjunction with the release of fourth quarter results,
the Company announced that it had retained an investment banker to seek
alternative strategies aimed at enhancing shareholder value including, but
not limited to, the sale of all or part of the business. It is impossible to
predict, at this time, the final outcome or even the eventual structure of
such a transaction or transactions as the case may be, nor the potential
effect on results of operations or financial position.
Results of Operations
Total revenue for fiscal 1995 increased $25.6 million or 106% from fiscal
1994. The fiscal year 1995 acquisitions accounted for $16.9 million of the
revenue growth. The comparable revenue growth in fiscal 1995 of the
operating units that were part of the consolidated group in fiscal 1994 was
$8.7 million or 36% as compared to an increase of $8.9 million or 59% from
fiscal 1993. Each of the eight office locations that were operating in both
years experienced revenue growth from 1994 to 1995 with the lowest growth
rate of 7%, due to the Company's expanding service capabilities and
recurring business with existing customers.
Product revenue increased $21.4 million or 128% in fiscal 1995 of which
$15.4 million was generated by the newly acquired entities. Product revenue
increased by 36% in FY95 without including the contributions of the acquired
units as compared to 50% growth from fiscal 1993 to 1994 for this component
of revenue. Product gross margins for fiscal 1995 were 17.8% as compared to
23.4% and 25.2% for fiscal 1994 and 1993, respectively. The decrease from FY
'94 to '95 is due primarily to the North Carolina locations (acquired in
fiscal 1995) and the low margin retail business that operated for much of
the year. The fiscal 1995 product gross margin at the North Carolina
locations was 11.8% as compared to 21.3% for all other locations. The 21.3%
is consistent with the gradual margin decay experienced for fiscal 1993 to
1994 as off-the-shelf hardware and software components become more and more
available and therefore subject to intense price sensitivity. The Company
expects this margin erosion on products to continue for the foreseeable
future.
<PAGE> 23
Service revenue increased $4.2 million or 56% from fiscal 1994 to 1995 as
compared to an increase of $3.4 million or 83% from fiscal 1993 to 1994.
Approximately $1.5 million of the 1995 increase was the result of the
acquisitions completed in 1995. Increased service capability and continued
growth in recurring maintenance revenue at all office locations provided the
additional service revenue increases in fiscal 1995. The fiscal 1994 service
revenue growth was due primarily to revenue generated by the Open Systems
Division started in late 1993 that was not able to obtain follow-on work in
1995 and custom application development projects. Gross margin as a percent
of service revenue for fiscal 1995 was 40.3% as compared to 35.3% and 36.1%
for fiscal 1994 and 1993, respectively. The service revenue in North
Carolina was primarily generated from a repair business and, as such,
generated gross margins of only 15.2%. Service gross margins for all other
operations were 42.6% in fiscal 1995. The increased service gross margin in
1995 as compared to 1994 is the result of acquiring System Constructs, Inc.
at the beginning of fiscal 1995. This entity had been utilized by the
Company prior to fiscal 1995 as a subcontractor.
Selling, general and administrative expenses increased $8.3 million or 151%
from 1994 to 1995 as compared to an increase of $1.6 million or 40% from
1993 to 1994. Fiscal 1995 expenditures included $1.0 million of software
development efforts on a compiler technology aimed at introducing an off-
the-shelf proprietary software product. This effort was discontinued in
June 1995. Included in selling, general and administrative were expenditures
associated with the closedown of the retail group in North Carolina, the
reduction in workforce in North Carolina and corporate headquarters in
Massachusetts, and an accrual for excess office space as a result of those
actions, totaling $500,000. Goodwill amortization related to the
acquisitions of System Constructs, Inc. and Micro Control, Inc. totaled
$550,000. The 1994 increase of 40% from 1993 was due primarily to the
establishment of two new initiatives in that year, namely the Open Systems
Division and the software development group, and increased expenditures
related to the 59% revenue growth in 1994.
Interest income decreased by $155,000 or 53% from fiscal 1994 to 1995 as
compared to an increase of $102,000 or 53% from fiscal 1993 to 1994. The
decrease in 1995 is due to the utilization of cash to fund acquisitions and
receivable growth and therefore a reduction in available cash for investment
purposes. The increase in investment income in 1994 relative to 1993 was the
result of increased available cash for investment as a result of the sale of
the Government Services Division in December 1993.
The effective tax rate was (1%), 19% and 12% in fiscal years 1995, 1994 and
1993, respectively. The fiscal 1995 effective tax rate is different from the
statutory rate due to the use of operating losses to reduce deferred taxes
previously provided for. The 1995 state tax provision is composed of income
taxes in Michigan, Indiana, New York and North Carolina. The federal tax
benefit in 1995 was $512,000. The federal tax provisions for fiscal 1994 and
1993 were substantially reduced by the use of net operating loss
carryforwards. The Company has tax credits of $566,000 available to offset
future taxable income.
Effective December 1, 1993, the Company completed the sale of the Government
Services Division to CACI International, Inc. The transaction resulted in an
after tax gain of $1,003,000.
