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 September 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 41-1424202
(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 4,714,177 as of October 23, 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 Six Months Ended
September 30, September 30,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Systems $1,263 $1,628 $2,845 $3,213
Maintenance and other services 380 321 874 650
----- ------ ------ ------
Total revenues 1,643 1,949 3,719 3,863
COST OF REVENUES:
Systems 794 921 1,861 1,747
Support and other 166 143 330 285
----- ------ ------ ------
Total cost of revenues 960 1,064 2,191 2,032
------ ------ ------ ------
GROSS PROFIT 683 885 1,528 1,831
OPERATING EXPENSES:
Selling, general and
administrative 694 284 1,421 615
Research and development 449 80 833 150
------ ------ ------ ------
Total operating expenses 1,143 364 2,254 765
------ ------ ------ ------
Operating income(loss) (460) 521 (726) 1,066
Interest income, net 14 - 46 -
Other income 4 - 29 -
------ ------ ------ ------
INCOME (LOSS) BEFORE TAXES (442) 521 (651) 1,066
Income tax expense - 203 2 416
------ ------ ------ ------
NET INCOME (LOSS) $ (442) $ 318 $ (653) $ 650
====== ====== ====== ======
Net income (loss) per share $ (.09) $ .11 $ (.14) $ .22
====== ====== ====== ======
Shares used in per share
calculation 4,712 3,025 4,714 3,002
====== ====== ====== ======
PREMIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 1997 March 31, 1997
------------------ --------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $2,774 $2,434
Accounts receivable, net 1,379 2,137
Inventory 46 396
Prepaid expenses and other current assets 640 883
Deferred income taxes 134 134
------ ------
Total current assets 4,973 5,984
------ ------
Property and equipment, net 1,369 1,395
Note receivable 466 523
Software distribution rights, net 124 165
------ ------
TOTAL ASSETS $6,932 $8,067
====== ======
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 850 $1,272
Unearned revenue 1,112 787
Bank line of credit 130 246
Current portion of notes payable 157 174
Current portion of capital lease
obligation 59 56
------ ------
Total current liabilities 2,308 2,535
------ ------
Long-term liabilities:
Capital lease obligation 825 855
Unearned income 62 187
Notes payable 115 152
------ ------
Total long-term liabilities 1,002 1,194
------ ------
Shareholders' equity:
Common stock 47 47
Additional paid in capital 9,644 9,703
Accumulated Deficit (6,059) (5,406)
Foreign currency translation adjustment (10) (6)
------ ------
Total shareholders' equity 3,622 4,338
------ ------
TOTAL LIABILITIES AND ------ ------
SHAREHOLDERS' EQUITY $6,932 $8,067
====== ======
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
Six Months Ended
September 30,
------------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net income $(653) $ 650
Adjustments to reconcile net income (loss) to
net cash (used) provided by operating activities:
Depreciation and amortization 166 54
Changes in assets and liabilities:
Current assets 1,354 (443)
Current liabilities (222) (374)
------ ------
Net cash provided by (used in) operating activities 645 (113)
------ ------
INVESTING ACTIVITIES
Repurchase of common stock (61) -
Purchase of property and equipment (99) (14)
------ ------
Net cash used in investing activities (160) (14)
------ ------
FINANCING ACTIVITIES
Proceeds from the exercise of common stock options 2 129
Proceeds from notes payable 47 -
Proceeds from notes receivable 51 -
Repayments (borrowings) under bank line of credit (116) -
Capital lease obligations (27) (2)
Payments on notes payable (102) (50)
------ ------
Net cash (used in) provided by financing activities (145) 77
------ ------
Net increase (decrease) in cash and cash equivalents 340 (50)
Cash and cash equivalents, beginning of fiscal year 2,434 968
------ ------
Cash and cash equivalents, end of the quarter $2,774 $ 918
====== ======
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 fiscal 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 month and six month periods
ended September 30, 1997 and 1996 are computed using the weighted
average number of shares of common stock outstanding during the periods,
including common stock equivalents if dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). 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 month and six month periods
ended September 30, 1997 and September 30, 1996.
ITEM 2. MANAGEMENT'S 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 decreased by 16 percent to $1,643,000 for the second
quarter of fiscal 1998, down from $1,949,000 in the same period of
fiscal 1997. For the six months ended September 30, 1997, revenue
decreased 4 percent to $3,719,000 from $3,863,000 in fiscal 1997. The
decrease for the second quarter and six month period ended September 30,
1997 resulted primarily from lower revenues generated from the U.S.
Postal Service "Store of the Future" contract. 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. 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. With the anticipated general availability
of PREMIS OpenStore and PREMIS OpenOffice, the Company expects revenues
derived from its systems sales to increase in fiscal 1998.
