SECURITIES AND EXCHANGE COMMISION
WASHINGTON, D.C. 20549
Form 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2001
Commission file number 0-10665
SofTech, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2453033
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(State or other jurisdiction of (IRS Employer
Incorporation or organization) Identification Number)
2 Highwood Drive, Tewksbury, Massachusetts 01876
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (978) 640-6222
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. |X|
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: $765,688 as of August 31, 2001. On August 31, 2001 the
registrant had outstanding 10,741,784 shares of common stock of $.10 par value,
which is the registrant's only class of common stock.
PART I
ITEM 1 - BUSINESS
THE COMPANY
SofTech, Inc. was formed in Massachusetts on June 10, 1969. The Company
had an initial public offering in August 1981 and a subsequent offering in
December 1982. From inception until the disposition of the Government Systems
Division in December 1993, the Company's primary business was that of custom
software development for the U.S. Government, primarily the Department of
Defense.
In June 1996 the Company developed a strategy to focus all of its
resources on the Computer Aided Design/Computer Aided Manufacturing ("CAD/CAM")
and the Product Data Management ("PDM") marketplace. At that time, approximately
95% or more of the revenue in the CAD/CAM operation was generated from the sale
of a high-end, third party solid modeling solution from Parametric Technology
Corporation ("PMTC"). The contractual arrangement that allowed the Company to
offer that technology to its customers was a short term agreement that was
subject to annual renewal and could be cancelled by either party with 30 days
notice. An important part of implementing the CAD/CAM and PDM only strategy was
to dispose of all unrelated businesses. This focus was completed with the sale
of the Company's Network Systems Group ("NSG") in September 1996 and the
distribution of the net proceeds from that sale in the form of dividends (return
of capital) to shareholders in December 1996 and June 1997 totaling
approximately $2.56 per share.
It was quite obvious to the Company in June 1996 that its dependence on
one product for nearly all of its revenue was a very risky business model
especially when the contract that provided it the right to sell that third party
technology was a short term arrangement. In order to reduce its risk, a strategy
to acquire related service and technology companies was developed and
implemented. From December 1996 through May 1999, the Company acquired seven
companies including two that offered software applications for this marketplace.
The acquisitions of Adra Systems, Inc. ("Adra") in May 1998 and the Advanced
Manufacturing Technology division ("AMT") of CIMLINC, Inc. in November 1997
provided the Company with important technology, an installed base, a recurring
maintenance revenue stream and operations in Europe and Asia.
Today, SofTech is a provider of Design through Manufacturing
Technologies and Services. It offers software technology of its own to
mechanical and manufacturing engineers aimed at increasing their productivity.
In addition, the Company offers a wide range of services to its customers
including consulting, implementation and training. The aggressive acquisition
strategy that was funded primarily through debt, substantially increased the
Company's risk profile but was required in order to create a viable and
sustainable business.
PRODUCTS AND SERVICES
The Company operates in one reportable segment and is engaged in the
development, marketing, distribution and support of CAD/CAM and Product Data
Management ("PDM") computer solutions. The Company's operations are organized
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geographically with European sales and customer support offices in England,
France, Germany and Italy. Components of revenue and long-lived assets
(consisting primarily of intangible assets, capitalized software and property,
plant and equipment) by geographic location are outlined in Footnote F to the
financial statements.
As noted above, the Company has evolved over the last five years through
seven acquisitions and internal expansion from a distributor of PMTC's products
into an independent technology and services entity. The changes that have taken
place in the business are most obvious in the tables presented below which show
the components of product and service revenue over the recent past.
The following table is meant to help clarify the transition from a
business entirely focused and dependent on reselling other companies technology
to one entirely self sufficient because it possesses its own technology.
Product revenue was composed of the following (000's):
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
SofTech software (AMT & Adra) $5,008 $7,640 $ 8,815 $3,023 $ --
Hardware 98 960 3,141 4,286 6,212
PMTC software -- -- -- 612 2,442
Other 3rd party software 141 946 2,324 731 675
----- ----- ----- ----- -----
Total product revenue $5,247 $9,546 $14,280 $8,652 $9,329
As evident in the above table, in fiscal 1997 the Company's product
revenue was derived almost exclusively from the sale of Parametric Technology
Corporation ("PMTC") software (Pro/ENGINEER) and hardware. The hardware sold in
this period was high-end workstations with gross margins in excess of 30% driven
primarily by the sale of the Pro/ENGINEER software. Sales of Pro/ENGINEER
software and related high-end workstation carried into fiscal year 1997 (the
distribution agreement for Pro/ENGINEER ended September 30, 1996). In September
1997, the PT/Modeler distribution agreement with PMTC terminated and the revenue
from that product ceased. The full impact of the shift to PT/Modeler and Intel
based hardware can be seen in the 31% decline in hardware revenue in fiscal 1998
as compared to 1997.
The acquisitions of AMT and ADRA by the Company during fiscal 1998
replaced the lost revenue from PMTC software and hardware from fiscal 1997. In
fiscal 1999, revenue derived from the sale of SofTech owned technology was 62%
of product revenue, up from 35% in fiscal 1998. Hardware revenue declined 27%
from fiscal 1998 to 1999 as that component of revenue has become less important
to the Company's business model. Other third party software increased nearly
three times from fiscal 1998 levels to equal the amount of software revenue
generated from the sale of PMTC software in fiscal 1997.
The impact of the Company's decision at the end of fiscal 1999 to focus on
developing, marketing and selling its own technology is clearly visible in the
above table also. Hardware revenue and third party software are essentially
non-existent in fiscal 2001. Hardware revenue was down about 69% in fiscal 2000
from fiscal 1999 and revenue from the sale of 3rd party software was down about
59%. The Company expects revenue from hardware and 3rd party software to be
negligible in the future.
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Fiscal 2001 product revenue was primarily composed of the sale of our
technology as contemplated by the decision enumerated in the previous paragraph.
Revenue from the sale of our technology declined approximately 34.5% from fiscal
2000 to 2001 as our customers who are primarily involved in the manufacture of
goods were generally impacted negatively by the world-wide economic slowdown.
The components of service revenue have also changed dramatically as a
result of the changes detailed above. Service revenue was composed of the
following (000's):
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Consulting, services and training $ 923 $ 2,238 $ 6,448 $ 6,231 $ 2,228
Maintenance of AMT and ADRA software 6,484 7,464 8,580 2,142 --
Hardware and 3rd party software maintenance 75 617 1,249 2,954 3,147
----- ----- ----- ----- -----
Total service revenue $ 7,482 $10,319 $16,277 $11,327 $ 5,375
The changes in the make-up of the business are also quite evident when the
components of service revenue are detailed as in the above table over the last
five years. The acquisition of two services-only businesses in fiscal 1997
accounted for the majority of the consulting, discreet services and training
revenue in fiscal 1997. This consulting, discreet services and training revenue
nearly tripled from fiscal 1997 to 1998 as the 1997 acquisitions contributed for
the full year 1998 and was the primary reason for the service revenue growth of
111% from fiscal 1997 to 1998. This component of revenue increased only about 3%
from fiscal 1998 to 1999 as the businesses were integrated into the Company and
greater focus was brought to bear on performing higher margin consulting
services rather than lower margin design services. Maintenance of SofTech owned
technology generated about 53% of fiscal 1999 service revenue as the full year
maintenance revenue was included in fiscal 1999 as compared to fiscal 1998's
partial year for each product line from the acquisition dates forward. The
maintenance revenue generated from hardware and 3rd party software agreements
declined slightly from fiscal 1997 to 1998 and by about 58% from fiscal 1998 to
1999 due to the termination of the PMTC distribution agreement.
The late fiscal 1999 decision to stop pursuing low margin, hourly service
projects and to focus the service group towards high margin opportunities is
very visible in the above table. We expect that this trend will continue.
As was the case with the comparative description of product revenue,
the impact of deciding to focus on our technology first has negatively impacted
total service revenue in fiscal 2000 and 2001. The consulting, services and
training component of service revenue has decreased quite dramatically from $6.4
million in 1999 to less than $1.0 million in fiscal 2001. However, this decision
has allowed for cost reductions not possible under the previous model and
generated higher gross margins from services.
The Adra Systems product known as CadraTM is a drafting and design
technology for the professional mechanical engineer. The CADRA family of CAD/CAM
products includes CADRA Design Drafting, a fast and highly productive mechanical
design documentation tool; CADRA NC, a comprehensive 2 through 5 axis NC
programming application; CADRA integration with SolidWorks, an integrated
4
drawing production system and a 3D solid modeler. The CADRA family is rounded
out by an extensive collection of translators and software options that make it
a seamless fit into today's multi-platform and multi-application organizations.
In May 2000, SofTech announced the availability of a new product called
DesignGatewayTM. DesignGateway is an enabling technology that allows the user to
extract engineering and geometric data from 3-D solid modeling applications for
reviewing, manipulating and exporting to 2D drafting systems. DesignGateway will
interface to Pro/Engineer, Catia, SolidWorks, Unigraphics, think3, I-DEAS Master
Series and AutoCad. DesignGateway also organizes other engineering documents
into project folders providing easy access for many users. The technology is
easy to use and can be implemented company-wide within a short time period -
weeks rather than months.
The design software technologies used by mechanical engineers make up a
fragmented market composed of dueling, proprietary technologies. The proprietary
technologies create huge inefficiencies for the global design and manufacturing
enterprises trying to deal with these various design tools. There is no one
solid modeling software company with more than 25% market share. For example,
the big three automobile companies all use different design products as their
primary design tool. The problems created for the suppliers to the automobile
industry that do business with all three are simply enormous. DesignGateway is
aimed at improving the interoperability between and among these numerous
proprietary design tools thereby greatly increasing productivity and reducing
cost.
In June 2000, MICROCADAM, a significant technology provider to the 2-D CAD
marketplace with a worldwide installed base of more than 100,000 seats, ceased
development efforts and announced that the technology would no longer be
supported beyond June 2001. The Company believes that it offers the MICROCADAM
user base a technology that is very similar to the MICROCADAM technology they
are trained to use and, with the use of the Company's direct translators,
provides access to the legacy data. Last year at this time we viewed MICROCADAM
as a significant opportunity due to the reluctance of most users to continue to
design with unsupported software. However, with the slowing economy the
migration of MICROCADAM seats to supported technologies has been very slow. We
will continue to pursue these users but in a very focused and controlled manner
within our existing sales force.
The AMT group has two primary products. Prospector is a knowledge-based NC
programming package for complex tool production. This Windows based, easy-to-use
package gives full flexibility for generating and editing NC toolpaths while
utilizing the power of the industry's best knowledge base of tools, speeds,
feeds, and cutting paths. ToolDesigner is a software package for developing and
designing complex molds and dies. Core and cavity splits, parting line
placement, wireframe design and drafting, photorealistic rendering, surface
modeling, trimmed surfaces, injection and cooling line placement are aptly
handled with this professional package.
COMPETITION
The Company competes against much larger entities in an extremely
competitive market for all of its software and service offerings. The 2D
software technologies acquired in the acquisitions in fiscal 1998 compete
directly with the offerings of such companies as AutoDesk. This 2D technology is
also marketed as a complementary offering to many 3D products offered by
companies such as PMTC, Dassault, Unigraphics, Structural Dynamics Research
5
Corporation, AutoDesk and SolidWorks that all possess some level of 2D drafting
capability. These companies all have financial resources far in excess of those
of the Company.
