SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
__________________
For the Quarter Ended Commission File Number
February 29, 2004 0-10665
SOFTECH, INC.
State of Incorporation IRS Employer
Identification
Massachusetts 04-2453033
2 Highwood Drive, Tewksbury, MA 01876
Telephone (978) 640-6222
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 March 31, 2004
was 12,205,236 shares.
SOFTECH, INC.
-------------
INDEX
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PART I. Financial Information Page Number
------------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
February 29, 2004 (unaudited) and May 31, 2003 (audited) 3
Consolidated Condensed Statements of Operations (unaudited) -
Three Months Ended February 29, 2004 and February 28, 2003 4
Consolidated Condensed Statements of Operations (unaudited) -
Nine Months Ended February 29, 2004 and February 28, 2003 5
Consolidated Condensed Statements of Cash Flows (unaudited) -
Nine Months Ended February 29, 2004 and February 28, 2003 6
Notes to Consolidated Condensed Financial Statements 7-14
Item 2. Management's Discussion and Analysis of Operations 15-20
Item 3. Controls and Procedures 21
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
(dollars in Thousands)
February 29, May 31,
2004 2003
(unaudited) (audited)
-------------- ----------
ASSETS
-----------
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 539 $ 654
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 65
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . 1,576 2,052
Prepaid expenses and other assets . . . . . . . . . . . . . . . . . . . 134 235
-------------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . 2,249 3,006
-------------- ----------
Property and equipment, net (Note B). . . . . . . . . . . . . . . . . . 231 306
Capitalized software costs, net . . . . . . . . . . . . . . . . . . . . 7,560 9,114
Identifiable intangible purchased assets, net . . . . . . . . . . . . . 642 917
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,601 4,598
Notes receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 134
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160 160
-------------- ----------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,577 $ 18,235
============== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
---------------------------------------
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 198 $ 474
Accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,468 2,048
Deferred maintenance revenue. . . . . . . . . . . . . . . . . . . . . . 3,996 4,074
Current portion of capital lease obligations. . . . . . . . . . . . . . 14 30
Current portion of long term debt . . . . . . . . . . . . . . . . . . . 1,892 1,095
-------------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . 7,568 7,721
-------------- ----------
Non-current deferred revenue. . . . . . . . . . . . . . . . . . . . . . 118 204
Long-term debt, net of current portion. . . . . . . . . . . . . . . . . 12,245 13,058
-------------- ----------
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . 12,363 13,262
-------------- ----------
Stockholders' deficit . . . . . . . . . . . . . . . . . . . . . . . . . (4,354) (2,748)
-------------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT . . . . . . . . . . . . . . $ 15,577 $ 18,235
============== ==========
See accompanying notes to consolidated condensed financial statements.
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per
share data)
Three Months Ended
------------------------------------
February 29, February 28,
2004 2003
-------------------- --------------
Revenue
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 603 $ 989
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,165 2,167
-------------------- --------------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,768 3,156
Cost of products sold. . . . . . . . . . . . . . . . . . . . . . . . . 15 16
Cost of services provided. . . . . . . . . . . . . . . . . . . . . . . 476 332
-------------------- --------------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,277 2,808
Research and development expenses. . . . . . . . . . . . . . . . . . . 751 706
Selling, general and administrative. . . . . . . . . . . . . . . . . . 1,406 1,647
Amortization of capitalized software and other intangible assets . . . 610 635
-------------------- --------------
Loss from operations before interest expense and income taxes. . . . . (490) (180)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 255 314
-------------------- --------------
Loss from operations before income taxes . . . . . . . . . . . . . . . (745) (494)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . - -
-------------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (745) $ (494)
==================== ==============
Basic and diluted net loss per common share. . . . . . . . . . . . . . $ (0.06) $ (0.04)
Weighted average common shares outstanding . . . . . . . . . . . . . . 12,205 12,205
See accompanying notes to consolidated condensed financial statements.
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except
for per share data)
Nine Months Ended
------------------------------------
February 29, February 28,
2004 2003
------------------- --------------
Revenue
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,054 $ 2,124
Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,967 4,979
------------------- --------------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,021 7,103
Cost of products sold. . . . . . . . . . . . . . . . . . . . . . . . . 34 49
Cost of services provided. . . . . . . . . . . . . . . . . . . . . . . 1,460 469
------------------- --------------
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,527 6,585
Research and development expenses. . . . . . . . . . . . . . . . . . . 2,292 1,402
Selling, general and administrative. . . . . . . . . . . . . . . . . . 4,112 4,127
Amortization of capitalized software and other intangible assets . . . 1,835 1,405
------------------- --------------
Loss from operations before interest expense and income taxes. . . . . (712) (349)
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 757 890
------------------- --------------
Loss from operations before income taxes . . . . . . . . . . . . . . . (1,469) (1,239)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . - -
------------------- --------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,469) $ (1,239)
=================== ==============
Basic and diluted net loss per common share. . . . . . . . . . . . . . $ (0.12) $ (0.10)
Weighted average common shares outstanding . . . . . . . . . . . . . . 12,205 12,205
See accompanying notes to consolidated condensed financial statements.
