Form 10-QSB
Page 1
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 28,2003 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, 2003
was 12,205,236 shares.
Form 10-QSB
Page 2
SOFTECH, INC.
INDEX
PART I. Financial Information Page Number
-----------
Item 1. Financial Statements
Consolidated Condensed Balance Sheets-
February 28, 2003 (unaudited) and May 31, 2002 3
Consolidated Condensed Statements of Operations (unaudited)-
Three Months Ended February 28, 2003 and
2002 4
Consolidated Condensed Statements of Operations (unaudited)-
Nine Months Ended February 28, 2003 and
2002 5
Consolidated Condensed Statements of Cash Flows (unaudited)-
Nine Months Ended February 28, 2003 and 2002 6
Notes to Consolidated Condensed Financial Statements 7-15
Item 2. Management's Discussion and Analysis of Operations 16-20
Item 3. Controls and Procedures 21
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 21
Form 10-QSB
Page 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(dollars in thousands)
February 28, May 31,
2003 2002
(unaudited) (audited)
---------- ----------
ASSETS
------
Cash and cash equivalents $ 1,074 $ 708
Accounts receivable, net 2,951 1,671
Prepaid expenses and other assets 169 170
---------- ----------
Total current assets 4,194 2,549
---------- ----------
Property and equipment, net (Note B) 252 330
Capitalized software costs, net 8,216 9,371
Identifiable intangible purchased assets, net 2,750 -
Goodwill, net 4,370 2,197
Marketable securities - 106
Other assets 143 143
---------- ----------
TOTAL ASSETS $ 19,925 $ 14,696
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Accounts payable $ 524 $ 372
Accrued expenses 1,909 694
Deferred maintenance revenue 4,370 2,642
Current portion of capital lease obligations 58 79
Current portion of long term debt 1,099 714
---------- ----------
Total current liabilities 7,960 4,501
---------- ----------
Capital lease obligations, net of current portion - 23
Non-current liabilities 774 459
Long-term debt, net of current portion 13,313 10,589
---------- ----------
Total long-term liabilities 14,087 11,071
---------- ----------
Stockholders' deficit (2,122) (876)
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 19,925 $ 14,696
========== ==========
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 4
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Three Months Ended
------------------------------------------
February 28, February 28,
2003 2002
---------------- ---------------
Revenue
Products $ 989 $ 674
Services 2,167 1,599
---------------- ---------------
Total revenue 3,156 2,273
Cost of products sold 16 10
Cost of services provided 332 35
---------------- ---------------
Gross margin 2,808 2,228
Research and development expenses 706 350
Selling, general and administrative 2,282 2,145
---------------- ---------------
Income (loss) from operations before interest expense and income taxes (180) (267)
Interest expense 314 324
---------------- ---------------
Loss from operations before income taxes (494) (591)
Provision for income taxes - -
---------------- ---------------
Net loss $ (494) $ (591)
================ ===============
Basic and diluted net loss per common share $ (0.04) $ (0.06)
Weighted average common shares outstanding 12,205 10,742
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 5
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except for per share data)
Nine Months Ended
------------------------------------------
February 28, February 28,
2003 2002
---------------- ---------------
Revenue
Products $ 2,124 $ 1,746
Services 4,979 4,955
---------------- ---------------
Total revenue 7,103 6,701
Cost of products sold 49 58
Cost of services provided 469 221
---------------- ---------------
Gross margin 6,585 6,422
Research and development expenses 1,402 1,146
Selling, general and administrative 5,532 5,991
---------------- ---------------
Loss from operations before interest expense and income taxes (349) (715)
Interest expense 890 920
---------------- ---------------
Loss from operations before income taxes (1,239) (1,635)
Provision for income taxes - -
---------------- ---------------
Net loss $ (1,239) $ (1,635)
================ ===============
Basic and diluted net loss per common share $ (0.10) $ (0.15)
Weighted average common shares outstanding 12,205 10,742
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 6
SOFTECH, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
-------------------------------------
February 28, February 28,
2003 2002
------------ ------------
Cash flows from operating activities:
Net loss $ (1,239) $ (1,635)
------------ ------------
Adjustments to reconcile net loss to
net cash provided (used) by operating activities:
Depreciation and amortization 1,703 2,304
Change in current assets and liabilities:
Accounts receivable (900) (538)