<PAGE> 24
Effective June 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." Adoption of this statement resulted in a $233,000 benefit
from a cumulative effect of change in accounting principle, primarily due to
the recognition of deferred tax assets previously not recorded under SFAS
No. 96.
Capital Resources and Liquidity
Cash and marketable securities decreased approximately $10,759,000 from May
31, 1994 to May 31, 1995. During fiscal 1995 cash was primarily utilized for
acquisitions, funding receivable growth, and purchasing capital equipment.
The acquisitions of System Constructs, Inc., Carolina Computer, and Micro
Control, Inc. utilized $6.4 million; the increase in accounts receivable,
net of the effect of acquisitions, utilized $5.6 million; and the purchase
of capital equipment, again net of acquisitions, utilized $1.4 million.
Growth in accounts payable, accrued expenses, and deferred maintenance
revenue provided cash of approximately $3.1 million. A significant portion
of the fiscal 1995 loss of $2.3 million was due to noncash expenses for
depreciation and goodwill amortization which totaled $1.8 million, a
substantial increase from fiscal 1994, due to the three FY95 acquisitions.
Subsequent to year end, the Company successfully negotiated a line of credit
with a commercial lending organization that provides for borrowings of up to
$10 million. Borrowings under this line are limited to 85% of domestic
accounts receivable outstanding less than 90 days from invoice date and bear
an interest rate of prime plus .5%. Availability is subject to compliance
with several covenants customary to such credit facilities. This agreement
expires on June 29, 1997.
The purchase of Micro Control in January 1995 provides for certain
contingent payments in May 1997 if specified operating income growth goals
are attained for each of the Micro Control group and for the Company's
existing CAD Division over certain periods ending in 1996 and 1997. The
contingent payments would be equal to the difference between certain defined
stock prices less the market value of the 281,497 shares of SofTech stock
issued to the seller in the transaction. Contingent payments, if due, would
be payable in cash at specified periods subsequent to the goal attainment.
The following table specifies the entity for which the goal applies, the
profit goal, the defined stock price, the performance period, the
measurement period and the payment due date for each of the events.
<TABLE>
<CAPTION>
Entity Profit Defined Performance Measurement Payment
Measured Goal Stock Price Period Period Due Date
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Micro Control $ 703,000 $ 9.60 2/1/95-2/28/96 4/18/97-5/15/97 5/20/97
Micro Control 778,000 16.80 3/1/96-2/28/97 4/18/97-5/15/97 5/20/97
Existing CAD 4,087,000 24.00 2/1/95-1/31/97 4/18/97-5/15/97 5/20/97
</TABLE>
<PAGE> 25
In any event, regardless of whether the operating income growth goals are
satisfied, the Company will make a payment to the seller in an amount equal
to the amount, if any, by which the 281,497 shares of SofTech stock received
by the seller as part of this transaction and held at May 20, 1997, have a
fair market value of less than $6.00 per share during the measurement period
from April 18, 1997 to May 15, 1997. This payment would be due on May 20,
1997.
The contingent payments that could be due under this Agreement, if the
profit goals are attained, can not be determined at this time. These
payments could be material if profit goals are attained and the market price
of the SofTech stock does not equal or exceed the defined stock price.
The Company's financial resources are composed of cash and its available
line of credit. The Company believes that its financial resources and cash
provided from operations are adequate to meet liquidity requirements through
fiscal 1996.
<PAGE> 26
CONSOLIDATED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
<TABLE>
<CAPTION>
For the Years ended May 31, 1995 1994 1993
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Products $38,168,221 $16,728,574 $11,158,575
Services 11,633,187 7,449,751 4,073,900
----------- ----------- -----------
Total Revenue 49,801,408 24,178,325 15,232,475
Cost of products sold 31,372,067 12,807,142 8,341,075
Cost of services provided 6,947,947 4,820,662 2,601,613
----------- ----------- -----------
Gross margin 11,481,394 6,550,521 4,289,787
Selling, general and administrative 13,603,125 5,469,179 3,904,699
----------- ----------- -----------
Income (loss) from operations (2,121,731) 1,081,342 385,088
Interest income 139,431 293,901 191,588
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (1,982,300) 1,375,243 576,676
Provision (benefit) for income taxes (Note B) (19,560) 255,877 71,969
----------- ----------- -----------
Income (loss) from continuing operations
before cumulative effect of change in
accounting principle (1,962,740) 1,119,366 504,707
Discontinued operations (Note I):
Income (loss) from discontinued operations
(less applicable provision for income
taxes of $281,000, $43,415, and $174,744,
respectively) (358,198) 210,776 531,133
Gain from disposal (less applicable
provision for income taxes of $0,
$301,458, and $228,622, respectively) --- 1,121,082 709,525
Cumulative effect on prior years of change
in accounting for income taxes (Note A) --- 232,700 ---
----------- ----------- -----------
Net income (loss) (2,320,938) 2,683,924 1,745,365
Retained earnings, beginning of year 7,699,990 5,016,066 3,270,701
