##### Table of Contents



UNITED STATES
SECURITIES 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 June 30, 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
    
    41-2021446(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)Two Meridian Crossings, Suite 800Minneapolis, Minnesota
    
    55423(Address of principal executive offices)
    
    (Zip Code)
 (612) 851-1500
 þ o
  o o þ
 o þ
 
 
 þ o
   Common Stock, par value $.01 per share
    
    41,338,375(Title of class)
    
    (Outstanding at July 31, 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
    
    
    29Section 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 June 30, 2007 and September 30, 2006 (unaudited)
    
    
    4Consolidated Statements of Operations for the three and nine months ended
June 30, 2007 and 2006 (unaudited)
    
    
    5Consolidated Statements of Cash Flows for the nine months ended
June 30, 2007 and 2006 (unaudited)
    
    
    6Notes to Consolidated Financial Statements (unaudited)
    
    
    7
 3




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##### Table of Contents



SoftBrands, Inc.
 
 Consolidated Balance Sheets
  June 30,
    
    
    September 30,2007
    
    
    2006(In thousands, except share and per share data)
    
    (Unaudited)
    
    
    (See Note 1)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    12,203
    
    
    $
    14,520Accounts receivable, net
    
    
    15,833
    
    
    
    7,555Prepaid expenses and other current assets
    
    
    4,577
    
    
    
    3,542Total current assets
    
    
    32,613
    
    
    
    25,617Furniture, fixtures and equipment, net
    
    
    2,556
    
    
    
    2,787Restricted cash
    
    
    83
    
    
    
    73Goodwill
    
    
    35,170
    
    
    
    35,021Intangible assets, net
    
    
    8,253
    
    
    
    10,844Other long-term assets
    
    
    292
    
    
    
    705Total assets
    
    $
    78,967
    
    
    $
    75,047LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term obligations
    
    $
    3,551
    
    
    $
    2,618Revolving loan
    
    
    921
    
    
    
    Accounts payable
    
    
    2,699
    
    
    
    2,110Accrued expenses
    
    
    9,203
    
    
    
    6,870Accrued restructuring costs
    
    
    1,688
    
    
    
    936Deferred revenue
    
    
    24,554
    
    
    
    22,560Other current liabilities
    
    
    3,385
    
    
    
    1,288Total current liabilities
    
    
    46,001
    
    
    
    36,382Long-term obligations
    
    
    16,967
    
    
    
    19,302Other long-term liabilities
    
    
    761
    
    
    
    835Total liabilities
    
    
    63,729
    
    
    
    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; 41,289,125
and 41,024,960 shares issued and outstanding, respectively
    
    
    413
    
    
    
    410Additional paid-in capital
    
    
    173,946
    
    
    
    173,791Accumulated other comprehensive loss
    
    
    (1,259
    )
    
    
    (1,670
    )Accumulated deficit
    
    
    (185,981
    )
    
    
    (182,122
    )Total stockholders equity
    
    
    15,238
    
    
    
    18,528Total liabilities and stockholders equity
    
    $
    78,967
    
    
    $
    75,047
  4




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##### Table of Contents



SoftBrands, Inc.
 
 Consolidated Statements of Operations
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In thousands, except per share data)
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Revenues:Software licenses
    
    $
    4,274
    
    
    $
    1,653
    
    
    $
    12,607
    
    
    $
    6,571Maintenance and support
    
    
    14,431
    
    
    
    10,480
    
    
    
    41,670
    
    
    
    31,447Professional services
    
    
    4,071
    
    
    
    3,521
    
    
    
    13,416
    
    
    
    10,583Third-party software and hardware
    
    
    845
    
    
    
    473
    
    
    
    2,348
    
    
    
    1,644Total revenues
    
    
    23,621
    
    
    
    16,127
    
    
    
    70,041
    
    
    
    50,245Cost of revenues:Software licenses
    
    
    904
    
    
    
    585
    
    
    
    2,133
    
    
    
