##### Table of Contents



UNITED
STATESSECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended March 31, 2007
 Or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from            to
 Commission file number 0-51118
 SoftBrands, Inc.
  Delaware
(State or other jurisdiction of incorporation or organization)
    
    41-2021446
(I.R.S. Employer Identification No.)Two Meridian Crossings, Suite 800
Minneapolis, Minnesota
(Address of principal executive offices)
    
    55423
(Zip Code)
 (612) 851-1500
 þ o
  o o þ
 o þ
 
 þ o
   Common Stock, par value $.01 per share
(Title of class)
    
    41,281,125
(Outstanding at April 30, 2007)




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##### 



SoftBrands, Inc.
 Quarterly Report on Form 10-Q
 Table of Contents
 PagePART I  FINANCIAL INFORMATIONItem 1.
    
    Financial Statements
    
    
    3Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4.
    
    Controls and Procedures
    
    
    26PART II  OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    28Item 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3.
    
    Defaults Upon Senior Securities
    
    
    28Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    28Item 5.
    
    Other Information
    
    
    28Item 6.
    
    Exhibits
    
    
    28Signatures
    
    
    29First Amendment to Credit AgreementSecond Amendment to Credit AgreementSection 302 CertificationSection 302 CertificationSection 906 Certification
  2




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##### Table of Contents



PART I.  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 PageConsolidated Balance Sheets as of March 31, 2007 and September 30, 2006
    
    
    4Consolidated Statements of Operations for the three and six months ended March 31, 2007 and 2006
    
    
    5Consolidated Statements of Cash Flows for the six months ended March 31, 2007 and 2006
    
    
    6Notes to Consolidated Financial Statements
    
    
    7
 3




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##### Table of Contents



SoftBrands, Inc.
 
 Consolidated Balance Sheets
 March 31,
    
    
    September 30,2007
    
    
    2006(In thousands, except share and per share data)
    
    (Unaudited)
    
    
    (See Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    15,345
    
    
    $
    14,520Accounts receivable, net
    
    
    10,124
    
    
    
    7,555Prepaid expenses and other current assets
    
    
    4,041
    
    
    
    3,542Total
current assets
    
    
    29,510
    
    
    
    25,617Furniture, fixtures and equipment, net
    
    
    2,637
    
    
    
    2,787Restricted cash
    
    
    78
    
    
    
    73Goodwill
    
    
    34,761
    
    
    
    35,021Intangible assets, net
    
    
    9,090
    
    
    
    10,844Other long-term assets
    
    
    627
    
    
    
    705Total assets
    
    $
    76,703
    
    
    $
    75,047LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    3,893
    
    
    $
    2,618Accounts payable
    
    
    1,659
    
    
    
    2,110Accrued expenses
    
    
    8,341
    
    
    
    6,870Accrued restructuring costs
    
    
    355
    
    
    
    936Deferred revenue
    
    
    25,685
    
    
    
    22,560Other current liabilities
    
    
    1,360
    
    
    
    1,288Total
current liabilities
    
    
    41,293
    
    
    
    36,382Long-term obligations
    
    
    17,824
    
    
    
    19,302Other long-term liabilities
    
    
    1,075
    
    
    
    835Total liabilities
    
    
    60,192
    
    
    
    56,519Commitments and contingenciesStockholders equity:Series A and undesignated preferred stock, $.01 par value; 10,647,973
shares authorized; no shares issued or outstanding
    
    
    
    
    
    
    Series B convertible preferred stock, $.01 par value; 4,331,540 shares
authorized, issued and outstanding; liquidation value of $4,591
    
    
    5,068
    
    
    
    5,068Series C-1 convertible preferred stock, $.01 par value; 18,000 shares
authorized, issued and outstanding; liquidation value of $18,000 plus
unpaid dividends
    
    
    18,000
    
    
    
    18,000Series D convertible preferred stock, $.01 par value; 6,673 shares
authorized, 6,000 shares issued and outstanding; liquidation value of
$6,000 plus unpaid dividends
    
    
    5,051
    
    
    
    5,051Common stock, $.01 par value; 110,000,000 shares authorized; 41,253,625
and 41,024,960 shares issued and outstanding, respectively
    
    
    412
    
    
    
    410Additional paid-in capital
    
    
    173,954
    
    
    
    173,791Accumulated other comprehensive loss
    
    
    (1,640
    )
    
    
    (1,670
    )Accumulated deficit
    
    
    (184,334
    )
    
    
    (182,122
    )Total stockholders equity
    
    
    16,511
    
    
    
    18,528Total liabilities and stockholders equity
    
    $
    76,703
    
    
    $
    75,047
  4




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##### Table of Contents



SoftBrands, Inc.
 