----------- ----------- -----------
Retained earnings, end of year $ 5,379,052 $ 7,699,990 $ 5,016,066
=========== =========== ===========
Income (loss) from continuing operations
per common share (Note H) ($0.51) $0.29 $0.13
=========== =========== ===========
Cumulative effect on prior years of change
in accounting for income taxes (Note H) --- $0.06 ---
=========== =========== ===========
Net income (loss) per common share (Note H) ($0.60) $0.70 $0.45
=========== =========== ===========
</TABLE>
<PAGE> 27
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
As of May 31, 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 2,372,946 $ 3,976,929
Marketable securities --- 9,154,622
Accounts receivable (less allowance of
$42,254 in 1995 and 1994) 12,659,017 6,307,242
Unbilled costs and fees 1,248,361 ---
Inventory 1,819,184 1,135,325
Prepaid expenses and other assets 1,435,919 515,567
Deferred and refundable income tax (Note B) 964,560 105,214
Net assets of discontinued operations (Note I) 1,166,178 960,366
----------- -----------
Total current assets 21,666,165 22,155,265
----------- -----------
Property and equipment, at cost:
Data processing equipment 3,340,156 2,402,862
Office furniture 1,030,414 662,006
Leasehold improvements 344,866 194,328
Motor vehicles 5,777 39,940
Land and building 500,000 ---
----------- -----------
Total property and equipment 5,221,213 3,299,136
Less accumulated depreciation and amortization 2,882,296 2,331,621
----------- -----------
2,338,917 967,515
Other assets 4,740,042 1,336,256
Deferred income tax (Note B) --- 644,925
----------- -----------
$28,745,124 $25,103,961
=========== ===========
<PAGE> 28
Liabilities and Stockholders' Equity;:
Current liabilities:
Accounts payable $ 4,112,334 $ 1,949,466
Accrued compensation 1,015,126 753,563
Accrued expenses 1,097,738 308,308
Deferred maintenance revenue 1,734,122 1,210,503
Federal and state income taxes 92,000 40,129
----------- -----------
Total current liabilities 8,051,320 4,261,969
----------- -----------
Commitments and contingencies (Notes G and J)
Stockholders' equity (Notes D and E):
Common stock, $.10 par value; authorized
10,000,000 shares; issued 4,495,704 and
4,074,061 shares in 1995 and 1994, respectively 449,571 407,407
Capital in excess of par value 16,346,696 14,216,110
Retained earnings 5,379,052 7,699,990
Less treasury stock, 443,157 shares in 1995 and
1994, at cost (1,481,515) (1,481,515)
----------- -----------
Total stockholders' equity 20,693,804 20,841,992
----------- -----------
$28,745,124 $25,103,961
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the years ended May 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ($2,320,938) $2,683,924 $1,745,365
---------- ---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,836,553 763,841 739,952
Gain on sale of GSD (1,002,870) -----
Loss on disposal of equipment 43,138 1,594 29,128
Deferred federal and state income tax benefit (380,632) (750,139) -----
<PAGE> 29
Change in current assets and liabilities:
Accounts receivable (4,585,316) (1,959,173) (1,632,071)
Unbilled costs and fees (1,050,361) ----- -----
Inventory 1,069,813 (537,498) (222,712)
Prepaid expenses and other assets (702,049) (342,640) (55,279)
Accounts payable 1,832,318 (182,720) 1,084,203
Accrued expenses 709,289 58,943 387,509
Deferred maintenance revenue 523,619 676,778 (162,581)
Current federal and state income taxes 51,871 2,288 15,784
Net assets of discontinued operations (205,812) 1,965,358 1,690,768
---------- ---------- ----------
Total adjustments (857,569) (1,306,238) 1,874,701
---------- ---------- ----------
Net cash provided (used) by operating activities (3,178,507) 1,377,686 3,620,066
---------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (1,429,900) (755,775) (243,995)
Proceeds from sale of capital equipment 21,670 73,817 20,100
Proceeds from sale of marketable securities 9,154,622 3,479,826 3,961,997
Payments to acquire marketable securities ----- (7,491,699) (7,873,961)
Proceeds from the sale of the GSD ----- 4,225,995 -----
Payments for purchase of CCS, SCI and MCI (6,366,335) ----- -----
Other investing activities (5,925) (7,648) 55,074
---------- ---------- ----------
Net cash provided (used) by investing activities 1,374,132 (475,484) (4,080,785)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from exercise of stock options 200,392 487,363 2,700
Payments to acquire treasury stock ----- (1,285,235) -----
---------- ---------- ----------
Net cash provided (used) by financing activities 200,392 (797,872) 2,700
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (1,603,983) 104,330 (458,019)
Cash and cash equivalents, beginning of year 3,976,929 3,872,599 4,330,618
---------- ---------- ----------
Cash and cash equivalents, end of year $2,372,946 $3,976,929 $3,872,599
========== ========== ==========
Supplemental disclosures of cash flow information
Non cash investing activities
Fair value of shares issued in connection with
acquisition of SCI and MCI $1,972,358 ---- ----
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The consolidated financial statements of the Company include the
accounts of SofTech, Inc. and its wholly-owned subsidiaries, Information
Decisions, Inc. (IDI), System Constructs, Inc. (SCI), SofTech Investments,
Inc., Compass, Inc. (Compass) and AMG Associates, Inc. (AMG). Compass and
AMG are inactive subsidiaries. All significant intercompany transactions
have been eliminated. Certain amounts for prior years have been
reclassified to conform with the 1995 presentation.
