Form 10-Q
Page 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
----------
For the Quarter Ended Commission File Number
August 31, 2000 0-10665
SOFTECH, INC.
State of Incorporation IRS Employer Identification
Massachusetts 04-2453033
4695 44th Street SE, Suite B-130, Grand Rapids, MI 49512
Telephone (616) 957-2330
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
The number of shares outstanding of registrant's common stock at September 30,
2000 was 10,741,784 shares.
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Form 10-Q
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SOFTECH, INC.
INDEX
PART I. Financial Information Page Number
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
August 31, 2000 and May 31, 2000 3
Consolidated Condensed Statements of Income -
Three Months Ended August 31, 2000 and
1999 4
Consolidated Condensed Statements of Cash Flows -
Three Months Ended August 31, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
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Form 10-Q
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PART I. FINANCIAL INFORMATION
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
August 31, May 31,
2000 2000
(unaudited) (audited)
----------- ---------
ASSETS
Cash and cash equivalents $ 914 $ 1,278
Accounts receivable, net 4,139 4,670
Unbilled costs and fees 780 316
Inventory 83 54
Prepaid expenses and other assets 512 644
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Total current assets 6,428 6,962
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Property and equipment, net (Note B) 1,094 1,210
Capitalized software costs, net 12,371 12,577
Goodwill, net 4,270 4,718
Other assets 556 550
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TOTAL ASSETS $24,719 $26,017
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 1,645 $ 1,068
Accrued expenses 884 1,916
Deferred maintenance revenue 2,941 3,712
Current portion of capital lease obligations 100 127
Current portion of long term debt 353 328
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Total current liabilities 5,923 7,151
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Capital lease obligations, net of current portion 154 169
Long-term debt, net of current portion 10,290 9,894
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Total long-term debt 10,444 10,063
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Stockholders' equity (Note B) 8,352 8,803
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $24,719 $26,017
======= =======
See accompanying notes to consolidated condensed financial statements.
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Form 10-Q
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SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
(in thousands, except for per share data)
Three Months Ended
-----------------------------------------
August 31, August 31,
2000 1999
---------- ----------
<S> <C> <C>
Revenue
Products $ 2,389 $3,869
Services 2,122 3,513
---------------------
Total revenue 4,511 7,382
Cost of products sold 198 1,020
Cost of services provided 411 991
-------- ------
Gross margin 3,902 5,371
Research and development expenses 1,295 1,538
Selling, general and administrative 2,784 3,247
-------- ------
Income (loss) from operations (177) 586
Interest expense 287 393
-------- ------
Income (loss) from operations before income taxes (464) 193
Provision for income taxes -- 45
-------- ------
Net income (loss) $ (464) $ 148
======== ======
Basic net income (loss) per common share $ (0.04) $ 0.02
Weighted average common shares outstanding 10,742 8,150
Diluted net income (loss) per common share $ (0.04) $ 0.02
Weighted average dilutive common share equivalents outstanding 10,742 8,390
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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Form 10-Q
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SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(dollars in thousands)
Three Months Ended
------------------------
August 31, August 31,
2000 1999
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (464) $ 148
------- -------
Adjustments to reconcile net income (loss) to
net cash used by operating activities:
Depreciation and amortization 815 945
Change in current assets and liabilities:
Accounts receivable 531 417
Unbilled costs and fees (464) (101)
Inventory (29) (105)
Prepaid expenses and other assets 132 (63)
Accounts payable and accrued expenses (455) (1,509)
Deferred maintenance revenue (771) (1,853)
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Total adjustments (241) (2,269)
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Net cash used by operating activities (705) (2,121)
------- -------
Cash flows used by investing activities:
Capital expenditures (38) (237)
Proceeds from sale of fixed assets -- 15
------- -------
Net cash used by investing activities (38) (222)
------- -------
Cash flows from financing activities:
Principal payments under capital lease obligations (42) (21)
Proceeds from senior debt agreements, net of repayments 421 1,400
------- -------
Net cash provided by financing activities 379 1,379
------- -------
Decrease in cash and cash equivalents (364) (964)
Cash and cash equivalents, beginning of period 1,278 1,600
------- -------
Cash and cash equivalents, end of period $ 914 $ 636
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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Form 10-Q
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SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(A) The consolidated condensed financial statements have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission from the accounts of SofTech, Inc. and its wholly owned
subsidiaries (the "Company") without audit; however, in the opinion of
management, the information presented reflects all adjustments which are
of a normal recurring nature and elimination of intercompany transactions
which are necessary to present fairly the Company's financial position and
results of operations. It is recommended that these consolidated condensed
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's fiscal year 2000 Annual
Report on Form 10-K.
