SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
FORM 10-KSB
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURTIES
EXCHANGE ACT OF 1934 (Fee required)
For the fiscal year ended March 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No fee required)
For the transition period form ____________ to _____________
Commision file number 0-12196
PREMIS CORPORATION
Minnesota 41-1424202
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation of organization)
15301 Highway 55 West, Plymouth, MINNESOTA 55447
(Address of principal executive offices)
Issurer's telephone number, including area code; (612) 550-1999
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
(Title of class)
State the aggregate market value of the voting stock held by non-affiliates:
($5,244,498 using the average of bid and asked prices on June 12, 1996
As of June 12, 1996, ther were outstanding: 2,609,444 shares of Common Stock
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
securities Exchange Act of 1934 during the preceding 12 Months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filer
pursuant to item 405 of Regulation S-B is not contained herein,
and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporatioed by reference in Part III of this Form 10-KSB or
any amendment to the Form 10-KSB ( X ).
Issurer's Revenue for the most recent fiscal year: $5,902,161
Definitive Proxy Statement for Annual Meeting on July 17, 1996,
which will be filed with the Securities and Exchange Commission
within 120 days of the end of the registrant's fiscal year, are
incorporated by reference in Part III of this report.
PART I
Item 1. Description of Business
(a) General development of business: PREMIS Corporation was
incorporated as a Minnesota Corporation in April 1982 to design,
develop, market and support integrated turnkey computer systems
based on the Company's proprietary applications software. The
Company's systems are designed for use by medium and large
businesses, which are in need of multi-user systems for
department or enterprise wide management. Our systems have been
purchased by Food Broker representatives of food processors,
manufacturers and distributors of food products, multi-store
chain retailers and the governmental entites.
(b) Financial information by industry segment: Net sales,
operating income and identifiable assets of the Registrant's
integrated turnkey systems business constitute 100% of the
Company's Operations and therefore segment information is not
applicable. With the exception of portions of the IRIS product
line, the application software sold by the Company is generally
developed by the Company. The Company represents only a few
other software developers at this time and these products do not
comprise more than 5% of its revenues.
(c) Narrative description of business: Prior to April of 1994
all of the registrant's sales were to manufacturers, brokers,
and distributors of food and related products in the United
States. In April 1994 the registrant purchased exclusive
software license and distribution rights to the IRIS product
from Commercial Systems Corporation of Knoxville, Tennessee.
The IRIS product is a management information system for
multi-store retail chains. These exclusive rights were
purchased with the intent to grow and expand the business for
the IRIS product line. See NOTE 7 of the financial statements
for further information.
The Company's products generally consist of software designed
and developed by the Company and hardware which is produced by
others. The Company's software had been designed and
programmed to operate on a wide variety of UNIX based computer
hardware. Recent sales have been trending toward larger
multi-processor UNIX based systems.
The Company's main products are the IRIS, ADVANTAGE and RETAIN
systems. These systems consist of standardized and optional
applications software developed by the Company and often combined
with computer hardware. The Computer Hardware is manufactured by
various suppliers of hardware which offer UNIX operating
systems. The Company purchases the hardware elements from
manufacturers and distributors at prices that allow the Company
to profit from the sale. The company has structured its pricing
to derive much of its gross margin from its software products,
which reduces its reliance on highly competitive hardware sales.
The IRIS System provides the agressive retailer with information
management and control both within the store and at
headquarters. This product is directed at integrated point of
sale and inventory management for mid-sized companies with
multiple sales outlets. Elements of this system control the
point of sale transaction, store ordering, receiving and
inventory, while the headquarters portion provides executive
reporting, central buying and merchandising. The IRIS product
is targeted to the hardgoods retailers in the specialty store
segment of the market. Customers using a variety of retail
formats have purchased the IRIS system. This system was
develped in the late 1980's and is written in the "C"
programming language. Prices of IRIS Central System have ranged
from $10,000 to $100,000 depending upon the software options
chosen and whether hardware was included. Individual store
configurations will range in price from $8,000 to $80,000,
depending on the number of registers and whether hardware is
included. Some of the current customers are; Truck Stops of
America, Marriott Hotels, Paper Warehouse, Springs Industries,
and the U.S. Postal Service.
