Room 4561
May 31, 2005
Mr. Joseph P. Mullaney
President and Chief Operating Officer
SofTech, Inc.
2 Highwood Drive
Tewksbury, MA 01876
Re: SofTech, Inc.
Form 10-KSB for the fiscal year ended May 31, 2004
Forms 10-QSB for the fiscal quarters ended August 31, 2004,
November 30, 2004 and February 28, 2005
Forms 8-K filed August 31, 2004, October 15, 2004, and January
6,
2005 and April 12, 2005
File No. 000-10665
Dear Mr. Mullaney:
We have reviewed your filings and have the following
comments.
Please note that we have limited our review to the areas addressed
below. Where indicated, we think you should revise your document
in
response to these comments. If you disagree, we will consider
your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
Form 10-KSB
Consolidated Statements of Operations, page 24
1. We note in your statements of operations you classified
"amortization of capitalized software and other intangible assets"
in
operating expenses. Supplementally explain how you considered
FASB
Staff Implementation Guide, SFAS 86, Question 17 in determining
that
classification of such costs. If reclassification of
amortization
expense is considered necessary, then tell us what considerations
you
will make to including a discussion in MD&A that addresses any
changes in gross margin from year to year.
Note B. Summary of Significant Accounting Policies
Capitalized Software Costs and Research and Development, page 30
2. We note you amortize certain capitalized software costs over an
estimated useful life of ten years. Tell us why you believe an
estimated life of ten years is appropriate for this software and
whether the remaining costs are realizable in the near future. In
this regard, we note you capitalized software costs of $14 million
related to the acquisitions of the Advanced Manufacturing
Technology
division of Cimlinc, Inc. (AMT) and Adra Systems, Inc. (Adra)
during
1998. While we note that you continue to sell products related to
this software acquired, we also note that product revenue has been
continually declining since fiscal 2002. Help us understand the
extent the technology acquired from AMT and Adra is currently
being
used in your products and how you evaluated this technology for
impairment. Refer to paragraph 8 and 10 of SFAS 86. Please
advise.
Note I. Related Party Transactions, page 38
3. We note that you entered into a $15 million borrowing
arrangement
with Greenleaf Capital, a related party, and that this borrowing
arrangement has been amended thereby decreasing the stated
interest
rate on this facility. We also note your statement on page 38
that
you do not believe that you could obtain similar debt facilities
from
other third party lenders. Tell us how you considered the
provisions
of APB 21 in determining that the fair value approximates the
carrying value as stated on page 31 of your 10-KSB. Please
advise.
Form 8-K Filed August 31, 2004, October 15, 2004, January 6, 2005
and
April 12, 2005
4. We note your use of non-GAAP measures (e.g. pro forma net
income
and free cash flow) under Item 9.01 of the Form 8-Ks noted above
which excludes a number of recurring items. Tell us the
usefulness
and material limitations of these non-GAAP measures in assessing
performance. Also, tell us how you considered Question 8 of
Frequently Asked Questions Regarding the Use of Non-GAAP Financial
Measures to include the following disclosures:
* the manner in which management uses the non-GAAP measure to
conduct
or evaluate its business;
* the economic substance behind management`s decision to use such
a
measure;
* the material limitations associated with use of the non-GAAP
financial measure as compared to the use of the most directly
comparable GAAP financial measure;
* the manner in which management compensates for these limitations
when using the non-GAAP financial measure; and
* the substantive reasons why management believes the non-GAAP
financial measure provides useful information to investors.
5. Also, we note your statement "it is management`s view that
these
non-GAAP financial measures provide information in understanding
the
Company`s performance". Tell us whether management believes that
"free cash flows" are a measure of performance or a measure of
liquidity. Tell us how you considered Question 13 of Frequently
Asked Questions Regarding the Use of Non-GAAP Financial Measures
in
providing the necessary reconciliation and the reasons for its
usefulness.
6. We note your use of the terms "free cash flows" and "pro-forma"
to
describe non-GAAP information. Tell us how you considered
footnote
12 to the Final Rule: Conditions for Use of Non-GAAP Financial
Measures in determining that the use of such terms is appropriate.
* * * * *
As appropriate, please amend your filing and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Patrick Gilmore at (202) 551-3406, Kathleen
Collins, Accounting Branch Chief, at (202) 551-3499 or me at (202)
551-3226 if you have questions regarding comments on the financial
statements and related matters.
Sincerely,
Craig Wilson
Senior Assistant Chief
Accountant
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Mr. Joseph P. Mullaney
SofTech, Inc.
May 31, 2005
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