UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
Commission file number 0-12196
PREMIS CORPORATION
(Exact name of small business issuer as specified in its charter)
Minnesota 41-14240202
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
13220 County Road 6, Plymouth, Minnesota 55441
(Address of principal executive office)
(612) 550-1999
(Issuer's telephone number)
Not Applicable
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
The number of shares outstanding of the Issuer's Common Stock, $.01 par value,
was 4,711,677 as of July 31, 1997.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
PART 1 - FINANCIAL INFORMATION:
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data) (unaudited)
Three Months Ended
June 30,
1997 1996
REVENUES:
Systems $ 1,583 $ 1,584
Maintenance and other services 493 330
Total revenues 2,076 1,914
COST OF REVENUES:
Systems 1,067 826
Support and other 164 142
Total cost of revenues 1,231 968
GROSS PROFIT 845 946
OPERATING EXPENSES:
Selling, general and administrative 727 402
Research and development 385 -
Total operating expenses 1,112 402
Operating income (loss) (267) 544
Interest income, net 33 -
Other income 25 -
INCOME BEFORE TAXES (209) 544
Income tax expense 2 212
NET INCOME $ (211) $ 332
Net income (loss) per share $ (.04) $ .11
Shares used in per share calculation 4,716 2,980
PREMIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 1997 March 31, 1997
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,721 $ 2,434
Accounts receivable, net 1,802 2,137
Inventory 111 396
Prepaid expenses and other current assets 650 883
Deferred income taxes 134 134
Total current assets 5,418 5,984
Property and equipment, net 1,375 1,395
Note receivable 523 523
Software distribution rights, net 145 165
TOTAL ASSETS $ 7,461 $ 8,067
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 827 $ 1,272
Unearned revenue 1,096 787
Bank line of credit 65 246
Current portion of notes payable 173 174
Current portion of capital lease obligation 42 56
Total current liabilities 2,203 2,535
Long-term liabilities:
Capital lease obligation 855 855
Unearned income 187 187
Notes payable 152 152
Total long-term liabilities 1,194 1,194
Shareholders' equity:
Common stock 47 47
Additional paid in capital 9,643 9,703
Retained earnings (accumulated deficit) (5,617) (5,406)
Foreign currency translation adjustment (9) (6)
Total shareholders' equity 4,064 4,338
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 7,461 $ 8,067
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three Months Ended
June 30,
1997 1996
OPERATING ACTIVITIES
Net income $ (211) $ 332
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation and amortization 82 27
Changes in assets and liabilities:
Current assets 824 (846)
Current liabilities (136) (207)
Net cash (used) provided by operating activities 559 (694)
INVESTING ACTIVITIES
Repurchase of common stock (61) -
Purchase of property and equipment (41) (8)
Net cash (used) by investing activities (102) (8)
FINANCING ACTIVITIES
Proceeds from the exercise of common stock options 1 127
Proceeds from note payable 47 -
Proceeds from notes receivable 25 -
Repayment of bank line of credit (181) -
Capital lease obligations (13) -
Payments on notes payable (49) (25)
Net cash provided by financing activities (170) 102
Net increase (decrease) in cash and cash equivalents 287 (600)
Cash and cash equivalents, beginning of fiscal year 2,434 968
Cash and cash equivalents, end of the quarter $ 2,721 $ 368
PREMIS CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit, with the exception of the balance sheet for March
31, 1997 which was derived from audited financial statements, and reflect all
adjustments (consisting only of normal and recurring adjustments and accruals)
which are, in the opinion of management, necessary to present a fair statement
of the results for the interim periods presented. The statements have been
prepared in accordance with the regulations of the Securities and Exchange
Commission, but omit certain information and footnote disclosures necessary to
present the statements in accordance with generally accepted accounting
principles. The results of operations for the interim periods presented are
not necessarily indicative of the results to be expected for the full fiscal
year. These condensed consolidated financial statements should be read in
conjunction with the Financial Statements and footnotes thereto included as an
exhibit to the Company's Annual 10-KSB Report for the year ended March 31 , 1997
and the Registration Statement on Form S-2 (SEC File No. 333-10917) which was
declared effective September 26, 1996 as previously filed with the Securities
and Exchange Commission.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All intercompany balances and transactions have been
eliminated in consolidation.