Sales of IRIS systems to the U. S. Postal Service have been for
a postal concept called the "Store of the Future". Postal
stores designated as "Store of the Future" have been remodeled
or are new construction which includes an area for retail display of
postal products. A kiosk with a point of sale register is placed
within the retail display area to allow for faster service.
According to a Business Week article in February 1996 the Postal
Service is experiencing higher sales with these store formats.
To support these concept stores Premis has provided a
centralized inventory control system at the Postal Service
administrative headquarters in Virginia. In addition Premis, is
one of two suppliers installing point of sale registers and
support systems in these new postal stores.
The U. S. Postal Service has a larger plan to replace all point
of sales registers in the Postal Service under the project name
POS1. This project has been underway for some time and is
anticipated to be awarded later this year for major installs in
1997 and beyond. The Company expects that a good portion of its
future revenues from "Store of the Future" will be replaced by
POS1. The Company has submitted bids to participate in the
installation and training for the POS1 project and expects that
its experience with "Store of the Future" will have an influence
on those bids. If the POS1 installation schedule is delayed the
Company expects that its revenues from "Store of the Future"
installations will be extended.
The ADVANTAGE System is designed to assist food brokers with the
day to day management of their business. It controls orders and
commissions and reports on sales performance of sales people,
product lines, and customers. It is integrated with optional
financial reporting systems for accounts receivable, accounts
payable, and general ledger. The ADVANTAGE System also has
communications capabilities to receive and send Electronic Data
Interchange (EDI) which is computer-to-computer transmission of
sales orders, confirmations, promotions, price changes,
invoices, etc. between our client and their customers and
manufacturers. The ADVANTAGE System was introduced during
fiscal 1992 after a two year development program. This system
contains the latest techniques in Client/Server relational
database, variable overlapping windows, and pop-up or pull-down
menus. It was written in the "C" programming language with the
use of object oriented techniques. The prices of ADVANTAGE
Systems have ranged from $7,900 to $215,000 depending upon the
software options chosen and whether hardware was included.
The RETAIN Retail Item Tracking System was introduced in 1985.
This computer system, which includes both hardware and software
elements, is designed to assist food brokers, manufacturers'
representatives and manufacturers to obtain and analyze highly
valued information concerning the retail distribution of their
products. The RETAIN System utilizes optional handheld data
entry units and portable Pen-Based systems for data collection
and transmission. The RETAIN System is priced between $14,000
to $50,000 depending on the options selected by the customer.
The RETAIN System may also be purchased as an option to the
ADVANTAGE System. When sold as an option to the ADVANTAGE
System, the RETAIN System selling price would range from
$10,000 to $30,000 plus optional handheld units.
The Registrant's business is not seasonal, however,
installations of IRIS systems are lower during the December
Holiday season.
The Company has three basic types of competitors. First, there
are other companies that have designed and developed a system
which operates on a specific computer and is sold as a complete
turnkey package. Second, there are systems developers that have
designed a generalized system and have made that system
available through a number of computer hardware manufacturers.
Third, there are custom software manufacturers which design and
develop software to meet the needs of a specific customer. The
Company believes the third competitor is only viable where a
customer is unaware that complete packages, such as the IRIS and
ADVANTAGE Systems, are already on the market. The cost of
developing a system for a specific customer is many times more
costly and inherently more risk intensive than purchasing an
already completed system. The first and second types are viable
competitors of the Company. The Company has chosen to compete
with the first and second types by offering its products through
its own marketing and sales force.
In the Company's view, its strongest competitors are those that
have designed, developed and are prepared to install a computer
system themselves. They are the most knowledgeable about the
customer's business and the capabilities of their own product.