Prepaid expenses and other assets 134 (14)
Accounts payable and accrued expenses 706 (763)
Deferred maintenance revenue 285 421
------------ ------------
Total adjustments 1,928 1,410
------------ ------------
Net cash provided (used) by operating activities 689 (225)
------------ ------------
Cash flows used by investing activities:
Payments for business acquisition, net of cash acquired (3,305) -
Capital expenditures (83) (3)
------------ ------------
Net cash used by investing activities (3,388) (3)
------------ ------------
Cash flows from financing activities:
Principal payments under capital lease obligations (44) (41)
Proceeds from line of credit agreements, net 3,109 129
------------ ------------
Net cash provided by financing activities 3,065 88
------------ ------------
Increase (decrease) in cash and cash equivalents 366 (140)
Cash and cash equivalents, beginning of period 708 548
------------ ------------
Cash and cash equivalents, end of period $ 1,074 $ 408
============ ============
Supplemental Disclosures of Cash Flow Information:
Interest Paid 890 920
Income Taxes Paid 11 0
See accompanying notes to consolidated condensed financial statements.
Form 10-QSB
Page 7
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 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 2002 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.
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 periodically repeated, 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. The Company utilized a third party independent valuation
to determine the fair value of each of the reporting units based on a
discounted cash flow income approach. 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 is not required to be completed. These valuations contain
certain assumptions concerning estimated future revenues and future
expenses for each of our two product lines, Cadra and AMT, using our fiscal
2003 budget as the baseline. For Cadra, we projected that annual revenue
would decrease at rates between 1.7% and 2.4% and expenses would increase
at annual rates of about 1.5%. For AMT, we projected annual revenue would
increase at annual rates between 2.5% and 3.3% and that expenses would
increase at annual rates of about 1.5%. No additional revenue was projected
for new product offerings for either product line. Should actual results
differ from these estimate, an impairment charge may be necessary in
subsequent periods. The Company will be required to continue to perform a
goodwill impairment test on an annual basis.
Form 10-QSB
Page 8
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The Company did not record expense related to the amortization of goodwill
during the three and nine months ended February 28, 2003. 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.
Three Months Ended
February 28 (000's) (unaudited)
-------------------------------
2003 2002
------ ------
Reported net loss $(494) $(591)
Add back: Goodwill amortization -- 258
----- ----
Adjusted net loss $(494) $(333)
===== =====
Basic and diluted loss per
share, as reported $(.04) $(.06)
===== =====
Basic and diluted loss per
share, as adjusted $(.04) $(.03)
===== =====
Nine Months Ended
February 28 (000's) (unaudited)
-------------------------------
2003 2002
------ ------
Reported net loss $(1,239) $(1,635)
Add back: Goodwill amortization -- 772
------- -------
Adjusted net loss $(1,239) $ (863)
======= =======
Basic and diluted loss per
share, as reported $ (.10) $ (.15)
======= =======
Basic and diluted loss per
share, as adjusted $ (.10) $ (.08)
======= =======
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.
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.
Form 10-QSB
Page 9
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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
allowance for doubtful accounts, valuation of long lived assets including
goodwill and intangibles (capitalized software costs) and deferred tax
assets. Actual results could differ from those estimates.
(C) LIQUIDITY
The Company ended the first nine months of fiscal 2003 with cash of
approximately $1.1 million of which $215,000 is restricted. Operating
activities provided approximately $689,000 of cash during the first nine
months of the fiscal year. The net loss adjusted for non-cash expenditures
related to amortization and depreciation provided cash of $464,000. An
increase in accounts receivable used $900,000, a decrease in prepaid and
other assets provided $134,000 and an increase in liabilities provided
approximately $991,000.
These funds provided from operations together with additional borrowings,
net of repayments, of about $3.1 million under the Company's debt
facilities were utilized to purchase the shares of Workgroup Technology
Corporation ("WTC") as described under Note K.