The Company's CAM technology, PROSPECTOR(TM), is marketed to the Plastic
Injection Mold and Tool & Die industries. While the large CAD companies such as
PMTC, Dassault, SDRC and AutoDesk have modules that compete in this market, we
believe none focus exclusively on CAM technology.
The service offerings of the Company which include consulting, training
and discreet engineering services compete with offerings by all of the large CAD
companies noted above, small regional engineering services companies and the
in-house capabilities of its customers.
PERSONNEL
As of May 31, 2001, the Company employed 71 persons. These employees were
distributed over functional lines as follows: Sales = 15; Product Development =
19; Engineers = 19; General and Administrative = 18.
The ability of the Company to attract qualified individuals with the
necessary skills is currently, and is expected to continue to be, a constraint
on future growth.
BACKLOG
Backlog as of May 31, 2001 and 2000 was approximately $100,000 and
$1,083,000, respectively. Deferred revenue, which represents primarily software
maintenance contracts to be performed during the following year, totaled
approximately $2,738,000 and $3,712,000 at May 31, 2001 and 2000, respectively.
At May 31, 2000, backlog included a $500,000 licensing contract with a
technology provider. This order was never realized as revenue due to a dispute
that was eventually amicably resolved. Given the short time period between
receipt of order and delivery, on average less than 30 days, the Company does
not believe that backlog is an important measure as to the relative health of
the business.
RESEARCH AND DEVELOPMENT
With the acquisitions of the software technologies of AMT and ADRA, the
Company now has approximately 19 engineers in its research and development
groups located in Michigan and Massachusetts. In fiscal 2001, 2000 and 1999 the
Company incurred research and development expense of $4,983,000, $4,911,000, and
$5,521,000, respectively, related to the continued development of technology.
The Company's ability to continue to maintain the ADRA software so it is
compatible with the other 3D offerings in the marketplace and to continue to
improve the PROSPECTOR(TM) technology is critical to its future success.
The Company has invested a significant portion of its R&D spending on
the introduction and the continuing development of its DesignGateway technology
over the last two years. It is expected that a significant portion of its
ongoing investment in R&D will be targeted towards broadening the capabilities
of this product.
CUSTOMERS
No single customer accounted for more than 10% of the Company's revenue in
6
fiscal 2001, 2000 or 1999. The Company is not dependent on a single customer, or
a few customers, the loss of which would have a material adverse effect on the
business.
SEASONALITY
The first quarter, which begins June 1 and ends August 31, has
historically been the slowest quarter of the Company's fiscal year. Management
believes this weakness is due primarily to the buying habits of the customers
and the fact that the quarter falls during prime vacation periods.
EXECUTIVE OFFICERS OF THE REGISTRANT
The current executive officers of the Company are as follows:
Name Age Position
--------------------------------------------------------------------------------
Joseph P. Mullaney 44 President and Chief Operating Officer
Jean J. Croteau 46 Vice President, Operations
Victor G. Bovey 44 Vice President, Engineering
Executive officers of the Company are elected at the first Board of
Directors meeting following the Stockholders' meeting at which the Directors are
elected.
Mark Sweetland resigned his position as President and CEO on June 28,
2001. He also resigned as a Director at that time.
Timothy Weatherford departed from the Company on July 20, 2001. Mr.
Weatherford was also removed as a Director by unanimous vote of the remaining
directors at the July 2001 regularly scheduled meeting of the Company's Board of
Directors.
The following provides biographical information with respect to the
Executive Officers not identified in Item 10 of this Annual Report on Form 10-K:
Joseph P. Mullaney was appointed Vice President, Treasurer, and Chief
Financial Officer of the Company in November 1993. With Mr. Sweetland's
resignation in June 2001, Mr. Mullaney was appointed President and Chief
Operating Officer. He joined the Company in May 1990 as Assistant Controller and
was promoted to Corporate Controller in June 1990. Prior to his employment with
SofTech he was employed for seven years at the Boston office of Coopers &
Lybrand LLP (now PriceWaterhouseCoopers LLP)as an auditor in various staff and
management positions.
Jean Croteau was appointed Vice President, Operations at the July 2001
meeting of the Board of Directors. He started with the Company in 1981 as Senior
Contracts Administrator and was promoted to various positions of greater
responsibilities until his departure in 1995. Mr. Croteau rejoined SofTech in
1998. From 1995 through 1998 he served as the Director of Business Operations
for the Energy Services Division of XENERGY, Inc.
Victor G. Bovey was appointed Vice President of Engineering of the Company
7
in March 2000. He started with the Company in November 1997 as Director of
Product Development. Prior to his employment with SofTech he was employed for
thirteen years with CIMLINC Incorporated in various engineering and product
development positions.
ITEM 2 - PROPERTIES
The Company leases office space in Grand Rapids and Bloomfield Hills,
Michigan; Tewksbury, Massachusetts; Indianapolis, Indiana; Milwaukee, Wisconsin;
Cincinnati, Ohio; Windsor, Ontario; Nottingham, England, Ismaning, Germany, Le
Fontanil, France and Milan, Italy. The total space leased for these locations is
approximately 60,000 square feet of which approximately 13,000 square feet are
subleased. The fiscal 2001 rent was approximately $1.2 million. The Company
believes that the current office space is adequate for current and anticipated
levels of business activity.
ITEM 3 - LEGAL PROCEEDINGS
In September 1996, the Company sold its Network Systems Group to Data
Systems Network Corporation. Following the completion of the sale, significant
disputes arose between the parties with regard to the Asset Purchase Agreement.
In January 2001, the parties settled the dispute amicably. The settlement did
not result in a charge in excess of the amount that had been accrued in fiscal
years prior to those presented in this report.
On January 29, 1999 claimant CIMLINC Incorporated ("CIMLINC") sought a
demand for arbitration pursuant to the Asset Purchase Agreement between CIMLINC,
Inc., CIMLINC, Ltd., CIMLINC GmbH and the Company. In its demand, CIMLINC
claimed entitlement based on an alleged failure of SofTech to register stock
received in the acquisition transaction, receivables allegedly due to CIMLINC,
royalty payments and an alleged failure to assume and pay certain liabilities of
CIMLINC, and other relief, including costs and fees. SofTech filed a counter
arbitration demand against CIMLINC alleging damages for breach of certain
representations and warranties, and fraud in connection with them, regarding
revenue recognition in connection with the Asset Purchase Agreement.
On August 24, 2000, subsequent to the completion of a series of hearings
before the Arbitrator between November 1999 and June 2000, the Arbitrator found
in favor of CIMLINC and awarded $620,923 in damages. On October 12, 2000 the
Company reached a final negotiated settlement with regard to this matter by
agreeing to pay $450,000 in exchange for giving up its right to appeal the
matter. This payment has been made and this matter resolved in fiscal 2001.
In addition to the above, the Company is a party to various legal
proceedings and claims that arise in the ordinary course of business. Management
believes that amounts accrued at May 31, 2001 for matters discussed and other
matters not specifically detailed above are sufficient to cover any resulting
settlements and costs and does not anticipate a material adverse impact on the
financial position or results of operations of the Company beyond such amounts
accrued.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this Report to a vote of the Stockholders of the company.
PART II
8
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDERS
MATTERS
The Company's common stock traded on the NASDAQ Stock Market under the
symbol "SOFT" until April 5, 2001 when its shares were delisted from the
exchange for failure to maintain the minimum tangible net worth as defined by
the Exchange and failure to meet the minimum bid requirement of $1.00 per share.
The Company's shares were immediately listed on the Over-the-Counter Exchange
under the symbol "SOFT.OB".
At May 31, 2001, there were approximately 300 holders of record of the Company's
common stock. This does not include the shareholders that have their shares held
in street name with brokers or other agents. The table below sets forth
quarterly high and low close prices of the common stock for the indicated fiscal
periods as provided by the National Quotation Bureau. These quotations reflect
inter-dealer prices without retail mark-up, markdown, or commission and may not
necessarily represent actual transactions.
2001 2000
---- ----
High Low High Low
---------------------------------------------------
First Quarter $ 1.25 # .625 $ 2.375 # 1.313
Second Quarter .938 .25 1.625 .75
Third Quarter .656 .25 2.437 1.031
Fourth Quarter .20 .06 5.531 .875
The Company has not paid any cash dividends since 1997 and it does not
anticipate paying cash dividends in the foreseeable future.
ITEM 6 - SELECTED FINANCIAL DATA
The table set forth below contains certain financial data for each of the
last five fiscal years of the Company. This data should be read in conjunction
with the detailed information, financial statements and notes thereto, as well
as Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere herein.
Fiscal Year
(in thousands, except per share data) 2001 2000 1999 1998 1997
--------------------------------------------------------------------------------
Revenue from continuing operations $12,729 $19,865 $30,557 $19,979 $14,704
Income (loss) from continuing operations (6,828) (5,943) (5,750) 1,334 2,282
Diluted earnings per share:
Income (loss) from continuing operations (.64) (.71) (.77) .22 .50
Net income (loss) (.64) (.71) (.77) .22 .09
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Basic earnings per share:
Income (loss) from continuing operations (.64) (.71) (.77) .23 .52
Net income (loss) (.64) (.71) (.77) .23 .10
Weighted average number of shares
outstanding - diluted 10,742 8,383 7,485 6,114 4,530
Weighted average number of shares
outstanding - basic 10,742 8,383 7,485 5,711 4,410
Working capital (deficit) (2,373) (189) 1,491 (7,519) 2,920
Total assets 17,921 26,017 32,669 36,060 10,152
Total liabilities 15,994 17,214 22,988 24,878 3,315
Stockholders' equity 1,927 8,803 9,681 11,182 6,837
Note: The results for fiscal year 2001, 2000, 1999 and 1998 include the
effect of the acquisitions of the AMT division of CIMLINC Incorporated and the
ADRA business of MatrixOne, Inc. in November and May of fiscal 1998,
respectively. The results for fiscal year 1998 includes an investment gain on
the disposal of DSN shares of approximately $253,000. The results for fiscal
years 2001, 2000, 1999 and 1998 include the effect of the acquisitions of
Computer Graphics Corporation and Ram Design and Graphics Corp. in December and
February of fiscal 1997, respectively.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-K contains forward-looking statements. The words "believe",
"expect," "anticipate," "intend," "estimate," and other expressions which are
predictions of, or indicate future events and trends and which do not relate to
historical matters identify forward-looking statements. These financial
statements include statements regarding the Company's intent, belief or current
expectations. You are cautioned that any forward-looking statements are not
guarantees of future performance and involve a number of risks and uncertainties
that may cause the Company's actual results to differ materially from the
results discussed in the forward-looking statements. Among the factors that
could cause actual results to differ materially from those indicated by such
forward-looking statements include, but are not limited to, market acceptance of
the Company's PROSPECTOR(TM) technology and the newly released DesignGateway(TM)
technology, continued revenue generated from the CADRA(TM) product family, the
ability of management to manage the expected growth and the ability of the
Company to attract and retain qualified personnel both in our existing markets
and in new office locations.
DESCRIPTION OF THE BUSINESS
SofTech was formed in 1969 and its stock has been publicly listed on the
NASDAQ Exchange since 1981 under the symbol "SOFT". On April 5, 2001, the
Company's stock was delisted from the NASDAQ Exchange for failure to meet the
minimum tangible net worth requirement and the minimum bid requirements for
continued listing. For much of its past until the disposition of the Government
Systems Division ("GSD") in December 1993, the Company's primary business was
that of customized software development for the Department of Defense. In June
10
1996 the Company devised a strategy to focus all of its resources on the CAD/CAM
and PDM marketplace and either discontinued or disposed of all of its operations
that were not related to that market. In December 1996 and in June 1997 the
Company returned approximately $2.56 per share of capital to its shareholders in
the form of distributions that resulted from the sale of the non-core business
units.
