MINNEAPOLIS, Aug. 3 /PRNewswire-FirstCall/ -- SoftBrands, Inc. today announced its financial results for third quarter fiscal 2006.

Revenues for third quarter fiscal 2006 were $16.1 million, compared with revenues of $19.0 million in third quarter fiscal 2005. Maintenance revenue accounted for 65.0 percent of total revenues in the current quarter and 57.5 percent of revenues in third quarter fiscal 2005.

From a profitability perspective, the company's manufacturing business generated operating income of $3.4 million in third quarter fiscal 2006, while the hospitality business posted an operating loss of $747,000. Including corporate expenses, the company reported an operating loss of $1.9 million, compared with operating income of $610,000 in the comparable period in the prior year.

Today, SoftBrands announced that it had signed a definitive agreement to acquire Hotel Information Systems (HIS), creating a $40 million hospitality business serving more than 4,000 hotel properties in 70 countries. The company will further discuss the transaction on the investor conference call scheduled for today, Aug. 3.

"We were disappointed with our financial performance for the third quarter, particularly in the area of our hospitality business. However, with the acquisition of HIS in our hospitality business, and the first global agreement for our SAP-centric manufacturing solution executed, we have achieved two major milestones that position us for improved performance in fiscal 2007," said Randy Tofteland, SoftBrands president and chief executive officer. "We believe the acquisition of HIS expands our addressable market opportunity and improves our growth opportunity. We have stated in the past that we believed there was an opportunity to consolidate the hospitality market to fill the strong demand in the market for a highly competitive alternative to the current market leader. We believe the acquisition of HIS by SoftBrands creates such an alternative, positioning Softbrands well to capitalize on the growing demand for state-of-the-art IT systems."

The company reported a net loss of $1,734,000, or a loss of 5 cents per diluted share, for the three months ended June 30, 2006, compared with net income of $12,034,000, or 30 cents per diluted share, for third quarter fiscal 2005; net income in the fiscal 2005 period included income from discontinued operations of $12,083,000 from a distribution from the AremisSoft Corporation Liquidating Trust. Net loss applicable to common shareholders was $2,007,000 in third quarter fiscal 2006, or 5 cents per share.

SoftBrands announced today that it has signed a global agreement with a multinational food company for the sale and support of the Fourth Shift Edition for SAP Business One manufacturing solution. SoftBrands said the multi-year agreement has the initial potential for implementation of Fourth Shift Edition at 50 to 100 manufacturing sites within one of the food company's operating divisions.

"We are very pleased to have secured this agreement, which is validation of our strategy to partner with SAP to offer our Fourth Shift Edition for SAP Business One solution to SAP enterprise customers that can benefit from an integrated software solution down to the plant level of their organizations," said Tofteland. "This is a milestone for our manufacturing business and will help drive growth in our license and maintenance revenues going forward. This is a major new customer for SoftBrands and we look forward to serving them and meeting their ERP manufacturing needs."

Other highlights of the third quarter and other recent developments include:

-- In May 2006 SoftBrands released Fourth Shift Edition for SAP Business One version 8.3, an update of SoftBrands' ERP system designed for mid-market manufacturers, which included full German localization. -- In June SoftBrands introduced three new hospitality solutions, including an integrated web booking engine, html driven email correspondence and a new spa management solution. -- In July SoftBrands formed an alliance with The Information Management Group (IMG), one of SAP's premier Business One implementation partners, to promote and sell Fourth Shift Edition for SAP Business One in B1 large accounts. -- In July SoftBrands announced that RSM McGladrey added Fourth Shift Edition for SAP Business One to its technology consulting product line. RSM McGladrey will provide implementation services for Fourth Shift Edition for SAP Business One to manufacturing clients in the mid- market.

In the company's manufacturing business, third quarter fiscal 2006 revenues were essentially even with the prior year's quarter at $13.0 million, compared with $13.1 million in the fiscal 2005 period. Manufacturing revenue in the third quarter reflected a decline in license revenue, partially offset by increases in maintenance and professional services revenue. License revenue decreased due to slow sales of Fourth Shift in the Americas. Maintenance revenue increased 4.5 percent due to high customer retention and sales of add-on software to the existing customer base. Professional services revenue increased 6.8 percent due to increased consulting utilization and better operational management. Third quarter fiscal 2006 operating income in manufacturing was $3.4 million, an 18.4 percent decline from the prior year's quarter due to increased investment in sales and marketing resources for Fourth Shift Edition for SAP Business One.