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
------------------------------
February 29, February 28,
2004 2003
-------------- --------------
Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,469) $ (1,239)
-------------- --------------
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 1,943 1,703
Change in current assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . 476 (900)
Prepaid expenses and other assets. . . . . . . . . . . . . . . . . 25 134
Accounts payable and accrued expenses. . . . . . . . . . . . . . . (856) 706
Deferred maintenance revenue . . . . . . . . . . . . . . . . . . . (164) 285
-------------- --------------
Total adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,424 1,928
-------------- --------------
Net cash (used) provided by operating activities . . . . . . . . . . . (45) 689
-------------- --------------
Cash flows used by investing activities:
Payments for business acquisition, net of cash acquired . . . . . - (3,305)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . (38) (83)
-------------- --------------
Net cash used by investing activities. . . . . . . . . . . . . . . . . (38) (3,388)
-------------- --------------
Cash flows from financing activities:
Principal payments under capital lease obligations. . . . . . . . . (16) (44)
(Payments) proceeds from line of credit agreements, net . . . . . . (16) 3,109
-------------- --------------
Net cash (used) provided by financing activities . . . . . . . . . . . (32) 3,065
-------------- --------------
(Decrease) increase in cash and cash equivalents . . . . . . . . . . . (115) 366
Cash and cash equivalents, beginning of period . . . . . . . . . . . . 654 708
-------------- --------------
Cash and cash equivalents, end of period . . . . . . . . . . . . . . . $ 539 $ 1,074
============== ==============
Supplemental Disclosures of Cash Flow Information:
Interest Paid. . . . . . . . . . . . . . . . . . . . . . . . 757 890
Income Taxes Paid. . . . . . . . . . . . . . . . . . . . . . 10 11
See accompanying notes to consolidated condensed financial statements.
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 2003 Annual Report on
Form 10-KSB.
(B) SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION:
The Company has adopted the provisions of Statement of Position No. 97-2,
"Software Revenue Recognition" (SOP 97-2) as amended by SOP No. 98-9, in
recognizing revenue from software transactions. Revenue from software license
sales are recognized when persuasive evidence of an arrangement exists, delivery
of the product has been made, and a fixed fee and collectibility has been
determined. To the extent that obligations exist for other services, the Company
allocates revenue between the license and the services based upon their relative
fair value. Revenue from customer maintenance support agreements is deferred and
recognized ratably over the term of the agreements. Revenue from engineering,
consulting and training services is recognized as those services are rendered.
CAPITALIZED SOFTWARE COSTS AND RESEARCH AND DEVELOPMENT:
The Company capitalizes certain costs incurred to internally develop and/or
purchase software that is licensed to customers. Capitalization of internally
developed software begins upon the establishment of technological feasibility.
Costs incurred prior to the establishment of technological feasibility are
expensed as incurred. The Company evaluates the realizability and the related
periods of amortization on a regular basis. Such costs are amortized over
estimated useful lives ranging from three to ten years. The Company did not
capitalize any internally developed software during the three or nine month
periods ended February 29, 2004 or February 28, 2003.
ACCOUNTING FOR GOODWILL AND OTHER INTANGIBLE ASSETS
Effective June 1, 2002, the Company adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets. This statement affects the Company's
treatment of goodwill and other intangible assets. This statement requires that
goodwill existing at the date of adoption be reviewed for possible impairment
and that impairment tests be repeated annually, with impaired assets written
down to fair value. Additionally, existing goodwill and intangible assets must
be assessed and classified within the statement's criteria. Intangible assets
with finite useful lives will continue to be amortized over those periods.
Amortization of goodwill ceased as of May 31, 2002.
The Company completed the first step of the transitional goodwill impairment
test during the three months ended November 30, 2002 based on the amount of
goodwill as of the beginning of fiscal year 2003, as required by SFAS No. 142.
Based on the results of the first step of the transitional goodwill impairment
test, the Company determined that the fair value of each of the reporting units
exceeded their carrying amounts and, therefore, no goodwill impairment existed
as of June 1, 2002.
The Company tested the goodwill for impairment as of May 31, 2003 and concluded,
based on actual results for fiscal 2003 and projected cash flows from each of
the reporting units, that no impairment existed as of May 31, 2003.
LONG-LIVED ASSETS:
The Company periodically reviews the carrying value of all intangible assets
with a finite life (primarily capitalized software costs) and other long-lived
assets. If indicators of impairment exist, the Company compares the undiscounted
cash flows estimated to be generated by those assets over their estimated
economic life to the related carrying value of those assets to determine if the
assets are impaired. If the carrying value of the asset is greater than the
estimated undiscounted cash flows, the carrying value of the assets would be
decreased to their fair value through a charge to operations. The Company does
not have any long-lived assets it considers to be impaired. The Company has
determined that all of its intangible assets (other than goodwill) have finite
lives and, therefore, the Company has continued to amortize its intangible
assets.
STOCK BASED COMPENSATION
On December 31, 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 148 (SFAS 148), Accounting for Stock-Based Compensation --
Transition and Disclosure, amending FASB Statement No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. This Statement amends SFAS 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, SFAS 148 amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. The Company has complied with the disclosure provisions in these
financial statements.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees" and provides the
required pro forma disclosures prescribed by SFAS 123 and SFAS 148.
The Company has adopted the disclosure-only provisions of SFAS 123. In
accordance with those provisions, the Company applies APB 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation cost if the exercise price is not less than market.
