SOFT SofTech Inc (CE)

SofTech, Inc. (OTCQB: SOFT), a proven provider of Product Lifecycle Management (PLM) solutions today announced its third quarter fiscal year 2014 operating results. Revenue for the three months ended February 28, 2014 was approximately $1.34 million as compared to approximately $1.46 million for the same period in the prior fiscal year. The net loss for the current quarter was about ($275,000) or ($.31) per share compared to $(14,000) or $(.01) per share for the same period in the prior fiscal year. EBITDA for current quarter was about $(93,000) as compared to about $183,000 for the same period in fiscal year 2013.

Gross margins declined to 57.8% in the current quarter as compared to 77.3% in the comparative quarter in fiscal 2013. In connection with the sale of the CADRA product line in Q2 of fiscal 2014, the Company retained the right to distribute CADRA throughout Europe (except Germany) and to the largest U.S. customer for that technology at margins ranging from 30% to 40%. This reselling activity is responsible for the decline in gross margin in the current quarter. Approximately 39% of the revenue for the current quarter was derived from the CADRA product line as a reseller of that technology.

The increase in the net loss in the current quarter as compared to the same period in fiscal 2013 is primarily due to: 1) non-recurring expenses of approximately $116,000 of lenders and professional services fees related to the December 2013 loan amendment, and 2) reduced profitability earned when generating revenue from technologies of others as a reseller.

As previously announced, the Company amended its debt agreement during the current quarter in order to adjust for the sale of the CADRA product line. As part of that amendment, the Company paid down $1.7 million of its debt facility bringing the outstanding debt to its lowest level since 1997. The Company incurred expenses of approximately $116,000 related to lender and professional fees in connection with this amendment which were expensed as part of SG&A.

“The liquidity provided from the sale of the CADRA product line, as expected, has significantly improved our balance sheet as will the deferred payments of up to an additional $686,000 from Mentor Graphics not yet reflected as deferred payments on our balance sheet,” said Joe Mullaney, SofTech’s CEO. “Our challenge will be in identifying new opportunities that are compatible with the skill set of our employee group while protecting the value of our existing revenue streams. We are confident we can transform this business and continue to build shareholder value during that process,” he added.

FINANCIAL STATEMENTS

The Statements of Operations for the three and nine-month periods ended February 28, 2014 compared to the same periods in the prior fiscal year are presented below. A reconciliation of Net income (loss) to EBITDA, a non-GAAP financial measure, is also provided.

                   

Statements of Operations

(in thousands, except % and per share data)

  For the three months ended Feb. 28, Feb. 28, Change   2014         2013         $       %   Product revenue $ 426 $ 244 $ 182 74.6 % Service revenue 916 1,215 (299 ) -24.6 % Royalties on sale of patents   -     -     -   -   Total revenue   1,342     1,459     (117 ) -8.0 %   Cost of sales   566     331     235   71.0 % Gross margin 776 1,128 (352 ) -31.2 % Gross margin % 57.8 % 77.3 %   R&D 276 231 45 19.5 % SG&A 835 848 (13 ) -1.5 % Gain on sale of CADRA product line   (64 )   -     (64 ) -     Operating income (loss) (271 ) 49 (320 ) -653.1 % Interest expense 10 63 (53 ) -84.1 % Other income   (6 )   -     (6 ) -   Loss from operations before income taxes (275 ) (14 ) (261 ) 1864.3 % Provision for income taxes   -     -     -   -   Net loss   (275 )   (14 )   (261 ) 1864.3 %   Weighted average shares outstanding   875     1,039     (164 ) -15.8 % Basic and diluted net loss per share: $ (0.31 ) $ (0.01 ) $ (0.30 ) -107.1 %   Reconciliation of Net income to EBITDA:   Net loss $ (275 ) $ (14 ) $ (261 ) 1864.3 % Plus interest expense 10 63 (53 ) -84.1 % Plus tax expense - - - - Plus depreciation and amortization 56 63 (7 ) -11.1 % Plus non-recurring professional fees   116     71     45   63.4 % EBITDA $ (93 ) $ 183   $ (276 ) -150.8 %                   For the nine months Feb. 28,     Feb. 28, Change   2014     2013     $   %   Product revenue $ 1,042 $ 936 $ 106 11.3 % Service revenue 3,089 3,574 (485 ) -13.6 % Royalties on sale of patents   -     290     (290 ) -   Total revenue   4,131     4,800     (669 ) -13.9 %   Cost of sales   1,199     1,012     187   18.5 % Gross margin 2,932 3,788 (856 ) -22.6 % Gross margin % 71.0 % 78.9 %   R&D 915 799 116 14.5 % SG&A 2,582 2,391 191 8.0 % Gain on sale of CADRA product line   (155 )   -     (155 ) -     Operating income (loss) (410 ) 598 (1,008 ) -168.6 % Interest expense 203 198 5 2.5 % Other income   (28 )   (11 )   (17 ) 154.5 % Income (loss) from operations before income taxes (585 ) 411 (996 ) -242.3 % Provision for income taxes   -     -     -   -   Net income (loss)   (585 )   411     (996 ) -242.3 %   Weighted average shares outstanding   884     1,010     (126 ) -12.5 % Basic and diluted net income (loss) per share: $ (0.66 ) $ 0.41   $ (1.07 ) -107.1 %   Reconciliation of Net income to EBITDA   Net income (loss) $ (585 ) $ 411 $ (996 ) -242.3 % Plus interest expense 203 198 5 2.5 % Plus tax expense - - - - Plus depreciation and amortization 153 156 (3 ) -1.9 % Plus non-cash goodwill write-off 3,261 - 3,261 - Plus non-recurring professional fees   113     71     42   59.2 % EBITDA $ 3,145   $ 836     2,309   276.2 %  

The Balance Sheets as of February 28, 2014 and our fiscal year ended May 31, 2013 are presented below.

                                 

Balance Sheets

(in thousands)

  As of Feb. 28, May 31, 2014 2013 Cash $ 1,327 $ 1,288 Accounts receivable 1,522 895 Other current assets   55   299 Total current assets   2,904   2,482   Property and equipment, net 103 61 Goodwill 992 4,249 Other non-current assets   937   922 Total assets $ 4,936 $ 7,714   Accounts payable $ 690 $ 137 Accrued expenses 425 602 Deferred maintenance revenue 1,405 2,147 Current portion of long term debt 964 - Other current liabilities   133   102 Total current liabilities   3,617   2,988   Other non-current liabilities 52 39 Long term debt   -   2,700 Total liabilities   3,669   5,727   Redeemable common stock   275   275   Stockholders' equity   992   1,712 Total liabilities, redeemable common stock and stockholders' equity $ 4,936 $ 7,714  

About SofTech

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

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

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

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

Forward Looking Statements

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

These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2013 and its Quarterly Report on Form 10-Q for the fiscal quarter ended February 28, 2014. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

Use of Non-GAAP Financial Measures

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

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