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 December 31, 1996
[ ] 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 4,740,802 as of February 10, 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 Nine Months Ended
December 31, December 31,
1996 1995 1996 1995
REVENUES:
Systems $ 2,490 $ 1,466 $ 5,703 $ 3,577
Maintenance and other services 598 240 1,249 669
Total revenues 3,088 1,706 6,952 4,246
COST OF REVENUES:
Systems 1,310 743 3,054 1,759
Royalty expense 67 83 221 205
Support and other 59 37 194 107
Total cost of revenues 1,436 863 3,469 2,071
GROSS PROFIT 1,652 843 3,483 2,175
OPERATING EXPENSES:
Selling, general and administrative 1,205 452 1,970 1,179
Purchased research and development 6,510 - 6,510 -
Total operating expenses 7,715 452 8,480 1,179
INCOME BEFORE TAXES (6,063) 391 (4,997) 996
Income tax expense 104 155 520 394
NET INCOME $ (6,167) $ 236 $ (5,517) $ 602
Net income (loss) per share $ (1.31) $ .08 $ (1.65) $ .20
Shares used in per share calculation 4,707 2,994 3,350 2,967
PREMIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1996 March 31, 1996
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,855 $ 968
Accounts receivable, net 2,558 1,205
Inventory 531 283
Prepaid expenses and other current assets 784 11
Deferred income taxes 56 33
Total current assets 6,784 2,500
Property and equipment, net 461 84
Capital lease building, net 918 0
Software distribution rights, net 150 249
TOTAL ASSETS $ 8,313 $ 2,833
LIABILITIES
Current liabilities:
Accounts payable $ 1,544 $ 138
Accrued and other liabilities 507 458
Accrued income taxes 140 510
Capital lease obligation 224 0
Notes payable 86 103
Total current liabilities 2,501 1,209
Long-term liabilities:
Capital lease obligation 700 0
Note payable 174 112
Total long-term liabilities 874 112
Shareholders' equity:
Common stock 47 26
Additional paid in capital 9,658 731
Retained earnings (4,761) 755
Foreign currency translation adjustment (6) 0
Total shareholders' equity 4,938 1,512
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,313 $ 2,833
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Nine Months Ended
December 31,
1996 1995
OPERATING ACTIVITIES
Net income $ (5,517) $ 602
Adjustments to reconcile net income to net
cash (used) provided by operating activities
Depreciation and amortization 168 7
Write-off of purchase research and
development 6,510 -
Changes in assets and liabilities, net of effect
from purchase of REF Retail Systems:
Current assets (1,692) (655)
Current liabilities 350 319
Net cash (used) provided by operating activities (181) 273
INVESTING ACTIVITIES
Purchase of property and equipment (155) (40)
Cash paid in purchase of REF Retail Systems (6,572) -
Cash acquired from purchase of REF Retail Systems 174 -
Net cash (used) by investing activities (6,553) (40)
FINANCING ACTIVITIES
Proceeds from common stock offering, net 8,730 -
Proceeds from the exercise of common stock options 218 -
Capital lease payments (26) -
Payments on notes payable (219) -
Net cash provided by financing activities 8,621 -
Net increase (decrease) in cash and cash equivalents 1,887 233
Cash and cash equivalents at the beginning of the year 968 427
Cash and cash equivalents at the end of the quarter $ 2,855 $ 660
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, 1996 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 fiscal year ended March 31, 1996 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. COMPLETION OF COMMON STOCK OFFERING
On October 1, 1996, the Company successfully completed a secondary offering of
common stock. The Company sold 2,012,500 shares of common stock in the offering
for $8,729,889 net of issuance costs of $1,332,611.