The Company believes that it has several major competitors that
have sufficient installations and resources to continue to
generate substantial sales.
The Company is not aware of any major computer manufacturer
presently offering products which are competitive with its food
distribution systems. Manufacturers view vertical market
software as assets to their product marketing. The Company has
been encouraged by manufacturers to remarket their hardware, and
has established arrangements to remarket the products of IBM and
NCR corporations. On the other hand some computer manufacturers
offer systems which compete with portions of the IRIS system.
Even these manufacturers would like to see the IRIS products
sold with their hardware. Should any of the major hardware
manufacturers choose to invest the necessary capital, it is the
Company's opinion that they could develop excellent competitive
products for this market.
The Company has an agreement to purchase handheld data entry
devices for the RETAIN and IRIS products from Telxon Corporation
of Akron, Ohio. Telxon has proven devices that have been used
extensively for ordering, auditing, receiving and other
applications. The Company believes that Telxon can satisfy its
requirements, but, there are many other suppliers of handheld
data entry devices which provide similar functions.
The Registrant has expended a significant amount of its
resources for research and development since its inception, and
continues to rely on its own staff for technical support and
product development.
R & D Expenses
Year Ending March 31, 1996 $303,000
Year Ending March 31, 1995 $368,161
The Company usually ships orders for systems within 60 days of
receipt. Orders are received on irregular schedules, which
renders backlog statistics as poor predictors of sales and
earnings. As of March 31, 1996, the Company had a backlog of
$309,509 in sales not installed, compared to $333,409 for March
31, 1995. Backlog is not a significant predictor of future
business because new sales contracts are not received on a
regular basis.
The Registrant does not own any patents. The Company does have
trademarks, but does not consider them to be material to its
operations. The Company presently maintains small amounts of
inventory of its computer system products because the hardware
elements are readily available and the software elements can be
produced by copying as needed.
The Registrant had 36 employees as of June 12, 1996.
(d) Financial information about foreign and domestic operations
and export sales:
To date, the Registrant has had no foreign operations or
export sales.
Item 2. Description of Properties
The Registrant leases office space at Plymouth, Minnesota. This
leased office space consists of 14,371 square feet located in a
professional office building at 15301 Highway 55 West. The
office carries a 36 month minimum lease expiring April 30, 1998.
Future minimum rentals under this lease are $86,967 for the
fiscal year ending March 31, 1997.
Item 3. Legal Proceedings
The Registrant is not presently involved in any material legal
proceedings or claims.
Item 4. Submission of Matters to Vote of Security Holders
None.
PART II
Item 5. Market For Registrant's Common Equity and Related
Stockholder Matters
As of June 1, 1996, there were approximately 105 record
holders of common stock of the corporation. The corporation has
never paid cash dividends on its common stock. The common stock
$.01 par value, of the corporation has been listed on the
NASDAQ Bulletin Board since March of 1995. As of June 12, 1996
there are five market makers for the shares. The table below
lists the high and low bid prices for the two prior fiscal years.
COMMON STOCK DATA
Fiscal Years Ended March 31,
1996 1995
Bid Price Bid Price
High Low High Low
1st quarter 7/8 1/4 (NO QUOTE AVAILABLE)
2nd quarter 1 7/5 3/4 (NO QUOTE AVAILABLE)
3rd quarter 2 1/4 1 1/8 (NO QUOTE AVAILABLE)
4th quarter 2 1/2 1 1/2 1/4 1/4
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the year ended March 31, 1996, sales increased $2,884,593
over the fiscal year ended March 31, 1995, compared to an
increase of $2,125,351 from 1994 to 1995. The Company increased
sales and installations in food distribution from the prior year
and converted a number of competitive systems. IRIS
significantly increased its sales from existing customers, while
expanding new installs for the U.S. Postal Service.
