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SofTech Announces Q3 Fiscal Year 2012 Operating Results

Q3’12 Product Revenue Up 49% from Q3’11;
Third Sequential Quarter of Double-Digit Product Revenue Growth;
Quarterly EPS from Continuing $.14 vs. $.04
YTD EPS from Continuing $.38 vs. $.28.

LOWELL, Mass. – April 16, 2012 – SofTech, Inc. (OTCQB: SOFT), a proven provider of Product Lifecycle Management (PLM) solutions today announced its third quarter fiscal 2012 operating results. Revenue for the three months ended February 29, 2012 was $1.7 million, down 4% from the same period in the prior fiscal year. Net income from continuing operations was $137,000 or $.14 per share for the three months ended February 29, 2012, an increase of 471% from the net income from continuing operations of $24,000 or $.04 per share for the same period in the prior fiscal year.

Revenue for the nine months ended February 29, 2012 was $4.9 million as compared to $5.3 million for the same period in the prior fiscal year, a decrease of 7%. Net income from continuing operations for the nine months ended February 29, 2012 was $377,000 or $.38 per share as compared to $170,000 or $.28 per share for the same period in the prior fiscal year, an increase of 122%.

The weighted average shares outstanding on which the earnings per share was calculated increased from 611,000 shares for the three and the nine months ended February 28, 2011 to 995,000 shares for the comparative periods in fiscal 2012 as a result of the 384,000 shares purchased by the new investors (primarily the new management team and directors) in the March 2011 recapitalization transaction.

Gross margins declined in both the three and nine month periods ended February 29, 2012 compared to the same periods in fiscal 2011 due to declines experienced in service revenue as described below. The cost of sales is composed primarily of payroll and related expenses of the customer services group that provides support services and the professional services group that performs implementation, customization and training services. These costs were essentially unchanged from fiscal 2011 to 2012.

“Our operating performance continued to show steady improvement compared to the same periods in the prior year especially for product revenue and profitability,” said Joe Mullaney, President and CEO. “However, our service revenue was negatively impacted primarily by one large maintenance customer that moved to a competitor’s offering and did not renew their maintenance contract at the end of January 2011 (before the March 2011 recapitalization transaction). A contributing factor to the service revenue decline was a decrease in consulting revenue in fiscal 2012 compared to the prior year due to the completion of a large project that has not yet been fully replaced,” he added.

“Developing profitable new revenue streams that leverage our expertise and technology has been a key focus of the new management team. Over the last year we have been working on a number of new product offerings. I am happy to report that one such initiative we started in June 2011 has been completed subsequent to the end of our third quarter and the first order satisfied in March 2012. We plan on having several announcements over the coming months to describe these new product offerings,” Mullaney added.

FINANCIAL STATEMENTS
The Statements of Operations for the three and nine month periods ended February 29, 2012 compared to the same periods in the prior fiscal years are presented below. A reconciliation of Net income 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
February 29, February 28, Change
2012 2011 $ %
Product revenue $530 $357 $173 48.5%
Service revenue 1,130 1,379 (249) -18.1%
Total revenue 1,660 1,736 (76) -4.4%
Cost of sales 380 363 17 4.7%
Gross margin $ 1,280 1,373 (93) -6.8%
Gross margin % 77.1% 79.1%  
R&D 238 415 (177) -42.7%
SG&A 830 810 20 2.5%
Operating income 212 148 64 43.2%
Interest expense 74 144 (70) -48.6%
Other (income) expense 1 (20) 21 -105.0%
Income from continuing operations before taxes 137 24 113 470.8%
Provision for income taxes - - - -
Income from continuing operations 137 24 113 470.8%
Discontinued operations:
Income from discontinued operations - 49 (49) -100.0%
Net income from discontinued operations - 49 (49) -100.0%
Net income $137 $73 $64 87.7%
Weighted average shares outstanding 995 611  
Basic and diluted net income per share:
From continuing operations $0.14 $0.04  
From discontinued operations - 0.08  
Basic and diluted net income per share: $0.14 $0.12  
Reconciliation of Net income to EBITDA:
  For the three months ended
February 29, February 28,  
2012 2011
Net income $137 $73
Plus interest expense 74 144
Plus tax expense - -
Non-cash expenses 36 10
EBITDA $247 $227