    2,501Maintenance and support
    
    
    4,058
    
    
    
    3,349
    
    
    
    12,157
    
    
    
    9,891Professional services
    
    
    3,952
    
    
    
    3,127
    
    
    
    12,585
    
    
    
    9,381Third-party software and hardware
    
    
    772
    
    
    
    351
    
    
    
    1,913
    
    
    
    1,126Total cost of revenues
    
    
    9,686
    
    
    
    7,412
    
    
    
    28,788
    
    
    
    22,899Gross profit
    
    
    13,935
    
    
    
    8,715
    
    
    
    41,253
    
    
    
    27,346Operating expenses:Selling and marketing
    
    
    5,341
    
    
    
    3,399
    
    
    
    15,316
    
    
    
    9,356Research and product development
    
    
    3,399
    
    
    
    2,670
    
    
    
    10,574
    
    
    
    7,662General and administrative
    
    
    4,989
    
    
    
    4,563
    
    
    
    15,508
    
    
    
    14,392Restructuring costs
    
    
    1,630
    
    
    
    
    
    
    
    1,630
    
    
    
    Total operating expenses
    
    
    15,359
    
    
    
    10,632
    
    
    
    43,028
    
    
    
    31,410Operating loss
    
    
    (1,424
    )
    
    
    (1,917
    )
    
    
    (1,775
    )
    
    
    (4,064
    )Interest expense
    
    
    (492
    )
    
    
    (3
    )
    
    
    (1,436
    )
    
    
    (9
    )Other income (expense), net
    
    
    (118
    )
    
    
    189
    
    
    
    (158
    )
    
    
    362Loss from continuing operations before
provision for (benefit from) income taxes
    
    
    (2,034
    )
    
    
    (1,731
    )
    
    
    (3,369
    )
    
    
    (3,711
    )Provision for (benefit from) income taxes
    
    
    (387
    )
    
    
    8
    
    
    
    586
    
    
    
    13Loss from continuing operations
    
    
    (1,647
    )
    
    
    (1,739
    )
    
    
    (3,955
    )
    
    
    (3,724
    )Discontinued operations:Income from discontinued operations, net of tax
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    393Net loss
    
    
    (1,647
    )
    
    
    (1,734
    )
    
    
    (3,955
    )
    
    
    (3,331
    )Preferred stock dividends
    
    
    (485
    )
    
    
    (273
    )
    
    
    (1,467
    )
    
    
    (819
    )Net loss available to common shareholders
    
    $
    (2,132
    )
    
    $
    (2,007
    )
    
    $
    (5,422
    )
    
    $
    (4,150
    )Basic and diluted earnings (loss) per common share:Continuing operations
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.11
    )Discontinued operations
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.00
    
    
    
    0.01Net loss available to common shareholders
    
    $
    (0.05
    )
    
    $
    (0.05
    )
    
    $
    (0.13
    )
    
    $
    (0.10
    )Weighted-average common shares outstanding:Basic and diluted
    
    
    41,283
    
    
    
    40,198
    
    
    
    41,264
    
    
    
    40,125
  5




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##### Table of Contents



SoftBrands, Inc.
 
 Consolidated Statements of Cash Flows
  Nine Months Ended June 30,2007
    
    
    2006(In thousands)
    
    (Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Loss from continuing operations
    
    $
    (3,955
    )
    
    $
    (3,724
    )Adjustments to reconcile loss from continuing operations to net cash
provided by (used in) operating activities:Deferred income taxes
    
    
    197
    
    
    
    Depreciation and amortization
    
    
    3,858
    
    
    
    3,773Stock-based compensation
    
    
    1,276
    
    
    
    1,593Foreign currency transaction gain
    
    
    
    
    
    
    (116
    )Provision for doubtful accounts
    
    
    43
    
    
    
    48Change in operating assets and liabilities, net of effect of acquisition:Accounts receivable
    
    
    (8,556
    )
    
    
    (738
    )Prepaid expenses and other current assets
    
    
    (1,196
    )
    