As part of the decision to focus all of its resources on the CAD/CAM and
PDM marketplace in June 1996, the Company developed an acquisition and internal
growth strategy aimed at reducing its dependence on other technology providers.
In fiscal 1997 the Company acquired two CAD/CAM services-only businesses. In
fiscal 1998 the Company acquired two CAD/CAM technology companies, a CAD/CAM and
PDM services business and a Structural Dynamics Research Corporation
("SDRC")reseller.
POSSIBLE PRODUCT LINE SALE
In January 2001, the Company signed a Letter of Intent ("LOI") to sell
its AMT Group to a third party technology company. The LOI has now expired. We
disclosed the agreement and further disclosed our intent to sell the product
line whether or not the identified buyer could actually complete the
transaction. This product line was responsible for approximately 30% of the
Company's revenue in fiscal 2001 and does generate positive cash from its
operations.
Much time has elapsed since entering into the LOI. The buyer continues to
pursue funding in a very hostile capital market to complete this deal. We remain
interested in generating the liquidity from such a sale which would allow for
funding identified growth initiatives and paying down debt. However, we are also
evaluating all of our options with regard to this group with the goal of
maximizing our shareholder's return. This could include keeping the group
within the Company. The analysis below assumes that we will not
sell this product line in the foreseeable future.
INCOME STATEMENT ANALYSIS
The table below presents the relationship, expressed as a percentage,
between income and expense items and total revenue, for each of the three years
ended May 31, 2001. In addition, the change in those items, again expressed as a
percentage, for each of the two years ended May 31, 2001 is presented.
Included in Item 1 of this Form 10-K under the section labeled "PRODUCTS
SERVICES" there are tabular summaries of the significant components of
Product and Service revenue from fiscal 1997 through fiscal 2001. These tables
were used in preparing this analysis and may assist the reader in understanding
the changes that have taken place over the last five years in the Company's
business.
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Items as a percentage Percentage change
of revenue year to year
2001 2000 1999 2000 to 2001 1999 to 2000
------------------------------------------------------
Revenue
Products 41.2% 48.1% 46.7% (45.0)% (33.2)%
Services 58.8 51.9 53.3 (27.5) (36.6)
---- ---- ----
Total revenue 100.0 100.0 100.0 (35.9) (35.0)
Cost of sales
Products 3.4 10.4 15.2 (79.4) (55.3)
Services 9.9 14.0 25.2 (54.9) (63.9)
--- ---- ----
Total cost of sales 13.2 24.4 40.4 (65.3) (60.7)
Gross margin
Products 91.9 78.3 67.5 (35.5) (22.5)
Services 83.2 73.0 52.6 (17.4) (12.0)
Total gross margin 86.8 75.6 59.6 (26.4) (17.6)
S.G.& A., including R&D 130.0 96.9 73.0 (14.3) (13.7)
Interest expense 10.8 8.6 5.1 (19.8) 9.1
---- --- ---
Loss before income tax (53.6) (29.9) (18.5) 14.6 (5.0)
RESULTS OF OPERATIONS
Total revenue for fiscal year 2001 was $12.7 million, a decrease of 35.9%
from fiscal year 2000 revenue. Product revenue decreased $4.3 million or 45%
during the current year as compared to the prior year and service revenue
declined $2.8 million or 27.5%. Fiscal year 2000 revenue was $19.9 million as
compared to $30.6 million in fiscal 1999, a decrease of 35%. This decrease in
revenue was composed of a decrease in product revenue of about $4.7 million or
33.2% and a decrease in service revenue of about $6.0 million or 36.6%.
The majority of the decrease in product and service revenue is the
result of a strategic decision by the Company at the end of fiscal 1999 to focus
its resources on marketing its technology first and foremost and to limit its
service offerings as much as possible to high margin consulting projects,
training services on its proprietary software and software maintenance.
Approximately $3.6 million of the total revenue decrease of $7.1 million in
fiscal 2001 and $8.4 million of the total revenue decrease of $10.7 million in
fiscal 2000 is directly attributable to this decision to focus on our products.
Product revenue, which includes revenue from the sale of hardware and
software, was $5.2 million in fiscal 2001 as compared to $9.5 million in fiscal
2000 and $14.3 million in fiscal 1999. Nearly all of the product revenue in
fiscal 2001 came from the sale of the Company's software offerings as compared
to the prior years when we pursued a strategy of offering our own products
coupled with those of other technology companies. The product revenue from the
sale of our own technology declined by 34.5% and 13.3% for fiscal 2001 and 2000,
respectively, when compared to the immediately preceding years. These declines
were due to the general worldwide malaise in the manufacturing arena.
Service revenue is composed of software maintenance on our proprietary
software, maintenance sold on 3rd party hardware and software and revenue
generated from services performed by our engineers. Service revenue for fiscal
year 2001 was about $7.5 million as compared to $10.3 million in fiscal 2000 and
to $16.3 million in fiscal 1999. Approximately $1.9 million of the $2.8 million
decline from fiscal 2000 to 2001 and $4.8 million of the $6.0 million decrease
12
from fiscal 1999 to 2000 was due to the strategic decision to shift away from
low margin, hourly engineering projects and other services not related to our
technologies.
Product gross margin improved to 91.9% in fiscal 2001 from 78.3% in fiscal
2000 and from 67.5% in fiscal 1999. The continued improvement in product gross
margin as a percent of product revenue is a direct result of a larger component
of product revenue coming from the sale of the Company's technology rather than
selling other companies' hardware and software. Product revenue from the sale of
our technology as compared to total product revenue was 95%, 80% and 62% for
fiscal years 2001, 2000 and 1999, respectively. Margins on the sale of Company
owned technology generally carry a margin significantly higher than 3rd party
technology. We would expect product gross margins to remain at levels comparable
to the fiscal 2001 experience.
Service gross margins improved to 83.2% in fiscal 2001 from 73.0% in
fiscal 2000 from 52.6% in fiscal 1999. The continued improvement in service
gross margin as a percent of service revenue is a result of the recurring
maintenance revenue on the Company's proprietary software and the decision to
limit service offerings to high margin consulting projects as detailed above.
Research and development expenditures totaled approximately $5.0 million
in fiscal years 2001 and 2000. During fiscal 1999 R&D expenditures were slightly
higher at about $5.5 million. R&D expenditures as a percentage of revenue was
39.1%, 24.7% and 18.1% for fiscal 2001, 2000 and 1999, respectively. The
fluctuations as a percent of revenue are more the result of changes in the
revenue mix and the impact those changes have on total revenue as noted
immediately above rather than fluctuations in R&D spending which has remained
relatively stable.
The Company has invested a significant portion of its R&D spending on the
introduction and the continuing development of its DesignGateway technology over
the last two years. It is expected that a significant portion of its ongoing
investment in R&D will be targeted towards broadening the capabilities of this
product.
Selling, general and administrative expense for fiscal 2001 decreased
19.7%, or nearly $2.8 million, as compared to fiscal 2000. These reduced
expenditures are a direct result of cost cutting measures enacted over the last
twelve months as the Company has strategically repositioned itself to focus on
selling its technology primarily and targeting high margin service
opportunities. This repositioning has resulted in a significant reduction in
headcount that was previously required to manage, market, and deliver on that
low margin business. Selling, general and administrative expenses for fiscal
2000 decreased about $2.4 million or 14.6% from fiscal 1999.
During the fourth quarter of fiscal 2001, the Company evaluated the
carrying value of the fixed assets, capitalized software and goodwill of its AMT
product line and as a result recorded a charge to earnings to adjust the assets
to their estimated fair value. The charge totaled $660,000 and was recorded as a
reduction of the related goodwill and a corresponding increase to selling,
general and administrative expense. The Company does not have any additional
long-lived assets it considers to be impaired.
As of May 31, 2001, the Company has net operating loss carryforwards of
approximately $11.9 million, research and development tax credits of
approximately $842,000 and alternative minimum tax credits of $200,000 available
13
to offset future federal taxes that may be payable. The deferred tax assets
related to these carryforwards and credits have not been recognized in the
Company's financial statements due to the uncertainty concerning their
realization.
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash position as of May 31, 2001 was $548,000. This
represents a decrease of approximately $730,000 from the fiscal 2000 year-end
balance of about $1.3 million.
Included in the Company's results of operations are significant non-cash
expenses related to amortization of intangibles resulting from prior year
acquisitions, which totaled approximately $2.5 million in fiscal 2001 and the
aforementioned impairment charge of $660,000. For fiscal 2001, operating
activities utilized cash of approximately $1.4 million with reductions in
receivables and other assets being offset by reductions or paydowns of
liabilities and operating losses. Investing activities utilized cash of
approximately $207,000. Financing activities generated approximately $898,000 of
cash as a result of net new borrowings under the existing loan facilities.
Current liabilities include about $2.7 million in deferred revenue, which is
expected to be earned as revenue in fiscal 2002 as the maintenance service is
provided.
At May 31, 2001, long-term obligations totaled approximately $10.8
million, up about 7% from $10.1 million as of the end of fiscal 2000. The
Company is dependent on availability under the line of credit and its cash flow
from operations to meet its near term working capital needs and to make debt
service payments. The monthly principal and interest payments are approximately
$130,000 on these borrowings.
In July 2001, the Company secured a one year extension for consideration to
its $3.0 million line of credit facility with Greenleaf Capital. The Company
agreed to provide Greenleaf with a first security position against all Company
assets on its debt and to pay them a management fee of approximately $500,000
per annum. Greenleaf provided the Company, at its sole discretion, with the
right to repurchase the $5.0 million of shares obtained by Greenleaf in the
October 1999 and the May 2000 debt conversions at prices ranging from $1.07 to
$1.86 per share. As of May 31, 2001, approximately $2.4 million is available
under this facility.
The Company currently believes that its cash flow from operations together
with the availability of capital under its existing debt agreements is
sufficient to meet its obligations for at least the next year.
MARKET RISK DISCLOSURE
The Company has assets and liabilities outside the United States that are
subject to fluctuations in foreign currency exchange rates. The Company's
primary exposure is related to local currency revenue and operating expenses in
Europe. However, the Company does not engage in forward foreign exchange or
similar contracts to reduce its economic exposure to changes in exchange rates
as the associated risk is not considered significant. Because the Company
markets, sells and licenses its products throughout the world, it could be
significantly affected by weak economic conditions in foreign markets that could
reduce demand for its products.
The Company is exposed to changes in interest rates primarily as a result
of its long-term debt requirements. The Company's interest rate risk management
14
objectives are to limit the effect of interest rate changes on earnings and cash
flows and to lower overall borrowing costs. However, due to the historical
losses and the difficulities in raising capital in the current economic
environment, the Company is dependent on both long term and short term borrowing
arrangements with Greenleaf Capital for its financing needs. The short term
arrangement is subject to negotiation at the end of fiscal 2002. Based on the
debt balance as of May 31, 2001, a hypothetical change in the interest rate of
+2% or -2% would result in a hypothetical change to interest expense of about
$228,000 and $(228,000),respectively.