3. NET INCOME (LOSS) PER SHARE
Net income (loss) per share for the three months ended June 30, 1997 and 1996
are computed using the weighted average number of common stock outstanding
during the periods including common stock equivalents if dilutive.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128") in
February 1997. The Company is required to implement SFAS No. 128 for interim
and annual periods ending after December 15, 1997. SFAS No. 128 prescribes a
presentation of basic net income per share, which is calculated utilizing only
weighted average common shares outstanding, and a net income per share -
assuming dilution. After the effective date, all prior period earnings per
share data must be restated to conform with SFAS No. 128. There is no impact
expected to net income (loss) per share for the three months periods ended June
30, 1997 and June 30, 1996.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The statements included in this Management's Discussion and Analysis of
Financial Condition and Results of Operations, except for the historical
information contained herein, are forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, and are
subject to the safe harbor created by that statute. Such statements are subject
to certain risks and uncertainties, some of which are discussed below. Other
factors that could cause actual results to differ materially from those
described in the forward-looking statements include: volatility in the demand
and price for retail software systems; the risk of push-outs of delivery dates
for system orders; the risk of order cancellations; the risk of delays in
introducing new software products and the market's acceptance of such products
and the successful integration of the personnel, products and operations of
PREMIS Systems Canada Incorporated (formerly, REF Retail Systems Corp.
Incorporated)with those of PREMIS Corporation. The reader is urged to consider
the more comprehensive summary of such risks found in the Company's Registration
Statement on Form S-2 (SEC File No. 333-10917) which was declared effective
September 26, 1996. Readers are cautioned not to place undue reliance on those
forward looking statements which speak as to matters only as of the date hereof.
The Company has no obligation to publicly release the results of any revisions
to these forward-looking statements which may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Results of Operations
REVENUE. Revenues increased 8 percent to $2,076,000 over first quarter
revenues of $1,914,000 in the prior fiscal year. The increase resulted from
higher revenues generated from commercial and U.S. Postal Service "Store of the
Future" and POS ONE system installations. In May 1997, the Company completed
its final installation under the "Store of the Future" program while
transitioning to POS ONE installations. Under the POS ONE contract the Company
is a subcontractor to NCR Corp. The Company expects revenue generated per site
under POS ONE installations to be approximately 70% less than comparable "Store
of the Future" sites because the Company no longer provides the hardware.
Additionally, under the POS ONE program the Company is developing point-of-sale
software as a subcontractor to NCR Corp. which is expected to be installed
during fiscal year 1998. POS ONE will be deployed in three phases. Phase One
is expected to generate revenues of approximately $2,200,000 upon roll-out.
Phases Two and Three have not been awarded by the USPS. The Company expects
revenues derived from its systems sales, including OpenStore, to increase in
fiscal 1998.
GROSS PROFIT. Gross profit decreased to $845,000 in the first quarter of
fiscal 1998 down from $946,000 in the same period of fiscal 1997. Gross profit
as a percentage of revenue decreased from 49 percent in the first quarter of
fiscal 1997 to 41 percent in the same period of fiscal 1998. The lower margin
resulted from a higher mix of lower margin hardware compared to software. The
Company expects gross profit to increase in fiscal 1998 with increased focus on
software sales and the expected roll-out of POS ONE which is anticipated in
fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased by 81 percent to $727,000 in the first quarter of fiscal
1998 up from $402,000 in the same period of fiscal 1997. As a percentage of
revenue, expenses were 35 percent for the three month period ended June 30,
1997 compared to 21 percent in the same period of the prior fiscal year. The
Company expects sales and marketing expenses to increase during the remainder
of fiscal 1998 with the expected general release of PREMIS OpenStore. The
Company expects its first installation of PREMIS OpenStore during the second
quarter of fiscal 1998 which represents a significant component of the PREMIS
OpenEnterprise suite of products. With the general availability of the entire
PREMIS OpenEnterprise solution, the Company expects to increase its sales and
marketing expenditures during the remainder of fiscal 1998. The Company will
continue to invest in infrastructure, sales and marketing activities of its
products, development of market opportunities, and promotion of PREMIS
Corporation's competitive position.