    
    (321
    )Accounts payable
    
    
    589
    
    
    
    (918
    )Accrued expenses and restructuring costs
    
    
    2,489
    
    
    
    (360
    )Deferred revenue
    
    
    1,994
    
    
    
    1,488Other current liabilities
    
    
    1,900
    
    
    
    (330
    )Other long-term assets and liabilities
    
    
    441
    
    
    
    (72
    )Net cash provided by (used in)
operating activities
    
    
    (920
    )
    
    
    323Cash flows from investing activities:Acquisitions, net of cash acquired
    
    
    
    
    
    
    (1,907
    )Purchases of furniture, fixtures and equipment
    
    
    (879
    )
    
    
    (928
    )Change in restricted cash
    
    
    (10
    )
    
    
    48Net cash used in investing activities
    
    
    (889
    )
    
    
    (2,787
    )Cash flows from financing activities:Issuance of long-term obligations
    
    
    22
    
    
    
    Short-term borrowings (repayments), net
    
    
    921
    
    
    
    Repayment of long-term obligations
    
    
    (1,436
    )
    
    
    (236
    )Net proceeds from issuance of common stock
    
    
    349
    
    
    
    331Preferred stock dividends paid
    
    
    (871
    )
    
    
    (951
    )Net cash used in financing activities
    
    
    (1,015
    )
    
    
    (856
    )Effect of exchange rates on cash balances
    
    
    507
    
    
    
    3Change in cash and cash equivalents
    
    
    (2,317
    )
    
    
    (3,317
    )Cash and cash equivalents:Beginning of period
    
    
    14,520
    
    
    
    16,034End of period
    
    $
    12,203
    
    
    $
    12,717
  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
 The Fair
Value Option for Financial Assets and Financial Liabilities  Including an amendment of FASB
Statement No. 115
 Note 2. Acquisitions
 MAI Systems Corporation
  Infra Business Solutions GmbH
  8




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##### Table of Contents



Unaudited Pro Forma Data
  Three Months Ended
    
    Nine Months EndedJune 30, 2006
    
    June 30, 2006Revenues
    
    $
    23,175
    
    
    $
    70,731Loss from continuing operations available to common shareholders
    
    
    (2,052
    )
    
    
    (4,733
    )Net loss available to common shareholders
    
    
    (2,047
    )
    
    
    (4,340
    )Basic and diluted loss per share:Continuing operations
    
    
    (0.05
    )
    
    
    (0.12
    )Net loss available to common shareholders
    
    
    (0.05
    )
    
    
    (0.11
    )
  Note 3. Goodwill and Intangible Assets
 Goodwill
  Manufacturing
    
    
    Hospitality
    
    
    TotalBalance at September 30, 2006
    
    $
    22,354
    
    
    $
    12,667
    
    
    $
    35,021Adjustments
    
    
    
    
    
    
    149
    
    
    
    149Balance at June 30, 2007
    
    $
    22,354
    
    
    $
    12,816
    
    
    $
    35,170
  Intangible Assets
  June 30, 2007
    
    September 30, 2006Gross
    
    
    
    
    
    Net
    
    Gross
    
    
    
    
    
    NetCarrying
    
    Accumulated
    
    Carrying
    
    Carrying
    
    Accumulated
    
    CarryingAmount
    
    Amortization
    
    Amount
    
    Amount
    
    Amortization
    
    AmountAcquired technology
    
    $
    21,257
    
    
    $
    (20,326
    )
    
    $
    931
    
    
    $
    21,157
    
    
    $
    (19,820
    )
    
    $
    1,337Capitalized software development
    
    
    3,707
    
    
    
    (1,750
    )
    
    
    1,957
    
    
    
    3,707
    
    
    
    (1,027
    )
    
    
    2,680Consulting and
non compete agreements
    
    
    2,952
    
    
    
    (1,002
    )
    
    
    1,950
    
    
    
    2,952
    
    
    
    (226
    )
    
