Any statements made below with respect to our outlook for fiscal 2010 and beyond represent "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934 and are subject to a number of risks and uncertainties.

These include, among other risks and uncertainties, whether we will be able to:

·

generate sufficient cash flow from our operations or other sources to fund our working capital needs

·

maintain existing relationships with our lender

·

successfully introduce and attain market acceptance of any new products

·

attract and retain qualified personnel both in our existing markets and in new territories in an extremely competitive environment

·

prevent obsolescence of our technologies

·

maintain positive cash flows and profitable operations despite declining revenues

In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expects," "plans," "anticipates," "believes," "estimates," "projects," "predicts," "potential" and similar expressions intended to identify forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by such forward-looking statements. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this report. Except as otherwise required by law, we expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained in this report to reflect any change in our expectations or any change in events, conditions or circumstances on which any of our forward-looking statements are based. We qualify all of our forward-looking statements by these cautionary statements.

DESCRIPTION OF THE BUSINESS

We were formed as a corporation in Massachusetts on June 10, 1969. We completed an initial public offering in August 1981 and a subsequent offering in December 1982. From inception until the disposition of the Government Systems Division in December 1993, our primary business was that of custom software development for the U.S. Government, primarily the Department of Defense.

After the sale of our Government Systems Division in December, 1993 and until December 1996, our only business was reselling hardware and software products of third parties and offering services related to such products (the "Reseller Model"). Between December 1996 and December 2002, we acquired eight entities involved in developing, supporting and/or marketing software products and/or services to the Computer Aided Design and Manufacturing ("CAD/CAM") and Product Data Management ("PDM") marketplace. The three most significant acquisitions during this time period were the purchases of Workgroup Technology Corporation ("WTC") in December 2002, Adra Systems, Inc. in May 1998, and the Advanced Manufacturing Technology ("AMT") in November 1997. While this aggressive acquisition strategy, which was funded primarily through debt, substantially increased our leverage and related risks, these acquisitions were necessary in order to create a viable and sustainable business.

The Securities and Exchange Commission ("SEC") issued disclosure guidance for "critical accounting policies." The SEC defines "critical accounting policies" as those that require the application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods.

Our significant accounting policies are described in Note B to these financial statements. We believe that the following accounting policies require the application of our most difficult, subjective or complex judgments:

Revenue Recognition

We follow the provisions of Statement of Position No. 97-2, "Software Revenue Recognition" (SOP 97-2) as amended by SOP No. 98-9, "Modification of SOP 97-2, Software Revenue Recognition with Respect to Certain Transactions" (SOP 98-9) in recognizing revenue from software transactions. Revenue from software license sales is recognized when persuasive evidence of an arrangement exists, delivery of the product has been made, and a fixed fee and collectability have been determined. We do not provide for a right of return. For multiple element arrangements, total fees are allocated to each of the elements using the residual method set forth in SOP 98-9. Revenue from customer maintenance support agreements is deferred and recognized ratably over the term of the agreements. Revenue from engineering, consulting and training services is recognized as those services are rendered.

Estimating Allowances for Doubtful Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer's current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections and payments from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectability of our accounts receivable and our future operating results.

Valuation of Long-lived and Intangible Assets

We periodically review the carrying value of all intangible assets (primarily capitalized software costs and other intangible assets) and other long-lived assets. If indicators of impairment exist, we compare the undiscounted cash flows estimated to be generated by those assets over their estimated economic life to the related carrying value of those assets to determine if the assets are impaired. If the carrying value of the asset is greater than the estimated undiscounted cash flows, the carrying value of the assets would be decreased to their fair value through a charge to operations. We do not have any long-lived assets we consider to be impaired.

Valuation of Goodwill

The Company accounts for good will pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets". This statement requires that goodwill be reviewed annually, or more frequently as a result of an event or change in circumstances, for possible impairment with impaired assets written down to fair value. Additionally, existing goodwill and intangible assets must be assessed and classified within the statement's criteria.

Valuation of Deferred Tax Assets

We regularly evaluate our ability to recover the reported amount of our deferred income taxes considering several factors, including our estimate of the likelihood of our generating sufficient taxable income in future years during the period over which temporary differences reverse. Our deferred tax assets are currently fully reserved.