The consolidated financial statements have been restated to reflect
the net assets and operating results of the Government Services Division
(GSD) and Compass, Inc. as discontinued operations (See Note I). The assets
and liabilities of the discontinued businesses have been reclassified in the
Consolidated Balance Sheets as net assets of discontinued operations. The
operating results of GSD and Compass are shown net of income taxes in the
Consolidated Statements of Operations and Retained Earnings as Income (loss)
from discontinued operations or Gain from disposal.
On July 26, 1995, the Company announced its intention to seek
alternative strategies aimed at enhancing shareholder value including, but
not limited to, the possible sale of all or part of the business. It is
impossible to predict, at this time, the final outcome or even the eventual
structure of such a transaction or transactions as the case may be, nor the
potential effect on results of operations or financial position.
INDUSTRY SEGMENT AND SIGNIFICANT CUSTOMER:
The Company operates in one industry segment and is engaged in the
development and sale of custom software for computer applications, the sale
and integration of computer systems, and the marketing of software products
under licensing agreements. Revenue from a single customer accounted for
approximately $12,300,000 in 1995, $7,100,000 in 1994, and $1,500,000 in
1993.
INVENTORIES:
Inventories consist of equipment purchased for resale and service
parts and are stated at the lower of cost (first-in, first-out method) or
market. Service parts are being amortized over a five-year period on a
straight-line basis. The unamortized book value of the service parts was
$461,000 as of May 31, 1995.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. The Company provides for
depreciation and amortization on a straight-line basis over the following
estimated useful lives:
<PAGE> 31
<TABLE>
<CAPTION>
Estimated
Useful Lives
------------------------------------------------------------
<S> <S>
Data processing equipment 3-5 years
Office furniture 5-10 years
Leasehold improvements Lesser of useful life
or life of lease
Motor vehicles 3 years
Building 20 years
</TABLE>
Depreciation expense was approximately $777,000, $301,000, and
$264,000 for fiscal 1995, 1994 and 1993, respectively.
Maintenance and repairs are charged to expense as incurred;
betterments are capitalized. At the time fixed assets are retired, sold, or
otherwise disposed of, the related costs and accumulated depreciation are
removed from the accounts. Any resulting gain or loss on disposal is
credited or charged to income.
INCOME TAXES:
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109)
as of June 1, 1993. SFAS No. 109 requires a company to recognize deferred
tax liabilities and assets for the expected future tax consequences of
events that have been recognized in a company's financial statements or tax
returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement carrying
amounts and tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the differences are expected to reverse. SFAS
No. 109 also requires a valuation allowance against deferred tax assets if
it is more likely than not that some or all of the deferred tax assets will
not be realized. Adoption of this statement resulted in a cumulative effect
of a change in accounting principle of approximately $233,000 in fiscal
1994, primarily due to the recognition of deferred tax assets previously not
recorded under SFAS No. 96.
REVENUE RECOGNITION:
Revenue from computer systems sales is recognized upon shipment, or
installation and acceptance, if significant performance obligations remain.
On certain long-term contracts, the percentage of completion method is used
for recording revenue. When the current contract estimate indicates a loss,
provision is made for the total anticipated loss. Revenue from software
maintenance agreements and service contracts are deferred and amortized into
income over the maintenance support period. Other service revenue is
recognized when the services are performed and the revenue is earned.
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. Royalty fees are recorded as
revenue based upon sales by the licensee.
<PAGE> 32
SOFTWARE PRODUCT COSTS:
Software development costs are capitalized, in accordance with
Statement of Financial Accounting Standard No. 86 (SFAS 86), subsequent to
the establishment of technological feasibility for the product.
Capitalization ceases when the product is available for general release to
customers, at which time amortization of the capitalized costs begins.
During the first half of fiscal 1995, the Company capitalized $422,214 of
software development costs, incurred developing High Performance FORTRAN
Computer technology that was expected to result in an off-the-shelf software
product during the latter half of fiscal year 1995. During the third quarter
of fiscal 1995, the Company determined that the recoverability of these costs
had become uncertain due to significant delays in the product development
effort and wrote off the previously capitalized software development costs.
Development costs incurred subsequent to the second quarter of fiscal 1995
have been and will be expensed as incurred. Software development costs
related to the above development project totaled $935,000 in fiscal 1995
and $347,000 in fiscal 1994. Software development costs in fiscal 1993 were
not material. No software costs were capitalized in fiscal 1994 and 1993.
INTANGIBLE ASSETS:
Intangible assets represent the excess of cost over the fair value of
tangible assets acquired and are amortized on a straight-line basis over
periods not to exceed eight years. The unamortized excess of cost over fair
value of tangible assets acquired through business combination was
$4,621,000 and $1,299,000 at May 31, 1995 and 1994, respectively, and is
included in other assets. Accumulated amortization of these intangible
assets was $2,237,000 and $1,355,000 at May 31, 1995 and 1994, respectively.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased
with an original maturity of three months or less to be cash equivalents.