    
    2,726Customer relationships
    
    
    2,700
    
    
    
    (473
    )
    
    
    2,227
    
    
    
    2,700
    
    
    
    (68
    )
    
    
    2,632Other
    
    
    1,946
    
    
    
    (758
    )
    
    
    1,188
    
    
    
    1,946
    
    
    
    (477
    )
    
    
    1,469$
    32,562
    
    
    $
    (24,309
    )
    
    $
    8,253
    
    
    $
    32,462
    
    
    $
    (21,618
    )
    
    $
    10,844
 9




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##### Table of Contents



Remainder of 2007
    
    $
    9302008
    
    
    3,1432009
    
    
    2,4382010
    
    
    6702011
    
    
    572Thereafter
    
    
    500$
    8,253
 Note 4. Stock-Based Compensation
 Share-Based Payment
  Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Cost of revenues
    
    $
    71
    
    
    $
    57
    
    
    $
    199
    
    
    $
    147Operating expenses:Selling, general and administrative
    
    
    287
    
    
    
    558
    
    
    
    865
    
    
    
    1,306Research and product development
    
    
    71
    
    
    
    43
    
    
    
    212
    
    
    
    140$
    429
    
    
    $
    658
    
    
    $
    1,276
    
    
    $
    1,593
  Nine Months EndedJune 30,2007
    
    2006Risk-free interest rate
    
    
    4.6 - 4.8
    %
    
    
    4.4 - 5.0
    %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
    
    
    (188
    )
    
    
    1.63
    
    
    
    
    
    
    
    62Cancelled
    
    
    (1,023
    )
    
    
    2.87Outstanding, June 30, 2007
    
    
    8,442
    
    
    
    2.19
    
    
    
    5.4
    
    
    
    2,494Exercisable, June 30, 2007
    
    
    7,640
    
    
    
    2.25
    
    
    
    5.2
    
    
    
    2,115
  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
    
    
    1,054
    
    
    
    1.70
    
    
    
    657
    
    
    
    0.83Vested
    
    
    (65
    )
    
    
    2.08
    
    
    
    
    
    
    
    Cancelled
    
    
    (78
    )
    
    
    1.90
    
    
    
    (135
    )
    
    
    1.05Outstanding, June 30, 2007
    
    
    1,212
    
    
    
    1.76
    
    
    
    1,936
    
    
    
    1.05
  Note 5. Restructuring Costs
   11




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AcquisitionRelatedSeverance
    
    
    Leases
    
    
    Other
    
    
    TotalBalance, September 30, 2006
    
    $
    461
    
    
    $
    475
    
    
    $
    
    
    
    $
    936Restructuring costs
    
    
    1,630
    
    
    
    
    
    
    
    
    
    
    
    1,630Payments
    
    
    (455
    )
    
    
    (242
    )
    
    
    
    
    
    
    (697
    )Acquisition related adjustments and other
    
    
    29
    
    
    
    (210
    )
    
    
    
    
    
    
    (181
    )Balance, June 30, 2007
    
    $
    1,665
    
    
    $
    23
    
    
    $
    
    
    
    $
    1,688
  Note 6. Income Taxes
    Note 7. Commitments and Contingencies
  12




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##### Table of Contents



Note 8. 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
  Three Months Ended June 30,2007
    
    
    2006Income
    
    
    Shares
    
    
    
    
    
    
    Income
    
    
    Shares(Numerator)
    
    
    (Denominator)
    
    
    Per Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Per ShareBasic:Net income (loss) available to
common shareholders
    
    $
    (2,132
    )
    
    
    
    
    
    
    
    
    
    $
    (2,007
    )
    
    
    Common shares outstanding
    
    
    
    
    
    
    41,283
    
    
    
    
    
    
    
    
    
    
    
    40,198Series B preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,132
    )
    
    
    41,283
    
    
    $
    (0.05
    )
    
    
    (2,007
    )
    
    
    40,198
    
    
    $
    (0.05
    )Effect of Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    (2,132
    )
    