(B) Details of certain balance sheet captions are as follows:
August 31, May 31,
2000 2000
---------- -------
Property and equipment $ 3,539 $ 3,504
Accumulated depreciation
And amortization (2,445) (2,294)
-------- --------
Property and equipment, net $ 1,094 $ 1,210
-------- --------
Common stock, $.10 par value $ 1,128 $ 1,128
Capital in excess of par value 19,690 19,690
Other accumulated comprehensive loss (30) (43)
Accumulated deficit (10,875) (10,411)
Less treasury stock (1,561) (1,561)
-------- --------
Stockholders' equity $ 8,352 $ 8,803
-------- --------
(C) EARNINGS PER SHARE
Basic net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common shares outstanding.
Diluted net income (loss) per share is computed by dividing net income
(loss) by the weighted-average number of common and equivalent dilutive
common shares outstanding.
August 31, August 31,
2000 1999
---------- ----------
Basic weighted average shares outstanding
during the quarter 10,741,784 8,150,289
Effect of employee stock options outstanding -- 239,400
---------- ---------
Diluted 10,741,784 8,389,689
========== =========
(D) COMPREHENSIVE INCOME (LOSS)
Other accumulated comprehensive loss represents accumulated foreign
currency translation adjustments at August 31, 2000 and May 31, 2000.
Comprehensive income (loss) for the three months ended August 31, 2000 and
1999 was $(451) and $132, respectively, and included net income (loss) and
translation gain (loss) for the respective periods.
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Form 10-Q
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SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(E) SEGMENT INFORMATION
The Company operates in one reportable segment and is engaged in the
development, marketing, distribution and support of CAD/CAM and Product
Data Management computer solutions. The Company's operations are organized
geographically with foreign offices in England, France, Germany and Italy.
Components of revenue and long-lived assets (consisting primarily of
intangible assets, capitalized software and property, plant and equipment)
by geographic location, are as follows:
Three Months Ended Three Months Ended
August 31, August 31,
Revenue: 2000 1999
---------- ----------
North America $ 3,883 $ 6,541
Europe 779 1,020
Eliminations (151) (179)
-------- --------
Consolidated Total $ 4,511 $ 7,382
-------- --------
August 31, May 31,
Long-Lived Assets: 2000 2000
---------- --------
North America $ 18,051 $ 18,806
Europe 240 249
-------- --------
Consolidated Total $ 18,291 $ 19,055
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Form 10-Q
Page 8
SOFTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Total revenue for the three-month period ended August 31, 2000 was $4.5
million as compared to $7.4 million for the same period in the prior
fiscal year. This represents a decrease from the first quarter of fiscal
2000 to fiscal 2001 of $2.9 million or 38.9%. Product revenue decreased by
approximately $1.5 million in the first quarter of fiscal 2001 as compared
to the same period in the prior year or about 38.3%. Service revenue
decreased by about $1.4 million or 39.6% in the first quarter of fiscal
2001 as compared to the first quarter of fiscal 2000.
Approximately $1.9 million of the decrease in total revenue in the first
quarter of the current fiscal year as compared to the same period in the
prior fiscal year was due to a strategic decision by the Company at the
end of fiscal 1999 to focus its resources on marketing its technology
first and foremost and to limit its service offerings as much as possible
to high margin consulting projects, training services on its proprietary
software and software maintenance.
Product revenue is composed of license revenue from the sale of the
Company's software technology and revenue from the sale of third party
hardware and software technology. Revenue from the licensing of the
Company's software technology during the first quarter of fiscal 2001 was
$2.2 million, as compared to $2.8 million for the same period in the prior
fiscal year. Revenue from the sale of third party hardware and software
during the first quarter of fiscal 2001 was $200,000, as compared to $1.1
million in the same period in fiscal 2000. The Company expects that the
revenue from hardware and third party software sales will continue to
shrink as the Company continues to focus on marketing its technology.