Statements of Operations
(in thousands, except % and per share data)

  For the nine months ended
February 29, February 28, Change
2012 2011 $ %
Product revenue $1,166 $938 $228 24.3%
Service revenue 3,763 4,381 (618) -14.1%
Total revenue 4,929 5,319 (390) -7.3%
Cost of sales 1,080 1,072 8 0.7%
Gross margin $ 3,849 4,247 (398) -9.4%
Gross margin % 78.1% 79.8%  
R&D 958 1,226 (268) -21.9%
SG&A 2,257 2,480 (223) -9.0%
Operating income 634 541 93 17.2%
Interest expense 250 416 (166) -39.9%
Other (income) expense 7 (45) 52 -115.6%
Income from continuing operations before taxes 377 170 207 121.8%
Provision for income taxes - - - -
Income from continuing operations 377 170 207 121.8%
Discontinued operations:
Income from discontinued operations - 122 (122) -100.0%
Net income from discontinued operations - 122 (122) -100.0%
Net income $377 $292 $85 29.1%
Weighted average shares outstanding 995 611  
Basic and diluted net income per share:
From continuing operations $0.38 $0.28  
From discontinued operations - 0.20
Basic and diluted net income per share: $0.38 $0.48
Reconciliation of Net income to EBITDA:
  For the nine months ended
February 29, February 28,  
2012 2011
Net income $377 $292
Plus interest expense 250 416
Plus tax expense - -
Non-cash expenses 112 28
EBITDA $739 $736

The Balance Sheets as of February 29, 2012 and our fiscal year end May 31, 2011 are presented below.

Balance Sheets
(in thousands)

  As of
February 29, May 31,
2012 2011
Cash $617 $1,586
Accounts receivable 1,247 907
Other current assets 271 521
Total current assets 2,135 3,014
Property and equipment, net 50 58
Goodwill 4,251 4,256
Other non-current assets 514 448
Total assets $6,950 $7,776
Accounts payable $309 $239
Accrued expenses 447 838
Deferred maintenance revenue 2,241 2,301
Current portion of long term debt 720 720
Other current liabilities 81 173
Total current liabilities 3,798 4,271
Other non-current liabilities 75 144
Long term debt 1,710 2,250
Total liabilities 5,583 6,665
Stockholders' equity 1,367 1,111
Total liabilities and stockholders' equity $6,950 $7,776

About SofTech

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

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

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

SofTech, CADRA 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 2012 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 covenant requirements of the loan agreement; (4) successfully introduce and attain market acceptance of any new products and/or enhancements of existing products; (5) attract and retain qualified personnel; (6) prevent obsolescence of our technologies; (7) maintain agreements with our critical software vendors; (8) secure renewals of existing software maintenance contracts, as well as contracts with new maintenance customers; 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 Form S-1 Registration Statement (No. 333-174818) and the Company’s Quarterly Report on Form10-Q for the quarter ended November 30, 2011. The Company undertakes no obligation to update these forward-looking statements to reflect actual results, changes in assumptions or changes in other factors that may affect such forward-looking statements.

Use of Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this press release also contains non-GAAP financial measures. Specifically, the Company has presented EBITDA, which is defined as Net income plus interest expense, tax expense and non-cash expenses such as depreciation, amortization and stock based compensation expense. The Company believes that the inclusion of EBITDA helps investors to gain a meaningful understanding of the Company’s core operating results and enhance comparing such performance with prior periods, without the distortion 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 facilities. 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:
Joseph P. Mullaney
President & Chief Executive Officer
SofTech, Inc.
(978) 513-2700