 Consolidated Statements of Operations
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Software licenses
    
    $
    2,871
    
    
    $
    2,561
    
    
    $
    8,333
    
    
    $
    4,918Maintenance and support
    
    
    13,481
    
    
    
    10,462
    
    
    
    27,239
    
    
    
    20,967Professional services
    
    
    4,407
    
    
    
    3,707
    
    
    
    9,345
    
    
    
    7,062Third-party software and hardware
    
    
    666
    
    
    
    646
    
    
    
    1,503
    
    
    
    1,171Total revenues
    
    
    21,425
    
    
    
    17,376
    
    
    
    46,420
    
    
    
    34,118Cost of revenues:Software licenses
    
    
    222
    
    
    
    933
    
    
    
    1,229
    
    
    
    1,916Maintenance and support
    
    
    4,193
    
    
    
    3,294
    
    
    
    8,099
    
    
    
    6,542Professional services
    
    
    4,294
    
    
    
    3,214
    
    
    
    8,633
    
    
    
    6,254Third-party software and hardware
    
    
    563
    
    
    
    433
    
    
    
    1,141
    
    
    
    775Total cost
of revenues
    
    
    9,272
    
    
    
    7,874
    
    
    
    19,102
    
    
    
    15,487Gross profit
    
    
    12,153
    
    
    
    9,502
    
    
    
    27,318
    
    
    
    18,631Operating expenses:Selling and marketing
    
    
    4,763
    
    
    
    3,169
    
    
    
    9,975
    
    
    
    5,957Research and product development
    
    
    3,853
    
    
    
    2,553
    
    
    
    7,175
    
    
    
    4,992General and administrative
    
    
    5,330
    
    
    
    5,106
    
    
    
    10,519
    
    
    
    9,829Total
operating expenses
    
    
    13,946
    
    
    
    10,828
    
    
    
    27,669
    
    
    
    20,778Operating loss
    
    
    (1,793
    )
    
    
    (1,326
    )
    
    
    (351
    )
    
    
    (2,147
    )Interest expense
    
    
    (472
    )
    
    
    (2
    )
    
    
    (944
    )
    
    
    (6
    )Other (expense) income, net
    
    
    (89
    )
    
    
    88
    
    
    
    (40
    )
    
    
    173Loss from
continuing operations before
provision for income taxes
    
    
    (2,354
    )
    
    
    (1,240
    )
    
    
    (1,335
    )
    
    
    (1,980
    )Provision for income taxes
    
    
    457
    
    
    
    92
    
    
    
    973
    
    
    
    5Loss from
continuing operations
    
    
    (2,811
    )
    
    
    (1,332
    )
    
    
    (2,308
    )
    
    
    (1,985
    )Discontinued operations:Income(loss) from
discontinued operations, net of tax
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    388Net loss
    
    
    (2,811
    )
    
    
    (1,370
    )
    
    
    (2,308
    )
    
    
    (1,597
    )Preferred
stock dividends
    
    
    (491
    )
    
    
    (273
    )
    
    
    (982
    )
    
    
    (546
    )Net loss available to common shareholders
    
    $
    (3,302
    )
    
    $
    (1,643
    )
    
    $
    (3,290
    )
    
    $
    (2,143
    )Basic and diluted earnings (loss) per common share:Continuing operations
    
    $
    (0.08
    )
    
    $
    (0.04
    )
    
    $
    (0.08
    )
    
    $
    (0.06
    )Discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01Net loss
available to common shareholders
    
    $
    (0.08
    )
    
    $
    (0.04
    )
    
    $
    (0.08
    )
    
    $
    (0.05
    )Weighted-average common shares outstanding:Basic and diluted
    
    
    41,192
    
    
    
    40,137
    
    
    
    41,121
    
    
    
    40,088
  5




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##### Table of Contents



SoftBrands, Inc.
 