The Company does not enter into contracts for speculative or trading
purposes, nor is it a party to any leveraged derivative instruments.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The response to this item is set forth under the caption "MARKET RISK
DISCLOSURE" in Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and is here incorporated by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data are included herein and are
indexed under item 14(a)(1)-(2).
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Subsequent to fiscal 2001, the Company relocated its headquarters from
Grand Rapids, Michigan to Tewksbury, Massachusetts. On June 14, 2001, the Board
of Directors approved the dismissal of Ernst & Young LLP as the Company's
independent auditors and instructed management to seek proposals from
independent auditors in and around the new headquarters location. On August 9,
2001 the Board of Directors approved the appointment of Grant Thornton LLP to
audit the consolidated financial statements of the Company for the year ended
May 31, 2001.
There were no disagreements with accountants on accounting or financial
disclosure matters.
Form 8-K's were filed on June 21, 2001 related to the Ernst & Young LLP
dismissal and on August 15, 2001 related to the Grant Thornton appointment.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information regarding the Directors and
executive officers of SofTech, Inc. (the "Company") as of August 31, 2001, based
on information furnished by them to the Company.
DIRECTORS
15
Ronald Elenbaas, 48, term expires at the next Annual Meeting planned for
January 2002; Mr. Elenbaas is currently retired. From 1975 to 1999, Mr. Elenbaas
was employed by Stryker Corporation in various positions, most recently as
President of Stryker Surgical Group, a division of Stryker Corporation. Mr.
Elenbaas also serves on the Board of the American Red Cross (Kalamazoo and Cass
County, Michigan). Mr. Elenbaas was appointed a Director of the Company in
September 1996.
William Johnston, 54, terms expires at the next Annual Meeting planned for
January 2002; Mr. Johnston has served since 1991 as President of Greenleaf
Capital, Inc., a Michigan-based investment advisory and venture capital firm.
Mr. Johnston was appointed a Director of the Company in September 1996.
Timothy L. Tyler, 47, term expires in 2002; Mr. Tyler has served since
1995 as President of Borroughs Corporation, a privately held, Michigan-based
business that designs, manufactures and markets industrial and library shelving
units, metal office furniture and check out stands primarily in the United
States. Mr. Tyler served as President and General Manager of Tyler Supply
Company from 1979 to 1995. Mr. Tyler was appointed a Director of the Company in
September 1996.
In May, 2001 the Company voted to expand the number of Board of Director
seats by two and voted to approve the appointments of Messrs. Barry Bedford and
Frederick A. Lake to serve as directors.
Barry Bedford, 43, term expires at the next Annual Meeting planned for
January 2002; Mr. Bedford has served as Chief Financial Officer of the Greenleaf
Companies since April 2000. Prior to joining Greenleaf, Mr. Bedford was the
Chief Financial Officer of Johnson and Rauhofs, a Michigan advertising firm,
since 1991.
Frederick A. Lake, 66, term expires at the next Annual Meeting planned for
January 2002; Mr. Lake is a partner in the law firm of Lake and Schau, a
Michigan based law firm. Mr. Lake has been with Lake and Schau for more than
five years. Mr. Lake also serves as corporate counsel for Greenleaf Ventures.
Mark R. Sweetland, who served as the Company's President and Chief
Executive Officer and also served as a Director since September 1996, resigned
his position and as a Director in June 2001.
Timothy J. Weatherford, who served as Vice President of Sales of the
Company and as a Director since September 1996, departed his employment position
in July 2001. At the July 2001 regularly scheduled Board of Directors meeting he
was removed as a Director by unanimous vote of the other directors.
Each member of the Board of Directors also serves on the Audit Committee
of the Board of Directors. The Audit Committee recommends the engagement of the
Company's independent accountants. In addition, the Audit Committee reviews
comments made by the independent accountants with respect to internal controls
and considers any corrective action to be taken by management; reviews internal
accounting procedures and controls within the Company's financial and accounting
staff; and reviews the need for any non-audit services to be provided by the
independent accountants.
Each member of the Board of Directors also serves on the Compensation
Committee of the Board of Directors. The Compensation Committee recommends
salaries and bonuses for officers and general managers and establishes general
16
policies and procedures for salary and performance reviews and the granting of
bonuses to other employees. It also administers the Company's 1994 Stock Option
Plan (the "Plan") and the SofTech Employee Stock Purchase Plan.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended ("Section
16(a)") requires the Company's Directors and executive officers, and persons who
own more than ten percent of a registered class of the Company's equity
securities (collectively, "Section 16 reporting persons"), to file with the
Securities and Exchange Commission ("SEC") initial reports of ownership and
reports of changes in ownership of Common Stock and other equity securities of
the Company. Section 16 reporting persons are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and on written representations that no other
reports were required, during the fiscal year ended May 31, 2001, the Section 16
reporting persons complied with all Section 16(a) filing requirements applicable
to them.
ITEM 11 - EXECUTIVE COMPENSATION
COMPENSATION OF NON-EMPLOYEE DIRECTORS
For fiscal 2001, non-employee Directors received options in lieu of cash
remuneration for their services. Employee Directors were not paid any fees or
additional compensation for service as members of the Board of Directors or any
committee thereof.
Pursuant to the Company's 1994 Stock Option Plan (the "1994 Stock Option
Plan"), non-employee Directors may be granted non-qualified options to purchase
shares of Common Stock of the Company. The Compensation Committee of the Board
of Directors administers the 1994 Stock Option Plan and determines which
Directors will receive stock options, the number of shares subject to each stock
option, the vesting schedule of the options, and the other terms and provisions
of the options granted. Stock options typically terminate upon a Director
leaving his or her position for any reason other than death or disability. No
option may be exercised after the expiration of ten years from its date of
grant. Under the Plan, all non-employee Directors receive 10,000 options upon
appointment to the Board and receive 3,000 options on the anniversary date of
the initial award for as long as the Director serves as a Director of the
Company. During the fiscal year ended May 31, 2001, there were 20,000 options
granted to non-employee Directors.
SUMMARY COMPENSATION TABLE
The following table summarizes the compensation paid to the President and
Chief Executive Officer of the Company and each of the Company's two other most
highly compensated executive officers (the "Named Executives") during or with
respect to fiscal 1999, 2000 and 2001 fiscal years for services in all
capacities to the Company.
17
Annual Compensation Long Term Compensation Awards
------------------- -----------------------------
Other Annual Securities
Name and Fiscal Salary($) Bonus Compensation Underlying All Other
Principal
Position Year (1) ($) ($) Options(#) Compensation
($)(2) ($) (2)
--------------------------------------------------------------------------------
Mark R. Sweetland (3)
Former President and CEO
2001 190,000 -- -- -- --
2000 171,000 -- -- 50,000 1,169
1999 190,000 -- -- -- 3,000
Joseph P. Mullaney
Current President and COO
Former Vice President and CFO
2001 160,000 -- -- -- 3,200
2000 144,000 -- -- 50,000 1,231
1999 160,000 -- -- -- 3,000
Timothy J. Weatherford(4)
Former Vice President, Sales
2001 167,231 -- -- -- 21,345
2000 153,000 -- -- 50,000 1,569
1999 170,000 -- -- -- 3,000
Victor G. Bovey(5)
Vice President, Research & Development
2001 125,000 -- -- -- 2,500
2000 96,922 -- -- 50,000 1,000
1999 99,832 10,000 -- -- 2,196
Jean Croteau (6)
Vice President, Operations
2001 121,275 20,000 -- -- 2,820
2000 115,500 20,000 -- 50,000 1,158
1999 110,000 15,000 -- -- 2,500
(1) Includes amounts deferred by Messrs. Sweetland, Mullaney, Weatherford, Bovey
and Croteau under the Company's 401(k) plan.
(2) Except as otherwise noted, amounts listed in this column reflect the
Company's contributions to each of the Named Executive's accounts under the
Company's 401(k) plan.
(3) Mr. Sweetland was appointed as Director, President and Chief Executive
Officer in September 1996. Prior to September 1996, Mr. Sweetland served as Vice
President of the Company. In June 2001, Mr. Sweetland resigned his employment
and his position as a director.
(4) Mr. Weatherford was appointed as Director, Vice President, Sales, in
September 1996. Prior to September 1996, Mr. Weatherford served as Branch
Manager of an Indianapolis sales office. In March 2001 Mr. Weatherford's base
compensation was adjusted to $80,000 per annum and he was advanced funds as a
draw against future commissions. In fiscal 2001 he received $18,000 in advances
under this arrangement which has been summarized in the
18
above table in the All Other Compensation column. In July 2001, Mr. Weatherford
departed his employment with the Company and shortly thereafter was removed as a
Director at the regularly scheduled meeting of the Board of Directors in July
2001.
(5) Mr. Bovey was appointed Vice President, Engineering March 2000. Prior to
March 2000, Mr. Bovey served as Director of Product Development.
(6) Mr. Croteau was appointed Vice President of Operations in July 2001.
OPTION GRANTS IN THE LAST FISCAL YEAR
No stock appreciation rights ("SARs") and no stock options have been
granted to the Named Executive Officers of the Company during fiscal year 2001.
AGGREGATE OPTION EXERCISES IN THE LAST FISCAL YEAR AND OPTION VALUE AT MAY 31,
2001.
The following table sets forth certain information concerning the number
and value of unexercised options held by the President and Chief Executive
Officer and each Named Executive.
Value of Unexercised
Number of Number of Unexercised In-the-Money Options
Shares Acquired Value Realized Options at May 31, 2001 At May 31, 2001 ($)
Name On Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable(1)
Joseph P. Mullaney -- -- 50,000/ -- -- / --
Mark R. Sweetland -- -- 50,000/ -- -- / --
Timothy J. Weatherford -- -- 50,000/ -- -- / --
Victor G. Bovey -- -- 50,000/ -- -- / --
Jean Croteau -- -- 50,000/ -- -- / --
(1) Market value of underlying securities at May 31, 2001 based on a per share
value of $.09 less the aggregate exercise price.
PERFORMANCE COMPARISON
The following graph illustrates the return that would have been realized
over the past five fiscal years of the Company (assuming reinvestment of
dividends) by an investor who invested on May 31, 1996 in each of (i) the
Company's Common Stock, (ii) the NASDAQ Stock Market--US Index, and (iii) the
NASDAQ Computer & Data Processing Index. The historical information set forth
below is not necessarily indicative of future performance.
Peer Group Total Return Worksheet
Cumulative Total Return
-------------------------------------------------------------------------------
5/96 5/97 5/98 5/99 5/00 5/01
SofTech, Inc. 100.00 163.88 476.88 176.99 88.49 6.69
NASDAQ Stock Market (U.S.) 100.00 112.66 142.87 201.70 276.50 171.60
NASDAQ Computer &
Data Processing 100.00 118.99 155.60 250.24 327.29 203.83
Begin: 5/31/96
Period End: 5/31/01
SofTech, Inc. (SOFT) End: 5/31/01
19
Beginning
Transaction Closing No. Of Dividend Dividend Shares Ending Cum. Tot.
Date* Type Price** Shares***per Share Paid Reinvested Shares Return
31-May-96 Begin 3.000 33.33 33.333 100.00
31-Dec-96 Dividend 2.766 33.33 1.50 50.00 18.079 51.413 142.19
31-May-97 Year End 3.188 51.41 51.413 163.88
9-Jun-97 Dividend 2.000 51.41 1.06 54.50 27.249 78.661 157.32
31-May-98 Year End 6.063 78.66 78.661 476.88
31-May-99 Year End 2.250 78.66 78.661 176.99
31-May-00 Year End 1.125 78.66 78.661 88.49
31-May-01 End 0.085 78.66 78.661 6.69
* Specified ending dates or ex-dividends dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
*** 'Begin Shares' based on $100 investment.
* Specified ending dates or ex-dividend dates.