No compensation expense was recognized during the three and nine month periods
ended February 29, 2004 or February 28, 2003.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
stock option plans. Because the number of shares is known and the exercise price
of options granted has been equal to fair value at date of grant, no
compensation expense has been recognized in the statements of operations. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date for awards under these plans, consistent with
the methodology prescribed under SFAS 123, the Company's net loss and loss per
share would have approximated the pro forma amounts indicated below:
Three Month Periods Ended
----------------------------
February 29, February 28,
2004 2003
(in thousands, except per share data) (unaudited) (unaudited)
---------------------------------- ------------ -------------
Net loss - as reported. . . . . . . . . $ (745) $ (494)
Net loss - pro forma. . . . . . . . . . (748) (500)
Loss per share - diluted - as reported. (0.06) (0.04)
Loss per share - diluted - pro forma (0.06) (0.04)
Nine Month Periods Ended
----------------------------
February 29, February 28,
2004 2003
(in thousands, except per share data) (unaudited) (unaudited)
------------------------ ------------- -------------
Net loss - as reported. . . . . . . . . $ (1,469) $ (1,239)
Net loss - pro forma. . . . . . . . . . (1,478) (1,256)
Loss per share - diluted - as reported. (0.12) (0.10)
Loss per share - diluted - pro forma. . (0.12) (0.10)
FOREIGN CURRENCY TRANSLATION:
The functional currency of the Company's foreign operations (France, Germany and
Italy) is the local currency. As a result, assets and liabilities are translated
at period-end exchange rates and revenues and expenses are translated at the
average exchange rates. Adjustments resulting from translation of such financial
statements are classified in accumulated other comprehensive income (loss).
Foreign currency gains and losses arising from transactions are included in the
statement of operations.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates included in the
financial statements are the valuation of long term assets including intangibles
(goodwill, capitalized software and other intangible assets), deferred tax
assets and the allowance for doubtful accounts. Actual results could differ from
those estimates.
(C) LIQUIDITY
The Company ended the third quarter of fiscal 2004 with cash of $539,000.
Operating activities utilized $45,000 of cash during the first nine months of
the fiscal year. The net loss adjusted for non-cash expenditures related to
amortization and depreciation together with a decrease in accounts receivable
and other assets generated cash of $975,000. The reduction in accounts payable,
accrued expenses and deferred revenue used cash of $1,020,000 during the first
nine months of the fiscal year.
Although the Company believes its current cost structure together with
reasonable revenue run rates based on historical performance will generate
positive cash flow in fiscal 2004, the current economic environment especially
in the manufacturing sector makes forecasting revenue based on historical models
difficult and somewhat unreliable.
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 February 29, 2004, the Company had available borrowings on its debt
facilities of approximately $3.3 million.
(D) BALANCE SHEET COMPONENTS
Details of certain balance sheet captions are as follows (000's):
Property and Equipment
February 29, May 31,
2004 2003
(unaudited) (audited)
-------------- -------------
Property and equipment. . . $ 3,865 $ 3,827
Accumulated depreciation
and amortization. . . . . (3,634) (3,521)
-------------- -------------
Property and equipment, net $ 231 $ 306
-------------- -------------
Stockholders' Deficit
Common stock, $.10 par value. . . $ 1,274 $ 1,274
Capital in excess of par value. . 19,544 19,544
Accumulated deficit . . . . . . . (23,240) (21,771)
Cumulative translation adjustment (371) (234)
Less treasury stock . . . . . . . (1,561) (1,561)
--------- ---------
Stockholders' deficit . . . . . . $ (4,354) $ (2,748)
--------- ---------
The changes from May 31, 2003 in stockholders equity are due solely to the
changes in the accumulated deficit resulting from the net loss for the first
nine months of the fiscal year of $1,469 and the foreign currency translation
adjustment of $137.
(E) LOSS PER SHARE
Basic net loss per share is computed by dividing the net loss by the
weighted-average number of common shares outstanding. Diluted net loss per share
is computed by dividing net loss by the weighted-average number of common and
equivalent dilutive common shares outstanding. Options to purchase shares of
common stock have been excluded from the denominator for the computation of
diluted earnings per share for all periods presented in fiscal 2004 and 2003
because their inclusion would be antidilutive. There were a total of 493,000 and
413,000 options outstanding at February 29, 2004 and February 28, 2003,
respectively.