MARKETABLE SECURITIES:
Marketable securities have been carried at cost plus accrued interest
which approximates market value. The Company adopted Statement of Financial
Accounting Standard (SFAS) No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" as of June 1, 1994. However, adoption of this
standard did not have a material impact on its financial position or results
of operations.
<PAGE> 33
B. INCOME TAXES:
The provisions for income taxes includes the following:
<TABLE>
<CAPTION>
For the Years ended May 31, (in thousands) 1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $(512) $ 63 $ ---
State and local 347 138 72
----- ---- -----
(165) 201 72
Deferred 145 55 ---
----- ---- -----
$ (20) $256 $ 72
===== ==== =====
</TABLE>
The federal provision for income taxes was reduced due to the use of
net operating loss carryforward benefits in 1994 and 1993 of $1,170,000 and
$616,000, respectively. Taxes of $766,000, $257,000 and $75,000 were paid
in 1995, 1994, and 1993, respectively.
For tax purposes, at May 31, 1995, the Company had tax credit
carryforwards generated from research and development activities of $433,000
that expire from 2002 to 2006. In addition, an AMT credit of $133,000 that
has no expiration date was also available.
The Company's effective tax rates were (1)% in 1995, 19% in 1994, and
12% in 1993. Reconciliations of the federal statutory rates to the
effective rates were as follows:
<TABLE>
<CAPTION>
For the Years ended May 31, (in thousands) 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate (34)% 34% 34%
State and local taxes 14 6 8
Tax credits 2 (2) ---
Differences of book and tax bases
of assets of acquired businesses 9 2 ---
Use of net operating losses --- (21) (30)
Other 4 --- ---
Valuation reserve 4 --- ---
---- ---- ----
Effective tax rates (1)% 19% 12%
==== ==== ====
</TABLE>
<PAGE> 34
Deferred tax assets(liabilities) were comprised of the following
at May 31:
<TABLE>
<CAPTION>
(in thousands) 1995 1994
- ---------------------------------------------------------------------
<S> <C> <C>
Gross deferred tax assets:
Depreciation 25 53
Tax credits 596 655
Inventory and receivables 155 294
Vacation 83 46
Other --- (4)
----- -----
Deferred tax assets 859 1,044
Less: valuation allowance (349) (59)
----- -----
Net deferred tax assets 510 985
----- -----
Gross deferred tax liabilities:
Deferred revenue (406) (960)
Differences in book and tax bases of
assets of acquired businesses (161) ----
----- -----
Deferred tax liabilities (567) (960)
----- -----
Deferred tax asset (liability) (57) 25
----- -----
Balance sheet classification:
Current deferred asset - net 331 105
Non-current deferred asset - net --- 645
Deferred tax liability - net (Net Assets
from discontinued operations) (388) (725)
----- -----
Net deferred taxes (57) 25
===== =====
</TABLE>
Due to the uncertainty surrounding the realization of certain favorable tax
attributes in future tax returns, the Company has placed a valuation reserve
against a portion of the otherwise recognizable deferred tax assets. There
were no net deferred tax assets or liabilities at May 31, 1993.
C. EMPLOYEE BENEFIT PLANS:
The Company has an Internal Revenue Code Section 401(k) plan covering
substantially all employees. The aggregate retirement plan expense, which
consists of an employer match of employee voluntary contributions, for
fiscal 1995, 1994 and 1993 was $197,000, $50,000, and $52,000, respectively.
The increase in benefit is primarily due to the increase in employee
population that resulted from the acquisitions.
<PAGE> 35
Four former key employees participate in a defined supplemental
retirement plan that was established to supplement retirement benefits from
other sources such as social security and the Company's defined contribution
retirement plan. As of May 31, 1995, the market value of the assets held in
a Trust established for the purpose of funding these retirement benefits,
which were not included in the consolidated financial statements, totaled
$1,194,000. Subsequent to year end, three of the four beneficiaries agreed
to a change in benefit. The Company has purchased irrevocable, non-
participating annuity contracts to fund the future benefits due these three
individuals. The net gain realized from this settlement was $216,000 which
will be recorded in the first quarter 1996 results within the discontinued
operations.
D. STOCK OPTIONS:
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for
the granting of both incentive and non-qualified options. Incentive stock
options granted under the Plan have an exercise price not less than fair
market value of the stock at the grant date and have vesting schedules as
determined by the Company's Board of Directors. The Plan permits the
granting of non-qualified options at exercise prices and vesting schedules
as determined by the Board of Directors.
The Company's 1984 Stock Option Plan (the "1984 Plan") provided for
the granting of both incentive and non-qualified options prior to its
expiration in May 1994.