3. ACQUISITION OF REF RETAIL SYSTEMS CORPORATION
In October 1996, the Company completed the acquisition of REF Retail Systems
Corporation ("REF"), a Toronto based provider of Windows NT.-based specialty
retailing management software, for a total cost of $6,500,000 in exchange for
all outstanding shares of REF, and approximately $72,000 of acquisition-related
expenses. REF has been merged into PREMIS Systems Canada LTD, a newly formed
Canadian Subsidiary of PREMIS Corporation. The acquisition was accounted for
under the purchase method, and results of REF's operations since October 1996
are included in the Company's statement of operations. In conjunction with the
purchase, the Company expensed all purchased research and development in process
based upon an independent appraisal. The amount expensed was approximately
$6,510,000.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The forward looking statements included in Management's Discussion and Analysis
of Financial Condition and Results of Operations, except for the historical
information contained herein, contains forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and
is subject to the safe harbor created by that statute. Such statements are
subject to certain risks and uncertainties. In addition to the factors 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 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;
the successful integration of the personnel, products and operations of REF
Retail Systems Corporation 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 81 percent to $3,088,000 over third quarter
revenues in the prior fiscal quarter. For the nine-month period ended December
31, 1996, revenue increased 64 percent to $6,952,000 from $4,246,000 in 1995.
The increase resulted from higher revenues from both commercial and U.S. Postal
Service "Store of the Future" systems. There has been a tempory interuption in
"Store of the Future" installs during January and early February 1997 while
additional funding is authorized at the U.S. Postal Service. The company
expects to complete these delayed installs later in the 4th fiscal quarter or
early in the 1st fiscal quarter of 1998.
GROSS PROFIT. Gross profit increased 96 percent to $1,652,000 over third
quarter gross profit in the prior fiscal year. The gross profit as a percentage
of revenue increased to 54 percent for the three month period ended December 31,
1996 compared to 49 percent for the three month period ended December 31, 1995.
The increase in the gross profit as a percentage of revenue resulted primarily
from a higher mix of software revenue in the three month period ended December
31, 1996. The gross profit percentage decreased to 50 percent for the
nine-month period ended December 31, 1996 from 51 percent for nine-month period
ended December 31, 1995. The lower margin resulted from a slightly higher mix
of lower margin hardware compared to software. The Company expects margins to
trend higher in fiscal 1998 as the proportion of higher margin software
revenues increases.
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses increased by 93 percent to $871,000 in the third quarter of 1996 up
from $452,000 in the same period of 1995. Selling, general and administrative
expenses also increased in the nine-month period ended December 31, 1996 to
$1,636,000 up from $1,179,000 in the same period of 1995. As a percentage of
revenue, expenses were 28 and 24 percent for the three month and nine month
period ended December 31, 1996 compared to 27 and 28 percent in 1995. The
Company currently expects selling, general and administrative expenses will
continue to increase in absolute dollars, but remain constant or decrease as
a percentage of total revenues. The Company will continue to invest in
infrastructure and in sales and marketing of its products, to develop market
opportunities, and to promote PREMIS Corporation's competitive position.
PURCHASED RESEARCH AND DEVELOPMENT. The one-time charge of $6,510,000 relates to
purchased research and development in progress, expensed in accordance with
purchase accounting rules, in connection with the REF Retail Systems acquisition
on October 1, 1996.
INCOME TAX EXPENSE. The Company's effective income tax rate was 23.3 percent in
the third quarter of fiscal year 1997 as compared to 39.6 percent in the same
quarter of the prior fiscal year. The decrease in the effective income tax rate
was attributed to certain tax refunds recognized in the third quarter of fiscal
1997. The Company expects the effective tax rate for future quarters to be
approximately 39 percent. The one time charge related to purchased research and
development in progress does not result in tax benefit due to differences
between financial and tax reporting requirements.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased by approximately $1.9 million
from March 31, 1996 to December 31, 1996. The increase resulted mainly from the
completion of the Company's secondary offering in October 1996 whereby the net
proceeds to the Company were approximately $8.7 million. The Company used
approximately $6.6 million of the net offering proceeds to purchase REF Retail
Systems Corporation in October 1996. As of December 31, 1996, the Company had
working capital of $4.3 million.
At its current level of operations, the Company believes that its existing cash
and cash equivalents are sufficient to meet the Company's working capital and
capital expenditure requirements through at least the next 12 months.
PART 2 - OTHER INFROMATION:
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
On October 16, 1996, the Company filed Current a Report on FORM 8K, dated
October 1, 1996, which reported the Company's acquisition of all the
outstanding shares of REF Retail Systems Corporation. The acquisition was
reported under Item 2 (The Acqusition or Disposition of Assets) and financial
statements were provided under Item 7 (Financial Statements and Exhibits), of
the FORM 8K.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: February 14, 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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