(F) COMPREHENSIVE LOSS
The Company's comprehensive loss includes accumulated foreign currency
translation adjustments and unrealized gain (loss) on marketable securities. For
the three and nine month periods ended February 29, 2004 and February 28, 2003,
the comprehensive loss was as follows (000's):
Three Month Periods Ended
February 29, February 28,
2004 2003
(unaudited) (unaudited)
------------- -------------
Net loss . . . . . . . . . . . . . . . . $ (745) $ (494)
Changes in:
Foreign currency translation adjustment. (58) (67)
Unrealized loss on marketable securities - (4)
------------- -------------
Comprehensive loss . . . . . . . . . . . $ (803) $ (565)
============= =============
Nine Month Periods Ended
February 29, February 28,
2004 2003
(unaudited) (unaudited)
------------- -------------
Net loss . . . . . . . . . . . . . . . . $ (1,469) $ (1,239)
Changes in:
Foreign currency translation adjustment. (137) (56)
Unrealized gain on marketable securities - 73
------------- -------------
Comprehensive loss . . . . . . . . . . . $ (1,606) $ (1,222)
============= =============
(G) 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. Within that one reportable segment we offer
several distinct product families and numerous modules for each of those product
families. The three major product families are our two-dimensional CAD product
family known as Cadra, our CAM product offerings by various trade names, and our
data management and collaboration technology known as ProductCenter. The
Company's operations are organized geographically with foreign offices in
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 (000's):
Three Month Periods Ended
February 29, February 28,
2004 2003
Revenue: . . . . . (unaudited) (unaudited)
------------------------------------------
North America. . . $ 2,035 $ 2,625
Asia . . . . . . . 256 280
Europe . . . . . . 571 522
Eliminations . . . (94) (271)
-------------------- --------------------
Consolidated Total $ 2,768 $ 3,156
-------------------- --------------------
Nine Month Periods Ended
February 29, February 28,
2004 2003
Revenue: . . . . . (unaudited) (unaudited)
----------------------------------------
North America. . . $ 6,941 $ 4,925
Asia . . . . . . . 705 749
Europe . . . . . . 1,741 1,931
Eliminations . . . (366) (502)
------------------- -------------------
Consolidated Total $ 9,021 $ 7,103
------------------- -------------------
February 29, May 31,
2004 2003
Long Lived Assets: (unaudited) (audited)
----------------------------------------
North America. . . $ 13,131 $ 15,017
Europe . . . . . . 197 212
------------------- -------------------
Consolidated Total $ 13,328 $ 15,229
------------------- -------------------
(H) NEW ACCOUNTING PRONOUNCEMENTS:
On December 31, 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 148 (SFAS 148), Accounting for Stock-Based Compensation --
Transition and Disclosure, amending FASB Statement No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. This Statement amends SFAS 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, SFAS 148 amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. The Company has complied with the disclosure provisions in these
financial statements.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees" and provides the
required pro forma disclosures prescribed by SFAS 123 and SFAS 148. In
accordance with those provisions, the Company applies APB 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation cost if the exercise price is not less than market.
No compensation expense was recognized during the three and nine month periods
ended February 29, 2004 or the same periods in the prior year.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations. SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, an entity capitalizes a cost
by increasing the carrying amount of the long-lived asset. Over time, the
liability is accreted to its present value each period and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The standard is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 effective June
1, 2003 did not have a material effect on the financial position or results of
operations of the Company.
In April 2003, FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which is effective for contracts
entered into or modified after June 30, 2003. This Statement amends and
clarifies financial accounting and reporting for derivative instruments and for
hedging activities for the purpose of improving financial reporting by requiring
contracts with comparable characteristics to be accounted for similarly. The
adoption of SFAS No. 149 effective July 1, 2003 did not have a material impact
on the Company's financial position or results of operations.
In May 2003, FASB issued Statement No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", which is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The adoption of SFAS No. 150 did
not have a material impact on the Company's financial position or results of
operations.
(I) ACQUISITION
On December 18, 2002, the Company closed its all cash tender offer ("Offer") for
all of the outstanding shares of common stock of Workgroup Technology
Corporation, a Delaware corporation ("WTC"), at a price of $2.00 per share. WTC
was a publicly traded company listed on the Over the Counter Bulletin Board. WTC
develops, supports and markets a software product to mechanical CAD ("Computer
Aided Design") users that allows them to manage their design models. Its product
offerings are compatible with SofTech's.
A total of 1,505,958 shares of WTC's common stock were tendered in the Offer,
which, together with shares beneficially owned by SofTech prior to commencement
of the Offer, represented approximately 88.8% of WTC's outstanding common stock.
Subsequent to the 2003 fiscal year end, the Company exercised an option to
purchase an additional 220,000 shares of WTC thereby bringing its ownership of
WTC to 90.02%. On June 18, 2003, the Company filed a short-form merger with the
State of Delaware thereby acquiring the 205,662 WTC shares that had not been
tendered in the Offering. This action provides the beneficial owners of those
205,662 shares the right to present them to the Company and to receive $2.00 per
share in cash.
The operating results of WTC have been included in the Company's results since
the acquisition date. Therefore the results of operations shown below for the
three and nine month periods ended February 29, 2004 are the actual results
reported in this Form 10-QSB. The unaudited pro forma results of operations for
the three and nine month periods ended February 28, 2003 assume that the WTC
acquisition had occurred as of the beginning of each of those periods.
The following unaudited pro forma comparative information is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
results of operations for future periods or that actually would have been
realized had the Company and WTC been a consolidated entity as of the beginning
of the three and nine month periods ended February 28, 2003 (in thousands,
except per shared data). The pro forma results for the three and nine month
periods ended February 28, 2003 have been prepared by combining the Company's
actual results for those periods with the adjusted results of WTC prior to the
acquisition and making certain adjustments to increase expenses for the
amortization of intangible assets and interest expense and eliminate all
transaction related expenses incurred by WTC during those periods.