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 2003, 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. With the completion of the WTC acquisition, the Company amended
its lease for office space at its headquarters in Tewksbury, Massachusetts.
As part of that amendment, the Company provided the lessor with a letter of
guarantee from a commercial bank for $375,000. At February 28, 2003, the
Company had available borrowings on its debt facilities of approximately
$3.2 million.
(D) Details of certain balance sheet captions are as follows (000's):
February 28, May 31,
2003 2002
(unaudited) (audited)
------------ -----------
Property and equipment $ 3,723 $ 3,568
Accumulated depreciation
and amortization (3,471) (3,238)
------------ -----------
Property and equipment, net $ 252 $ 330
------------ -----------
Common stock, $.10 par value $ 1,274 $ 1,274
Capital in excess of par value 19,544 19,544
Accumulated deficit (21,158) (19,919)
Cumulative translation adjustment (221) (166)
Unrealized loss on marketable securities - (48)
Less treasury stock (1,561) (1,561)
------------ -----------
Stockholders' deficit $ (2,122) $ (876)
------------ -----------
Form 10-QSB
Page 10
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(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 2003 and 2002 because their inclusion would be antidilutive. The
weighted average shares outstanding for each of the income statements
included in this filing are presented below:
For the Three Month Periods Ended
February 28, February 28,
2003 2002
(unaudited) (unaudited)
-------------- ---------------
Basic weighted average shares outstanding 12,205,236 10,741,784
Effect of employee stock options outstanding -- --
---------- ----------
Diluted 12,205,236 10,741,784
========== ==========
For the Nine Month Periods Ended
February 28, February 28,
2003 2002
(unaudited) (unaudited)
-------------- ---------------
Basic weighted average shares outstanding 12,205,236 10,741,784
Effect of employee stock options outstanding -- --
---------- ----------
Diluted 12,205,236 10,741,784
========== ==========
(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 at February 28, 2003
and 2002, the comprehensive loss was as follows (000's):
Three Month Periods Ended February 28,
2003 2002
(unaudited) (unaudited)
----------- -----------
Net loss $ (494) $ (591)
Changes in:
Foreign currency translation adjustment (67) 12
Unrealized loss on marketable securities (4) --
------- -------
Comprehensive loss $ (565) $ (579)
======= =======
Form 10-QSB
Page 11
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Month Periods Ended February 28,
2003 2002
(unaudited) (unaudited)
----------- -----------
Net loss $ (1,239) $ (1,635)
Changes in:
Foreign currency translation adjustment (56) 17
Unrealized gain on marketable securities 73 --
--------- ----------
Comprehensive loss $ (1,222) $ (1,618)
========= ==========
(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. 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 Months Ended Three Months Ended
February 28, February 28,
Revenue: 2003 2002
(unaudited) (unaudited)
------------------------------ -----------------------
North America $2,625 $1,306
Asia 280 466
Europe 522 578
Eliminations (271) (77)
------ ------
Consolidated Total $3,156 $2,273
====== ======
Nine Months Ended Nine Months Ended
February 28, February 28,
Revenue: 2003 2002
(unaudited) (unaudited)
------------------------------ -----------------------
North America $4,925 $4,142
Asia 749 996
Europe 1,931 1,814
Eliminations (502) (251)
------ ------
Consolidated Total $7,103 $6,701
====== ======
February 28, May 31,
Long-Lived Assets: 2003 2002
(unaudited) (audited)
------------------------------ -----------------------
North America $15,536 $12,050
Europe 195 97
------- -------
Consolidated Total $15,731 $12,147
======= =======
(H) NEW ACCOUNTING PRONOUNCEMENTS
On December 31, 2002, the 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
Form 10-QSB
Page 12
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
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. For entities that voluntarily change to the fair
value based method of accounting for stock-based employee compensation, the
transition provisions are effective for fiscal years ending after December
15, 2002. For all other companies, the disclosure provisions and the
amendment to APB No. 28 are effective for interim periods beginning after
December 15, 2002. We are currently evaluating the impact of SFAS 148 on
our financial statements and related disclosures.
