SofTech Provides Update, Announces Fiscal Year 2011 Operating Results and Completion of Audit

LOWELL, Mass. — (BUSINESS WIRE) — September 28, 2011 — SofTech, Inc. (PK: SOFT), a proven provider of Product Lifecycle Management (“PLM”) solutions, announced the following update on its corporate activities since its last announcement on June 13, 2011. The Company previously announced a recapitalization transaction in March 2011 (the “Recapitalization Transaction”).

“I am very pleased to announce that we have filed an amended Registration Statement with the Securities and Exchange Commission (“SEC”) and included therein audited financial statements for fiscal year 2011,” said Joe Mullaney, the CEO since March 11, 2011. “The audit completion and the filing represent a major step forward towards again becoming a fully reporting public company.”

The full year operating results and condensed balance sheet information presented below include the impact of the Recapitalization Transaction and the previously announced sale of the Company’s AMT product line for approximately $413,000. The results of the AMT product line have been reflected as discontinued operations in the financial statements.

The Recapitalization Transaction resulted in two unusual Q4 entries:

  • the Company’s former lender accepted $2.75 million in cash and a note for $250,000 in full satisfaction of approximately $10.6 million then due resulting in debt forgiveness of approximately $7.6 million. Given the former lender’s 44% ownership of the Company prior to the Recapitalization Transaction, this debt forgiveness was recorded as an additional contribution of capital rather than income; and
  • the Company’s former lender paid bonuses of $540,000 to the CFO and the former CEO upon completion of the Recapitalization Transaction under a contractual arrangement entered into in July 2010 directly between those parties. Given the lender’s financial interest in the Company these payments were recorded as Company expenses and as an additional capital contribution by the lender.

In addition to the above, the Company incurred the following expenses related to professional fees during fiscal 2011:

  • $365,000 of professional and advisory fees between June 2010 and December 2010 exploring various alternatives to resolve the debt default with the former lender; and
  • $142,000 of professional and advisory fees from December 2010 to March 2011 that culminated in the Recapitalization Transaction.

Lastly, the Company incurred cash outlays of an additional $467,000 related to debt acquisition and stock issuance costs. Debt acquisition costs were capitalized and will be amortized over the three year loan period and stock issuance costs were netted against the proceeds from the sale of stock in stockholders’ equity.

“The Recapitalization Transaction represents a significant event in the 40-year history of SofTech. It was expensive, time consuming and complex. With that event now behind us and the audit for fiscal year 2011 completed we can move forward to focus on profitable growth and creation of shareholder value,” Mullaney added.

The Registration Statement referred to above relates to the Company’s private placement in March 2011 as part of the Recapitalization Transaction. Pursuant to the registration rights agreement with the investors in the private placement, the Company is obligated to register the possible resale, from time to time, of the shares so purchased by the investors. Such resales cannot occur until after the Registration Statement is declared effective by the SEC. The investors in the private placement have selected a fixed offering price of $5.00 per share by which to offer their shares for sale under this Registration Statement until such time as the SofTech shares are listed on the Over the Counter Bulletin Board or an exchange. The Company will not receive any proceeds from any sales by the selling stockholders. In connection with the effectiveness of the Form S-1 Registration Statement, the Company expects to file a Form 8-A with the SEC registering its common stock under Securities Exchange Act of 1934 (the “Exchange Act”) and, at that point, will again be required to file periodic and other reports under the Exchange Act.

Fiscal Year Ended May 31, 2011 Operating Results & Financial Position

Mullaney continued:

“The combination of the non-recurring expenses related to evaluating the various alternatives following the debt default, the transaction related expenses related to the Recapitalization Transaction, the reclassification of the financial statements to present the results of the AMT product line as discontinued operations and the disruption caused by the aforementioned activities have made the fiscal year 2011 operating results very difficult to understand. A few key measures of improvement are:

  • Improved working capital position by more than $10 million;
  • Reduced annual debt service from $2.5 million to $1.1 million for FY 2012;
  • Reduced FY 2012 interest expense from approximately $600,000 to approximately $240,000;
  • May 31, 2011 cash on hand of $1.6 million; and
  • Ended the fiscal year with stockholders’ equity of $1.1 million, the first time in a decade the stockholders’ equity has not been in a deficit.

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