RESULTS OF OPERATIONS

The table below presents the relationship, expressed as a percentage, between income and expense items and total revenue, for the fiscal years ended May 31, 2009 and 2008. In addition, the percentage change in those items, again expressed as a percentage, from the year ended May 31, 2008 to May 31, 2009.

                                      Items as a percentage     Percentage change
                                           of revenue             year to year
                                       2009           2008        2008 to 2009

    Revenue
    Products                            21.6%         19.9%            2.0%
    Services                           78.4           80.1            (8.0)
    Total revenue                      100.0         100.0            (6.0)

    Cost of sales
    Product                             4.8           14.1           (68.4)
    Services                           15.4           16.4           (11.8)
    Total cost of sales                20.2           30.5           (37.8)

    Total gross margin                 79.8           69.5             7.9

    Research and development           19.1           17.9            (0.1)
    S.G.& A.                           38.3           42.4           (15.1)

    Interest expense                    8.0           12.8           (41.2)
    Other Income (Expense)             (0.4)          0.7            (151.5)

    Income/loss before income tax      14.1           2.9            (448.3)

Revenue for fiscal year 2009 was approximately $9.5 million, compared to approximately $10.1 million for the comparable prior period, a decrease of 6%. The current economic contraction, as well as declining demand for our Cadra and AMT product lines, is materially and adversely affecting our maintenance and product revenues. We expect that there will be further significant declines in revenue. We are reviewing our business/product strategy and cost structure with a view to mitigate the adverse impact of declining revenue on our financial condition and operating results.

As explained below, the decline in total revenue was due to a decrease in service revenue, partially offset by a nominal increase in product revenue. The combined product and service revenue by product line for fiscal year 2009 as compared to fiscal year 2008 are as follows (in thousands, except percentage change):

                Product Line  FY 2009   FY 2008   $ Change   % Change
                ProductCenter $ 5,093   $ 5,156     $ (63)     (1.2)%
                Cadra           3,748     4,106      (358)      (8.7)
                AMT               657       844      (187)     (22.2)
                Total           9,498    10,106      (608)      (6.0)

Product Revenue


Product revenue for fiscal year 2009 was approximately $2.0 million, a slight
increase compared to the prior fiscal year. The change from year to year in
product revenue among our three product lines was as follows (in thousands,
except percentage change):


                Product Line  FY 2009   FY 2008   $ Change   % Change
                ProductCenter   $ 937     $ 680     $  257      37.8%
                Cadra             984     1,124      (140)     (12.5)
                AMT               127       204       (77)     (37.7)
                Total           2,048     2,008         40        2.0

The increase in product revenue for ProductCenter was attributed to customers expanding their use of ProductCenter within their organizations and in particular, two customers who made significant purchases of our product. This trend may not continue into fiscal year 2010, considering the current economic climate. The decrease in our Cadra and AMT product lines was primarily attributable to customers reducing or laying off employees who use our technology; thus, these customers do not require as many licenses as were previously needed. AMT's customers are primarily North American vendors to the major parts suppliers to the American automotive industry. Our customers have experienced severe financial difficulty as the North American automotive industry has struggled with the economic climate, foreign competition, loss of market share, bankruptcy and a myriad of other problems. These events have had a substantial detrimental impact on the revenue generated from this product line.
Thus, we expect to continue to experience declining AMT related product revenue. If economic conditions affecting our customers do not improve, there could be a continued adverse affect on our future product revenues. In addition, the continued migration of the CAD marketplace from 2D CAD tools such as Cadra to 3D technologies is adversely impacting Cadra sales. This migration has been going on for some time and is expected to continue. Thus, we expect to continue to experience declining Cadra related product revenue.