** All Closing Prices and Dividends are adjusted for stock splits and stock
dividends.
*** 'Begin Shares' based on $100 investment.
EMPLOYMENT CONTRACTS
The Company does not have employment contracts with its Named Executives.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Each of the members of the Board of Directors served as members of the
Compensation Committee of the Company's Board of Directors during the fiscal
year ended May 31, 2001. Messrs. Sweetland and Weatherford, officers of the
Company, participated in the deliberations concerning compensation of all
executive officers other than themselves.
20
ITEM 12 - SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
Information concerning beneficial ownership of the Company's Common Stock,
as of August 31, 2001, for (i) each person named in the "Summary Compensation
Table" below as a Named Executive of the Company during the fiscal year ended
May 31, 2001, (ii) each Director and each of the Company's nominees to the Board
of Directors and (iii) all Directors and executive officers of the Company as a
group is set forth below.
(OPEN FOR UPDATE)
Percentage of
Outstanding Common
Shares of Common Stock Stock Beneficially
Beneficially Owned as Owned as of
Name of Beneficial Owner of August 31, 2001 (1) August 31, 2001 (2)
--------------------------------------------------------------------------------
Mark R. Sweetland 263,256 2.4%
Timothy J. Weatherford 209,750 1.9%
Joseph P. Mullaney 141,771(3) 1.3%
Victor G. Bovey 70,350(3) *
William Johnston 3,908,320(3)(4) 35.3%
Timothy L. Tyler 17,400(3) *
Ronald Elenbaas 12,400(3) *
Fred Lake 4,000(3) *
Barry Bedford 4,000(3) *
Jean Croteau 50,000(3) *
All Directors and executive
officers as a group (10 persons) 4,681,247(5) 42.3%
----------
* Less than one percent (1%).
(1) Based upon information furnished by the persons listed. Except as
otherwise noted, all persons have sole voting and investment power over
the shares listed. A person is deemed, as of any date, to have "beneficial
ownership" of any security that such person has the right to acquire
within 60 days after such date.
(2) There were 10,741,784 shares outstanding on August 31, 2001. In addition,
200,200 shares issuable upon exercise of stock options and 120,000 shares
issuable upon exercise of warrants held by certain Directors and executive
officers of the Company are deemed to be outstanding as of August 31, 2001
for purposes of certain calculations in this table. See notes 3, 4 and 5
below.
(3) Includes shares issuable under stock options as follows: Mr. Mullaney -
50,000; Mr. Bovey - 50,000 shares; Mr. Croteau - 50,000; Mr. Johnston -
12,400; Mr. Tyler - 17,400; Mr. Elenbaas - 12,400; Mr. Lake - 4,000; Mr.
Bedford - 4,000.
(4) Includes warrants for 120,000 shares issuable in exchange for $8.00 per
share.
(5) Includes 200,200 shares issuable upon exercise of stock options and
120,000 shares issuable upon exercise of warrants held by all Directors
and executive officers as a group.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANACTIONS
As disclosed in Note H to the Company's 2001 Annual Report on Form 10-K,
the Company has entered into three distinct financing arrangements with
21
Greenleaf Capital during fiscal 2001, 2000 and 1999. Greenleaf Capital continues
to be the Company's primary source of capital. William D. Johnston, a director
of SofTech since September 1996, is the President of Greenleaf Capital. The
Company paid Greenleaf Capital approximately $1.9 million, $1.4 million and $
526,000 in fiscal 2001, 2000 and 1999, respectively, in finance charges and
transactions fees. Greenleaf Trust, a wholly-owned subsidiary of Greenleaf
Capital also serves as the trustee and investment advisor for the Company's
401-K Plan.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following items are filed as part of this report:
(1) Consolidated Financial Statements:
Report of Grant Thornton LLP, Independent Auditors 24
Report of Ernst & Young LLP, Independent Auditors 25
Consolidated Statements of Operations - Years ended May 31, 2001,
2000 and 1999 26
Consolidated Balance Sheets - May 31, 2001 and 2000 27-28
Consolidated Statements of Stockholders' Equity and 29-30
Comprehensive Income (Loss)- Years ended May 31, 2001,
2000 and 1999
Consolidated Statements of Cash Flows -
Years ended May 31, 2001, 2000 and 1999 31-32
Notes to Consolidated Financial Statements 33-45
(2) Consolidated Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 46
All other financial statements and schedules not listed have been omitted
because they are either not required or not applicable or because the required
information has been included elsewhere in the financial statements or
footnotes.
(3) Exhibits:
(2)(i) Asset Purchase Agreement by and among SofTech, Inc., Information
Decisions, Inc., System Constructs, Inc., and Data Systems Network Corporation
filed as Exhibit 2.1 to Form 8-K, dated September 12, 1996, is incorporated
herein by reference.
(2)(ii) Stock Purchase Agreement dated as of December 31, 1996 by and
among SofTech, Inc., Information Decisions, Inc., Computer Graphics Corporation,
and the Stockholders of Computer Graphics Corporation, filed as Exhibit 2.1 to
Form S-3, dated June 30, 1997, is incorporated herein by reference.
(2)(iii) Stock Purchase Agreement dated as of February 27, 1997 by and
among SofTech, Inc., Information Decisions, Inc., Ram Design and Graphics
Corporation, and the Stockholders of Ram Design and Graphics Corp., filed as
Exhibit 2.2 to Form S-3, dated June 30, 1997, is incorporated herein by
reference.
(2)(iv) Asset Purchase Agreement by and among SofTech, Inc., Information
Decisions, Inc., CIMLINC Incorporated and CIMLINC GmbH, filed as Exhibit 2.1 to
Form 8-K, dated November 10, 1997, is incorporated herein by reference.
(2)(v) Asset Purchase Agreement by and among SofTech, Inc., Adra Systems,
Inc., Adra Systems, GmbH, and MatrixOne, Inc., filed as Exhibit 2.1 for Form
8-K, dated May 7, 1998, is incorporated herein by reference.
22
(3)(i) Articles of Organization filed as Exhibit 3(a) to Registration
Statement No. 2-73261 are incorporated herein by reference. Amendment to the
Articles of Organization filed as Exhibit (19) to Form 10-Q for the fiscal
quarter ended November 28, 1986 is incorporated by reference.
(3)(ii) By-laws of the Company, filed as Exhibit (3)(b) to 1990 Form 10K
are incorporated herein by reference. Reference is made to Exhibit (3)(a) above,
which is incorporated by reference. Form of common stock certificate, filed as
Exhibit 4(A), to Registration statement number 2-73261, is incorporated by
reference.
(10)(i) Board resolutions relating to 1981 Non-qualified Stock Option
Plan, 1981 Incentive Stock Option Plan, and forms of options, filed as Exhibits
28(A) and 28(B) to registration statement No. 2-82554, are incorporated by
reference. Also, the Company's 1984 Stock Option Plan is incorporated by
reference to Exhibit 28(c) to Registration Statement 33-5782.
(10)(ii) Greenleaf Capital $11.0 million Promissory Note, filed herewith.
(10)(iii) Greenleaf Capital $3.0 million Revolving Line of Credit, filed
herewith.
(21) Subsidiaries of the Registrant, filed herewith.
(23.1) Consent of Grant Thornton LLP, filed herewith.
(23.2) Consent of Ernst & Young LLP, filed herewith.
(b) Reports on Form 8-K
On April 5, 2001, the Company filed a Report on Form 8-K to disclose the
fact that its shares were to be delisted from the NASDAQ Exchange.
(c) The Company hereby files, as part of this Form 10-K, the exhibits listed
in Item 14(a)(3) above that are not incorporated by reference.
(d) The Company hereby files, as part of this Form 10-K, the consolidated
financial statement schedule listed in Item 14(a)(2) above.
23
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SofTech, Inc.
We have audited the accompanying consolidated balance sheet of SofTech,
Inc. and subsidiaries as of May 31, 2001 and the related consolidated statements
of operations, stockholders' equity and comprehensive income (loss) and cash
flows for the fiscal year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SofTech, Inc. and subsidiaries as of May 31, 2001, and the consolidated results
of their operations and their cash flows for the year then ended, in conformity
with accounting principles generally accepted in the United States of America.
We have also audited the financial statement schedule listed in the Index at
Item 14(a)(2) of Softech, Inc. and subsidiaries for the year ended May 31,
2001. In our opinion, this schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the 2001 information set forth therein.
/s/ Grant Thornton LLP
---------------------------
Grant Thornton LLP
Boston, Massachusetts
September 12, 2001
24
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
SofTech, Inc.
We have audited the accompanying consolidated balance sheet of SofTech,
Inc. and subsidiaries as of May 31, 2000 and the related consolidated statements
of operations, stockholders' equity and comprehensive income (loss) and cash
flows for each of the two years in the period ended May 31, 2000. Our audits
also included the information for the years ended May 31, 2000 and 1999,
included in the financial statement schedule listed in the Index at Item
14(a)(2). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SofTech, Inc. and subsidiaries as of May 31, 2000, and the consolidated results
of their operations and their cash flows for each of the two years in the period
ended May 31, 2000, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the information for the years ended
May 31, 2000 and 1999 in the related financial statement schedule, referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Ernst & Young LLP
----------------------------
Ernst & Young LLP
Grand Rapids, Michigan
September 8, 2000
25
SOFTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended May 31,
2001 2000 1999
---- ---- ----
(in thousands, except per share data)
Revenue:
Products $ 5,247 $ 9,546 $ 14,280
Services 7,482 10,319 16,277
----- ------ ------
Total Revenue 12,729 19,865 30,557
Cost of sales:
Cost of products sold 427 2,070 4,636
Cost of services provided 1,256 2,783 7,713
----- ----- -----
Total Cost of sales 1,683 4,853 12,349
Gross margin 11,046 15,012 18,208
Research and development expenses 4,983 4,911 5,521
Selling, general and administrative 11,512 14,343 16,787
------ ------ ------
Loss from operations (5,449) (4,242) (4,100)
Interest expense 1,375 1,714 1,571
----- ----- ------
Loss before income taxes (6,824) (5,956) (5,671)
Provision (benefit) for income
taxes 4 (13) 79
--- ---- ----
Net Loss $ (6,828) $ (5,943) $ (5,750)
======== ========= =========
Per Common Share Data:
Net Loss - basic and diluted $ (0.64) $ (0.71) $ (0.77)
Weighted Average Shares Outstanding,
basic and diluted 10,742 8,383 7,485
See accompanying notes to consolidated financial statements
26
SOFTECH, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31,
2001 2000
---- ----
(in thousands, except share data)
Assets:
Current assets:
Cash and cash equivalents $ 548 $ 1,278
Accounts receivable (less allowance for
uncollectible accounts of $704 and
$774 in 2001 and 2000, respectively) 2,103 4,670
Unbilled costs and fees - 316
Inventory 34 54
Other receivables - 122
Prepaid expenses and other assets 134 522
--- ---
Total current assets 2,819 6,962
Property and equipment, at cost:
Data processing equipment 2,844 2,789
Office furniture 536 547
Leasehold improvements 168 168
--- ---
Total property and equipment 3,548 3,504
Less accumulated depreciation and amortization 2,846 2,294
----- -----
702 1,210
Other assets:
Capitalized software costs, net of amortization of
$4,248 and $2,643 in 2001 and 2000,
respectively 10,972 12,577
Goodwill, net of amortization of
$6,295 and $4,708 in 2001
and 2000, respectively 3,131 4,718
Notes receivable from officers 134 550
Other assets 163 --
----- -----
$ 17,921 $ 26,017
====== ======
27
SOFTECH, INC.