 Consolidated Statements of Cash Flows
 Six Months Ended March 31,2007
    
    
    2006(In thousands)
    
    (Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Loss from continuing operations
    
    $
    (2,308
    )
    
    $
    (1,985
    )Adjustments to reconcile loss from continuing operations to net cash
provided by operating activities:Deferred income taxes
    
    
    522
    
    
    
    Depreciation and amortization
    
    
    2,522
    
    
    
    2,792Stock-based compensation
    
    
    847
    
    
    
    935Foreign currency transaction gains
    
    
    (111
    )
    
    
    Provision for (recoveries of) doubtful accounts
    
    
    70
    
    
    
    (4
    )Other, net
    
    
    6
    
    
    
    Change in operating assets and liabilities, net of effect of acquisition:Accounts receivable
    
    
    (2,639
    )
    
    
    (984
    )Prepaid expenses and other current assets
    
    
    (660
    )
    
    
    (404
    )Accounts payable
    
    
    (451
    )
    
    
    (1,045
    )Accrued expenses and restructuring costs
    
    
    998
    
    
    
    (647
    )Deferred revenue
    
    
    3,125
    
    
    
    3,298Other current liabilities
    
    
    72
    
    
    
    (306
    )Other long-term assets and liabilities
    
    
    152
    
    
    
    (48
    )Net cash provided by operating activities
    
    
    2,145
    
    
    
    1,602Cash flows from investing activities:Acquisitions, net of cash acquired
    
    
    2
    
    
    
    (1,907
    )Purchases of furniture, fixtures and equipment
    
    
    (608
    )
    
    
    (547
    )Proceeds from sale of furniture, fixtures and equipment
    
    
    5
    
    
    
    Change in restricted cash
    
    
    (5
    )
    
    
    Net cash used in investing activities
    
    
    (606
    )
    
    
    (2,454
    )Cash flows from financing activities:Issuance of long-term obligations
    
    
    22
    
    
    
    Repayment of long-term obligations
    
    
    (237
    )
    
    
    (214
    )Net proceeds from issuance of common stock
    
    
    300
    
    
    
    195Preferred stock dividends paid
    
    
    (871
    )
    
    
    (408
    )Net cash used in financing activities
    
    
    (786
    )
    
    
    (427
    )Effect of exchange rates on cash balances
    
    
    72
    
    
    
    (49
    )Change in cash and cash equivalents
    
    
    825
    
    
    
    (1,328
    )Cash and cash equivalents:Beginning of period
    
    
    14,520
    
    
    
    16,034End of period
    
    $
    15,345
    
    
    $
    14,706
  6




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##### Table of Contents



SoftBrands, Inc.
 
 Notes to Consolidated Financial Statements
 Note 1. General
 Basis of Presentation
  Consolidation
  Consolidation of Variable Interest Entities
 Use of Estimates
  Fiscal Periods
  New Accounting Pronouncements
 Accounting for Uncertainty in Income
Taxes
 7




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##### Table of Contents



Considering the
Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements Materiality
 Fair
Value Measurements
 Note 2. Acquisition
 MAI Systems Corporation
  Unaudited Pro Forma Data
  Three Months Ended
    
    Six Months EndedMarch 31, 2006
    
    March 31, 2006Revenues
    
    $
    23,769
    
    
    $
    47,556Loss from continuing operations available to common shareholders
    
    
    (1,762
    )
    
    
    (2,681
    )Net loss available to common shareholders
    
    
    (1,800
    )
    
    
    (2,293
    )Basic and diluted loss per share:Continuing operations
    
    
    (0.04
    )
    
    
    (0.07
    )Net loss available to common shareholders
    
    
    (0.04
    )
    
    
    (0.06
    )
  8




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##### Table of Contents



Note 3. Goodwill and Intangible Assets
 Goodwill
  Manufacturing
    
    
    Hospitality
    
    
    TotalBalance at September 30, 2006
    
    $
    22,354
    
    
    $
    12,667
    
    
    $
    35,021Adjustments
    
    
    (182
    )
    
    
    (54
    )
    
    
    (236
    )Foreign currency exchange
    
    
    
    
    
    
    (24
    )
    
    
    (24
    )Balance at March 31, 2007
    
    $
    22,172
    
    
    $
    12,589
    
    
    $
    34,761
  Intangible Assets
  March 31, 2007
    
    September 30, 2006Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAcquired technology
    
    $
    21,157
    
    
    $
    (20,176
    )
    
    $
    981
    
    
    $
    21,157
    
    
    $
    (19,820
    )
    
    $
    1,337Capitalized software development
    
    
    3,707
    
    
    
    (1,524
    )
    
    
    2,183
    
    
    
    3,707
    
    
    
    (1,027
    )
    
    
    2,680Consulting and non compete
agreements
    
    
    2,952
    
    
    
    (714
    )
    
    
    2,238
    
    
    
    2,952
    
    
    
    (226
    )
    
    
    2,726Customer relationships
    
    
    2,700
    
    
    
    (338
    )
    
    
    2,362
    
    
    
    2,700
    
    
    
    (68
    )
    
    
    2,632Other
    
    
    1,946
    
    
    
    (620
    )
    
    
    1,326
    
    
    
    1,946
    
    
    