System sales were $2,497,250 higher for the fiscal year ended
March 31, 1996 than in the prior year, at $4,923,132 verses
$2,425,882. The company witnessed an increase with the food
distribution systems, as well as significant additional sales
from the IRIS system. In the early 1990's the Company
witnessed a reduction in the amount of hardware purchased
with our systems. This produced a steady decrease in cost
of sales from 38% in 1991 and 35% in 1992 to 27% in 1993.
During 1994 the Company became a remarketer for the IBM
RS/6000, a powerful mid size system. When the IRIS marketing
rights were purchased The Company became a remarketer
for NCR products including point of sale registers and
multi-user workgroup servers. The Company now strives to
include hardware with sales to larger clients. This movement
toward more hardware sales combined with an increased commitment
to customer support has increased our cost of sales as a
percentage of total revenues to 47% in fiscal 1995 and 51% in
fiscal 1996.
Maintenance fees and other revenues were up 65% for the fiscal
year ended March 31, 1996 after rising 175% in the prior year.
Customers have the option of purchasing software upgrades and
customer support through an annual software maintenance
contract. In both, Fiscal 1995 and 1996 maintenance revenues
have risen proportionally to new installations and the addition
of prior IRIS customers.
Pretax income was for the year was up $879,945 verses $325,756
for the prior fiscal year. The net income for the year was
$352,945 higher than in fiscal 1995, and fiscal 1995 was higher
by $325,756 compared to the prior year. Income was fully
taxed in the fiscal 1996 while a loss carryforward offset income
tax liability in the prior year. These numbers reflect results
from increased sales and marketing efforts and the additon of the
IRIS product line. Net cash provided by operating activities
were $713,071 compared to net cash provided by operating
activities of $419,620 in fiscal 1995.
During fiscal 1996 the Company was able to attract some
additional large highly respected Food Brokers to our products.
These installations also position the Company to attract other
large customers in fiscal 1997. IRIS sales to large customers
have also grown significantly. Research & Development
expenditures have been expanded to enhance our products and
develop new products such as the client/server systems with
relational database and Windows clients. We continue to look to
new products to broaden our sustainable business and open new
markets.
As of March 31, 1996, the Company had current assets of
$2,500,214 versus $1,184,954 a year earlier. Current
liabilities were $1,208,488 versus $651,527 a year earlier, with
a majority of the difference represented by accrued income
taxes. Stockholders equity was up 121% to $1,512,455 verses
$682,010 at March 31, 1995. The long term obligations are down
from $226,084 in 1995 to $112,097 in 1996 and primarily
represents reduced obligations attributable to the purchase of
IRIS software distribution rights. Similarily, assets
decreased for Software distribution rights by $76,615 from March
31, 1995 to March 31, 1996.
As of March 31, 1996 the Company had no material commitment for
capital expenditures. Working Capital was $1,291,726 on March 31,
1996 verses $533,427 for the prior year. Management believes
Working Capital is suffienct to fund current operations, and
planned growth through internal sources or other options.
Inflation has had no significant impact on the revenues of the
Company during the two most recent fiscal years.
Item 7. Financial Statements
The information required by Item 7 is included in the PREMIS
Corporation Audited Financial Statements for the year ended
March 31, 1996, which are included as Exhibit 13.
Item 8. Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure
There has been neither a change in the Company's independent
Certified Public Accountant nor any disagreements on any matter
regarding accounting principles or financial statement
disclosure with the Company's independent Certified Public
Accountant during the twenty-four month period ended March 31,
1996.
PART III
Item 9. Directors and Executive Officers of the Registrant
The executive officers are elected annually by the Board of
Directors. There are no arrangements or understandings among
the officers and any other person pursuant to which he was
selected as an officer.
Director
Name Position Age Since
F. T. Biermeier President, Chief Executive 56 1982
Officer and Treasurer
Mary Ann Calhoun Vice President, Secretary 37 1986
All other information required by Item 9 is included in the
PREMIS Corporation Definitive Proxy Statement which will be
filed by the Registrant on or before July 1, 1996 and which is
incorporated herein by reference.