Three Months Ended,
(unaudited)
February 29, February 28,
2004 2003
---------------- -------------
Revenue . . . . . . $ 2,768 $ 3,464
Net loss. . . . . . (745) (519)
Net loss per share:
Basic . . . . . . . (.06) (. 04)
Diluted . . . . . . (.06) (.04)
Nine Months Ended,
(unaudited)
February 29, February 28,
2004 2003
---------------- -------------
Revenue . . . . . . $ 9,021 $10,714
Net loss. . . . . . (1,469) (2,739)
Net loss per share:
Basic . . . . . . . (.12) (.22)
Diluted . . . . . . (.12) (.22)
(J) SUBSEQUENT EVENT
Subsequent to the end of the quarter, the Board of Directors approved the
following actions at the regularly scheduled meeting:
- Established June 30, 2004 as the 2003 Annual Meeting of the Stockholders;
- Approved a resolution to amend the Company's Amended Articles of
Incorporation to authorize a class of Preferred Shares and to provide the
Board of Directors with the authority to issue Preferred Shares in an
amount and under such terms as deemed appropriate; and
- Approved the conversion to Preferred Shares of the Company's outstanding
debt to Greenleaf Capital, Inc., subject to approval of the Amendment
described above.
Management and the Board of Directors will recommend that the stockholders
approve the Amendment.
Subject to stockholder approval of the amendment to the Articles of
Incorporation described above, the Company has also reached a tentative
agreement with Greenleaf Capital, Inc. whereby the Company would issue up to $14
million in Preferred Shares to Greenleaf Capital in exchange for up to $14
million of debt.
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
--------------------------------------------------
The statements made below with respect to SofTech's outlook for fiscal 2004 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 technologies, maintaining existing relationships with the Company's
lenders, 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.
Critical Accounting Policies and Significant Judgments and Estimates
---------------------------------------------------------------------------
The Securities and Exchange Commission ("SEC") issued disclosure guidance for
"critical accounting policies." The SEC defines "critical accounting policies"
as those that require the application of management's most difficult, subjective
or complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods.
The Company's significant accounting policies are described in Note B to these
financial statements. The Company believes that the following accounting
policies require the application of management's most difficult, subjective or
complex judgments:
Valuation of Long-lived and Intangible Assets
--------------------------------------------------
We assess the recoverability of long-lived assets and intangible assets whenever
we determine that events or changes in circumstances indicate that their
carrying amount may not be recoverable. Our assessment is primarily based upon
our estimate of future cash flows associated with these assets. These valuations
contain certain assumptions concerning estimated future revenues and future
expenses for each of our two reporting units. We have determined that there is
no indication of impairment of any of our assets. However, should our operating
results deteriorate, we may determine that some portion of our long-lived assets
or intangible assets are impaired. Such determination could result in non-cash
charges to income that could materially affect our financial position or results
of operations for that period.
Valuation of Goodwill
-----------------------
Effective June 1, 2002, the Company adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets. This statement affects the Company's
treatment of goodwill and other intangible assets. This statement requires that
goodwill existing at the date of adoption be reviewed for possible impairment
and that impairment tests be repeated annually, with impaired assets written
down to fair value. Additionally, existing goodwill and intangible assets must
be assessed and classified within the statement's criteria. Intangible assets
with finite useful lives will continue to be amortized over those periods.
Amortization of goodwill and intangible assets with indeterminable lives ceased
as of June 1, 2002.
The Company completed the first step of the transitional goodwill impairment
test during the three months ended November 30, 2002 based on the amount of
goodwill as of the beginning of fiscal year 2003, as required by SFAS No. 142.
Based on the results of the first step of the transitional goodwill impairment
test, the Company has determined that the fair value of each of the reporting
units exceeded their carrying amounts and, therefore, no goodwill impairment
existed as of June 1, 2002. As a result, the second step of the transitional
goodwill impairment test was not required to be completed. The Company tested
the goodwill for impairment at May 31, 2003 and concluded based on actual
results for fiscal 2003 and projected cash flows from each of the reporting
units that no impairment existed as of May 31, 2003. The Company will be
required to continue to perform a goodwill impairment test on an annual basis.
Estimating Allowances for Doubtful Accounts Receivable
-----------------------------------------------------------
We perform ongoing credit evaluations of our customers and adjust credit limits
based upon payment history and the customer's current credit worthiness, as
determined by our review of their current credit information. We continuously
monitor collections and payments from our customers and maintain a provision for
estimated credit losses based upon our historical experience and any specific
customer collection issues that we have identified. While such credit losses
have historically been within our expectations and the provisions established,
we cannot guarantee that we will continue to experience the same credit loss
rates that we have in the past. A significant change in the liquidity or
financial position of any of our significant customers could have a material
adverse effect on the collectibility of our accounts receivable and our future
operating results.
Valuation of Deferred Tax Assets
------------------------------------
We regularly evaluate our ability to recover the reported amount of our deferred
income taxes considering several factors, including our estimate of the
likelihood of the Company generating sufficient taxable income in future years
during the period over which temporary differences reverse. The Company's
deferred tax assets are currently fully reserved.
Results of Operations
-----------------------
The WTC Acquisition
---------------------
On December 18, 2002, the Company closed its all cash tender offer ("Offer") for
all of the outstanding shares of common stock of Workgroup Technology
Corporation as more fully described above and in our previous SEC filings. The
operating results of WTC have been included in the Company's results since the
acquisition date.
WTC represented a significant acquisition for the Company. Its technology, known
as ProductCenter, is complementary to our technology offerings, its revenue was
comparable and its physical proximity made it possible to quickly combine our
headquarter locations within one facility. Redundant administrative and
management positions were also eliminated at or near the acquisition date. Most
of the significant changes in results of operations for the periods presented
herein are a direct result of this acquisition.