CONSOLIDATED BALANCE SHEETS
AS OF MAY 31,
(CONTINUED)
2001 2000
---- ----
(in thousands, except share data)
Liabilities and Stockholders' Equity:
Current liabilities:
Accounts payable $ 710 $ 1,068
Accrued expenses 1,012 1,863
Deferred revenue 2,738 3,712
Accrued income taxes 36 53
Current portion of capital lease obligations 64 127
Current portion of long term debt
with related party 632 328
--- ----
Total current liabilities 5,192 7,151
Long-term liabilities:
Capital lease obligations, less current portion 101 169
Long-term debt with related party,
less current portion 10,701 9,894
------ -----
Total long term liabilities 10,802 10,063
Commitments and Contingencies
Stockholders' equity:
Common stock, $.10 par value; authorized 20,000,000
shares; issued 11,280,084 in 2001 and 2000 1,128 1,128
Capital in excess of par value 19,690 19,690
Accumulated deficit (17,239) (10,411)
Accumulated other comprehensive loss (91) (43)
Treasury stock, 538,300 shares in 2001 and
2000, at cost (1,561) (1,561)
------- -------
Total stockholders' equity 1,927 8,803
----- -----
$ 17,921 $ 26,017
========= =========
See accompanying notes to consolidated financial statements
28
SOFTECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended May 31,
2001 2000 1999
---- ---- ----
(in thousands, except share data)
Common Stock
Balance at beginning of year $ 1,128 $ 859 $ 679
Common stock issued under stock incentive plans
(2000 - 15,666 shares; 1999 - 699,799 shares;) -- 2 70
Shares issued for equity investment
(2000 - 2,590,972 shares; 1999 - 1,099,948 shares) -- 259 110
Shares issued in connection with acquisitions
(2000 - 80,000 shares) -- 8 --
----- ----- -----
Balance at end of year 1,128 1,128 859
----- ----- -----
Capital in Excess of Par Value
Balance at beginning of year 19,690 14,790 10,703
Common stock issued under stock
incentive plans -- 23 1,187
Shares issued for equity investment -- 4,741 2,820
Shares issued in connection with
acquisitions -- 136 --
Warrants issued in connection with debt
transactions -- -- 80
-------- ------ -------
Balance at end of year 19,690 19,690 14,790
-------- ------ -------
Accumulated Deficit
Balance at beginning of year (10,411) (4,468) 1,282
Net loss (6,828) (5,943) (5,750)
-------- ------- --------
Balance at end of year (17,239) (10,411) (4,468)
-------- ------- --------
Accumulated Other Comprehensive Loss
Balance at beginning of year (43) (18) --
Foreign currency translation adjustments (48) (25) (18)
------- ------ ------
Balance at end of year (91) (43) (18)
-------- ------ ------
29
SOFTECH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
For the Years Ended May 31,
(CONTINUED)
2001 2000 1999
---- ---- ----
(in thousands, except share data)
Treasury Stock
Balance at beginning of year (1,561) (1,482) (1,482)
Reacquired shares -- (79) --
------- ------- -------
Balance at end of year (1,561) (1,561) (1,482)
------- ------- -------
Total stockholders' equity at
end of year $ 1,927 $ 8,803 $ 9,681
====== ======= =======
Comprehensive Loss
Net loss $ (6,828) $(5,943) $(5,750)
Foreign currency translation adjustments (48) (25) (18)
-------- ------- -------
Total comprehensive loss $ (6,876) $(5,968) $(5,768)
======== ======= =======
( ) Denotes deduction.
See accompanying notes to consolidated financial statements
30
SOFTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended May 31,
2001 2000 1999
---- ---- ----
(in thousands)
Cash flows from operating activities:
Net loss $ (6,828) $ (5,943) $ (5,750)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,778 3,409 3,768
Provision for deferred income taxes -- -- 125
Change in operating assets and liabilities,
net of effects of businesses acquired:
Accounts receivable and unbilled costs 2,883 4,040 1,417
Inventory 20 281 3
Other receivables 538 (22) 132
Prepaid expenses and other assets 388 152 (441)
Accounts payable and accrued expenses (1,226) (2,107) (1,448)
Deferred maintenance revenue (974) (1,013) 1,203
-------- ------- --------
Total adjustments 5,407 4,740 4,759
-------- ------- --------
Net cash used in operating activities (1,421) (1,203) (991)
Cash flows from investing activities:
Capital expenditures (44) (1,464) (1,055)
Proceeds from sale of capital equipment -- 16 435
Payments for business acquisitions, net
of cash acquired -- -- (169)
Repayments from (loans to) officers -- (159) 398
Other investing activities (163) 155 (8)
-------- ------- -------
Net cash used in investing activities (207) (1,452) (399)
Cash flows from financing activities:
Borrowings under Greenleaf debt agreements 1,534 10,475 6,000
Repayments under Greenleaf debt agreements (423)
Proceeds from bank line of credit -- -- 3,000
Repayment of note payable -- -- (4,400)
Proceeds from exercise of stock options -- 25 1,257
Proceeds from capital lease financing -- 98 205
Principal payments on capital lease obligations (131) (225) (197)
Payments on bank line of credit -- (3,000) (2,609)
Repayments under senior debt agreement -- (5,128) (1,125)
Repayments of bridge loan -- -- (1,000)
Proceeds from sale of common stock, net
of expenses -- -- 1,430
Other (82) 88 --
-------- ------- -------
Net cash provided by financing activities 898 2,333 2,561
-------- ------- -------
31
SOFTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For Years Ended May 31,
(CONTINUED)
2001 2000 1999
---- ---- ----
(in thousands)
Net increase (decrease) in cash and
cash equivalents (730) (322) 1,171
Cash and cash equivalents, beginning of year 1,278 1,600 429
----- ----- -----
Cash and cash equivalents, end of year $ 548 $ 1,278 $ 1,600
======= ======= =======
Supplemental disclosures of cash flow information: Non cash investing
activities:
Fair value of shares issued in connection
with acquisitions $ -- $ 144 $ --
Conversion of debt to equity investment $ -- $ 5,000 $ 1,500
Income taxes paid $ 21 $ 83 $ 105
Interest paid $ 1,388 $ 1,616 $ 1,570
( ) Denotes reduction in cash and cash equivalents.
See accompanying notes to consolidated financial statements
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:
The consolidated financial statements of the Company include the accounts
of SofTech, Inc. and its wholly-owned subsidiaries, Information Decisions, Inc.
("IDI"); SofTech Technologies Ltd.; SofTech, GmbH; Adra Systems, Srl; Adra
Systems, Sarl; Compass, Inc. ("COMPASS"); System Constructs, Inc. ("SCI");
SofTech Investments, Inc. ("SII"); RAM Design and Graphics Corp. ("RAM"); and
AMG Associates, Inc. ("AMG"). SCI, SII, RAM and AMG are all inactive
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
CONCENTRATION OF RISK:
The Company believes there is no concentration of risk with any single
customer or small group of customers whose failure or nonperformance would
materially affect the Company's results. No customer exceeds ten percent of net
sales. The Company generally does not require collateral on credit sales.
Management evaluates the creditworthiness of customers prior to delivery of
products and services and provides allowances at levels estimated to be adequate
to cover any potentially uncollectible accounts.
A majority of the Company's revenue is generated from licensing and
maintenance services of its Cadra technology. This product family generated
approximately 70% of the Company's revenue in fiscal year 2001.
INVENTORY:
Inventory consists of equipment purchased for resale and service parts and
is stated at the lower of cost (first-in, first-out method) or market.
PROPERTY AND EQUIPMENT:
Property and equipment is stated at cost. The Company provides for
depreciation and amortization on a straight-line basis over the following
estimated useful lives:
Data processing equipment 3-5 years
Office furniture 5-10 years
Leasehold improvements Lesser of useful life or life of lease
Depreciation expense, including amortization of assets under capital
lease, was approximately $566,000, $821,000, and $1,061,000 for fiscal 2001,
2000 and 1999, respectively.
Maintenance and repairs are charged to expense as incurred; betterments
are capitalized. At the time property and equipment are retired, sold, or
otherwise disposed of, the related costs and accumulated depreciation are
removed from the accounts. Any resulting gain or loss on disposal is credited or
charged to income.
33
INCOME TAXES:
The provision for income taxes is based on the earnings or losses reported
in the consolidated financial statements. The Company recognizes deferred tax
liabilities and assets for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. The Company provides a valuation allowance
against deferred tax assets if it is more likely than not that some or all of
the deferred tax assets will not be realized.
REVENUE RECOGNITION:
Prior to June 1, 1998, revenue from software and service revenue was
accounted for in accordance with Statement of Position No. 91-1.
Effective June 1, 1998, the Company adopted the provisions of Statement of
Position No. 97-2, "Software Revenue Recognition" (SOP 97-2). Since that date,
revenue from software license sales continues to be 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. Due to stricter requirements for
recognizing revenue from the sale of software products, adoption of the
provisions of SOP 97-2 had the effect of reducing revenue in fiscal 1999;
however, quantifying the impact of this change in accounting method was not
practical.
CAPITALIZED SOFTWARE COSTS:
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 substantially on a straight line basis over estimated useful lives
ranging from eight to ten years.
During fiscal 2000, the Company capitalized $1.1 million of software
development costs incurred primarily in connection with the development of a new
software product, DesignGateway. Amortization of such costs began in fiscal 2001
when the product was available for shipment. During fiscal year 1998, the
Company capitalized $14 million of software development costs in connection with
the acquisitions of AMT and ADRA (see Note J).
GOODWILL:
Goodwill represents the excess of cost over the fair value of net assets
of businesses acquired and is amortized on a straight-line basis over periods
ranging from five to ten years.
34
LONG-LIVED ASSETS:
The Company periodically reviews the carrying value of all intangible
(primarily goodwill and 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.
During the fourth quarter of fiscal 2001, and due to the prolonged period
of operating losses, the Company evaluated the carrying value of its fixed
assets, capitalized software and goodwill and as a result recorded a charge to
earnings to adjust the assets of its AMT product line to their estimated fair
value. The charge totaled $660,000 and was recorded as a reduction of the
related goodwill and a corresponding increase to selling, general and
administrative expense. The Company does not have any additional long-lived
assets it considers to be impaired.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
FINANCIAL INSTRUMENTS:
The Company's financial instruments consist of cash, accounts receivable,
notes receivable, accounts payable, and short- and long-term debt. The Company's
estimate of the fair value of these financial instruments approximates their
carrying amounts at May 31, 2001 and 2000. The fair value of the short term and
long term debtapproximates carrying value as the interest rate fluctuates from
time to time.
FOREIGN CURRENCY TRANSLATION:
The functional currency of the Company's foreign operations (England,
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 were included in operations in fiscal 2001, 2000 and 1999, but
were not significant.
COMPREHENSIVE INCOME:
Financial Accounting standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") requires the reporting of comprehensive income in addition to net
income from operations. Comprehensive income is a more inclusive reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. To date,
the Company's comprehensive income items have consisted exclusively of foreign
translation adjustments. Comprehensive income has been included in the
consolidated statement of Stockholder's Equity for all periods.