INTEREST AND OTHER INCOME. The difference in interest and other income between
periods reflects interest earned on investments, as well as interest earned on
the 5 year 12% note receivable in the amount of $651,000 related to the
licensing in fiscal 1997 of ADVANTAGE, the Company's Food Brokerage Technology.
Such note is due and payable in monthly installments of $14,481. The interest
income is off-set by interest expense on various debt instruments, including
the Company's building capital lease obligation. Other income is generated
from a sub-leasing arrangement for a portion of the Company's current U.S.
office facility. The sub-leasing arrangement expired on June 30, 1997.
INCOME TAX EXPENSE. The Company recognized income tax expense of $2,000 during
the first quarter of fiscal 1998, compared to $212,000 in the same period of
fiscal 1997. The Company believes it is more likely than not that deferred tax
assets, which total $134,000 at June 30, 1997, will be realized. The
computation of the deferred tax assets and valuation allowance are based in
part on taxable income expected to be earned on existing contracts. The amount
of the deferred tax assets considered realizable could be reduced in the near
term if estimates of future taxable income are reduced.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased by approximately $288,000
from March 31, 1997 to June 30, 1997. The increase resulted primarily from
cash provided by operating activities of $559,000. The cash provided by
operating activities was primarily off-set by the reduction in the bank line of
credit of $181,000, payment obligations on notes payable and the repurchase of
the Company's common stock. As of June 30, 1997, the Company had working
capital of $3.2 million. The Company's Canadian subsidiary has a line of
credit of $289,000 ($400,000 CAN) of which $65,000 was outstanding at June 30,
1997. The Company anticipates using available cash to fund growth in
operations, research and development activities and investment in capital
equipment.
Capital expenditures for property and equipment in the first three months of
fiscal 1998 were $41,000. These expenditures primarily consisted of sales
promotional equipment, computers and related equipment. The Company expects to
invest another $200,000 throughout the remainder of 1997 mainly for computer
equipment and upgrades and facilities.
On April 15, 1997, the Company authorized open market repurchase of its common
stock at times and prices to be determined by management for a period of 90
days. The Company repurchased 28,600 shares at a cost of $61,000. As of
August 1, 1997, the Company has no definitive plans to acquire additional
shares.
Effective July 15, 1997, Edward W. Anderson ceased to be employed by the
Company as President and Chief Executive Officer of PREMIS Systems Canada
Incorporated (formerly, REF Retail Systems Corp. Incorporated). Under certain
circumstances, the Company may be required to pay Mr. Anderson an amount equal
to his base salary that would have been payable for the balance of the initial
5 year term which commenced October 1, 1996. Mr. Anderson's annual base salary
at the time of termination was CND$150,000. The Company's obligation to make
such payments, if any, arise under its Employment Agreement with Mr. Anderson.
No determination of the amount or timing of such payments, if any, has been
made as of August 12, 1997.
At its current level of operations, the Company believes that its existing cash
and cash equivalents are sufficient to meet the Company's current working
capital and capital expenditure requirements through at least the next 12
months.
PART 2 - OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Effective July 15, 1997, Edward W. Anderson ceased to be employed by the
Company as President and Chief Executive Officer of PREMIS Systems Canada
Incorporated (formerly, REF Retail Systems Corp. Incorporated). At the time of
filing of this 10QSB, Mr. Anderson is also no longer a member of the Boards of
Directors of the Company or its subsidiary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: August 15, 1997
PREMIS CORPORATION
(Registrant)
/S/ F. T. Biermeier
F. T. Biermeier
Chairman and Chief Executive Officer
/S/ Richard R. Peterson
Richard R. Peterson
Chief Financial Officer
(Principal Financial and Accounting Officer)
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