Item 10. Executive Compensation
The information required by Item 10 is included in the PREMIS
Corporation Definitive Proxy Statement which will be filed by
the Registrant on or before July 1, 1996 and which is
incorporated herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information required by Item 11 is included in the PREMIS
Corporation Definitive Proxy Statement which will be filed by
the Registrant on or before July 1, 1996 and which is
incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions
None
Item 13. Exhibits and Reports on Form 8-K
(a) 1. Financial Statements:
The following PREMIS Corporation Audited Financial Statements
are included as Exhibit 13:
Report of Independent Accountants. Balance Sheets at March 31,
1996 and 1995. Statement of Operations for two years ended
March 31, 1996. Statement of Stockholders' Equity for two years
ended March 31, 1996. Statement of Cash Flows for two years
ended March 31, 1996. Notes to the Financial Statement
(b) Reports on Form 8-K: None
(c) Exhibits:
(3.1) Articles of Incorporation, as amended*
(3.2) By Laws*
(4) Instruments defining the rights of security holders, is
the certificate of incorporation (incorporated by reference
to Item (3) above)
(10) Material Contracts -
(13) This Annual Report on Form 10-K, with Financial Statements,
without the remaining exhibits, constitutes the 1996 Annual
Report to Shareholders.
(23) Consent of Price Waterhouse to incorporate by reference in
Form S-8 Registration Statement.
* Incorporated by reference to Registration Statement on Form
S-18, Commission File #2-85498C, filed on July 29, 1983.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PREMIS CORPORATION
BY /s/ F. T. Biermeier
F. T. Biermeier, President,
Chief Executive Officer,
and Chief Financial Officer
DATE: June 18, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
DIRECTORS
/s/ Mary Ann Calhoun June 18, 1996
Mary Ann Calhoun Date
/s/ Gerald F. Schmidt June 18, 1996
Gerald F. Schmidt Date
Exhibit 13
PREMIS CORPORATION
FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995
May 10, 1996
To the Stockholders and
Board of Directors of
PREMIS Corporation
In our opinion, the accompanying balance sheet and the related
statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial
position of PREMIS Corporation at March 31, 1996 and 1995, and
the results of its operations and its cash flows for the years
then ended, in conformity with generally accepted accounting
principles. These financial statements are the responsibility
of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Minneapolis, Minnesota
PREMIS CORPORATION
BALANCE SHEET
March 31,
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 668,083 $ 426,959
Short-term investments 300,000
Trade accounts receivable, net of
allowance for doubtful accounts of
$82,420 and $35,000, respectively 1,204,874 541,240
Inventory 282,720 165,555
Prepaid expenses 11,537 1,200
Deferred taxes 33,000 50,000
Total current assets 2,500,214 1,184,954
Property and equipment:
Furniture and equipment 225,437 197,135
Leasehold improvements 31,773 12,229
Less accumulated depreciation and
amortization (173,685) (160,613)
Total property and equipment 83,525 48,751
Software distribution rights, net of accumulated
amortization of $158,776 and $77,994 249,301 325,916
Total assets $2,833,040 $1,559,621
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 137,964 $ 177,339
Other accrued liabilities 228,524 145,028
Accrued income taxes 510,000
Unearned income 187,211 170,529
Customer deposits 41,861 58,010
Notes payable - banks 17,746 23,513
Note payable 85,182 77,108
Total current liabilities 1,208,488 651,527
Long-term liabilities:
Notes payable - banks 9,721 38,526
Note payable 102,376 187,558
Total long-term liabilities 112,097 226,084
Stockholders' equity:
Common stock, 4,000,000 shares authorized,
2,609,444 and 2,590,694 shares issued and
outstanding, $.01 par value 26,094 25,906
Additional paid-in capital 731,181 728,556
Retained earnings 755,180 (72,452)
Total stockholders' equity 1,512,455 682,010
Total liabilities and stockholders' equity $2,833,040 $1,559,621
See accompanying notes to the financial statements.