Information relating to these plans is set forth below:
<TABLE>
<CAPTION>
Number of Option Price
Shares per share
- --------------------------------------------------------------------
<S> <C> <C>
Outstanding at May 31, 1992 363,400 1.25 - 6.75
Options granted 95,000 2.00 - 2.875
Options lapsed (5,950) 2.625 - 6.75
Options terminated (119,200) 2.00 - 6.75
--------
Options exercised (1,200) 2.25
Outstanding at May 31, 1993 332,050 1.25 - 4.25
Options granted 456,300 1.875 - 7.00
Options lapsed (10,400) 6.625
Options terminated (64,382) 1.875 - 4.25
Options exercised (175,068) 1.875 - 3.375
--------
Outstanding at May 31, 1994 538,500 1.25 - 7.00
Options granted 122,800 4.00 - 6.375
Options terminated (24,000) 2.625 - 7.00
Options exercised (37,500) 2.625 - 3.00
--------
Outstanding at May 31, 1995 599,800 $1.25 - 7.00
========
</TABLE>
<PAGE> 36
There were options for 222,962 shares exercisable at May 31, 1995 and
options for 277,200 shares were available for future grants under the 1994
Plan. In addition, there were options granted outside the plans during
fiscal 1992 to an employee for 125,000 shares at $1.50, of which 20,000 were
exercised during fiscal 1995 and 81,000 were outstanding and exercisable as
of May 31, 1995; and to certain non-employee consultants to the Company for
75,000 shares at $1.875, of which 34,375 shares were exercised during fiscal
1995 and 40,625 were terminated.
E. COMMON STOCK:
Common stock changes during the three years ended May 31, 1995, 1994,
and 1993 were as follows:
<TABLE>
<CAPTION>
Capital in
Excess of
Shares Par Value Par Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, May 31, 1992 3,803,293 $387,380 $13,746,074
Shares issued for stock options exercised 1,200 120 2,580
--------- -------- -----------
Balance, May 31, 1993 3,804,493 387,500 13,748,654
Shares issued for stock options exercised 199,068 19,907 467,456
Treasury shares repurchased (372,657) ---- ----
--------- -------- -----------
Balance, May 31, 1994 3,630,904 407,407 14,216,110
Shares issued for stock options exercised 91,875 9,187 191,205
Shares issued in connection with acquisitions 329,768 32,977 1,939,381
--------- -------- -----------
Balance, May 31, 1995 4,052,547 $449,571 $16,346,696
========= ======== ===========
</TABLE>
F. LINE OF CREDIT:
Subsequent to year end, the Company obtained a line of credit for up
to $10,000,000 from a commercial lending entity. Borrowings under this line
are limited to 85% of domestic accounts receivable outstanding less than 90
days from invoice date and bear an interest rate of prime plus .5%.
Availability is subject to compliance with several covenants customary to
such credit facilities. Annual commitment fees under this agreement are
$25,000 payable in advance. The current line of credit agreement expires on
June 29, 1997.
G. COMMITMENTS:
Leases:
The Company conducts its operations in facilities leased through 2002.
Rental expense for fiscal years 1995, 1994, and 1993 was approximately
$910,000, $433,000, and $362,000, respectively.
<PAGE> 37
At May 31, 1995, minimum annual rental commitments under
noncancellable leases were as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<C> <C>
1996 $ 787,122
1997 515,589
1998 351,656
1999 116,600
2000 and thereafter 278,200
</TABLE>
H. NET INCOME PER COMMON SHARE:
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding during
the year. Weighted average shares outstanding were 3,848,151 in 1995,
3,810,331 in 1994, and 3,913,954 in 1993. The fiscal 1994 and 1993 weighted
average shares outstanding included dilutive stock options, using the
treasury method.
I. DISCONTINUED OPERATIONS:
Effective December 1, 1993, the Company completed the sale of the
Government Services Division (GSD) to CACI International, Inc. (CACI) of
Arlington, Virginia. CACI paid approximately $4.2 million in cash for
substantially all the active GSD contracts and certain defined assets.
Accounts receivable related to services performed, and accounts
payable for liabilities incurred, by the GSD prior to the transaction date
were generally not included in the transaction and therefore have been
retained by the Company. Although the active contracts of the GSD were
successfully novated to CACI in fiscal 1994, the Company remains ultimately
liable to the Government should CACI fail to perform its contractual
obligations. The period of time by which CACI could seek indemnification
from the Company for misrepresentations and such related to the transaction
has expired with no such claims presented.
On October 31, 1991, the Company announced the cessation of ongoing
operations of its wholly-owned subsidiary, Compass, Inc. Compass was a
provider of compiler software and software engineering services for
supercomputers and other advanced architecture computers. Subsequent to the
shutdown, the Company signed agreements to license the Compass technology to
several of its former customers for an aggregate value of $4.2 million.
Revenue from discontinued operations for the years ended May 31, 1995,
1994, and 1993 was approximately $765,551, $24,436,773, and $31,014,113,
respectively.
The net assets of discontinued operations, which are included in the
Consolidated Balance Sheets, as of May 31, are as follows:
<PAGE> 38
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------
<S> <C> <C>
Accounts receivable $1,415,448 $1,337,894
Unbilled costs and fees 138,730 1,716,112
---------- ----------
Total assets 1,554,178 3,054,006
Accounts payable ---- 642,831
Accrued expenses ---- 726,150
Deferred income taxes 388,000 724,659
---------- ----------
Net assets $1,166,178 $ 960,366
========== ==========
</TABLE>
Billed and unbilled accounts receivable resulted primarily from
contracts with the U.S. Government or prime contractors with the U.S.