In the company's hospitality business, revenues declined in the quarter to $3.1 million in 2006, from $5.9 million in the prior year quarter, due to a decline in maintenance revenue and a decline in license revenue due to a higher percentage of small hotels in the sales mix. Revenue in the prior year's quarter benefited from the inclusion of $1.2 million from a customer contract. In third quarter 2006 SoftBrands' hospitality business posted an operating loss of $747,000, compared with operating income of $336,000 in the prior year quarter as a result of the decline in revenue. SoftBrands has initiated a cost reduction effort in its hospitality business, including a staffing reduction. Should the HIS transaction close as planned, SoftBrands said that its fourth quarter results will include integration costs; purchase accounting expenses, if any; possible in-process research and development charges; and other costs related to restructuring its hospitality business for improved performance in fiscal 2007.

On a geographic basis, the Americas region posted an 8.5 percent decline in revenues in the fiscal 2006 period, reflecting declines in both business segments. In the company's Europe, Middle East and Africa (EMEA) region, revenues decreased 27.5 percent, with increases in manufacturing revenues offset by a sharp decline in hospitality revenues. The company's revenues for the Asia Pacific region declined 5.7 percent in the third quarter, with a slight increase in manufacturing revenues offset by lower hospitality revenues.

Nine Month Results

Revenues for the nine months ended June 30, 2006 were $50.2 million, compared with $53.7 million in the 2005 period.

The operating loss for the 2006 nine-month period was $4,064,000, compared with operating income of $1,177,000 in the comparable period in the prior year. Results for the current nine-month period included the impact of stock- based compensation expense, severance charges, higher selling and marketing costs, and the termination of a lease obligation. Operating income in the 2005 nine-month period benefited from a $261,000 credit to restructuring expense.

SoftBrands reported a net loss of $3,331,000, or a loss of 10 cents per diluted share for the nine months ended June 30, 2006, compared with net income of $10,473,000, or 26 cents per diluted share, for the nine months ended June 30, 2005. Net income in the 2005 nine-month period includes income from discontinued operations of $12,083,000 from a distribution from the AremisSoft Corporation Liquidating Trust, net of tax.

Cash and Liquidity

As of June 30, 2006, SoftBrands had $12.7 million in total unrestricted cash, compared with $16.0 million at Sept. 30, 2005.

Conference Call

SoftBrands will hold its third quarter earnings conference call at 11am Eastern Time today, Aug. 3, 2006. Interested parties may listen to the call by dialing 866-510-0708 or international 617-597-5377 (passcode: 74827818). A live webcast will also be available on http://www.softbrands.com/ . Interested parties should dial into the conference call or access the webcast approximately 10-15 minutes before the scheduled start time. A replay will be available approximately one hour after the conference call concludes and will remain available through Aug. 11. The replay number is 888-286-8010 and international 617-801-6888 (passcode: 68691454). The webcast will be archived on http://www.softbrands.com/ for approximately one year.

Forward-Looking Statements

All statements other than historical facts included in this release regarding future operations are subject to the risks inherent in predictions and "forward looking statements." These statements are based on the beliefs and assumptions of management of SoftBrands and on information currently available to us. Nevertheless, these forward-looking statements should not be construed as guarantees of future performance. They involve risks, uncertainties, and assumptions identified in filings by SoftBrands with the SEC, including:

-- Changes in the economy, natural disasters, disease or other events that affect the manufacturing and hospitality segments, or the geographies, we serve; -- Our increasing dependence upon our relationship with SAP; -- Our ability to effectively integrate the HIS business; -- Our ability to timely complete and introduce, and the market acceptance of, our new products; -- Our ability to properly document our sales consistent with the manner in which we recognize revenue; -- Our ability to manage international operations; -- Our ability to maintain and expand our base of clients on software maintenance programs; and -- The effects of and our ability to rapidly adapt to changes in standards for operating systems, databases and other technologies. About SoftBrands