PREMIS CORPORATION
STATEMENT OF OPERATIONS
Year Ended March 31,
1996 1995
Revenue
System sales $4,923,132 $2,425,882
Supplies sales 33,184 15,282
Maintenance fees and other revenue 945,845 576,404
Total revenue 5,902,161 3,017,568
Cost of sales:
Systems 2,510,219 1,079,191
Supplies 28,852 11,035
Support 497,251 324,652
Total cost of sales 3,036,322 1,414,878
Gross profit 2,865,839 1,602,690
Selling, general, and administrative expenses 1,204,065 732,324
Research and development expenses 303,000 368,161
Income from operations 1,358,774 502,205
Interest expense, net 4,142 27,518
Net income before income taxes 1,354,632 474,687
Income tax expense 527,000
Net income $827,632 $474,687
Earning per share $0.28 $0.18
Weighted average number of common stock equivalents 2,925,581 2,590,694
See accompanying notes to the financial statements.
PREMIS CORPORATION
STATEMENT OF CASH FLOWS
Year Ended March 31,
1996 1995
Cash flows from operating activities:
Net income $ 827,632 $ 474,687
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 101,983 91,080
Changes in assets and liabilities:
Accounts receivable (663,634) (438,917)
Inventory (117,165) (147,095)
Prepaid expenses (10,337) (1,200)
Deferred taxes 17,000
Accounts payable (39,375) 156,546
Accrued liabilities 596,434 124,721
Unearned income 16,682 139,786
Customer deposits (16,149) 21,728
Gain from disposal of fixed assets (1,716)
Net cash provided by operating activities 713,071 419,620
Cash flows from investing activities:
Short-term investments (300,000)
Purchase of property and equipment (72,325) (7,632)
Sale of property and equipment 16,350 9,000
Purchase of software distribution rights (4,167) (139,242)
Net cash (used) by investing activities (360,142) (137,874)
Cash flows from financing activities:
Exercising of common stock options 2,813
Repayment of debt (111,680) 29,387
Capital lease obligations (2,938) (3,331)
Net cash provided (used) by financing activities (111,805) 26,056
Net increase in cash 241,124 307,802
Cash and cash equivalents at beginning of year 426,959 119,157
Cash and cash equivalents at end of year $ 668,083 $ 426,959
See accompanying notes to the financial statements.
PREMIS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1996 AND 1995
Additional
Common Stock Paid-in Retained
Shares Amount Capital Earnings Total
Balance at March 31, 1994 2,590,694 $ 25,906 $ 728,556 $(547,139) $ 207,323
Net income 474,687 474,687
Balance at March 31, 1995 2,590,694 25,906 728,556 (72,452) 682,010
Stock options exercised 18,750 188 2,625 2,813
Net income 827,632 827,632
Balance at March 31, 1996 2,609,444 $ 26,094 $ 731,181 $ 755,180 $1,512,455
See accompanying notes to the financial statements.
PREMIS CORPORATION
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
PREMIS Corporation (the "Company") is in the business of
developing and selling turnkey computer software systems.
NOTE 2 - ACCOUNTING POLICIES
Cash and Cash Equivalents
Cash and cash equivalents include amounts deposited in checking
and money market accounts.
Investments
Investments include Municipal bonds. Investments are classified
as available for sale and carried at fair value, with unrealized
appreciation or depreciation included in shareholder's equity,
net of deferred income taxes. Generally, realized investment
gains and losses are based upon specific identification of the
investment assets. Unrealized investment gains and losses, net
of deferred income taxes, if applicable, are included in
shareholder's equity. There were no unrealized gains or losses
on bond investments at March 31, 1996.
Inventories
Inventories are stated at the lower of cost (first-in,
first-out) or market. Inventories consist of computer equipment
held for resale.
