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SofTech Announces Q4 and FY 2015 Operating Results

ProductCenter Revenue Up 34.8% in Q4’15 vs. Q4’14 & 14.6% for Full Year;
Connector Subscription Revenue More than Doubled;
HomeView, our New Patent-Pending Technology, about to Launch.

LOWELL, Mass. - August 31, 2015 - SofTech, Inc. (OTC: SOFT), a proven provider of Product Lifecycle Management (PLM) solutions, today announced its fourth quarter and full year operating results.

"Fiscal 2015 marked the beginning of what we hope to be a transformation of SofTech into a fast growth, entrepreneurial company; no easy task for a 46-year-old technology company"

"Fiscal 2015 marked the beginning of what we hope to be a transformation of SofTech into a fast growth, entrepreneurial company; no easy task for a 46-year-old technology company," said Joe Mullaney, SofTech's CEO since 2011. "While we are extremely pleased with the exceptional revenue growth from our ProductCenter and Connector offerings, we are also equally excited about the commercial launch in 2016 of our HomeView™ technology. HomeView addresses an obvious problem in a huge market that will continue to expand as the Internet connects everything in the home to our handheld devices. We hope to position HomeView as a critical backbone of that revolution. More detail about our Q4 and full year results follows, along with more information about HomeView," Mullaney added.

Fourth Quarter Results. For the fourth quarter of fiscal year 2015, the Company generated revenue of approximately $1,126,000 as compared to $879,000 in the same period in fiscal year 2014, an increase of about 28%. The net loss for the fourth quarter of fiscal 2015 was approximately $(12,000) or $(0.01) per share as compared to a net loss of $(657,000) or $(.75) per share for the same period in fiscal 2014. EBITDA for the fourth quarter of fiscal 2015 was $69,000 as compared to negative EBITDA of $(496,000) during the same period in fiscal 2014.

The Company sold its CADRA product line during the second quarter of fiscal year 2014. The CADRA product line was responsible for about half of the Company's revenue and a majority of its profitability and cash flow in at least the two immediately preceding fiscal years. Since the CADRA sale, the Company has been restructuring its business by reducing spending, seeking new revenue streams through new product development and focusing on enhancing the revenue from its remaining product lines, ProductCenter and Connector.

The following table summarizes the quarterly operating results for the six completed fiscal quarters since the CADRA sale (000's):

                         
Q3 2014     Q4 2014     Q1 2015     Q2 2015     Q3 2015     Q4 2015
 
Revenue $ 1,342 $ 879 $ 864 $ 1,027 $ 925 $ 1,126
Cost of sales
- Internal expenses 303 245 293 315 301 271
- 3rd party purchases   263         123         115         154         129         112  
 
Gross margin 776 511 456 558 495 743
 
R&D 276 256 272 222 183 217
SG&A 835 900 717 645 592 527
Change in fair value of deferred payments   -         (17 )       (39 )       (21 )       (10 )       (15 )
Operating income (loss) (335 ) (628 ) (494 ) (288 ) (270 ) 14
Interest expense 10 48 63 63 31 8
Other   (6 )       (19 )       15         28         55         18  
 
Net loss $ (339 )     $ (657 )     $ (572 )     $ (379 )     $ (356 )     $ (12 )
 
EBITDA $ (290 )     $ (496 )     $ (368 )     $ (137 )     $ (172 )     $ 69  
 
Expenses categorized:
3rd party purchases $ 263 $ 123 $ 115 $ 154 $ 129 $ 112
Cash expenses 1,379 1,302 1,180 1,074 999 942
Non-cash expenses   39         111         141         178         153         84  
Total quarterly expenses $ 1,681       $ 1,536       $ 1,436       $ 1,406       $ 1,281       $ 1,138  
 

As depicted above, Q4 2015 represented our best quarterly revenue and operating performance of fiscal year 2015. Q3 2014 included a non-recurring order for CADRA product and services totaling $491,000 from Sikorsky Aircraft. Throughout the year, we continuously reduced our operating expenses, steadily improved our revenue performance (after adjusting for the non-recurring Sikorsky Aircraft order) and invested in the development of a new product called HomeView (see description following), which we plan to launch in fiscal 2016.

Fiscal Year 2015 Results. For fiscal year 2015, the Company generated revenue of approximately $3.9 million as compared to approximately $5.0 million in the prior fiscal year, a decrease of about 21%. The CADRA sale in 2014 was responsible for a decrease of about $1.5 million while our remaining ProductCenter and Connector product lines each increased substantially, combining for revenue growth of approximately $455,000, about 15.5%.

The net loss for fiscal 2015 was approximately $(1,319,000) as compared to a net loss of approximately $(748,000) in fiscal 2014. In fiscal 2015, we generated negative EBITDA of approximately $(608,000) as compared to EBITDA of approximately $3,094,000 in fiscal 2014. The 2014 EBITDA was primarily a result of the CADRA sale.