NET INCOME (LOSS) PER COMMON SHARE:
The following table sets forth the reconciliation of weighted average
35
shares used in the computation of basic and diluted earnings per share
calculated in accordance with Statement of Financial Accounting Standards (SFAS)
No. 128, "Earnings per Share":
2001 2000 1999
--------- --------- ---------
Basic Weighted average shares outstanding
during the year 10,741,784 8,383,487 7,485,422
Effect of employee stock options -- -- --
---------- --------- ---------
Diluted-weighted average shares outstanding
during the year 10,741,784 8,383,487 7,485,422
========== ========= =========
Options to purchase shares of common stock of 57,425, 186,684 and
278,538, respectively, have been excluded from the denominator for the
computation of diluted earnings per share in fiscal 2001, 2000 and 1999,
respectively, because their inclusion would be antidilutive. In addition, the
calculation of dilutive earnings per share also excludes the effect of common
stock to be issued in connection with a debt conversion as discussed in Note H.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles 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 intangible assets (goodwill and capitalized
software costs) and deferred tax assets. Actual results could differ from those
estimates.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and for Hedging
Activities," which provides a consistent standard for recognition and
measurement of derivatives and hedging activities. The Company is required to
adopt the standard in fiscal 2002 and is in the process of evaluating SFAS 133
and its impact, which at the current time management believes will not be
significant.
On July 20, 2001, FASB issued SFAS 141, "Business Combination", and
SFAS No. 142, "Goodwill and Intangible Assets". SFAS 141 is effective for all
business combinations initiated after June 30, 2001. SFAS No. 142 is effective
for fiscal years beginning after December 15, 2001; however, certain provisions
of this Statement apply to goodwill and other intangible assets acquired between
July 1, 2001 and the effective date of SFAS 142. Major provisions of these
Statements and their effective dates for the Company are as follows:
o All business combinations initiated after June 30, 2001 must use the
purchase method of accounting. The pooling of interests method of
accounting is prohibited;
36
o Intangible assets acquired in a business combination must be recorded
separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold,
transferred, licensed, rented or exchanged, either individually or as
part of a related contract, asset or liability;
o Goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002,
all previously recognized goodwill and intangible assets with
indefinite lives will no longer be subject to amortization;
o Effective January 1, 2002, goodwill and intangible assets with
indefinite lives will be tested for impairment annually and whenever
there is an impairment indicator;
o All acquired goodwill must be assigned to reporting units for purposes
of impairment testing and segment reporting.
As of this filing, the Company is continuing to evaluate the impact of
these Statements. The Company's Cadra product line has net intangible
assets of approximately $10.6 million which have been amortized using the
straight line method over 10 years since acquisition in May 1998. The
annual amortization for this product line is equal to approximately $1.9
million. The Company's AMT product line has net intangible assets of
approximately $3.5 million which have been amortized primarily under the
straight line method since acquisition in November 1997. The annual
amortization for the AMT product line is appromately $.9 million.
B. LIQUIDITY
The Company has incurred significant net losses of between $5.7 and
$6.8 million for each of the last three years. While more than half of the net
losses per year are composed of non-cash expenses related to amortization and
depreciation, the Company has not generated positive cash flow from operations
for a full fiscal year since 1997. In addition, the Company is dependent on its
debt facilities with Greenleaf Capital to fund operations.
Management has taken significant steps over the last two years to
reduce cash expenditures through headcount reductions, facility closings and
other cost control measures. In addition, we are currently actively pursuing the
sale of our CAM technology in order to generate liquidity. It is contemplated
that the funds obtained would be partially utilized to pay down debt and
partially retained to fund operations. However, the sale of the CAM operation
may not materialize in the near term.
Although the Company believes its current cost structure together with
reasonable revenue run rates based on historical performance will generate
positive cash flow in the current fiscal year, the current economic environment
makes forecasting revenue based on historical models difficult.
The Company currently believes that its cash flow from operations
together with the availability of capital under its existing debt agreements is
sufficient to meet its obligations for at least the next year.
C. INCOME TAXES:
The provision (benefit) for income taxes includes the following:
For Years ended May 31, (in thousands) 2001 2000 1999
--------------------------------------------------------------------------------
37
Federal $ -- $ -- $ (158)
Foreign (7) (8) 123
State and Local 11 (5) (11)
------ -------- --------
4 (13) (46)
Deferred -- -- 125
------ -------- --------
$ 4 $ (13) $ 79
====== ======== ========
The domestic and foreign components of income (loss) from operations
before income taxes of the consolidated companies were as follows (in
thousands):
2001 2000 1999
------ ---- ----
Domestic $ (6,422) $(5,126) $(5,462)
Foreign (402) (830) (209)
-------- ------- -------
$ (6,824) $(5,956) $(5,671)
======== ======= =======
At May 31, 2001, the Company had net operating loss carryforwards of $11.9
million that begin expiring in 2013, and are available to reduce future taxable
income. The Company also has tax credit carryforwards generated from research
and development activities of $842,000 that are available to offset income taxes
payable in the future and expire from 2002 to 2006. In addition, an alternative
minimum tax credit of $200,000 that has no expiration date was available as of
May 31, 2001.
The Company's effective income tax rates can be reconciled to the federal
statutory income tax rate as follows:
For the Years ended May 31, 2001 2000 1999
--------------------------------------------------------------------------------
Statutory rate (34)% (34)% (34)%
State and local taxes -- -- --
Foreign taxes -- 5 3
Expenses not deductible for tax purposes 8 3 3
Other (1) 3 (5)
Valuation reserve 27 23 34
-- --- ---
Effective tax rate 0% 0% 1%
=== === ===
Deferred tax assets (liabilities) were comprised of the following at May
31:
(in thousands) 2001 2000
--------------------------------------------------------------------------------
Deferred tax assets (liabilities):
Depreciation $ 6 $ 6
Net operating loss carryforwards 4,053 2,513
38
Tax credit carryforwards 902 1,042
Receivable allowances 336 191
Vacation pay accrual 33 52
Legal reserve -- 218
Differences in book and tax bases of assets
of acquired businesses 1,129 914
Asset basis differences (95) (189)
------- --------
Deferred tax assets 6,364 4,747
Less: valuation allowance (6,364) (4,747)
------- --------
Net deferred tax assets recognized $ 0 $ 0
======= ========
Due to the uncertainties regarding the realization of certain favorable
tax attributes in future tax returns, the Company has established a valuation
reserve against the otherwise recognizable net deferred tax assets. Changes in
the valuation reserve impacted deferred tax expense as follows: fiscal 2001 -
($1,617); fiscal 2000 - ($1,396); and fiscal 1999 - ($1,959).
D. EMPLOYEE RETIREMENT PLANS:
The Company has an Internal Revenue Code Section 401(k) plan covering
substantially all employees. The aggregate retirement plan expense, which
represents an employer match of a portion of employee voluntary contributions,
for fiscal 2001, 2000 and 1999 was $87,000, $63,000 and $185,000, respectively.
E. EMPLOYEE STOCK PLANS:
The Company's 1994 Stock Option Plan (the "1994 Plan") provides for the
granting of both incentive and non-qualified options. Incentive stock options
granted under the Plan have an exercise price not less than fair market value of
the stock at the grant date and have vesting schedules as determined by the
Company's Board of Directors. The Plan permits the granting of non-qualified
options at exercise prices and vesting schedules as determined by the Board of
Directors. The 1994 Plan calls for the adjustment of option exercise prices to
reflect equity transactions such as stock issuances, dividend distributions and
stock splits.
Information for fiscal 1999 through 2001 with respect to this plan is as
follows:
Weighted Average
Stock Options Number of Shares Option Price
--------------------------------------------------------------------------------
Outstanding at May 31, 1998 972,933 $ 2.07
Options granted 107,000 3.38
Options terminated (140,334) 3.12
Options exercised (631,499) 1.83
--------
Outstanding at May 31, 1999 308,100 2.49
Options granted 99,000 1.46
Options terminated (125,667) 2.86
Options lapsed (8,100) 4.44
Options exercised (15,666) 1.61
--------
Outstanding at May 31, 2000 257,667 1.91
39
Options granted 72,500 .97
Options terminated (65,667) 3.15
Options lapsed - -
Options exercised - -
--------
Outstanding at May 31, 2001 264,500 $ 1.53
========
The following table summarizes information about stock options outstanding at
May 31, 2001 under the 1994 Plan:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Exercise Options Average Weighted Options Weighted
Price Range Outstanding at Contractual Average Exercisable at Average
Price May 31, 2001 Remaining Life Exercise Price May 31, 2001 Exercise Price
----------------------------------------------------------------------------------------
$ .010 to $ .44 43,000 .22 years $ .37 43,000 $ .37
$ .781 to $1.688 161,500 5.49 years 1.18 12,135 1.10
$1.878 to $2.063 44,000 6.29 years 1.92 31,600 1.90
$3.375 to $4.625 16,000 4.92 years 4.08 7,733 4.25
------- -------
Total 264,500 94,468 1.29
======= =======
There were 186,855 shares available for future grants under the 1994 Plan
at May 31, 2001.
During fiscal 2000, 985,500 options were granted outside of the plan
to employees of SofTech of which 485,000 options terminated during fiscal 2001.
At May 31, 2001, 500,500 of those fiscal year 2000 options were outstanding
outside of the Plan, of which 458,458 were exercisable, at a weighted average
exercise price of $1.49. On September 27, 2001, 450,000 of those options expire
if not exercised. In addition, during fiscal 2001, 100,000 options to purchase
shares at $1.00 have been extended to a third party to settle a dispute.
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. The Company has adopted the disclosure-only provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." 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 income (loss) and earnings (loss)
per share at May 31 would have approximated the pro forma amounts indicated
below:
(in thousands) 2001 2000 1999
--------------------------------------------------------------------------------
Net loss - as reported $(6,828) $(5,943) $(5,750)
Net loss - pro forma (7,310) (7,588) (6,400)
Loss per share - as reported (.64) (0.71) (0.77)
Loss per share - pro forma (.68) (0.91) (0.85)
The weighted-average fair value of each option granted in 2001, 2000 and
40
1999 is estimated as $.97, $1.18 and $2.14, respectively on the date of grant
using the Black-Scholes model with the following weighted average assumptions:
Expected life 2 to 5 years
Assumed annual dividend growth rate 0%
Expected volatility .65 to 1.77
Risk free interest rate
(the month-end yields on 4 year
treasury strips equivalent zero coupon) 5.6% - 6.40%
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. SFAS 123 does not apply to awards prior to 1996
and additional awards in future years are anticipated.
In 1998, the Company adopted an Employee Stock Purchase Plan, under which
all employees of the Company and certain of its subsidiaries who meet certain
minimum requirements will be able to purchase shares of SofTech common stock
through payroll deductions. The purchase price per share is 85% of the fair
market value of the common stock on the Offering Date or the Exercise Date,
whichever is less. As of May 31, 2001, 150,000 shares of SofTech common stock
were available for sale to employees under the plan.
F. 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 ("PDM") computer solutions. The Company's operations are organized
geographically with foreign offices in England, France, Germany and Italy.