On November 25, 2002, the FASB issued FASB Interpretation No. 45 ("FIN
45"), Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others, an interpretation
of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation
No. 34. FIN 45 clarifies the requirements of FASB Statement No. 5,
Accounting for Contingencies (SFAS 5), relating to the guarantor's
accounting for, and disclosure of, the issuance of certain types of
guarantees. FIN 45 requires that upon issuance of a guarantee, the
guarantor must recognize a liability for the fair value of the obligation
it assumes under that guarantee. FIN 45 covers guarantee contracts that
have any of the following four characteristics: (a) contracts that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying that is related to an asset, a liability,
or an equity security of the guaranteed party (e.g., financial and market
value guarantees), (b) contracts that contingently require the guarantor to
make payments to the guaranteed party based on another entity's failure to
perform under an obligating agreement (performance guarantees), (c)
indemnification agreements that contingently require the indemnifying party
(guarantor) to make payments to the indemnified party (guaranteed party)
based on changes in an underlying that is related to an asset, a liability,
or an equity security of the indemnified party, such as an adverse judgment
in a lawsuit or the imposition of additional taxes due to either a change
in the tax law or an adverse interpretation of the tax law, and (d)
indirect guarantees of the indebtedness of others. FIN 45 specifically
excludes certain guarantee contracts from its scope. Additionally, certain
guarantees are not subject to FIN 45's provisions for initial recognition
and measurement but are subject to its disclosure requirements. The initial
recognition and measurement provisions are effective for guarantees issued
or modified after December 31, 2002. The disclosure requirements are
effective for our annual financial statements the year ended May 31, 2003.
We are currently evaluating the impact of FIN 45 on our financial
statements and related disclosures.
In January 2003 the FASB issued FIN 46, an interpretation of accounting
Research Bulletin No. 51, Consolidating Financial statements. FIN 46
addresses consolidating by business enterprises of variable interest
entities. Under current practice, consolidation occurs when one enterprise
controls the other through voting interests. FIN 46 explains how to
identify variable interest entities and how an enterprise assesses its
interest in a variable interest entity to decide whether to consolidate
that entity. FIN 46 requires existing unconsolidated variable interest
entities to be consolidated by their primary beneficiary if the entities do
not effectively disperse risks among the parties involved. Variable
interest entities that effectively disperse risks will not be consolidated
unless a single party holds an interest or combination of interests that
effectively negates such risk dispersion. FIN 46 applies immediately for
variable interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after that
date. It applies in the first interim period beginning after June 15, 2003
to variable interest entities in which an enterprise holds a variable
interest that is acquired before February 1, 2003. Management believes that
it does not have a variable interest in an entity that is not consolidated
in its financial position or its results of operations.
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. Management believes the adoption of SFAS No. 143 will not have a
material effect on the financial position or results of operations of the
Company.
Form 10-QSB
Page 13
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
In July 2002, FASB issued Statement No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities", which becomes effective
January 2003. SFAS No. 146 requires companies to recognize costs associated
with exit or disposal activities when they are incurred rather than at the
date of commitment. Management believes the adoption of SFAS No. 146 will
not have a material effect on the financial position or results of
operations or retained earnings.
(I) RECLASSIFICATIONS:
Certain prior year amounts have been reclassified to conform to the current
year presentation. Research and development expense for the three and nine
month periods ended February 28, 2002 included $527,000 and $1,414,000,
respectively, of amortization and allocation of overhead cost that have
been reclassified to selling, general and administrative expense to conform
to the current year presentation. These reclassifications have no effect on
the previously reported results of operations or retained earnings.
(J) AMENDMENT TO PROMISSORY NOTE
On November 8, 2002, the Company amended its Promissory Note with Greenleaf
Capital, Inc. Under the amended agreement the Company increased its
borrowing from $11.0 million to $15.0 million. In addition, the interest
rate was reduced from 9.75% to Prime Rate plus 3.0% (currently 7.25%). This
amendment was entered into in order to provide the Company sufficient
capital to complete the acquisition of Workgroup Technology Corporation
(see Note K). The Promissory Note expires on June 12, 2007.