Government, which bear minimal credit risk. Historically, the Company has
not incurred any significant credit related losses.
In May 1995, the Company reached an out-of-court settlement with a
former teaming partner on a Department of Energy ("DOE") procurement
initially awarded in January 1992. As described in Note G of the 1994
Annual Report to Shareholders, the DOE issued a report in July 1993 alleging
that certain former employees of the Company violated the Procurement
Integrity Act thereby disqualifying the Company and its teaming partner from
the award. The Company paid $350,000 in cash to the former teaming partner,
in a no-fault, full settlement of all outstanding claims related to this
matter.
J. ACQUISITIONS:
On June 24, 1994, the Company acquired all of the issued and
outstanding stock of System Constructs, Inc. (SCI) for approximately $1.7
million in cash and $294,000 (50,000 shares) of SofTech stock. The
transaction has been accounted for as a purchase and, accordingly, SCI's
assets, liabilities, and results of operations have been consolidated with
those of the Company since the date of acquisition. The excess of cost over
the fair value of the net assets acquired was $1,785,000 and is being
amortized on a straight-line basis over five years.
On June 29, 1995, the Company acquired the net assets of Carolina
Computer Stores (CCS) for approximately $3.4 million in cash which was
approximately equal to the net assets acquired. CCS is a distributor of
Apple, Compaq, Hewlett-Packard, and IBM computer products as well as
industry standard networking software. The transaction has been accounted
for as a purchase and, accordingly, CCS's assets, liabilities, and results
of operations have been consolidated with those of the Company since the
date of acquisition.
<PAGE> 39
On January 5, 1995, the Company acquired the net assets of Micro
Control, Inc. for approximately $1.0 million in cash and $1.7 million
(281,497 shares) of SofTech stock. The transaction has been accounted for
as a purchase and, accordingly, Micro Control's assets, liabilities, and
results of operations have been consolidated with those of the Company since
the date of acquisition. The excess of cost over the fair value of the net
assets acquired was $2,420,000 and is being amortized on a straight-line
basis over five years.
The purchase of Micro Control in January 1995 provides for certain
contingent payments in May 1997 if specified operating income growth goals
are attained for each of the Micro Control group and for the Company's
existing CAD Division over certain periods ending in 1996 and 1997. The
contingent payments would be equal to the difference between certain defined
stock prices less the market value of the 281,497 shares of SofTech stock
issued to the seller in the transaction. Contingent payments, if due, would
be payable in cash at specified periods subsequent to the goal attainment.
The following table specifies the entity for which the goal applies, the
profit goal, the defined stock price, the performance period, the
measurement period and the payment due date for each of the events.
<TABLE>
<CAPTION>
Entity Profit Defined Performance Measurement Payment
Measured Goal Stock Price Period Period Due Date
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Micro Control $ 703,000 $ 9.60 2/1/95-2/28/96 4/18/97-5/15/97 5/20/97
Micro Control 778,000 16.80 3/1/96-2/28/97 4/18/97-5/15/97 5/20/97
Existing CAD 4,087,000 24.00 2/1/95-1/31/97 4/18/97-5/15/97 5/20/97
</TABLE>
In any event, regardless of whether the operating income growth goals
are satisfied, the Company will make a payment to the seller in an amount
equal to the amount, if any, by which the 281,497 shares of SofTech stock
received by the seller as part of this transaction and held at May 20, 1997,
have a fair market value of less than $6.00 per share during the measurement
period from April 18, 1997 to May 15, 1997. This payment would be due on May
20, 1997.
The contingent payments that could be due under this Agreement, if the
profit goals are attained, can not be determined at this time. These
payments could be material if profit goals are attained and the market price
of the SofTech stock does not equal or exceed the defined stock price.
The unaudited pro forma revenue, net loss from continuing operations,
and net loss from continuing operations per share of the combined Company,
assuming SCI, CCS and Micro Control had been acquired as of the beginning of
fiscal 1995 would not differ significantly from actual results as reported.
The unaudited pro forma revenue, net income from continuing operations, and
net income from continuing operations per share of the combined Company,
assuming SCI, CCS and Micro Control had been acquired as of the beginning of
fiscal 1994 would have been $50,850,000, $1,600,000 and $.39.
<PAGE> 40
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of SofTech, Inc.:
We have audited the accompanying consolidated balance sheets of
SofTech, Inc. as of May 31, 1995 and 1994, and the related consolidated
statements of operations and retained earnings and cash flows for each of
the three years in the period ended May 31, 1995. 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 audits.