The results of operations for WTC are included in their entirety in the three
and nine month periods ended February 29, 2004. For the three month period ended
February 28, 2003, WTC's results of operations are included for all but the
first 18 days of that period. For the nine months ended February 28, 2003, WTC's
results of operations are included for the last two and a half months of that
period.
Overview
--------
Our revenues derive from three distinct product families that serve different
functions within what has become known as the Product Lifecycle Management
("PLM") industry. These product families were acquired by the Company in three
separate and unrelated business transactions over the last six years. Two of
those product families, Cadra and our CAM technologies, serve mature markets and
are primarily focused on catering to the needs of our installed base. These
product families make up about half of our revenue. The ProductCenter product
line is a product data management and collaboration technology. Essentially, it
allows users to capture critical corporate product data, control that data and
share it with authorized users throughout the company's extended enterprise.
This product offering serves a portion of the PLM industry that is forecasted by
industry analysts to grow at approximately 15% per year for the next four years.
ProductCenter is integrated with proprietary CAD tools that make up a majority
of the installed base of CAD users including Parametric Technology Corporation's
Pro/Engineer, Dassault Systems' Solidworks and AutoDesk's products including
AutoCad, Inventor and Mechanical Desktop.
Over the last several months, we have experienced an increase in pre-sales
activity surrounding our ProductCenter offering. We attribute this increased
pre-sales activity to several factors including:
- the increased sales presence of the Company's sales force and indirect
distribution channel marketing the ProductCenter offering post acquisition;
- the translation of ProductCenter for non-English speaking users;
- a cautiously improving economic outlook which has begun to remove the
spending restraints that were most certainly in place for a large portion
of our targeted customers over the last several years; and
- a steadily growing transition from 2D CAD tools to 3D CAD tools which
greatly increase the demand for data management solutions.
However, while we have experienced an increase in pre-sales activity over the
last several months, there continues to be a hesitancy on the part of companies
to make that final decision to issue a purchase order. This hesitation has
caused a certain unpredictability to our license revenue although the pipeline
of identified business from both our installed base and newly identified
customers has grown. Our current quarter product revenue decreased 27% from the
immediately preceding second quarter and 37% from the same quarter in the prior
year. These negative comparisons were due almost entirely to our ProductCenter
offering which is exactly where we see the increasing pre-sale activity and the
greatest market opportunity.
Detailed Analysis
------------------
Revenue for the three month period ended February 29, 2004 was $2.8 million as
compared to $3.2 million for the same period in the prior fiscal year, a
decrease of $(.4) million or (12.3)%. This decrease was primarily due to the
decrease in product revenue from our ProductCenter offering (acquired in the WTC
transaction). See discussion under product revenue below.
Revenue for the nine month period ended February 29, 2004 was $9.0 million as
compared to $7.1 million for the same period in the prior fiscal year, an
increase of $1.9 million or 27.0%. The inclusion of WTC for the entire nine
month period of the current year while being included in the prior year for only
about two and a half months of the nine month period accounted for $2.5 million
of the increase. The revenue generated from the Company's CAD and CAM product
lines declined by approximately 11% during the nine month period ended February
29, 2004 as compared to the same period in the prior year.
Product revenue for the three month period ended February 29, 2004 was
approximately $603,000 as compared to $989,000 for the same period in the prior
fiscal year, a decrease of $(386,000) or (39%). This decrease was due primarily
to the decline in our ProductCenter offering. As detailed in the Overview above,
the pre-sale activity related to this product line has steadily increased over
the last several months but there is a pronounced and wide spread final
hesitation on the part of our customers to make that final purchase decision.
This has caused a hesitation and certain unevenness to our order flow especially
for the ProductCenter offering. It is our view that this hesitation is the
result of the recession-like economic environment in the world-wide
manufacturing marketplace over the last several years. While the economy has
shown signs of improvement over the last several quarters, our customers seem to
be cautiously evaluating purchase decisions.
Product revenue for the nine month period ended February 29, 2004 was
approximately $2,054,000 as compared to $2,124,000 for the same period in the
prior fiscal year, a decrease of $(70,000) or (3.3)%. WTC generated product
revenue of $913,000 in the nine month period ended February 29, 2004 as compared
to $564,000 for the same period in fiscal 2003 when WTC contributed to product
revenue only for the third quarter of that year. This increase was more than
offset by a decline of approximately 26% in product revenue from the Company's
CAD and CAM product lines.
Service revenue for the three month periods ended February 29, 2004 and February
28, 2003 was $2.2 million for both periods. However, if WTC was included for the
first 18 days of the quarter ended February 28, 2003, service revenue would have
decreased by about 14% in the quarter to quarter comparison.
Service revenue for the nine month period ended February 29, 2004 was $7.0
million as compared to $5.0 million for the same period in fiscal 2003, an
increase of $2.0 million or 39.9%. WTC generated service revenue of $3.0 million
for the nine month period ended February 29, 2004 as compared to $826,000 for
the nine month period ended February 28, 2003 (due to the December 18, 2002
acquisition date) thereby accounting for all of the increase in service revenue.
Despite the difficult economic situation noted above, generally our customers
continue to purchase maintenance support contracts. This is the reason that
SofTech's non-WTC service revenue remained flat despite the declines noted above
for product revenue.
Gross margin as a percentage of revenue was 82.2% for the three month period
ended February 29, 2004 as compared to 89.0% for the same period in fiscal 2003.