(K) 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 is 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, represents approximately 88.8% of WTC's
outstanding common stock. The source of the funds used to purchase the
tendered shares under the Offer were borrowed from Greenleaf Capital, Inc.,
SofTech's principal stockholder, under an amended Promissory Note
arrangement which increased the Company's available borrowings (See Note
J).
The Offer was made pursuant to an Agreement and Plan of Merger, dated as of
November 13, 2002, among WTC, SofTech and SofTech Acquisition Corp., a
Delaware corporation and wholly owned subsidiary of SofTech formed for the
purpose of making the Offer.
The aggregate purchase price for WTC was approximately $4.1 million
including costs associated with completing the Offer. SofTech assumed net
liabilities in the transaction of approximately $1.1 million bringing the
total consideration paid to approximately $5.2 million. A third party
appraisal of the long-lived assets of WTC was performed subsequent to the
transaction and a draft report has been issued. The draft valuation report
is being reviewed and evaluated at this time. Our preliminary conclusion
based on this draft valuation report is that approximately $3.0 million of
purchase price will be allocated to identifiable intangible assets such as
contracts and technology acquired. These identifiable intangible assets
will be amortized over their estimated useful lives of between three (3)
and five (5) years. The remaining $2.2 million of the purchase price will
be allocated to goodwill. Goodwill is not subject to amortization. These
preliminary allocations based on the draft valuation report may change
after the review and evaluation has been completed and the valuation report
is finalized. Included in the purchase price is an accrual of approximately
$461,000 related to the costs associated with purchasing the 205,000 shares
not tendered in the Offering and payments due certain stock option holders
with "in-the-money" vested stock options at acquisition date.
Form 10-QSB
Page 14
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma results of operations set forth below for the three
and nine months ended February 28, 2003 and 2002 assume that the WTC
acquisition had occurred as of the beginning of each of these periods
(000's):
Three Months Ended February 28,
(unaudited)
2003 2002
---- ----
Revenue $ 3,464 $ 4,057
Net loss (454) (1,530)
Net loss per share:
Basic (.04) (.14)
Diluted (.04) (.14)
Nine Months Ended February 28,
(unaudited)
2003 2002
---- ----
Revenue $ 10,714 $ 12,338
Net loss (2,219) (5,071)
Net loss per share:
Basic (.18) (.47)
Diluted (.18) (.47)
(L) COMBINED PRO FORMA RESULTS
The unaudited pro forma results of operations set forth below for the three
and nine months ended February 28, 2003 and 2002 combine the pro forma
adjustments related to the WTC acquisition detailed in Note (K) above with
the pro forma adjustments related to the cessation in goodwill amortization
detailed in Note (B) above (000's):
Three Months Ended February 28,
(unaudited)
2003 2002
---- ----
Revenue $ 3,464 $ 4,057
Net loss (454) (1,530)
Add back: Goodwill amortization -- 441
-------- ---------
Adjusted net loss (454) (1,089)
Net loss per share:
Basic (.04) (.10)
Diluted (.04) (.10)
Form 10-QSB
Page 15
SOFTECH, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
Nine Months Ended February 28,
(unaudited)
2003 2002
---- ----
Revenue $ 10,714 $ 12,338
Net loss (2,219) (5,071)
Add back: Goodwill amortization -- 1,322
-------- ---------
Adjusted net loss (2,219) (3,749)
Net loss per share:
Basic (.18) (.35)
Diluted (.18) (.35)
Form 10-QSB
Page 16
SOFTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
The statements made below with respect to SofTech's outlook for fiscal 2003 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.
CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS 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 A to the
Company's consolidated financial statements, contained in its May 31, 2002
Annual Report on Form 10-K, as filed with the SEC. The Company believes that the
following accounting policies require the application of management's most
difficult, subjective or complex judgments:
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 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 product lines, Cadra and AMT, using our fiscal 2003
budget as the baseline. For Cadra, we projected that annual revenue would
decrease at rates between 1.7% and 2.4% and expenses would increase at annual
rates of about 1.5%. For AMT, we projected annual revenue would increase at
annual rates between 2.5% and 3.3% and that expenses would increase at annual
rates of about 1.5%. No additional revenue was projected for new product
offerings for either product line. A third party valuation of our acquisition of
WTC was also completed subsequent to the acquisition. We have not determined
that there has been an 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 periodically repeated, 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
Form 10-QSB
Page 17
SOFTECH, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
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.