    
    41,283
    
    
    $
    (0.05
    )
    
    $
    (2,007
    )
    
    
    40,198
    
    
    $
    (0.05
    )
 Nine Months Ended June 30,2007
    
    
    2006Income
    
    
    Shares
    
    
    
    
    
    
    Income
    
    
    Shares(Numerator)
    
    
    (Denominator)
    
    
    Per Share
    
    
    (Numerator)
    
    
    (Denominator)
    
    
    Per ShareBasic:Net income (loss) available to
common shareholders
    
    $
    (5,422
    )
    
    
    
    
    
    
    
    
    
    $
    (4,150
    )
    
    
    Common shares outstanding
    
    
    
    
    
    
    41,264
    
    
    
    
    
    
    
    
    
    
    
    40,125Series B preferred
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,422
    )
    
    
    41,264
    
    
    $
    (0.13
    )
    
    
    (4,150
    )
    
    
    40,125
    
    
    $
    (0.10
    )Effect of Dilutive Securities:Options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restricted stock units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Diluted
    
    $
    (5,422
    )
    
    
    41,264
    
    
    $
    (0.13
    )
    
    $
    (4,150
    )
    
    
    40,125
    
    
    $
    (0.10
    )
 13




---



##### Table of Contents



Three and Nine Months EndedJune 30,2007
    
    2006Options
    
    
    8,442
    
    
    
    9,892Warrants
    
    
    6,478
    
    
    
    6,078Restricted stock units
    
    
    1,212
    
    
    
    338Stock appreciation rights
    
    
    1,936
    
    
    
    644Series 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
    
    
    
    34,948
    
    
    
    30,239
 Note 9. Comprehensive Income (Loss)
 Reporting Comprehensive Income
 Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net income (loss)
    
    $
    (1,647
    )
    
    $
    (1,734
    )
    
    $
    (3,955
    )
    
    $
    (3,331
    )Foreign currency translation adjustments
    
    
    381
    
    
    
    (264
    )
    
    
    411
    
    
    
    (229
    )Comprehensive income (loss)
    
    $
    (1,266
    )
    
    $
    (1,998
    )
    
    $
    (3,544
    )
    
    $
    (3,560
    )
  Note 10. Segment Reporting
 Disclosures about
Segments of an Enterprise and Related Information
 14




---



##### Table of Contents



Three Months Ended June 30,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalRevenues
    
    $
    12,973
    
    
    $
    10,648
    
    
    $
    23,621
    
    
    $
    12,989
    
    
    $
    3,138
    
    
    $
    16,127Operating income (loss)
    
    
    462
    
    
    
    (1,886
    )
    
    
    (1,424
    )
    
    
    471
    
    
    
    (2,388
    )
    
    
    (1,917
    )
 Nine Months Ended June 30,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalRevenues
    
    $
    37,813
    
    
    $
    32,228
    
    
    $
    70,041
    
    
    $
    38,631
    
    
    $
    11,614
    
    
    $
    50,245Operating income (loss)
    
    
    2,453
    
    
    
    (4,228
    )
    
    
    (1,775
    )
    
    
    1,280
    
    
    
    (5,344
    )
    
    
    (4,064
    )
   Three Months Ended
    
    
    Nine Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006United States
    
    $
    12,318
    
    
    $
    9,057
    
    
    $
    40,207
    
    
    $
    26,469United Kingdom
    
    
    4,827
    
    
    
    4,257
    
    
    
    14,302
    
    
    
    13,197Other
    
    
    6,476
    
    
    
    2,813
    
    
    
    15,532
    
    
    
    10,579$
    23,621
    
    
    $
    16,127
    
    
    $
    70,041
    
    
    $
    50,245
  June 30,
    
    
    September 30,2007
    
    
    2006United States
    
    $
    1,278
    
    
    $
    1,459Other
    
    
    1,278
    
    
    
    1,328$
    2,556
    
    
    $
    2,787
 15




---



##### 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 June 30,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSoftware licenses
    