Gross margin as a percentage of revenue was 83.4 % for the nine month period
ended February 29, 2004 as compared to 92.3% for the same periods in fiscal
2003. This decrease in gross margin as a percent of revenue in fiscal 2004 as
compared to the same period in fiscal 2003 is due to WTC's consulting services
which make up between 8% and 9% of total revenue in the three and nine month
periods ended February 29, 2004. The consulting revenue generated is a labor
intensive effort and therefore has a much lower margin as compared to the margin
on software maintenance revenue. It is the Company's expectation that consulting
revenue will be an important element of our business in the future and that the
gross margin experience of the current year is expected to be the norm.
Research and development expenses ("R&D") were $751,000 for the three month
period ended February 29, 2004 as compared to $706,000 for the same period in
the prior year. Research and development expenses were $2.3 million for the nine
month period ended February 29, 2004, as compared to $1.4 million for the same
period in the prior fiscal year. This represents an increase of $45,000 or 6.4%
for fiscal 2004 Q3 as compared to the same period in fiscal 2003 and an increase
of $890,000 or 63.5% for the nine month period ended February 29, 2004 as
compared to the same period in fiscal 2003. The increase in R&D expenditures is
due primarily to the addition of WTC's development engineering group on December
18, 2002 which increased our R&D staff from 14 to 28.
Selling, general and administrative ("SG&A") expenses were $1.4 million for the
three month period ended February 29, 2004 as compared to $1.6 million for the
same period in the prior fiscal year. SG&A expenses were $4.1 million for both
the nine month periods ended February 29, 2004 and February 28, 2003. As the WTC
acquisition was integrated in the third quarter of fiscal 2003 we have been able
to realize cost synergies through consolidation of office locations and
reduction of redundant functions. This has resulted in no growth in SG&A costs
for the current year nine month period as compared to the prior year despite the
27% growth in revenue.
The non-cash expenses related to the amortization of capitalized software and
other intangible assets were $.6 million for both the three month periods ended
February 29, 2004 and February 28, 2003. The non-cash expenses related to the
amortization of capitalized software and other intangible assets was $1.8
million for the nine month period ended February 29, 2004 as compared to $1.4
million for the same periods in fiscal 2003. The increase of approximately $.4
million for the nine months ended February 29, 2004 as compared to the same
period in fiscal 2003 is related to the capitalized software and other
identifiable intangible assets of WTC totaling approximately $2.7 million that
are being amortized on a straight line basis over 3 years. These amortized costs
related to the WTC acquisition were included in the current year nine month
period for all three quarters but for only one quarter in the same period in
fiscal 2003.
Interest expense for the three month period ended February 29, 2004 was
approximately $255,000 as compared to $314,000 for the same period in fiscal
2003. This represents a decrease of $(59,000) or (18.8)% for the third quarter
of fiscal 2004 compared to the same period in the previous fiscal year. Interest
expense for the nine month period ended February 29, 2004 was approximately
$757,000 as compared to $890,000 for the same period in fiscal 2003, a decrease
of $(133,000) or (14.9)% for the nine month period ended February 29, 2004 as
compared to the same period in the prior fiscal year. The average borrowings
increased to approximately $14.3 million during the current quarter as compared
to $14.5 million for the same period in fiscal 2003 and the average interest
rate on those borrowings decreased to about 7.0% in the current quarter from
8.6% for the same period in fiscal 2003. The average borrowings increased to
approximately $14.2 million during the first nine months of fiscal 2004 as
compared to $12.9 million for the same period in fiscal 2003 and the average
interest rate on those borrowings decreased to about 7.0% during the first nine
months of fiscal 2004 as compared to 9.2% for the same period in fiscal 2003.
The increase in average borrowings is a direct result of the funds borrowed to
complete the WTC acquisition. The decrease in average interest rate is due to a
reduction in the prime rate.
Capital Resources and Liquidity
----------------------------------
The Company ended the third quarter of fiscal 2004 with cash of $539,000.
Operating activities utilized $45,000 of cash during the first nine months of
the fiscal year. The net loss adjusted for non-cash expenditures related to
amortization and depreciation together with a decrease in accounts receivable
and other assets generated cash of $975,000. The reduction in accounts payable,
accrued expenses and deferred revenue used cash of $1,020,000 during the first
nine months of the fiscal year.
Although the Company believes its current cost structure together with
reasonable revenue run rates based on historical performance will generate
positive cash flow in fiscal 2004, the current economic environment especially
in the manufacturing sector makes forecasting revenue based on historical models
difficult and somewhat unreliable.
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 February 29, 2004, the Company had available borrowings on its debt
facilities of approximately $3.3 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business is subject to many uncertainties and risks. This Form
10-QSB also contains certain forward-looking statements within the meaning of
the Private Securities Reform Act of 1995. The Company's future results may
differ materially from its current results and actual results could differ
materially from those projected in the forward looking statements as a result of
certain risk factors, including but not limited to those set forth below, other
one-time events and other important factors disclosed previously and from time
to time in the Company's other filings with the SEC.
