In the fourth quarter, the Company changed its accounting policy with regard to the deferred payments of up to about $1 million due to the Company from the sale of the CADRA product line in October 2013. For the first two quarters after the sale of the CADRA product line, the Company recorded these deferred payments under gain contingency accounting. During the fourth quarter the Company changed to fair value accounting as detailed in the financial statements because management believed fair value accounting more accurately reflected the true economic value that resulted from the sale of that product line. Fair value accounting increased the gain on the sale of the CADRA product line by $452,000 as compared to gain contingency accounting thereby reducing the loss per share by $0.52.
Capital Transactions Subsequent to Fiscal Year End. As detailed in our financial statements, subsequent to the end of the fiscal year, the Company entered into a number of capital transactions that had the net result of improving our liquidity, significantly reducing our financial risk and enhancing shareholder value. These subsequent transactions are summarized as follows:
- Repurchased all of Greenleaf Capital’s remaining common shares which totaled 101,411 at $.37 per share or $37,522. The shares held by Greenleaf Capital were unregistered and restricted as to sale;
- Repurchased the 50,000 shares of common stock that had been sold to five accredited investors in 2012 and 2013 at $5.00 per share at their put price of $5.50 per share or $275,000;
- Issued 160,000 shares of common stock at $5.00 per share raising a total of $800,000 from four accredited investors. These investors have the right to require the Company to repurchase those shares at $7.00 during specified periods in fiscal year 2017;
- Entered into a $750,000 loan agreement with an interest rate of 9.5%, a 32% reduction in borrowing costs as compared to our current loan agreement with a 14% interest rate. Principal payments on the new loan agreement are made solely from the deferred payments over the next three years of up to more than $1 million due from the buyer of the CADRA product line; and
- Entered into a six-month term loan of $300,000 with an interest rate of 9.5%. The Company issued the lender 5,000 stock options with an exercise price of $1.00 per share in connection with this facility.
The capital generated from the new shares sold at $5.00 per share and the new borrowing arrangements with lower carrying costs and no operating covenants will be utilized to pay off the Company’s existing loan agreement that is due on or before January 1, 2015 and to provide increased working capital.
Fiscal Year 2015 Outlook and Certain Estimated Results for the Completed First Fiscal Quarter. Our operating budget for fiscal 2015 is for revenue of approximately $5 million, a break-even bottom line operating result with EBITDA of about $400,000. For the first fiscal quarter ended August 31, 2014, we estimate operating results of about $900,000 in revenue, a net loss of about $(600,000) and EBITDA of about ($400,000). The first quarter’s performance was weaker than expected although the pipeline of near term business is stronger than at any time in the last several years. We expect our balance sheet to improve by the end of the fiscal year with increased cash and reduced debt as compared to fiscal year end 2014.
“The current management team took control of the business in March 2011 after the Company had defaulted on its $10 million loan and the lender was in the final stages of foreclosure,” said Joe Mullaney, SofTech’s CEO. “Since then we have been carefully but steadily improving the Company’s financial position while attempting to identify market opportunities that leverage the skillset of our software engineers. The financing activities completed after the end of the fiscal year will give us the capital and the time required to continue these activities aimed at increasing shareholder value.”
Mullaney added: “The capital raising activities subsequent to fiscal
year end, the accounting related to the sale of the CADRA product line
and a delay in the commencement of the year end audit all contributed to
the delinquent filing of our Form 10-K. We expect to request a five day
extension for filing our first quarter 10-Q but to file within that
normal extension time period. Q1 performance was disappointing although
it is normally our slowest period of the fiscal year. The pipeline looks
robust, our maintenance renewal rate has remained very strong and we
anticipate launching a new product in fiscal 2015 for the consumer