    (477
    )
    
    
    1,469$
    32,462
    
    
    $
    (23,372
    )
    
    $
    9,090
    
    
    $
    32,462
    
    
    $
    (21,618
    )
    
    $
    10,844
   Remainder of 2007
    
    $
    1,7672008
    
    
    3,1432009
    
    
    2,4382010
    
    
    6702011
    
    
    572Thereafter
    
    
    500$
    9,090
 9




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##### Table of Contents



Note 4. Stock-Based Compensation
 Share-Based Payment
  Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of revenues
    
    $
    77
    
    
    $
    67
    
    
    $
    128
    
    
    $
    90Operating expenses:Selling, general and administrative
    
    
    326
    
    
    
    445
    
    
    
    578
    
    
    
    748Research and product development
    
    
    81
    
    
    
    75
    
    
    
    141
    
    
    
    97$
    484
    
    
    $
    587
    
    
    $
    847
    
    
    $
    935
  Six Months EndedMarch 31,2007
    
    2006Risk-free interest rate
    
    
    4.7 - 4.8
    %
    
    
    4.4
    %Volatility
    
    
    46.0
    %
    
    
    80.0
    %Weighted average life (years)
    
    
    5.0
    
    
    
    5.0Dividend yield
    
    
    0.0
    %
    
    
    0.0
    %
  10




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##### Table of Contents



Weighted
    
    Weighted-Average
    
    AggregateNumber
    
    Average
    
    Remaining
    
    Intrinsicof Options
    
    Exercise
    
    Contractual
    
    Value(in 000s)
    
    Price
    
    Life (Years)
    
    (in 000s)Outstanding, September 30, 2006
    
    
    9,653
    
    
    $
    2.25
    
    
    
    6.3
    
    
    $
    611Granted
    
    
    
    
    
    
    Exercised
    
    
    (157
    )
    
    
    1.66
    
    
    
    
    
    
    
    41Cancelled
    
    
    (984
    )
    
    
    2.90Outstanding, March 31, 2007
    
    
    8,512
    
    
    
    2.18
    
    
    
    6.0
    
    
    
    2,913Exercisable, March 31, 2007
    
    
    7,433
    
    
    
    2.27
    
    
    
    6.4
    
    
    
    2,136
  Restricted Stock Units
    
    Stock Appreciation RightsWeighted
    
    
    
    
    
    WeightedNon-Vested
    
    Average
    
    Number
    
    AverageShares
    
    Grant Date
    
    of SARs
    
    Grant Date(in 000s)
    
    Fair Value
    
    (in 000s)
    
    Fair ValueOutstanding, September 30, 2006
    
    
    301
    
    
    $
    2.06
    
    
    
    1,414
    
    
    $
    1.26Granted
    
    
    1,056
    
    
    
    1.70
    
    
    
    602
    
    
    
    1.11Vested
    
    
    (65
    )
    
    
    2.08
    
    
    
    
    
    
    
    Cancelled
    
    
    (19
    )
    
    
    2.08
    
    
    
    (50
    )
    
    
    1.45Outstanding, March 31, 2007
    
    
    1,273
    
    
    
    1.75
    
    
    
    1,966
    
    
    
    1.06
  Note 5. Income Taxes
   11




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Note 6. Commitments and Contingencies
  Note 7. Earnings (Loss) Per Share
 Earning per Share
 Participating Securities and the Two-Class Method under FASB
Statement No. 128 The Effect of Contingently Convertible Instruments on Diluted
Earnings per share
 12




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##### Table of Contents



Three Months Ended March 31,2007
    
    
    2006Income
    
    
    Shares
    
    
    
    
    
    
    Income
    
    
    Shares(Numerator)
    
    
    (Denominator)
    
    
    Per Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Per ShareBasic:Net income (loss) available to
common shareholders
    
    $
    (3,302
    )
    
    
    
    
    
    
    
    
    
    $
    (1,643
    )
    
    
    Common shares outstanding
    
    
    
    
    
    
    41,192
    
    
    
    
    
    
    
    
    
    
    
    40,137Series B preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,302
    )
    
    
    41,192
    
    
    $
    (0.08
    )
    
    
    (1,643
    )
    
    
    40,137
    
    
    $
    (0.04
    )Effect of Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    (3,302
    )
    
    
    41,192
    
    
    $
    (0.08
    )
    
    $
    (1,643
    )
    
    
    40,137
    
    
    $
    (0.04
    )
 Six Months Ended March 31,2007
    
    
    2006Income
    
    
    Shares
    
    
    
    
    
    
    Income
    
    
    Shares(Numerator)
    