The Company utilized a third party independent valuation to determine the fair
value of each of the reporting units based on a discounted cash flow income
approach. 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 is not required to be completed. The
Company will be required to continue to perform a goodwill impairment test on an
annual basis.
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
Revenue for the three and nine month periods ended February 28, 2003 was $3.2
million and $7.1 million, respectively. Revenue for the same periods in the
prior fiscal year was $2.3 million and $6.7 million. This represents an increase
from fiscal 2002 to fiscal 2003 in total revenue of about $.9 million or 39% for
the three month period and $.4 million or 6% for the nine month period. The
results of operations of WTC were included in the current quarter's results
since the acquisition date of December 18, 2002 and contributed approximately
$1.4 million to the current quarter's revenue accounting for the revenue
increase for both of the periods presented.
Product revenue for the three and nine month periods ended February 28, 2003 was
approximately $1.0 million and $2.1 million, respectively, as compared to $.7
million and $1.7 million for the same periods in the prior fiscal year. This
represents an increase from fiscal 2002 to fiscal 2003 of about $.3 million or
47% for the three month period and $.4 million or 22% for the nine month period.
WTC contributed approximately $.6 million of license revenue for the current
quarter results accounting for the license revenue increase for both of the
periods presented.
Service revenue for the three and nine month periods ended February 28, 2003 was
$2.2 million and $5.0 million, respectively, as compared to $1.6 million and
$5.0 million for the same periods in the prior fiscal year. This represents an
increase of about $.6 million or 36% from fiscal 2002 to fiscal 2003 for the
three month period. Service revenue for the nine month period was flat in fiscal
2003 as compared to the same period in fiscal 2002. WTC contributed
approximately $.8 million to the current quarter's service revenue. This
component of revenue is made up primarily of amortization of one year software
maintenance agreements that are much less likely to be negatively impacted by
short term economic conditions. Renewing maintenance on technology in which a
user has already invested in a perpetual license is important to protect that
customer's engineering environment.
Prior to the acquisition of WTC, the Company had taken action to reduce its
headcount across all geographies and product lines over the past few years as
the reduced capital spending throughout the worldwide manufacturing marketplace
had negatively impacted our license revenue. With the reduced headcount the
Company has also taken steps to reduce it spending on infrastructure. Much
consolidation has taken place during that time period to reduce office locations
and focus our resources on our installed base. This has resulted in
significantly reduced operating expenditures and overhead allocations to various
development, sales and administrative groups.
For the three and nine month periods ended February 28, 2003, operating costs
totaled $ 3.0 million and $6.9 million, respectively. Operating expenses for the
same periods in the prior fiscal year were $2.5 million and $7.1 million,
respectively. The operating expenses associated with WTC included in results of
operations since the acquisition date totaled $1.3 million. Operating expenses
excluding the impact of the WTC business were $.8 million or 32% lower in the
current quarter as compared to the same period in fiscal 2002. Operating
expenses excluding the impact of the WTC business were $1.5 million or 21.3%
lower for the current nine month period as
Form 10-QSB
Page 18
SOFTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
compared to the same period in fiscal 2002. Included in operating expenses are
non-cash expenses primarily related to the amortization of intangible assets of
$.7 million and $1.7 million for the three and nine month periods ended February
28, 2003, respectively. The non-cash charges for the same periods in fiscal 2002
totaled $ .8 million and $2.3 million, respectively. The fiscal 2002 non-cash
charges included goodwill amortization of approximately $.3 million and $.8
million for the three and nine month periods, respectively, which is no longer
subject to periodic write off.
Research and development expenses ("R&D") were $.7 million and $1.4 million for
the three and nine month periods ended February 28, 2003, respectively, as
compared to $.4 million and $1.1 million for the same periods in the prior
fiscal year. The increase in R&D expenditures in both periods is due primarily
to the addition of WTC's development engineers.