SoftBrands, Inc. is a global leader in providing solutions for small- to medium-sized businesses in the manufacturing and hospitality industries worldwide. With approximately 4,000 customers in more than 60 countries now actively using its manufacturing and hospitality products, SoftBrands has established a global infrastructure for distribution, development and support of enterprise software. The company, headquartered in Minneapolis, Minnesota, has 600 employees with branch offices in Europe, India, Asia, Australia and Africa. Additional information can be found at http://www.softbrands.com/ .

SoftBrands, Inc. Consolidated Balance Sheets in thousands, except per share data (Unaudited) June 30, September 30, 2006 2005 Assets Current assets Cash and cash equivalents $12,717 $16,034 Accounts receivable, net 5,992 5,363 Prepaid expenses and other current assets 1,541 1,134 Total current assets 20,250 22,531 Furniture, fixtures and equipment, net 2,139 1,986 Restricted cash 600 648 Goodwill 23,474 22,947 Intangible assets, net 2,330 3,783 Other long-term assets 19 6 Total assets $48,812 $51,901 Liabilities and Stockholders' Equity Current liabilities Current portion of long-term debt and capital leases $23 $260 Accounts payable 1,390 2,240 Accrued expenses 4,798 5,707 Accrued restructuring costs 178 203 Deferred revenue 16,970 15,355 Other current liabilities 1,039 1,352 Total current liabilities 24,398 25,117 Other long-term liabilities 136 292 Total liabilities 24,534 25,409 Stockholders' equity Series A convertible Preferred Stock, $0.01 par value; 300,000 shares authorized; no shares issued or outstanding Series B Convertible Preferred Stock, $0.01 par value; 4,331,540 shares authorized, issued and outstanding; liquidation value of $4,591 5,068 5,068 Series C Convertible Preferred Stock, $0.01 par value, 20,027 shares authorized, 18,000 shares issued and outstanding liquidation value of $18,000 plus unpaid dividends 15,065 15,065 Common Stock, $0.01 par value; 110,000,000 shares authorized; 40,251,499 and 40,030,000 shares issued and outstanding; respectively 403 400 Additional paid-in capital 175,099 173,756 Accumulated other comprehensive loss (2,122) (1,893) Accumulated deficit (169,235) (165,904) Total stockholders' equity 24,278 26,492 Total liabilities and stockholders' equity $48,812 $51,901 SoftBrands, Inc. Consolidated Statements of Operations in thousands, except share and per share data (Unaudited) Three Months Ended Nine Months Ended June 30, June 30, June 30, June 30, 2006 2005 2006 2005 Revenue Software license $1,653 $3,116 $6,571 $7,896 Maintenance and support 10,480 10,923 31,447 33,051 Professional services 3,521 3,626 10,583 10,055 Third-party software and hardware 473 1,330 1,644 2,656 Total revenue 16,127 18,995 50,245 53,658 Cost of revenues Software licenses 585 1,376 2,501 3,584 Maintenance and support 3,349 3,574 9,891 10,585 Professional services 3,127 2,765 9,381 7,962 Third-party software and hardware 351 1,157 1,126 1,987 Total cost of revenues 7,412 8,872 22,899 24,118 Gross Profit 8,715 10,123 27,346 29,540 Operating expenses Selling, general and administrative 7,962 7,300 23,748 22,382 Research and product development 2,670 2,213 7,662 6,242 Restructuring related - - - (261) Total operating expenses 10,632 9,513 31,410 28,363 Operating income (loss) (1,917) 610 (4,064) 1,177 Interest expense (3) (1,021) (9) (3,046) Other income, net 189 111 362 298 Loss from continuing operations