    
    (Denominator)
    
    
    Per Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Per ShareBasic:Net income (loss) available to
common shareholders
    
    $
    (3,290
    )
    
    
    
    
    
    
    
    
    
    $
    (2,143
    )
    
    
    Common shares outstanding
    
    
    
    
    
    
    41,121
    
    
    
    
    
    
    
    
    
    
    
    40,088Series B preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,290
    )
    
    
    41,121
    
    
    $
    (0.08
    )
    
    
    (2,143
    )
    
    
    40,088
    
    
    $
    (0.05
    )Effect of Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    (3,290
    )
    
    
    41,121
    
    
    $
    (0.08
    )
    
    $
    (2,143
    )
    
    
    40,088
    
    
    $
    (0.05
    )
 13




---



##### Table of Contents



Three and Six Months EndedMarch 31,2007
    
    2006Options
    
    
    8,512
    
    
    
    10,035Warrants
    
    
    6,797
    
    
    
    6,078Restricted stock units
    
    
    1,273
    
    
    
    349Stock appreciation rights
    
    
    1,966
    
    
    
    213Series B convertible preferred stock
    
    
    4,332
    
    
    
    4,332Series C convertible preferred stock
    
    
    
    
    
    
    8,955Series C-1 convertible preferred stock
    
    
    8,955
    
    
    
    Series D convertible preferred stock
    
    
    3,593
    
    
    
    
 Note 8. Comprehensive Income (Loss)
 Reporting Comprehensive Income
 Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (2,811
    )
    
    $
    (1,370
    )
    
    $
    (2,308
    )
    
    $
    (1,597
    )Foreign currency translation adjustment
    
    
    100
    
    
    
    (525
    )
    
    
    30
    
    
    
    35Comprehensive income (loss)
    
    $
    (2,711
    )
    
    $
    (1,895
    )
    
    $
    (2,278
    )
    
    $
    (1,562
    )
  Note 9. Segment Reporting
 Disclosures about
Segments of an Enterprise and Related Information
 14




---



##### Table of Contents



Three Months Ended March 31,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalRevenues
    
    $
    12,119
    
    
    $
    9,306
    
    
    $
    21,425
    
    
    $
    12,962
    
    
    $
    4,414
    
    
    $
    17,376Operating income (loss)
    
    
    770
    
    
    
    (2,563
    )
    
    
    (1,793
    )
    
    
    140
    
    
    
    (1,466
    )
    
    
    (1,326
    )
 Six Months Ended March 31,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalRevenues
    
    $
    24,840
    
    
    $
    21,580
    
    
    $
    46,420
    
    
    $
    25,642
    
    
    $
    8,476
    
    
    $
    34,118Operating income (loss)
    
    
    1,991
    
    
    
    (2,342
    )
    
    
    (351
    )
    
    
    809
    
    
    
    (2,956
    )
    
    
    (2,147
    )
   Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2007
    
    
    2006
    
    
    2007
    
    
    2006United States
    
    $
    12,705
    
    
    $
    8,683
    
    
    $
    27,889
    
    
    $
    17,412United Kingdom
    
    
    4,500
    
    
    
    4,619
    
    
    
    9,475
    
    
    
    8,940Other
    
    
    4,220
    
    
    
    4,074
    
    
    
    9,056
    
    
    
    7,766$
    21,425
    
    
    $
    17,376
    
    
    $
    46,420
    
    
    $
    34,118
  March 31,
    
    
    September 30,2007
    
    
    2006United States
    
    $
    1,282
    
    
    $
    1,459Other
    
    
    1,355
    
    
    
    1,328$
    2,637
    
    
    $
    2,787
 15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The following discussion of our financial condition and results of operations should be read
together with the financial statements and related notes, which are included elsewhere in this
Quarterly Report on Form 10-Q. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of various
factors, including those set forth in more detail in our 2006 Annual Report on Form 10-K. We
undertake no obligation to update any information in our forward-looking statements.
 Fiscal Year
  Critical Accounting Policies and Estimates
   
    
    revenue recognition;
    
    the valuation of deferred tax assets;
    
    the valuation of accounts receivable;
    
    the valuation of goodwill, intangibles and in-process research and development (IPR&D);
    
    restructuring charges; and
    
    stock-based compensation.
 Managements Discussion and Analysis of Financial Condition and Results of Operations Note 2 to Consolidated Financial Statements
 16




---



##### Table of Contents



Introduction and Overview
     17




---



##### Table of Contents



Results of Operations
 Revenues.
 Three Months Ended March 31,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSoftware licenses
    