Selling, general and administrative ("SG&A") expense was $2.3 million and $5.5
million for the three and nine month periods ended February 28, 2003,
respectively, as compared to $2.1 million and $6.0 million for the same periods
in the prior fiscal year. WTC's SG&A expenditures since acquisition date totaled
approximately $.9 million. This WTC related increase offset the previously noted
cost reductions and non-cash charges related to goodwill recorded in fiscal
2002.
Interest expense for the three and nine month periods ended February 28, 2003
was approximately $.3 million and $.9 million, respectively, representing no
material change from the debt service expenditures in the corresponding periods
in fiscal 2002. The additional interest charges on the borrowings drawn in the
current quarter to acquire WTC were offset by reduced interest rates negotiated
in the amendment to the promissory Note as detailed in Note J. hereto.
The loss from operations for the three and the nine month periods ended February
28, 2003 was $.5 million and $1.2 million, respectively, as compared to a loss
from operations of $.6 million and $1.6 million for the same periods in the
prior fiscal year. The loss per share for the three and nine month periods ended
February 28, 2003 was $(.04) and $(.10), respectively, as compared to $(.06) and
$(.15) for the same periods in the prior fiscal year.
CAPITAL RESOURCES AND LIQUIDITY
The Company ended the third quarter of fiscal 2003 with cash of approximately
$1.1 million of which $215,000 is restricted. This represents an increase in
total cash of about $.4 million from the fiscal year end 2002 balance. Operating
activities provided approximately $689,000 of cash during the first nine months
of the fiscal year. The net loss adjusted for non-cash expenditures related to
amortization and depreciation provided cash of $464,000. An increase in accounts
receivable used cash of $900,000, a decrease in prepaid and other assets
provided cash of $134,000 and an increase in liabilities provided cash of
approximately $991,000.
These funds provided from operations together with additional borrowings, net of
repayments, of about $3.1 million under the Company's debt facilities were
utilized to purchase the shares of WTC as described in Note K.
Although the Company believes its current cost structure together with
reasonable revenue run rates based on historical performance will continue to
generate positive cash flow, 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. With the completion of the WTC acquisition, the Company amended its lease
for office space at its headquarters in Tewksbury, Massachusetts. As part of
that amendment, the Company provided the lessor with a letter of guarantee from
a commercial bank for $375,000. At February 28, 2003, the Company had available
borrowings on its debt facilities of approximately $3.2 million.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's business is subject to many uncertainties and risks. This Form
10-Q also contains certain
Form 10-QSB
Page 19
SOFTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
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; customer order deferrals as a
result of general economic decline. 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 does 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. For the three full
fiscal years prior to fiscal year 2002 we generated significant cash losses from
operations. The Company took aggressive cost cutting steps that greatly reduced
our fixed costs and resulted in positive cash flow from operations in fiscal
2002 and for the nine months ended February 28, 2003. 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 particularly in light of the decline in the business
climate throughout 2001 and 2002 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 further adversely impacted.
OUR DESIGNGATEWAY TECHNOLOGY MAY NOT GAIN MARKET ACCEPTANCE. The Company
introduced a new product known as DesignGateway. The technology is important in
the Company's future plans to both reduce its dependence on its existing
products for revenue but also to play a greater role in our customers
engineering departments. There can be no assurances that we will be successful
in gaining market acceptance for this new technology especially during the
recent economic challenges facing our customers in the manufacturing sector.
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.
NEW ACCOUNTING PRONOUNCEMENTS
On December 31, 2002, the 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. For entities that voluntarily change to the fair value
based method of accounting for stock-based employee compensation, the transition
provisions are effective for fiscal years ending after December 15, 2002. For
all other companies, the disclosure provisions and the amendment to APB No. 28
are effective for interim periods beginning after December 15, 2002. We are
currently evaluating the impact of SFAS 148 on our financial statements and
related disclosures.