    $
    1,786
    
    
    $
    2,488
    
    
    $
    4,274
    
    
    $
    1,418
    
    
    $
    235
    
    
    $
    1,653Maintenance and
support
    
    
    8,522
    
    
    
    5,909
    
    
    
    14,431
    
    
    
    8,075
    
    
    
    2,405
    
    
    
    10,480Professional services
    
    
    2,470
    
    
    
    1,601
    
    
    
    4,071
    
    
    
    3,023
    
    
    
    498
    
    
    
    3,521Third-party software
and hardware
    
    
    195
    
    
    
    650
    
    
    
    845
    
    
    
    473
    
    
    
    
    
    
    
    473Total
    
    $
    12,973
    
    
    $
    10,648
    
    
    $
    23,621
    
    
    $
    12,989
    
    
    $
    3,138
    
    
    $
    16,127
 % ChangeManufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    26.0
    %
    
    
    958.7
    %
    
    
    158.6
    %Maintenance and support
    
    
    5.5
    %
    
    
    145.7
    %
    
    
    37.7
    %Professional services
    
    
    -18.3
    %
    
    
    221.5
    %
    
    
    15.6
    %Third-party software
and hardware
    
    
    -58.8
    %
    
    
    
    
    
    
    78.6
    %Total
    
    
    -0.1
    %
    
    
    239.3
    %
    
    
    46.5
    %
 Nine Months Ended June 30,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSoftware licenses
    
    $
    4,468
    
    
    $
    8,139
    
    
    $
    12,607
    
    
    $
    5,123
    
    
    $
    1,448
    
    
    $
    6,571Maintenance and
support
    
    
    24,479
    
    
    
    17,191
    
    
    
    41,670
    
    
    
    23,756
    
    
    
    7,691
    
    
    
    31,447Professional services
    
    
    8,276
    
    
    
    5,140
    
    
    
    13,416
    
    
    
    8,730
    
    
    
    1,853
    
    
    
    10,583Third-party software
and hardware
    
    
    590
    
    
    
    1,758
    
    
    
    2,348
    
    
    
    1,022
    
    
    
    622
    
    
    
    1,644Total
    
    $
    37,813
    
    
    $
    32,228
    
    
    $
    70,041
    
    
    $
    38,631
    
    
    $
    11,614
    
    
    $
    50,245
 % ChangeManufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    -12.8
    %
    
    
    462.1
    %
    
    
    91.9
    %Maintenance and support
    
    
    3.0
    %
    
    
    123.5
    %
    
    
    32.5
    %Professional services
    
    
    -5.2
    %
    
    
    177.4
    %
    
    
    26.8
    %Third-party software
and hardware
    
    
    -42.3
    %
    
    
    182.6
    %
    
    
    42.8
    %Total
    
    
    -2.1
    %
    
    
    177.5
    %
    
    
    39.4
    %
 18




---



##### Table of Contents



Three Months Ended June 30,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalAmericas
    
    $
    7,584
    
    
    $
    5,015
    
    
    $
    12,599
    
    
    $
    7,525
    
    
    $
    1,385
    
    
    $
    8,910Europe, Middle East
and Africa
    
    
    3,545
    
    
    
    2,490
    
    
    
    6,035
    
    
    
    3,656
    
    
    
    1,357
    
    
    
    5,013Asia Pacific
    
    
    1,844
    
    
    
    3,143
    
    
    
    4,987
    
    
    
    1,808
    
    
    
    396
    
    
    
    2,204Total
    
    $
    12,973
    
    
    $
    10,648
    
    
    $
    23,621
    
    
    $
    12,989
    
    
    $
    3,138
    
    
    $
    16,127
 % ChangeManufacturing
    
    Hospitality
    
    TotalAmericas
    
    
    0.8
    %
    
    
    262.1
    %
    
    
    41.4
    %Europe, Middle East
and Africa
    
    
    -3.0
    %
    
    
    83.5
    %
    
    
    20.4
    %Asia Pacific
    
    
    2.0
    %
    
    
    693.7
    %
    
    
    126.3
    %Total
    
    
    -0.1
    %
    
    
    239.3
    %
    
    
    46.5
    %
 Nine Months Ended June 30,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalAmericas
    