    $
    1,233
    
    
    $
    1,638
    
    
    $
    2,871
    
    
    $
    1,946
    
    
    $
    615
    
    
    $
    2,561Maintenance and support
    
    
    7,884
    
    
    
    5,597
    
    
    
    13,481
    
    
    
    7,819
    
    
    
    2,643
    
    
    
    10,462Professional services
    
    
    2,815
    
    
    
    1,592
    
    
    
    4,407
    
    
    
    2,917
    
    
    
    790
    
    
    
    3,707Third-party software and hardware
    
    
    187
    
    
    
    479
    
    
    
    666
    
    
    
    280
    
    
    
    366
    
    
    
    646Total
    
    $
    12,119
    
    
    $
    9,306
    
    
    $
    21,425
    
    
    $
    12,962
    
    
    $
    4,414
    
    
    $
    17,376
 % ChangeManufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    -36.6
    %
    
    
    166.3
    %
    
    
    12.1
    %Maintenance and support
    
    
    0.8
    %
    
    
    111.8
    %
    
    
    28.9
    %Professional services
    
    
    -3.5
    %
    
    
    101.5
    %
    
    
    18.9
    %Third-party software and hardware
    
    
    -33.2
    %
    
    
    30.9
    %
    
    
    3.1
    %Total
    
    
    -6.5
    %
    
    
    110.8
    %
    
    
    23.3
    %
 Six Months Ended March 31,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSoftware licenses
    
    $
    2,682
    
    
    $
    5,651
    
    
    $
    8,333
    
    
    $
    3,705
    
    
    $
    1,213
    
    
    $
    4,918Maintenance and support
    
    
    15,957
    
    
    
    11,282
    
    
    
    27,239
    
    
    
    15,681
    
    
    
    5,286
    
    
    
    20,967Professional services
    
    
    5,806
    
    
    
    3,539
    
    
    
    9,345
    
    
    
    5,707
    
    
    
    1,355
    
    
    
    7,062Third-party software
and hardware
    
    
    395
    
    
    
    1,108
    
    
    
    1,503
    
    
    
    549
    
    
    
    622
    
    
    
    1,171Total
    
    $
    24,840
    
    
    $
    21,580
    
    
    $
    46,420
    
    
    $
    25,642
    
    
    $
    8,476
    
    
    $
    34,118
 % ChangeManufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    -27.6
    %
    
    
    365.9
    %
    
    
    69.4
    %Maintenance and support
    
    
    1.8
    %
    
    
    113.4
    %
    
    
    29.9
    %Professional services
    
    
    1.7
    %
    
    
    161.2
    %
    
    
    32.3
    %Third-party software
and hardware
    
    
    -28.1
    %
    
    
    78.1
    %
    
    
    28.4
    %Total
    
    
    -3.1
    %
    
    
    154.6
    %
    
    
    36.1
    %
 18




---



##### Table of Contents



Three Months Ended March 31,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalAmericas
    
    $
    7,200
    
    
    $
    5,685
    
    
    $
    12,885
    
    
    $
    7,643
    
    
    $
    1,717
    
    
    $
    9,360Europe, Middle East and Africa
    
    
    3,421
    
    
    
    2,219
    
    
    
    5,640
    
    
    
    3,654
    
    
    
    2,227
    
    
    
    5,881Asia Pacific
    
    
    1,498
    
    
    
    1,402
    
    
    
    2,900
    
    
    
    1,665
    
    
    
    470
    
    
    
    2,135Total
    
    $
    12,119
    
    
    $
    9,306
    
    
    $
    21,425
    
    
    $
    12,962
    
    
    $
    4,414
    
    
    $
    17,376
 % ChangeManufacturing
    
    Hospitality
    
    TotalAmericas
    
    
    -5.8
    %
    
    
    231.1
    %
    
    
    37.7
    %Europe, Middle East
and Africa
    
    
    -6.4
    %
    
    
    -0.4
    %
    
    
    -4.1
    %Asia Pacific
    
    
    -10.0
    %
    
    
    198.3
    %
    
    
    35.8
    %Total
    
    
    -6.5
    %
    
    
    110.8
    %
    
    
    23.3
    %
 Six Months Ended March 31,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalAmericas
    
    $
    14,392
    
    
    $
    13,995
    
    
    $
    28,387
    
    
    $
    14,926
    
    
    $
    3,131
    
    
    $
    18,057Europe, Middle East and Africa
    
    
    7,115
    
    
    
    4,610
    
    
    
    11,725
    
    
    
    7,212
    
    
    
    4,150
    
    
    
    11,362Asia Pacific
    
    
    3,333
    
    
    
    2,975
    
    
    