Property and Equipment
Property and equipment are stated at cost and depreciated for
financial statement purposes on a straight-line basis over the
estimated useful life of the assets. Depreciation expense for
the years ended March 31, 1996 and 1995 was $21,201 and $26,838,
respectively.
Software Distribution Rights
The Company has acquired certain software marketing licenses and
distribution rights. The costs are capitalized and amortized
using the straight-line method over the term of the agreements
which range from three to five years.
Research and Development Costs
Expenditures for research and software development costs are
expensed as incurred. Such costs are required to be expensed
until the point technological feasibility and proven
marketability of the product are established. Costs otherwise
capitalizable after technological feasibility is achieved have
also been expensed because they have been insignificant. No
costs have been capitalized due to post-technological
feasibility costs being immaterial to both total assets and
pre-tax results.
Revenue Recognition
System sales include software and certain computer equipment.
Revenue is recognized after completion of installation.
Customers are provided with a warranty period which provides
customer support for a period of three months. After the
warranty period, support is only provided if a maintenance
contract is in place. Maintenance fees are deferred when billed
and are recognized ratably over the contract period.
Net Earnings Per Share of Common Stock
Net earnings per share was computed by dividing net income by
the weighted average number of shares of common stock and
dilutive common stock equivalents using the treasury method.
Income Taxes
The Company accounts for income taxes under the liability method
of accounting. Deferred tax assets are determined based on the
difference between the financial statement and tax basis of
assets and liabilities using currently enacted tax rates.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash
equivalents, short-term trade receivables and payables for which
current carrying amounts approximate fair market value.
Additionally, interest rates on outstanding debt are at rates
which approximate market rates for debt with similar terms and
average maturities.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
NOTE 3 - LEASE COMMITMENTS
The Company leases equipment and its facilities under various
operating leases. Future minimum payments under noncancelable
leases are as follows:
Fiscal Year Ending
March 31,
1997 $ 94,080
1998 88,137
1999 7,116
Less interest portion
$ 189,333
Rental expense under operating leases was $114,803 and $47,787
for the years ended March 31, 1996 and 1995, respectively.
NOTE 4 - EMPLOYEE STOCK OPTION PLAN
The PREMIS Corporation 1994 Employee Stock Option Plan (the
"Plan") was adopted to provide incentives to selected eligible
officers and key employees of the Company. Under the Plan,
which supersedes the 1984 plan, the Board of Directors is
authorized to issue up to 500,000 shares of employee stock
options and 600,000 non-qualified stock options. The Company
accounts for stock options and other equity instruments in
accordance with APB Opinion No. 25, "Accounting for Stock Issued
to Employees." Effective in fiscal 1996, the Company should
account for stock options in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting of
Stock Based Compensation." SFAS No. 123 establishes accounting
standards for organizations that have stock based employee
compensation plans. Generally, the statement defines a fair
value based method of accounting for these plans which requires
the measurement of compensation costs at the grant date be
recognized over the service period, which is usually the vesting
period. The Company determines option prices at the time any
option is granted and the price shall not be less than the fair
market value of the stock at the date of grant.
Activity under the Company's stock option plans is presented
below:
Employee Stock Options Non-Qualified Options
Price Range Price Range
Per Share Options Per Share Options
Balance at March 31, 1994 $.05-$.15 210,000
Granted $.15 290,000 $.17 300,000
Cancelled $.05-$.15 (210,000)
Balance at March 31, 1995 $.15 290,000 $.17 300,000
Granted $1.125 55,000 $1.50-$1.75 255,000
Exercised $0.15 (18,750)
Cancelled $0.15-$1.125 (169,500)
Balance at March 31, 1996 $.15-$1.125 156,750 $.17-$1.75 555,000
Options exercisable at March 31, 1996 27,500 300,000
The outstanding non-qualified options for 300,000 shares are
held by an officer-stockholder. All outstanding options expire
five years from the date of grant.