    $
    21,976
    
    
    $
    19,010
    
    
    $
    40,986
    
    
    $
    22,451
    
    
    $
    4,516
    
    
    $
    26,967Europe, Middle East
and Africa
    
    
    10,660
    
    
    
    7,100
    
    
    
    17,760
    
    
    
    10,868
    
    
    
    5,507
    
    
    
    16,375Asia Pacific
    
    
    5,177
    
    
    
    6,118
    
    
    
    11,295
    
    
    
    5,312
    
    
    
    1,591
    
    
    
    6,903Total
    
    $
    37,813
    
    
    $
    32,228
    
    
    $
    70,041
    
    
    $
    38,631
    
    
    $
    11,614
    
    
    $
    50,245
 % ChangeManufacturing
    
    Hospitality
    
    TotalAmericas
    
    
    -2.1
    %
    
    
    320.9
    %
    
    
    52.0
    %Europe, Middle East
and Africa
    
    
    -1.9
    %
    
    
    28.9
    %
    
    
    8.5
    %Asia Pacific
    
    
    -2.5
    %
    
    
    284.5
    %
    
    
    63.6
    %Total
    
    
    -2.1
    %
    
    
    177.5
    %
    
    
    39.4
    %
 Manufacturing Segment
  Software License Revenue. Fourth Shift Edition 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 June 30,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    88.6
    %
    
    
    71.8
    %
    
    
    78.8
    %
    
    
    60.2
    %
    
    
    91.5
    %
    
    
    64.6
    %Maintenance and
support
    
    
    78.6
    %
    
    
    60.6
    %
    
    
    71.9
    %
    
    
    76.2
    %
    
    
    40.7
    %
    
    
    68.0
    %Professional services
    
    
    5.7
    %
    
    
    -3.7
    %
    
    
    3.0
    %
    
    
    14.3
    %
    
    
    -7.4
    %
    
    
    11.2
    %Third-party software
and hardware
    
    
    -7.8
    %
    
    
    13.5
    %
    
    
    8.5
    %
    
    
    24.5
    %
    
    
    0.0
    %
    
    
    25.8
    %Total
    
    
    64.8
    %
    
    
    50.7
    %
    
    
    59.0
    %
    
    
    58.1
    %
    
    
    37.0
    %
    
    
    54.0
    %
 Nine Months Ended June 30,2007
    
    2006Manufacturing
    
    Hospitality
    
    Total
    
    Manufacturing
    
    Hospitality
    
    TotalSoftware licenses
    
    
    86.0
    %
    
    
    81.5
    %
    
    
    83.1
    %
    
    
    53.3
    %
    
    
    92.5
    %
    
    
    61.9
    %Maintenance and
support
    
    
    78.6
    %
    
    
    59.8
    %
    
    
    70.8
    %
    
    
    76.4
    %
    
    
    44.3
    %
    
    
    68.5
    %Professional services
    
    
    14.0
    %
    
    
    -6.4
    %
    
    
    6.2
    %
    
    
    11.2
    %
    
    
    12.3
    %
    
    
    11.4
    %Third-party software
and hardware
    
    
    8.0
    %
    
    
    22.0
    %
    
    
    18.5
    %
    
    
    21.1
    %
    
    
    48.6
    %
    
    
    31.5
    %Total
    
    
    64.2
    %
    
    
    52.7
    %
    
    
    58.9
    %
    
    
    57.1
    %
    
    
    45.4
    %
    
    
    54.4
    %
 Manufacturing Segment
  Fourth Shift Edition
  Hospitality Segment
   21




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##### Table of Contents



Operating Expenses and Operating Income (Loss).
 Three Months Ended June 30,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSelling and marketing
    