We conducted our audits 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
from material misstatement. An audit includes examination 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 audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of SofTech, Inc. as of May 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended May 31, 1995, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
July 26, 1995
<PAGE> 41
<TABLE>
<S> <S> <S>
SOFTECH OFFICERS: DIVIDEND AND MARKET FORM 10-K:
INFORMATION:
Norman L. Rasmussen SofTech has not paid any Copies of the Company's
President and Chief cash dividends and 1995 10-K annual report,
Executive Officer intends to continue to as filed with the
retain its earnings for Securities and Exchange
Mark R. Sweetland use in its business. Commission, may be
Vice President of SofTech, Inc.'s common obtained at no charge by
SofTech, Inc. stock is traded on the writing to the Manager
President and Chief NASDAQ National Market of Financial Relations,
Executive Officer of System. The trading SofTech, Inc. 3260 Eagle
Information Decisions, symbol is "SOFT". The Park Drive N.E., Grand
Inc. approximate number of Rapids, MI 49505
shareholders of record
Joseph P. Mullaney on May 31, 1995 was ANNUAL MEETING:
Vice President, 404. The table below
Treasurer, and Chief sets forth the high and SofTech's annual meeting
Financial Officer low bid prices for the of shareholders will be
calendar periods held on November 1,
Jean J. Croteau indicated as provided by 1995, at 4:30 p.m., at
Vice President, the National Quotation 460 Totten Pond Road,
Business Operations Bureau. These Waltham, Massachusetts
quotations reflect 02154
Sean Q. Flynn inter-dealer prices
Vice President of without retail mark-up,
SofTech, Inc. mark-down, or commission
President and Chief and may not necessarily
Executive Officer of represent actual
System Constructs, Inc. transactions.
SOFTECH BOARD OF Closing Bid
DIRECTORS: Fiscal 1994 High Low
June-Aug. 4 2 1/2
Norman L. Rasmussen Sept.-Nov. 5 3 1/2
President and CEO of Dec.-Feb. 9 3/4 4 3/8
SofTech, Inc. Mar.-May 9 1/4 6 1/8
Joseph C. McNay Closing Bid
Chairman, Essex Fiscal 1995 High Low
Investment Management June-Aug. 7 5/8 5 1/2
Company, Inc. Sept.-Nov. 8 1/4 6 3/8
Dec.-Feb. 6 5/8 4 1/8
Glenn P. Strehle Mar.-May 4 7/8 3 5/8
Vice President for
Finance and Treasurer, SHAREHOLDER INFORMATION
Massachusetts Institute TRANSFER AGENT AND
of Technology REGISTRAR:
<PAGE> 42
OPERATING LOCATIONS: State Street Bank &
Trust Company
Austin, Texas Boston, Massachusetts
Charlotte, North Carolina
Covington, Kentucky AUDITORS:
Grand Rapids, Michigan
Greensboro, North Carolina Coopers & Lybrand L.L.P.
Houston, Texas Boston, Massachusetts
Indianapolis, Indiana
Kalamazoo, Michigan COUNSEL:
Lansing, Michigan
New York, New York Goodwin, Procter & Hoar
Raleigh, North Carolina Boston, Massachusetts
San Diego, California
Waltham, Massachusetts
Yardley, Pennsylvania
</TABLE>
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
State of Name Under Which
Name Incorporation Business is Done
- ---------------------------------------------------------------------------------------------
<S> <S> <S>
Information Decisions, Inc. Michigan Information Decisions,
Inc. in Michigan,
Carolina Computer Stores
in North Carolina, and
Micro Control in Pennsylvania
System Constructs, Inc. New York System Constructs, Inc.
SofTech Investments, Inc. Massachusetts SofTech Investments, Inc.
AMG Associates, Inc. Maryland Inactive
Compass, Inc. Massachusetts Inactive
SofTech Microsystems, Inc. Massachusetts Inactive
Engineering and Support Services, Inc. Massachusetts Inactive
TriSource, Inc. Massachusetts Inactive
</TABLE>
<PAGE> 43
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
-------------------
To the Stockholders and Board of
Directors of SofTech, Inc.:
We consent to the incorporation by reference in the Registration
Statements of SofTech, Inc. on Form S-8 (File No.'s 2-82554, 33-5782, and
33-80746) of our reports dated July 26, 1995, on our audits of the consolidated
financial statements and financial statement schedule of SofTech, Inc. as of
May 31, 1995 and 1994, and for the three years in the period ended May 31,
1995, which reports are included, or incorporated by reference, in this Annual
Report on Form 10-K.
Boston, Massachusetts /s/ COOPERS & LYBRAND L.L.P.
August 25, 1995
<PAGE> 44
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-END> MAY-31-1995
<CASH> 2,373
<SECURITIES> 0
<RECEIVABLES> 12,701
<ALLOWANCES> (42)
<INVENTORY> 1,819
<CURRENT-ASSETS> 21,666
<PP&E> 5,221
<DEPRECIATION> 2,882
<TOTAL-ASSETS> 28,745
<CURRENT-LIABILITIES> 8,051
<BONDS> 0
<COMMON> 450
0
0
<OTHER-SE> 20,244
<TOTAL-LIABILITY-AND-EQUITY> 28,745
<SALES> 49,801
<TOTAL-REVENUES> 49,801
<CGS> 38,320
<TOTAL-COSTS> 51,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,982)
<INCOME-TAX> (19)
<INCOME-CONTINUING> (1,963)
<DISCONTINUED> (358)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,321)
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