The table below summarizes our operating performance for the fiscal years from 2002 through 2015 (000's):

                   
Non-Cash Expenses
Fiscal Net Depreciation Interest and
Year     Income(Loss)     & Amortization     Goodwill (A)     Tax Expense     EBITDA
 
2002 $ (2,680 ) $ 2,927 $ - $ 1,288 $ 1,535
2003 (1,852 ) 2,323 - 1,140 1,611
2004 (1,853 ) 2,585 - 1,015 1,747
2005 (1,425 ) 2,533 - 903 2,011
2006 (1,333 ) 1,936 - 1,217 1,820
2007 (1,222 ) 1,469 - 1,460 1,707
2008 (306 ) 1,430 - 1,302 2,426
2009 1,321 532 - 776 2,629
2010 673 176 - 605 1,454
2011 (222 ) 595 355 538 1,266
2012 444 156 - 323 923
2013 360 341 - 357 1,058
2014 (748 ) 284 3,305 253 3,094
2015 (1,319 ) 544 - 167 (608 )
 
(A) Goodwill expensed upon the sale of the AMT and the CADRA product lines in 2011 and 2014, respectively.
 

In fiscal 2015 we ended our thirteen year streak of generating positive EBITDA. The sale of CADRA in fiscal 2014 allowed us to significantly reduce our outstanding debt ($2.7M at the beginning of fiscal 2014, $446,000 at the end of fiscal 2015), to make investments in the PLM market in Europe and to develop a new product called HomeView during fiscal 2015.

Our European office focused during 2015 in pursuing PLM opportunities. Subsequent to fiscal year end 2015, that office received an order for approximately $350,000 in a phase 1 project at a large manufacturing company that could turn into a multi-year, very large contract when phase 1 is successful. Several other identified PLM opportunities in Europe that we think will close during fiscal 2016 give us comfort that the 2015 investments were well placed.

HomeView. During fiscal 2015, we also invested approximately $600,000 (about $400,000 expensed, and $200,000 capitalized) in the development of our HomeView patent-pending technology. HomeView, very simply, is PLM for the residential property market. The residential property market in the U.S. alone is valued at approximately $27 trillion. Homeowners spend about 3% to 4% of that market value each year in maintaining and renovating their homes. HomeView is aimed at providing those homeowners with a robust but easy-to-use technology that will not only help them manage the things in their homes but also provide a maintenance, repair and replacement record for future owners.

We believe the following with regard to the need for HomeView in the market today:

  • a buyer of a residential property should demand that the seller provide them with a complete record of the components of a property along with pertinent information about those components so the buyer knows whom to call when things break and knows when to expect the component will have to be replaced;
  • a paper system to track maintenance and replacement needs is a system that is doomed to failure. An automated, redundant, electronic system that can be maintained and passed along to future owners of the property is far superior and will save the homeowner time and money;
  • a home seller that can demonstrate a record of care and attention to their home through a system like HomeView can command a higher resale price than one that doesn't; and
  • a home that is completely transparent as to the age, condition, repair history and other relevant data for all the components in the home will sell faster, avoid 11th hour issues from the inspection and at a higher price relative to a home that hides the data.

Just a decade ago, Realtors closely guarded the information about the homes in their markets that were for sale or that sold. Home buyers had to come to them if they wanted that information. Today, there are numerous portals such as Zillow, Trulia, Realtor.com, Realtor websites and many other online sites that provide ready access to the basic listing data. This has revolutionized the real estate market. It is estimated that 80% of prospective home buyers browse online through one or more of the popular portals before even interacting with a Realtor. Realtors are scrambling to adjust to this new world.

HomeView believes the basic listing data about a home that includes the number of bedrooms, bathrooms, square footage, acreage, pictures, physical location, school systems and other general information is a great initial rudimentary start for the home buyer. But why stop there? Home buyers also have great interest in the appliances, utility costs, age of the roof, heating and cooling systems and all the other things that go into making a house a home. Before they purchase they want to know the cost of operating a particular home and the capital needs over the next five to ten years. When they take ownership they will want to know the service people that are familiar with the components of their home and how to reach them. HomeView delivers all that and more.

Additional information about HomeView is available at www.HomeView.com.

FINANCIAL STATEMENTS

The Statements of Operations for the three and twelve month periods ended May 31, 2015 compared to the same periods in the prior fiscal year are presented below. A reconciliation of Net loss to EBITDA, a non-GAAP financial measure, is also provided.