    $
    2,749
    
    
    $
    2,592
    
    
    $
    5,341
    
    
    $
    2,271
    
    
    $
    1,128
    
    
    $
    3,399Research and product
development
    
    
    1,552
    
    
    
    1,847
    
    
    
    3,399
    
    
    
    1,880
    
    
    
    790
    
    
    
    2,670General and administrative
    
    
    2,073
    
    
    
    2,916
    
    
    
    4,989
    
    
    
    2,931
    
    
    
    1,632
    
    
    
    4,563Restructuring costs
    
    
    1,630
    
    
    
    
    
    
    
    1,630
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    8,004
    
    
    $
    7,355
    
    
    $
    15,359
    
    
    $
    7,082
    
    
    $
    3,550
    
    
    $
    10,632Operating income (loss)
    
    $
    462
    
    
    $
    (1,886
    )
    
    $
    (1,424
    )
    
    $
    471
    
    
    $
    (2,388
    )
    
    $
    (1,917
    )
 Nine Months Ended June 30,2007
    
    
    2006Manufacturing
    
    
    Hospitality
    
    
    Total
    
    
    Manufacturing
    
    
    Hospitality
    
    
    TotalSelling and marketing
    
    $
    8,190
    
    
    $
    7,126
    
    
    $
    15,316
    
    
    $
    6,194
    
    
    $
    3,162
    
    
    $
    9,356Research and product
development
    
    
    4,968
    
    
    
    5,606
    
    
    
    10,574
    
    
    
    5,332
    
    
    
    2,330
    
    
    
    7,662General and administrative
    
    
    7,081
    
    
    
    8,427
    
    
    
    15,508
    
    
    
    9,265
    
    
    
    5,127
    
    
    
    14,392Restructuring costs
    
    
    1,630
    
    
    
    
    
    
    
    1,630
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    21,869
    
    
    $
    21,159
    
    
    $
    43,028
    
    
    $
    20,791
    
    
    $
    10,619
    
    
    $
    31,410Operating income (loss)
    
    $
    2,453
    
    
    $
    (4,228
    )
    
    $
    (1,775
    )
    
    $
    1,280
    
    
    $
    (5,344
    )
    
    $
    (4,064
    )
  Selling and Marketing.
 22




---



##### Table of Contents



Research and Product Development.
 General and Administrative.
 Restructuring Costs.
   Non-Operating Income and Expenses, Income Taxes, Discontinued Operations and Preferred Stock
Dividends.
 Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2007
    
    2006
    
    2007
    
    2006Interest expense
    
    $
    (492
    )
    
    $
    (3
    )
    
    $
    (1,436
    )
    
    $
    (9
    )Other (expense) income, net
    
    
    (118
    )
    
    
    189
    
    
    
    (158
    )
    
    
    362Provision for (benefit from) income taxes
    
    
    (387
    )
    
    
    8
    
    
    
    586
    
    
    
    13Income (loss) from discontinued
operations, net of tax
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    393Preferred stock dividends
    
    
    (485
    )
    
    
    (273
    )
    
    
    (1,467
    )
    
    
    (819
    )
 Interest Expense.
 23




---



##### Table of Contents



Other Income, Net.
 Provision for Income Taxes.
   Discontinued Operations.
 Preferred Stock Dividends.
 24




---



##### Table of Contents



Liquidity and Capital Resources
 Cash and Cash Equivalents.
 Working Capital Deficit.
 Cash Flows from Operating Activities.
 Cash Flows from Investing Activities.
 Cash Flows from Financing Activities.
 Commitments and Capital Adequacy
    25




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##### Table of Contents



Off-Balance Sheet Arrangements
  New Accounting Pronouncements
  
 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
 26




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##### Table of Contents



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 June 30, 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 June 30, 2007.
 Progress on 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
 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: August 14, 2007
    By:
    /s/ GREGG A. WALDONGregg A. WaldonSenior Vice President and Chief Financial Officer
(principal financial and accounting officer) 29