Service revenue (consisting of maintenance and consulting revenue) for fiscal year 2009 was approximately $7.5 million, compared to approximately $8.1 million for the comparable prior period, a decrease of 8.0%. The change from year to year in service revenue among our three product lines are as follows (in thousands, except percentage change):

                  Product Line  FY 2009 FY 2008 $ Change % Change
                  ProductCenter $ 4,156 $ 4,476  $ (320)   (7.1%)
                  Cadra           2,764   2,982    (218)    (7.3)
                  AMT               530     640    (110)   (17.2)
                  Total           7,450   8,098    (648)    (8.0)

The 7.1% decrease in ProductCenter service revenue was primarily attributable to existing customers delaying or suspending consulting engagements and the lack of sufficient new customer orders, which also drive the consulting business. If these customer sentiments persist, there could be further erosion of our ProductCenter service revenue. ProductCenter maintenance revenue decreased by 5% and consulting revenue decreased by 14% in fiscal year 2009.

Consulting/training is a very minor component of our Cadra and AMT product lines.

The 7.3% decline in service revenue for our Cadra product line was due in part to the economic climate, with customers attempting to minimize their expenses, and to the continued migration of the CAD marketplace from 2D CAD tools such as Cadra to 3D technologies. This migration has been going on for some time and is expected to continue. With the continued market acceptance of 3D technologies, our customers are reducing their utilization of Cadra and reducing their maintenance coverage or opting not to renew at all. Thus, we expect to continue to experience declining Cadra related service revenue.

The 17.2% decline in service revenue for our AMT product line was due in part to the current economic climate and customers minimizing their expenses and also the continued downward trend in service related revenue over the last five years for this technology. As explained above, AMT's customers have experienced severe financial difficulty due to the problems plaguing the North American automotive industry. These events have had a substantial detrimental impact on the revenue generated from this product line. Thus, we expect to continue to experience declining AMT related service revenue.

Gross Margin

Gross profit as a percentage of revenue was 79.8% in fiscal 2009, as compared to 69.5% for the comparable prior period. The increase in gross margin percentage was primarily due to decreases in amortization of capitalized software costs and in the cost of services provided, partially offset by a decrease in total revenue. The decrease in amortization of capitalized software is due to a component of the Cadra software being fully amortized during the quarter ended May 31, 2008. Thus, the decrease in amortization expense which occurred during fiscal year 2009 will not continue in future periods. The decrease in the cost of services provided was due primarily to a reduction in our professional services staff in the latter part of fiscal year 2008. Thus, again, this decrease in cost of services provided may not continue in future periods. As disclosed above, total revenue for fiscal 2009 decreased by 6%, as compared to fiscal 2008.

Selling, general and administrative ("SG&A") expenses were $3.6 million for fiscal year 2009, as compared to $4.3 million in the comparable prior period, a decrease of 15.1%. The decrease is due primarily to the reduction in rent expense arising from our relocation in November 2007 to new appropriately sized corporate headquarters, the decrease in the dollar amount of foreign operating expenses due to foreign currency fluctuations and the suspension of the monthly management fee of $44,000, which is subject to reinstatement, as explained in the following paragraph.

Under an agreement with our lender, Greenleaf Capital, among other obligations, we were required to pay an annual management fee of approximately $500,000 (for management advisory services and available debt facilities). Under an amendment of the agreement, effective January 1, 2008, Greenleaf agreed to waive the monthly management fee (approximately $44,000) for a three month period, with such waiver to renew automatically for additional three month periods, unless Greenleaf notifies us in writing at least thirty days prior to expiration of a three month period that it is terminating its waiver. As of this date, we have received no such notice of termination from Greenleaf. Notwithstanding the amendment, we continued to pay Greenleaf $44,000 per month (the amount that was otherwise payable under the Agreement) which was applied as additional principal payments towards the principal amount owing to Greenleaf Capital pursuant to a certain promissory note. This additional payment of $44,000 per month has since been incorporated into the terms of an amended and restated promissory note issued to Greenleaf on March 30, 2009. Thus, while these payments reduced the amounts owing under our debt facilities, suspension of the management fee did not improve our overall cash flow. In addition, if Greenleaf terminates its waiver of the management fee, our operating expenses will increase by approximately $132,000 per quarter.