before provision for income taxes (1,731) (300) (3,711) (1,571) Provision for (benefit from) income taxes 8 (251) 13 39 Loss from continuing operations (1,739) (49) (3,724) (1,610) Discontinued operations Income from discontinued operations, net of tax 5 12,083 393 12,083 Net loss (1,734) 12,034 (3,331) 10,473 Preferred Stock dividends 273 - 819 - Net loss applicable to common Shareholders $(2,007) $12,034 $(4,150) $10,473 Basic and diluted earnings (loss) per common share Continuing operations $(0.05) - $(0.11) $(0.04) Discontinued operations - $0.30 $0.01 $0.30 Net income (loss) $(0.05) $0.30 $(0.10) $0.26 Weighted average basic and diluted shares outstanding 40,198 40,030 40,125 40,030 Operating Results Summary (In thousands. Unaudited) Three Months Ended June 30, 2006 2005 % Change Operating Operating Operating Income Income Income Revenue (Loss) Revenue (Loss) Revenue (Loss) Manufacturing $12,989 $3,358 $13,097 $4,113 (0.8)% (18.4)% Hospitality 3,138 (747) 5,898 336 (46.8)% (322.3)% Corporate -- (4,528) -- (3,839) -- 17.9% Total Company $16,127 $(1,917) $18,995 $610 (15.1)% (414.3)% Nine Months Ended June 30, 2006 2005 % Change Operating Operating Operating Income Income Income Revenue (Loss) Revenue (Loss) Revenue (Loss) Manufacturing $38,631 $10,764 $37,469 $10,481 3.1% 2.7% Hospitality 11,614 48 16,189 2,267 (28.3)% (97.9)% Corporate -- (14,876) -- (11,571) -- 28.6% Total Company $50,245 $(4,064) $53,658 $1,177 (6.4)% (445.3)% Certain reclassifications were made to unallocated corporate expenses in fiscal 2005 to conform with the 2006 presentation. Revenue by Segment and Type (In thousands. Unaudited) Three Months Ended June 30, 2006 2005 Manufacturing Hospitality Total Manufacturing Hospitality Total Software Licenses $1,418 $ 235 $1,653 $2,169 $947 $3,116 Maintenance and support 8,075 2,405 10,480 7,724 3,199 10,923 Professional services 3,023 498 3,521 2,831 795 3,626 Third-party software and hardware 473 473 373 957 1,330 $12,989 $3,138 $16,127 $13,097 $5,898 $18,995 Nine Months Ended June 30, 2006 2005 Manufacturing Hospitality Total Manufacturing Hospitality Total Software Licenses $5,123 $1,448 $6,571 $5,609 $2,287 $7,896 Maintenance and support 23,756 7,691 31,447 22,991 10,060 33,051 Professional services 8,730 1,853 10,583 7,871 2,184 10,055 Third-party software and hardware 1,022 622 1,644 998 1,658 2,656 $38,631 $11,614 $50,245 $37,469 $16,189 $53,658 Revenue by Segment and Geography (In thousands. Unaudited) Three Months Ended June 30, 2006 Manufacturing Hospitality Total Americas $7,525 $1,385 $8,910 Europe, Middle East & Africa 3,656 1,357 5,013 Asia Pacific 1,808 396 2,204 $12,989 $3,138 $16,127 2005 % Change Manufacturing Hospitality Total Total Americas $8,035 $1,705 $9,740 (8.5%) Europe, Middle East & Africa 3,305 3,612 6,917 (27.5%) Asia Pacific 1,757 581 2,338 (5.7%) $13,097 $5,898 $18,995 (15.1%) Nine Months Ended June 30, 2006 Manufacturing Hospitality Total Americas $22,451 $4,516 $26,967 Europe, Middle East & Africa 10,868 5,507 16,375 Asia Pacific 5,312 1,591 6,903 $38,631 $11,614 $50,245 2005 % Change Manufacturing Hospitality Total Total Americas $22,977 $5,801 $28,778 (6.3)% Europe, Middle East & Africa 9,437 8,502 17,939 (8.7)% Asia Pacific 5,055 1,886 6,941 (0.5)% $37,469 $16,189 $53,658 (6.4)% Contact: Susan Eich +1 612 851 6205 susan.eich@softbrands.com

CONTACT: Susan Eich of SoftBrands, Inc., +1-612-851-6205,
susan.eich@softbrands.com

Web site: http://www.softbrands.com/