NOTE 5 - NOTES PAYABLE
The Company's notes payable to banks at March 31, 1996 are
secured by automobiles, computer equipment and accounts
receivable and consist of the following:
1996 1995
Note payable - bank, monthly payments of $439 through
May, 1996, interest at 6.9% $ 16,403
Note payable - bank, monthly payments of $299 through
December, 1995, interest at 9% 2,580
Note payable - bank, monthly payments of $1,388 through
October 20, 1997, variable interest at 10.25% $ 27,467 43,056
27,467 62,039
Less current portion (17,746) (23,513)
$ 9,721 $ 38,526
The Company also has a note payable at March 31, 1996 and 1995
for the purchase of a software license and distribution rights
as follows:
1996 1995
Note payable, monthly payments of $8,342 through April,1999 $187,558 $264,666
Less current portion (85,182) (77,108)
$102,376 $187,558
NOTE 6 - INCOME TAXES
Income tax expense is comprised of the following for the year ended
March 31, 1996:
Current income taxes:
Federal $ 400,000
State 110,000
Total current taxes 510,000
Deferred income taxes 17,000
Income tax expense $ 527,000
A earnings and a reconciliation of the expected federal statutory
rate for the years ended March 31, 1996 and 1995 is as follows:
1996 1995
--------------- ----------------
Expected tax provision at statutory rate $462,000 34.0% $161,400 34.0%
State income tax provision, net of federal
tax effect 81,000 5.9 28,480 6.0
Reduction of valuation allowance (112,000) (23.6)
Effect of graduated income tax rates (59,000) (12.4)
Other (16,000) (1.2) (18,880) (4.0)
Total $527,000 38.7% $ 0 0.0%
No tax provision was recorded in the fiscal year ended March 31,
1995 due to the utilization of net operating loss (NOL)
carryforwards. The deferred tax provisions of approximately
$112,000 for the year ended March 31, 1995 is negated by
reductions in the valuation allowances as previously established
in accordance with Financial Accounting Standards No. 109.
Deferred tax assets (liabilities) are comprised of the following
at March 31:
1996 1995
Allowance for doubtful accounts $33,000 $14,000
Net operating loss carryforwards 24,000
Business credit carryforwards 12,000
Net deferred tax asset $33,000 $50,000
NOTE 7 - PURCHASE OF SOFTWARE LICENSE AND DISTRIBUTION RIGHTS
During fiscal year 1995, PREMIS purchased a software license and
distribution rights for a period of 5 years for $403,910. In
addition to the purchase price, the Company must make contingent
royalty payments based on a percentage of the net cash receipts
from related sales. The Company capitalized the purchase price
as software distribution rights and is amortizing the amount
over the term of the agreement. Amortization of $80,782 and
$77,994 is included in cost of sales for the years ended March
31, 1996 and 1995, respectively.
NOTE 8 - EMPLOYEE BENEFITS
During fiscal year 1995, the Company established a retirement
savings plan which qualifies under the Internal Revenue Code
Section 401(k). All employees with at least 90 days of
employment are eligible to participate in the Plan. The
Company's contributions to the Plan are based on 15% of employee
contributions which are subject to salary limitations. Company
contributions to the Plan were approximately $5,000 during 1996.
In fiscal 1996, the Company also paid a one time discretionary
profit sharing bonus of $16,000.
NOTE 9 - SIGNIFICANT CUSTOMERS
Sales to one customer represented 64% of total revenues during
1996. Additionally, this customer represented 61% of trade
accounts receivable at March 31, 1996.
Exhibit 23
CONSENT OF INDEPENDENT ACOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No.333.03161) of Premis
Corporation of our report dated May 10, 1996 appearing on
page 13 of the Annual Report to Stockholders which is
incorporated in this Annual Report on Form 10-KSB
Price Waterhouse LLP
Minneapolis, Minnesota
June 17, 1996
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