Service revenue is composed of software maintenance on our proprietary
software, maintenance sold on 3rd party hardware and software and revenue
generated from services performed by our engineers. For the quarter ended
August 31, 2000 software maintenance revenue on our proprietary technology
was $1.8 million as compared to $2.2 million for the same period in the
prior fiscal year. Service revenue generated from the engineering services
group during the quarter ended August 31, 2000 was $300,000, as compared
to $900,000 for the same period in the prior fiscal year.
Product gross margin as a percent of revenue was 92.2% for the first
quarter of fiscal 2001 as compared to 73.6% for the same period in fiscal
2000. The gross margin generated on service revenue for the first quarter
of fiscal 2001 was 80.6% as compared to about 71.8% for the same period in
fiscal 2000. Overall gross margin as a percent of revenue increased to
86.7% in the current quarter as compared to 72.8% in the same period of
fiscal 2000. The improvement in gross margin as a percent of revenue in
the current quarter as compared to the first quarter of fiscal 2000 is a
direct result of a larger component of revenue coming from the sale of the
Company's technology rather than selling other companies' hardware and
software as detailed above.
Research and development expenditures for the first quarter of fiscal 2001
was approximately $1.3 million as compared to $1.5 million in fiscal 2000,
a decrease of approximately 15%. The decrease in expenditures is the
result of efficiencies realized by combining the development groups for
our CAD and CAM operations under one Vice President responsible for all of
our proprietary technology. It is expected that the current quarter
expenditures will be somewhat constant for the remainder of fiscal 2001.
Selling, general and administrative expenses totaled approximately $2.8
million in the first quarter of fiscal year 2001 as compared to $3.2
million in fiscal 2000, a decrease of approximately 14%. The reduced
spending in SG&A in the current quarter as compared to the same quarter in
fiscal 2000 is due to headcount reductions related to the refocusing
detailed above. SG&A headcount has decreased from 90 in Q1 of FY 2000 to
70 in Q1 of FY 2001.
Interest expense for the first quarter of fiscal year 2001 was $287,000 as
compared to approximately $393,000 for the same period in the prior fiscal
year, a decrease of approximately 26%. The decrease is the result of the
debt to equity conversions that took place during the second half of
fiscal 2000 that reduced our average borrowing in the current quarter
relative to the same period in fiscal 2000 by 23%.
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Form 10-Q
Page 9
SOFTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net loss for the three month period ended August 31, 2000 was $(464,000)
or $(0.04) per share, as compared to net income of $148,000 or $0.02 per
share for the same period in the prior fiscal year.
Capital Resources and Liquidity
The Company ended the first quarter of fiscal 2001 with cash of
approximately $914,000, a decrease of $364,000 from year-end 2000.
Operating activities used approximately $700,000 of cash during the first
quarter. Reductions in liabilities used approximately $1.2 million,
partially offset by $351,000 provided from net income adjusted for
non-cash expenses. Financing activities provided approximately $380,000
during the quarter through additional net borrowings from the senior debt
facility.
The Company believes that the cash on hand together with cash flow from
operations and its available borrowings under its credit facility will be
sufficient for meeting its liquidity and capital resource needs for the
next year. At August 31, 2000, the Company had available borrowings on its
line of credit of $3,350,000.
The statements made above with respect to SofTech's outlook for fiscal
2001 and beyond represent "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities and Exchange Act of 1934 and are subject to a number of risks
and uncertainties. These include, among other risks and uncertainties,
general business and economic conditions, generating sufficient cash flow
from operations to fund working capital needs, continued integration of
acquired entities, potential obsolescence of the Company's CAD and CAM
technologies, potential unfavorable outcome to existing litigation,
maintaining existing relationships with the Company's lenders, remaining
in compliance with debt covenants, successful introduction and market
acceptance of planned new products and the ability of the Company to
attract and retain qualified personnel both in our existing markets and in
new territories in an extremely competitive environment.
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Form 10-Q
Page 10
PART II. OTHER INFORMATION
SOFTECH, INC. AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27(i) Financial Data Schedule as required by Article 5 of Regulation S-X.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-month period
ended August 31, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOFTECH, INC.
Date: October 16, 2000 /s/ Joseph P. Mullaney
------------------------- ----------------------------------------
Joseph P. Mullaney
Vice President
Chief Financial Officer
Date: October 16, 2000 /s/ Jan E. Yansak
------------------------- ----------------------------------------
Jan E. Yansak
Controller