Our quarterly results may fluctuate. The Company's quarterly revenue and
---------------------------------------
operating results are difficult to predict and may fluctuate significantly from
quarter to quarter. Our quarterly revenue may fluctuate significantly for
several reasons, including: the timing and success of introductions of our new
products or product enhancements or those of our competitors; uncertainty
created by changes in the market; difficulty in predicting the size and timing
of individual orders; competition and pricing; and customer order deferrals as a
result of general economic conditions. Furthermore, the Company has often
recognized a substantial portion of its product revenues in the last month of a
quarter, with these revenues frequently concentrated in the last weeks or days
of a quarter. As a result, product revenues in any quarter are substantially
dependent on orders booked and shipped in the latter part of that quarter and
revenues from any future quarter are not predictable with any significant degree
of accuracy. We typically do not experience order backlog. For these reasons, we
believe that period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as indications of future
performance.
We may not generate positive cash flow in the future. During fiscal years 1998
------------------------------------------------------
through 2001 we generated significant cash losses from operations. The Company
took aggressive cost cutting steps and reorganized its operations at the
beginning of fiscal 2002. These actions have greatly reduced our fixed costs and
resulted in positive cash flow from operations for the last two full fiscal
years. It is our expectation that we can continue to improve on our recent
success, however, there can be no assurances that the Company will continue to
generate positive cash in the future.
Continued decline in business conditions and Information Technology (IT)
--------------------------------------------------------------------------------
spending could cause further decline in revenue. The level of future IT
------------------------------------------------------
spending remains very uncertain as does the prognosis for an economic recovery
in the manufacturing sector. If IT spending continues to decline
and the manufacturing sector continues to experience economic difficulty, the
Company's revenues could be adversely impacted.
The Company is dependent on its lender for continued support. We have a very
-----------------------------------------------------------------
strong relationship with our sole lender, Greenleaf Capital. They currently
represent our sole source of financing and it is our belief that it would be
difficult to find alternative financing sources in the event whereby the
relationship with Greenleaf changed.
The continued integration of WTC may experience difficulty. Since acquiring WTC
------------------------------------------------------------
in December 2002, much progress has been made in integrating our operations,
reducing redundant functions and consolidating our facilities. The strategy
includes more closely integrating our technologies and offering our combined
customer base these solutions. The strategy also includes translating
ProductCenter for users other than the U.S. English speaking market. There can
be no assurance that this continued integration of our technologies or offering
ProductCenter outside the U.S. will be successful.
NEW ACCOUNTING PRONOUNCEMENTS:
On December 31, 2002, the Financial Accounting Standards Board ("FASB") issued
FASB Statement No. 148 (SFAS 148), Accounting for Stock-Based Compensation --
Transition and Disclosure, amending FASB Statement No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. This Statement amends SFAS 123 to
provide alternative methods of transition for an entity that voluntarily changes
to the fair value based method of accounting for stock-based employee
compensation. It also amends the disclosure provisions of that Statement to
require prominent disclosure about the effects on reported net income of an
entity's accounting policy decisions with respect to stock-based employee
compensation. Finally, SFAS 148 amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
information. The Company has complied with the disclosure provisions in these
financial statements.
The Company has chosen to continue to account for stock-based compensation using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25 (APB 25), "Accounting for Stock Issued to Employees" and provides the
required pro forma disclosures prescribed by SFAS 123 and SFAS 148. In
accordance with those provisions, the Company applies APB 25 and related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation cost if the exercise price is not less than market.
No compensation expense was recognized during the three and nine month periods
ended February 29, 2004 or the same periods in the prior year.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations. SFAS No. 143 requires entities to record the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. When the liability is initially recorded, an entity capitalizes a cost
by increasing the carrying amount of the long-lived asset. Over time, the
liability is accreted to its present value each period and the capitalized cost
is depreciated over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement. The standard is effective for fiscal
years beginning after June 15, 2002. The adoption of SFAS No. 143 effective June
1, 2003 did not have a material effect on the financial position or results of
operations of the Company.
In April 2003, FASB issued Statement No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities", which is effective for contracts
entered into or modified after June 30, 2003. This Statement amends and
clarifies financial accounting and reporting for derivative instruments and for
hedging activities for the purpose of improving financial reporting by requiring
contracts with comparable characteristics to be accounted for similarly. The
adoption of SFAS No. 149 effective July 1, 2003 did not have a material impact
on the Company's financial position or results of operations.
In May 2003, FASB issued Statement No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity", which is
effective for financial instruments entered into or modified after May 31, 2003
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. The adoption of SFAS No. 150 did
not have a material impact on the Company's financial position or results of
operations.
SOFTECH, INC. AND SUBSIDIARIES
------------------------------
Item 3. Controls and Procedures
-----------------------------------
The Company's President and Chief Operating Officer is responsible for
establishing and maintaining disclosure controls and procedures for the Company.
Such officer has concluded (based upon his evaluation of these controls and
procedures as of a date within 90 days of the filing of this report) that the
Company's disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in this report is
accumulated and communicated to the Company's management, including its
principal executive officers as appropriate, to allow timely decisions regarding
required disclosure.
The Certifying Officer also has indicated that there were no significant changes
in the Company's internal controls or other factors that could significantly
affect such controls subsequent to the date of their evaluation, and there were
no corrective actions with regard to significant deficiencies and material
weaknesses.
PART II. OTHER INFORMATION
-----------------------------
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------------
(b) Reports on Form 8-K
None.
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: April 14, 2004 /s/ Joseph P. Mullaney
-------------------- -------------------------
Joseph P. Mullaney
President and
Chief Operating Officer