Interest Expense

Interest expense for the fiscal year ended May 31, 2009 was approximately $760,000, as compared to $1.3 million for the comparable prior period, a decrease of 41.2%. This decrease in interest expense was primarily attributable to a decrease in the average amount outstanding under our debt facilities and a decrease in the applicable interest rates. Average borrowings were approximately $11.8 million for the fiscal year ending May 31, 2009, as compared to $13.3 million for the comparable prior period, and the interest rate on those borrowings decreased to about 5.5% in the fourth quarter from 7.5% for the comparable prior period. The change in the interest rate on our borrowings in fiscal year 2009 as compared to 2008 is due to a decrease in the prime rate.

Net Income (Loss)

Net income for fiscal year 2009 was $1.3 million, as compared to a net loss of $306,000 in fiscal year 2008. Net income per share for fiscal year 2008 was $.11, as compared to net loss per share of $.03 in fiscal year 2008. The weighted average number of shares outstanding was 12.2 million in fiscal 2009 and 2008.

As of May 31, 2009, we had cash on hand of $758,000, a decrease of $142,000 from May 31, 2008. Operating activities generated approximately $1.7 million of cash during fiscal year 2009, compared with generating approximately $974,000 in cash during the comparable prior period. The $686,000 increase in cash generated by operating activities was primarily attributable to the approximate $1.6 million decrease in net loss and a $96,000 change (reduction) in prepaid expenses, partially offset by a $69,000 change (decrease) in accounts receivable and a $92,000 change (decrease) in deferred revenue. During the year ended May 31, 2009, our financing activities used net cash of approximately $1.7 million, compared to approximately $982,000 during the comparable prior period. The approximate $800,000 increase in cash used by financing activities was primarily attributable to a $600,000 increase in debt repayments and a $150,000 decrease in borrowings. At May 31, 2009, we had an approximate working capital deficit of $3.6 million, compared to a working capital deficit of $3.4 million at May 31, 2008. The approximate $200,000 increase in our working capital deficit was primarily attributable to a $268,000 increase in the current portion of long term debt and a decrease in cash and accounts receivable of $275,000, partially offset by an increase in prepaid expenses of $96,000 and a decrease in deferred revenue of $319,000.

We currently fund our operations through a combination of cash flow from operations and our debt facilities with Greenleaf Capital. We have a $3.0 million Line of Credit with Greenleaf Capital which expires in June of 2010. As of May 31, 2009, approximately $579,000 was available under this facility which has been extended an additional year through June 2010. (See Note H to the Consolidated Financial Statements.) At May 31, 2009, we had total long-term debt of approximately $9.1 million and current debt of $1.9 million (for total debt of $11 million), consisting of $8.6 million under a promissory note and $2.4 million under our revolving credit facility with Greenleaf. We are dependent on availability under our debt facilities and cash flow from operations to meet our near term working capital needs and to make debt service payments.

The aggregate principal amount payable to Greenleaf at May 31, 2009 was $11 million. The monthly minimum principal and interest payments are approximately $210,000 on these borrowings. Of the 11 million, $1.9 is payable by May 31, 2010 and $9.1 million is payable by June 30, 2010. Historically, Greenleaf has, on a quarterly basis, extended our line of credit and term note for an additional year. If Greenleaf did not extend the terms of our debt, we would be obligated to pay Greenleaf $11 million on June 30, 2010, which funds we do not currently have. While we do not believe Greenleaf would decline extending the term of our borrowings, if they were to do so, we would have to seek capital from third parties in order to pay the balance of the borrowings. In the event we were unable to secure the necessary funds, there would be an event of default under our notes and Greenleaf could foreclose on our assets, in which case we would be unable to continue as a going concern. If the terms and conditions of any refinancing were onerous, there would be a material adverse effect on our financial condition and results of operations.

In fiscal year 2009, we generated $1.7 million from operating activities and our intention is to manage the business with a view to achieve positive cash flows from operating activities in fiscal year 2010.

During fiscal year 2010, we anticipate that we will incur capital expenditures of approximately $100,000 in order to keep our computer systems and peripheral equipment current and compatible with the latest operating systems.

As previously described, the current economic contraction, as well as declining demand for our Cadra and AMT product lines, is materially and adversely affecting our maintenance and product revenues. We expect that there will be further significant declines in revenue. We are reviewing our business/product strategy and cost structure with a view to mitigate the adverse impact of declining revenue on our financial condition and operating results.