 
Statements of Operations
(in thousands, except % and per share data)
                 
For the three months ended
May 31, May 31, Change
  2015         2014         $       %  
Product revenue $ 81 $ 96 $ (15 ) -15.6 %
Service revenue   1,045         783         262       33.5 %
Total revenue   1,126         879         247       28.1 %
 
Cost of sales   383         368         15       4.1 %
Gross margin 743 511 232 45.4 %
Gross margin % 66.0 % 58.1 %
 
R&D 217 256 (39 ) -15.2 %
SG&A 527 900 (373 ) -41.4 %
Change in the fair value of deferred payments from CADRA Sale   (15 )       (17 )       2       -  
 
Operating income 14 (628 ) 642 -102.2 %
Interest expense 8 48 (40 ) -83.3 %
Other (income) expense   16         (21 )       37       -176.2 %
Loss from operations before income taxes (10 ) (655 ) 645 -98.5 %
Provision for income taxes   2         2         -       0.0 %
Net loss   (12 )       (657 )       645       -98.2 %
 
Weighted average shares outstanding   894         875         19       2.2 %
Basic and diluted net income per share: $ (0.01 )     $ (0.75 )     $ 0.74       -98.2 %
 
Reconciliation of Net income to EBITDA:
 
Net loss $ (12 ) $ (657 ) $ 645 -98.2 %
Plus interest expense 8 48 (40 ) -83.3 %
Plus tax expense 2 2 - 0.0 %
Plus non-cash expenses 71 67 4 6.0 %
Plus non-cash goodwill expense related to CADRA product line   -         44         (44 )     -  
EBITDA $ 69       $ (496 )     $ 565       -113.9 %
 
 
Statements of Operations
(in thousands, except % and per share data)
 
      For the fiscal years ended
May 31,     May 31,     Change
2015     2014     $     %
Product revenue $ 535     $ 1,138     $ (603)     -53.0%
Service revenue 3,407     3,871     (464)     -12.0%
Total revenue 3,942     5,009     (1,067)     -21.3%
 
Cost of sales 1,690     1,567     123     7.8%
Gross margin 2,252 3,442 (1,190) -34.6%
Gross margin % 57.1% 68.7%
 
R&D 894 1,171 (277) -23.7%
SG&A 2,481 3,465 (984) -28.4%
Gain on sale of CADRA product line - (649) 649 -100.0%
Change in fair value of deferred payments from CADRA Sale (85)     (17)     (68)     400.0%
 
Operating income (1,038) (528) (510) 96.6%
Interest expense 165 251 (86) -34.3%
Other (income) expense 114     (33)     147     -445.5%
Income from operations before income taxes (1,317) (746) (571) 76.5%
Provision for income taxes 2     2     -     0.0%
Net income (1,319)     (748)     (571)     76.3%
 
Weighted average shares outstanding 890     877     13     1.5%
Basic and diluted net income per share: $ (1.48)     $ (0.85)     $ (0.63)     73.8%
 
Reconciliation of Net income to EBITDA
 
Net income $ (1,319) $ (748) (571) 76.3%
Plus interest expense 165 251 (86) -34.3%
Plus tax expense 2 2 - 0.0%
Plus non-cash expenses, net 544 284 260 91.5%
Plus non-cash goodwill expense related to CADRA product line -     3,305     (3,305)     -100.0%
EBITDA $ (608)     $ 3,094     $ (3,702)     -119.7%
 
 
Balance Sheets
(in thousands)
 
      As of
May 31,     May 31,
  2015         2014
Cash $ 310 $ 1,209
Accounts receivable 587 666
Receivable due from sale of CADRA product line 243 547
Other current assets   315         343
Total current assets   1,455         2,765
 
Property and equipment, net 57 95
Goodwill 948 948
Receivable due from sale of CADRA product line 133 348
Other non-current assets   700         568
Total assets $ 3,293       $ 4,724
 
Accounts payable $ 137 $ 483
Accrued expenses 283 607
Deferred maintenance revenue 1,732 1,462
Current portion of capital leases 19 19
current portion of long-term debt   446         973
Total current liabilities   2,617         3,544
 
Other non-current liabilities 30 47
Other liabilities   10         -
Total liabilities   2,657         3,591
 
Redeemable common stock   1,190         275
 
Stockholders' equity   (554 )       858
Total liabilities, redeemable common stock
and stockholders' equity $ 3,293   $ 4,724
 

About SofTech

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

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

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

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

Forward Looking Statements

This press release contains forward-looking statements relating to, among other matters, our outlook for fiscal year 2016 and beyond. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These forward-looking statements are based on estimates, projections, beliefs, and assumptions and are not guarantees of future events or results. Actual future events and results could differ materially from the events and results indicated in these statements as a result of many factors, including, among others, (1) generate sufficient cash flow from our operations or other sources to fund our working capital needs and growth initiatives; (2) maintain good relationships with our lender; (3) comply with the terms of the loan agreement; (4) successfully introduce and attain market acceptance of any new products and/or enhancements of existing products; (5) attract and retain qualified personnel; (6) prevent obsolescence of our technologies; (7) maintain agreements with our critical software vendors; (8) secure renewals of existing software maintenance contracts, as well as contracts with new maintenance customers; and (9) secure new business, both from existing and new customers.

These and other additional factors that may cause actual future events and results to differ materially from the events and results indicated in the forward-looking statements above are set forth more fully under "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year ended May 31, 2015. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

Use of Non-GAAP Financial Measures

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

Contact

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