On November 25, 2002, the FASB issued FASB Interpretation No. 45 ("FIN 45"),
Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34. FIN
45
Form 10-QSB
Page 20
SOFTECH, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
clarifies the requirements of FASB Statement No. 5, Accounting for Contingencies
(SFAS 5), relating to the guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45 covers guarantee contracts
that have any of the following four characteristics: (a) contracts that
contingently require the guarantor to make payments to the guaranteed party
based on changes in an underlying that is related to an asset, a liability, or
an equity security of the guaranteed party (e.g., financial and market value
guarantees), (b) contracts that contingently require the guarantor to make
payments to the guaranteed party based on another entity's failure to perform
under an obligating agreement (performance guarantees), (c) indemnification
agreements that contingently require the indemnifying party (guarantor) to make
payments to the indemnified party (guaranteed party) based on changes in an
underlying that is related to an asset, a liability, or an equity security of
the indemnified party, such as an adverse judgment in a lawsuit or the
imposition of additional taxes due to either a change in the tax law or an
adverse interpretation of the tax law, and (d) indirect guarantees of the
indebtedness of others. FIN 45 specifically excludes certain guarantee contracts
from its scope. Additionally, certain guarantees are not subject to FIN 45's
provisions for initial recognition and measurement but are subject to its
disclosure requirements. The initial recognition and measurement provisions are
effective for guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for our annual financial statements the
year ended May 31, 2003. We are currently evaluating the impact of FIN 45 on our
financial statements and related disclosures.
In January 2003 the FASB issued FIN 46, an interpretation of accounting Research
Bulletin No. 51, Consolidating Financial statements. FIN 46 addresses
consolidating by business enterprises of variable interest entities. Under
current practice, consolidation occurs when one enterprise controls the other
through voting interests. FIN 46 explains how to identify variable interest
entities and how an enterprise assesses its interest in a variable interest
entity to decide whether to consolidate that entity. FIN 46 requires existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiary if the entities do not effectively disperse risks among the parties
involved. Variable interest entities that effectively disperse risks will not be
consolidated unless a single party holds an interest or combination of interests
that effectively negates such risk dispersion. FIN 46 applies immediately for
variable interest entities created after January 31, 2003 and to variable
interest entities in which an enterprise obtains an interest after that date. It
applies in the first interim period beginning after June 15, 2003 to variable
interest entities in which an enterprise holds a variable interest that is
acquired before February 1, 2003. Management believes that it does not have a
variable interest in an entity that is not consolidated in its financial
position or its results of operations.
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. Management believes the adoption of SFAS
No. 143 will not have a material effect on the financial position or results of
operations of the Company.
In July 2002, FASB issued Statement No. 146 "Accounting for Costs Associated
with Exit or Disposal Activities", which becomes effective January 2003. SFAS
No. 146 requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of commitment.
Management believes the adoption of SFAS No. 146 will not have a material effect
on the financial position or results of operations or retained earnings.
Form 10-QSB
Page 21
SOFTECH, INC. AND SUBSIDIARIES
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Operating Officer is responsible for establishing and
maintaining disclosure controls and procedures for the Company. Such officer has
concluded (based upon their 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
The Company filed a Form 8-K on January 2, 2003 related to the completion
of its Offer to purchase WTC shares .
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, 2003 /s/ Joseph P. Mullaney
------------------ ----------------------
Joseph P. Mullaney
President
Chief Operating Officer
SOFTECH, INC.
2 Highwood Drive
Tewksbury, MA 01876
Certification Issued Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, Joseph P. Mullaney, President and Chief Operating Officer of SofTech, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of SofTech, Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on our most recent evaluation, to the registrant's
auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: April 14, 2003 /s/ Joseph P. Mullaney
------------------ ----------------------
Joseph P. Mullaney
President
Chief Operating Officer
SofTech, Inc.
2 Highwood drive
Tewksbury, MA 01876
(Certification Issued Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, Joseph P. Mullaney, certify that:
1. I am the President and Chief Operating Officer of SofTech, Inc.
2. I have read the quarterly report of SofTech, Inc. filed on Form 10-QSB for
the quarter ending February 28, 2003 (the "Report"), including the financial
statements contained in the Report.
3. The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934 and the information contained in this
quarterly report fairly presents, in all material respects, the financial
condition and results of operations of SofTech, Inc. for and as of the period
described.
Date: April 14, 2003 /s/ Joseph P. Mullaney
------------------ ----------------------
Joseph P. Mullaney
President
Chief Operating Officer