    6,308
    
    
    
    3,504
    
    
    
    1,195
    
    
    
    4,699Total
    
    $
    24,840
    
    
    $
    21,580
    
    
    $
    46,420
    
    
    $
    25,642
    
    
    $
    8,476
    
    
    $
    34,118
 % ChangeManufacturing
    
    Hospitality
    
    TotalAmericas
    
    
    -3.6
    %
    
    
    347.0
    %
    
    
    57.2
    %Europe, Middle East and Africa
    
    
    -1.3
    %
    
    
    11.1
    %
    
    
    3.2
    %Asia Pacific
    
    
    -4.9
    %
    
    
    149.0
    %
    
    
    34.2
    %Total
    
    
    -3.1
    %
    
    
    154.6
    %
    
    
    36.1
    %
 Manufacturing Segment
  Software License Revenue. Fourth Shift Fourth Shift Fourth Shift Edition for SAP
Business One
 19




---



##### Table of Contents



Maintenance and Support Revenue.
 Professional Services Revenue.
 Third-Party Software and Hardware Revenue.
 Revenue by Geography.
 Hospitality Segment
  Software License Revenue.
 Maintenance Revenue.
 Professional Services.
 Third-Party Software and Hardware Revenue.
 Revenue by Geography.
 20




---



##### Table of Contents



Gross Margin.
 Three Months Ended March 31,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    89.4
    %
    
    
    94.5
    %
    
    
    92.3
    %
    
    
    53.1
    %
    
    
    96.6
    %
    
    
    63.6
    %Maintenance and support
    
    
    78.4
    %
    
    
    56.4
    %
    
    
    68.9
    %
    
    
    75.8
    %
    
    
    46.9
    %
    
    
    68.5
    %Professional services
    
    
    18.6
    %
    
    
    -24.3
    %
    
    
    3.8
    %
    
    
    8.3
    %
    
    
    31.9
    %
    
    
    13.3
    %Third-party software and hardware
    
    
    8.3
    %
    
    
    18.2
    %
    
    
    15.4
    %
    
    
    18.2
    %
    
    
    44.3
    %
    
    
    33.0
    %Total
    
    
    64.6
    %
    
    
    47.3
    %
    
    
    56.7
    %
    
    
    56.0
    %
    
    
    50.9
    %
    
    
    54.7
    %
 Six Months Ended March 31,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    84.3
    %
    
    
    85.7
    %
    
    
    85.3
    %
    
    
    50.7
    %
    
    
    92.7
    %
    
    
    61.0
    %Maintenance and support
    
    
    78.5
    %
    
    
    59.4
    %
    
    
    70.3
    %
    
    
    76.5
    %
    
    
    45.9
    %
    
    
    68.8
    %Professional services
    
    
    17.6
    %
    
    
    -7.6
    %
    
    
    7.6
    %
    
    
    9.5
    %
    
    
    19.6
    %
    
    
    11.4
    %Third-party software and hardware
    
    
    15.7
    %
    
    
    27.1
    %
    
    
    24.1
    %
    
    
    18.2
    %
    
    
    47.6
    %
    
    
    33.8
    %Total
    
    
    63.9
    %
    
    
    53.6
    %
    
    
    58.9
    %
    
    
    56.6
    %
    
    
    48.5
    %
    
    
    54.6
    %
 Manufacturing Segment
  Fourth Shift Edition
  Hospitality Segment
   21




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##### Table of Contents



Operating Expenses and Operating Income (Loss).
 Three Months Ended March 31,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSelling and marketing
    
    $
    2,593
    
    
    $
    2,170
    
    
    $
    4,763
    
    
    $
    2,078
    
    
    $
    1,091
    
    
    $
    3,169Research and product development
    
    
    1,879
    
    
    
    1,974
    
    
    
    3,853
    
    
    
    1,744
    
    
    
    809
    
    
    
    2,553General and administrative
    
    
    2,589
    
    
    
    2,741
    
    
    
    5,330
    
    
    
    3,292
    
    
    
    1,814
    
    
    
    5,106Total
    
    $
    7,061
    
    
    $
    6,885
    
    
    $
    13,946
    
    
    $
    7,114
    
    
    $
    3,714
    
    
    $
    10,828Operating income (loss)
    
    $
    770
    
    
    $
    (2,563
    )
    
    $
    (1,793
    )
    
    $
    140
    
    
    $
    (1,466
    )
    
    $
    (1,326
    )
 Six Months Ended March 31,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSelling and marketing
    
    $
    5,441
    
    
    $
    4,534
    
    
    $
    9,975
    
    
    $
    3,923
    
    
    $
    2,034
    
    
    $
    5,957Research and product development
    
    
    3,416
    
    
    