Components of revenue and long-lived assets (consisting primarily of intangible
assets, capitalized software and property, plant and equipment) by geographic
location, are as follows (in thousands):
Revenue: 2001 2000 1999
North America $ 11,042 $ 17,285 $ 27,634
Europe 2,817 3,371 4,105
Eliminations (1,130) (791) (1,182)
-------- -------- --------
Consolidated Total $ 12,729 $ 19,865 $ 30,557
======== ======== ========
Long-Lived Assets:
North America $ 14,896 $ 18,806 $ 20,642
Europe 206 249 292
-------- -------- --------
Consolidated Total $ 15,102 $ 19,055 $ 20,934
======== ======== ========
G. QUARTERLY FINANCIAL INFORMATION - Unaudited
(in thousands, except per share data)
2001 Q1 Q2 Q3 Q4 TOTAL
---- -- -- -- -- -----
Net revenue $4,511 $3,147 $2,687 $2,384 $12,729
Gross margin 3,902 2,654 2,390 2,100 11,046
Net loss (464) (1,261) (1,735) (3,368)(1) (6,828)
Net loss per share
basic and diluted (.04) (.12) (.17) (.31) (.64)
(1) Includes an impairment charge of $660,000 related to a write down of AMT
goodwill - See Note A.
41
2000
Net revenue $7,382 $5,524 $3,960 $2,999 $19,865
Gross margin 5,371 4,486 3,057 2,098 15,012
Net income (loss) 148 210 (1,922) (4,379) (5,943)
Net income (loss)
per share basic
and diluted .02 .03 (.23) (.53) (.71)
H. DEBT OBLIGATION WITH RELATED PARTY:
Debt obligations of the Company consist of the following obligations at
May 31, (in thousands):
2001 2000
---- ----
$11,000,000 senior credit facility $ 10,741 $ 10,222
$3,000,000 line of credit facility 592 --
--- --
11,333 10,222
Less current portion (632) (328)
----- -----
$ 10,701 $ 9,894
======== =========
During fiscal 2000, the Company entered into a $11 million senior credit
facility with Greenleaf Capital ("Greenleaf"). Principal and interest is payable
monthly at a variable rate(11.3% at May 31, 2001) and the note has a 15-year
loan amortization with the remaining principal of $8,996,000 due in a single
payment in June 2004. The facility was used to refinance debt owed a prior
senior lender and to provide working capital. The Company has an unsecured line
of credit with Greenleaf of $3 million with an interest rate equal to a Bank
prime rate plus 3%(10% at May 31,2001).
Effective October 31, 1999, the Company entered into a debt conversion
agreement with Greenleaf which allowed the Company, at its discretion, to
convert up to $1.5 million of its subordinated debt to equity. Under the terms
of this Agreement the Company issued 807,972 shares of previously unissued
common stock to Greenleaf on February 28, 2000 in exchange for converting $1.5
million of the subordinated note described above to equity. The conversion price
was established as the average closing price for the five trading days
immediately preceding the effective date.
Effective May 26, 2000, the Company entered into a second debt conversion
agreement with Greenleaf. Under the terms of this second Agreement the Company
had the right to convert up to $3.5 million of subordinated debt to equity at
the lower of the average closing price for the five business days prior to
conversion or $1.0781. The number of shares to be issued under this conversion
agreement was limited to 19.9% of the number of outstanding shares prior to
conversion. On May 31, 2000, the Company converted the remaining $3.5 million of
subordinated debt under the terms of this Agreement and issued 1,783,000 shares
of previously unissued common stock to Greenleaf. The Company has agreed to seek
approval of an additional 1,463,452 shares of previously unissued common stock
42
to be issued to Greenleaf at the next annual shareholder meeting, which are the
additional shares to which Greenleaf is entitled for converting $3.5 million of
subordinated debt at $1.0781 per share.
Effective July 2001, the Company entered into an agreement with Greenleaf
to extend the then expired Line of Credit through June 1, 2002 for an additional
year in exchange for the following: 1) the Company would pay Greenleaf a
management fee of approximately $500,000 per year; 2) the Company would appoint
Greenleaf Trust to act as Trustee and Investment Advisor for the Company 401-K
Plan; and 3) the Company would have the right, solely at its discretion, to
repurchase the $5.0 million of shares obtained by Greenleaf in the October 1999
and the May 2000 debt conversions at prices ranging from $1.07 to $1.86 per
share. Finally, the Company agreed to take all necessary actions to provide
Greenleaf with a first security position against substantially all assets for
its existing debt and for further increases in the debt.
Greenleaf retained its right under the original subordinated debt
agreement to receive 180,000 warrants to purchase SofTech common stock at $8.00
per share on December 31, 2000; and an additional 60,000 warrants to purchase
SofTech common stock at $8.00 per share on each of December 31, 2001 and 2002.
William D. Johnston, a director of SofTech since September 1996, is a
principal and the President of Greenleaf. Management sought and received
non-binding commitments from other sources for the financing that was ultimately
provided by Greenleaf. Management recommended and the Board of Directors, other
than Mr. Johnston who abstained from such vote, unanimously approved the
transactions with Greenleaf. The Company paid Greenleaf Capital approximately
$1.9 million, $1.4 million and $526,000 in fiscal 2001, 2000 and 1999,
respectively, in finance charges and transactions fees.
Annual maturities of debt obligations subsequent to May 31, 2001, are as
follows: 2002 - $632,000; 2003 - $1,061,000; 2004 - $645,000; 2005 - and
$8,995,000.
I. LEASE COMMITMENTS:
OPERATING LEASES
The Company conducts its operations in office facilities leased through
2004. Rental expense for fiscal years 2001, 2000 and 1999 was approximately
$1,196,000, $1,161,000 and $1,040,000, respectively.
At May 31, 2002, minimum annual rental commitments under noncancellable
leases were as follows:
Fiscal Year
-------------------------------------
2002 $502,000
2003 444,000
2004 68,000
CAPITAL LEASES
The Company has equipment-leasing arrangements with commercial lending
institutions. These leases are secured by the computer equipment and office
furniture being leased. For financial reporting purposes, the leases have been
classified as capital leases; accordingly, assets with a net book value of
approximately $138,000 (included in data processing equipment and office
43
furniture in the accompanying balance sheet at May 31, 2001) have been recorded.
The approximate minimum annual lease payments under all capitalized leases as of
May 31, 2001 are as follows: 2002, $79,000; 2003, $79,000 and 2004, $33,000. The
present value of the minimum lease payments is $165,000 including current
maturities of $64,000.
J. ACQUISITIONS:
On November 10, 1997, the Company completed the acquisition of certain
assets and assumed certain liabilities of the Advanced Manufacturing Technology
("AMT") division of CIMLINC, Incorporated ("CIMLINC"). AMT is a technology group
that targets its application software to the mold and die industry. The purchase
price for the acquired AMT assets was $1,750,000 in cash, 200,000 shares of the
Company's common stock and the assumption of certain liabilities. In addition,
the Company issued a total of 507,266 shares of common stock to certain AMT
employees to satisfy certain amounts due and as a replacement for stock options
and stock ownership in CIMLINC. The purchase resulted in the recording of
capitalized software of $4.0 million, fixed assets of $.2 million and goodwill
of approximately $1.7 million, which is being amortized on a straight-line basis
over ten years.
On May 7, 1998, the Company completed the acquisition of certain assets
and assumed certain liabilities of Adra Systems, Inc. ("ADRA"), a technology
company with products primarily related to the two-dimensional computer aided
design ("2D CAD") marketplace. SofTech acquired all of the material assets of
the ADRA operation including accounts receivable and fixed assets including
office furniture and computer equipment. The Company also acquired all
intellectual property rights, as defined in the Asset Purchase Agreement, used
in the ADRA operations. The purchase price for the acquired net assets was $11.4
million cash. Computer software of $10.1 million and goodwill of $2.0 million
were recorded in connection with the acquisition which are being amortized on a
straight-line basis over ten years.
The above acquisitions were accounted for as purchases and, accordingly, their
assets, liabilities, and results of operations have been consolidated with those
of the Company since the acquisition dates.
K. LITIGATION:
In September 1996, the Company sold its Network Systems Group to Data
Systems Network Corporation. Following the completion of the sale, significant
disputes arose between the parties with regard to the Asset Purchase Agreement
as described more completely in Note I to the Annual Report on Form 10-K for the
fiscal year ended May 31, 2000. In January 2001, the parties settled the dispute
amicably. The settlement did not result in a charge in excess of the amount that
had been accrued in fiscal years prior to those presented in this report.
On January 29, 1999 claimant CIMLINC Incorporated ("CIMLINC") sought a
demand for arbitration pursuant to the Asset Purchase Agreement between CIMLINC,
Inc., CIMLINC, Ltd., CIMLINC GmbH and the Company. In its demand, CIMLINC
claimed entitlement based on an alleged failure of SofTech to register stock
received in the acquisition transaction, receivables allegedly due to CIMLINC,
royalty payments and an alleged failure to assume and pay certain liabilities of
CIMLINC, and other relief, including costs and fees. SofTech filed a counter
arbitration demand against CIMLINC alleging damages for breach of certain
44
representations and warranties, and fraud in connection with them, regarding
revenue recognition in connection with the Asset Purchase Agreement.
On August 24, 2000, subsequent to the completion of a series of hearings
before the Arbitrator between November 1999 and June 2000, the Arbitrator found
in favor of CIMLINC and awarded $620,923 in damages. On October 12, 2000 the
Company reached a final negotiated settlement with regard to this matter by
agreeing to pay $450,000 in exchange for giving up its right to appeal the
matter. This payment has been made and this matter resolved in fiscal 2001.
In addition to the above, the Company is a party to various legal
proceedings and claims that arise in the ordinary course of business. Management
believes that amounts accrued at May 31, 2001 for matters discussed and other
matters not specifically detailed above are sufficient to cover any resulting
settlements and costs and does not anticipate a material adverse impact on the
financial position or results of operations of the Company beyond such amounts
accrued.
L. NOTES RECEIVABLE FROM OFFICERS
During the fourth quarter, the Company recorded a charge to operations of
approximately $416,000 to write down to estimated realizable value loans to
officers that departed from the Company subsequent to year end. These Notes were
issued to the officers to pay taxes on share issuances in previous years.
45
SOFTECH, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the three years ended May 31, 2001
Col. A Col. B Col. C Col. D Col. E Col. F
------ ------ ------ ------ ------ ------
Balance, Charged Balance,
beginning Costs and end of
Description of period Expenses Deductions Other period
--------------------------------------------------------------------------------
Allowance for uncollectible accounts receivable (in thousands):
Year ended May 31, 2001 $774 $ 611 $ 681(1) -- $704
Year ended May 31, 2000 $811 $1,242 $1,279(1) -- $774
Year ended May 31, 1999 $649 $ 873 $ 711(1) -- $811
(1) Represents uncollectible accounts written off, net of recoveries.
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SofTech, Inc.
By /s/ Joseph P. Mullaney
-----------------------
Joseph P. Mullaney, President and COO
Date: September 13, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
----------------------------------------------------------------------------
/s/ Joseph P. Mullaney President and Chief Operating Officer 9/13/01
-------------------------- (Principal executive officer)
Joseph P. Mullaney
/s/ Ronald A. Elenbaas Director 9/13/01
--------------------------
Ronald A. Elenbaas
/s/ William Johnston Director 9/13/01
--------------------------
William Johnston
/s/ Timothy Tyler Director 9/13/01
--------------------------
Timothy Tyler
/s/ Barry Bedford Director 9/13/01
--------------------------
Barry Bedford
/s/ Frederick A. Lake Director 9/13/01
--------------------------
Frederick A. Lake
47