    3,759
    
    
    
    7,175
    
    
    
    3,452
    
    
    
    1,540
    
    
    
    4,992General and administrative
    
    
    5,008
    
    
    
    5,511
    
    
    
    10,519
    
    
    
    6,334
    
    
    
    3,495
    
    
    
    9,829Total
    
    $
    13,865
    
    
    $
    13,804
    
    
    $
    27,669
    
    
    $
    13,709
    
    
    $
    7,069
    
    
    $
    20,778Operating income (loss)
    
    $
    1,991
    
    
    $
    (2,342
    )
    
    $
    (351
    )
    
    $
    809
    
    
    $
    (2,956
    )
    
    $
    (2,147
    )
  Selling and Marketing.
 22




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##### Table of Contents



Research and Product Development.
 General and Administrative.
 Non-Operating Income and Expenses, Income Taxes, Discontinued Operations and Preferred Stock
Dividends.
 Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,2007
    
    2006
    
    2007
    
    2006Interest expense
    
    $
    (472
    )
    
    $
    (2
    )
    
    $
    (944
    )
    
    $
    (6
    )Other (expense) income, net
    
    
    (89
    )
    
    
    88
    
    
    
    (40
    )
    
    
    173Provision for income taxes
    
    
    457
    
    
    
    92
    
    
    
    973
    
    
    
    5Income (loss) from discontinued operations, net of tax
    
    
    
    
    
    
    (38
    )
    
    
    
    
    
    
    388Preferred stock dividends
    
    
    (491
    )
    
    
    (273
    )
    
    
    (982
    )
    
    
    (546
    )
 Interest Expense.?
 Other Income, Net.
 Provision for Income Taxes.
 23




---



##### Table of Contents



Discontinued Operations.
 Preferred Stock Dividends.
 Liquidity and Capital Resources
 Cash and Cash Equivalents.
 Working Capital Deficit.
 Cash Flows from Operating Activities.
 24




---



##### Table of Contents



Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
 Commitments and Capital Adequacy
    Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  25




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   Material Weaknesses in Internal Control over Financial Reporting
  
    
    We did not maintain effective controls to ensure that the tax accounting
was accurately presented for unique transactions and situations or that the related tax
accounting was appropriately reviewed to ensure compliance with generally accepted
accounting principles. This control deficiency resulted in the restatement of our
interim and annual consolidated financial statements for the year ended September 30,
2004, and our interim consolidated financial statements for the quarters ended December
31, 2004 and March 31, 2005. This control deficiency could result in a material
misstatement to the tax provision and related tax accounts and disclosures in our
interim or annual consolidated financial statements that would not be prevented or
detected. Accordingly, our management determined that this control deficiency
represents a material weakness in internal control over financial reporting as of March
31, 2007.
    
    We did not maintain effective controls over the period-end financial
reporting process to ensure that our June 30, 2005 Quarterly Report on Form 10-Q was
originally filed accurately. In our rushed attempt to correct the income tax
accounting for 2004 by the filing deadline in the context of the aforementioned control
deficiency, we filed our June 30, 2005 Quarterly Report on Form 10-Q prior to
completion of our usual review controls and procedures. The report as originally filed
contained errors in the cash flow statement, the restatement footnote and managements
discussion and analysis sections regarding the restatement. This control deficiency
resulted in the need to amend our June 30, 2005 Quarterly Report on Form 10-Q. This
control deficiency could result in a material misstatement to the aforementioned
disclosures in our interim or annual consolidated financial statements that would not
be prevented or detected. Accordingly, our management determined that this control
deficiency represents a material weakness in internal control over financial reporting
as of March 31, 2007.
 26




---



##### Table of Contents



Plans for Remediation
    Changes in Internal Control over Financial Reporting
  27




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##### Table of Contents



PART II.  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
    
 
 Item 5. Other Information
  
 Item 6. Exhibits
 10.13
    
    First Amendment to Credit Agreement, dated as of October 5, 2006, with Wells Fargo Foothill,
Inc.10.14
    
    Second Amendment to Credit Agreement, dated as of March 15, 2007, with Wells Fargo Foothill,
Inc.31.1
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act  Randal B. Tofteland31.2
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act  Gregg A. Waldon32
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act
 28




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##### Table of Contents



SIGNATURES
  SoftBrands, Inc.Date: May 15, 2007
    
    By:
    
    /s/ GREGG A. WALDON

Gregg A. WaldonSenior Vice President and Chief Financial Officer(principal financial and accounting officer)
 29