GROSS PROFIT. Gross profit decreased to $683,000 in the second quarter
of fiscal 1998 down from $885,000 in the same period of fiscal 1997.
Gross profit as a percentage of revenue decreased from 45 percent in
the second quarter of fiscal 1997 to 42 percent in the second quarter
of fiscal 1998. Gross profit decreased to $1,528,000 in the six month
period ended September 30, 1997, down from $1,831,000 in the same period
of fiscal 1997. As a percentage of revenue, gross profit was 41 and 47
percent for the six months ended September 30, 1997 and 1996,
respectively. The decline in the margin as a percentage of revenue is
primarily attributable to lower margin custom developed software and
the continued support of previously installed custom development
software systems. The Company expects gross profit as a percentage of
revenue and in absolute dollars to increase in the second half of fiscal
1998 with the general availability of PREMIS OpenStore and PREMIS
OpenOffice. Additionally, the expected roll-out of USPS POS ONE software
will favorably impact gross profit.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses increased by 144 percent to $694,000 in the
second quarter of fiscal 1998, up from $284,000 in the same period of
fiscal 1997. Selling, general and administrative expenses increased
by 131 percent for the six month period ended September 30, 1997 to
$1,421,000, up from $615,000 in the same period of fiscal 1997. As
a percentage of revenue, expenses were 42 and 38 percent for the three
month and six month period ended September 30, 1997, compared to 15
and 16 percent in the same period of the prior fiscal year. The
Company expects its first roll-out of PREMIS OpenStore during the
second half of fiscal 1998, which represents a significant component
of the PREMIS OpenEnterprise suite of products. With the general
availability of PREMIS OpenStore and PREMIS OpenOffice, 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.
RESEARCH AND DEVELOPMENT. Research and development expense for the
second quarter and six month period ended September 30, 1997 was
$449,000 and $833,000, respectively. This compares to $80,000 and
$150,000 for the three month and six month periods ended
September 30, 1996. The increased research and development
expenditures are related to the PREMIS OpenEnterprise suite of
products which include PREMIS OpenStore, PREMIS OpenOffice and
PREMIS OpenNet. Research and development expenditures for the
remainder of the current fiscal year are expected to continue at
the same levels incurred for the first six months of fiscal 1998.
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 original 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 was 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 no income tax expense during
the second quarter of fiscal 1998, compared to $203,000 in the same
period of fiscal 1997. However, the Company believes it is more likely
than not that deferred tax assets, which total $134,000 at
September 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
$340,000 from March 31, 1997 to September 30, 1997. The increase
resulted primarily from cash provided by operating activities of
$645,000. The cash provided by operating activities was primarily
off-set by the reduction in the bank line of credit of $116,000,
payment obligations on notes payable and the repurchase of the
Company's common stock. As of September 30, 1997, the Company had
working capital of $2.8 million. The Company's Canadian subsidiary
has a line of credit of $289,000 ($400,000 CAN) of which $130,000
was outstanding at September 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 six months
of fiscal 1998 were $99,000. These expenditures primarily consisted of
sales promotional equipment, computers and related equipment. The
Company expects to invest another $150,000 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 November 11, 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 November 11, 1997. See Part 2,
Item 1 herein for information on legal proceedings against Mr. Anderson.
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
The Company has commenced legal proceedings against Edward W. Anderson
and Robert E. Ferguson, the former owners of REF Retail Systems Corp.,
Incorporated ("REF"), which the Company acquired on October 1, 1996.
Effective July 15, 1997, Mr. Anderson ceased to be employed by the
Company as President and Chief Executive Officer of PREMIS Systems
Canada (formerly REF). Mr. Ferguson resigned as an officer, director
and employee of REF on October 1, 1996. The legal proceeding against
Mr. Anderson was filed in the United States District Court, District
of Minnesota, Fourth Division on September 16, 1997 (Case No.
97-2087 MJD/AJB). The legal proceeding against Mr. Ferguson was
filed in the Ontario Court of Justice, General Division on
September 22, 1997 (Case No. 97-CV-132581). In both proceedings,
the Company is seeking damages in an unspecified amount related to
alleged breeches of the agreement for the purchase of REF, and related
matters. Additionally, the Anderson claim seeks to annul and declare
void an employment agreement with Mr. Anderson dated October 1, 1996.
Under the employment agreement with Mr. Anderson the Company would be
required to pay Mr. Anderson an amount equal to his base salary that
would have been payable for the balance of the initial five year term
which commenced October 1, 1996. Mr. Anderson's annual base salary at
the time of termination was CND$150,000. Mr. Anderson was also granted
650,000 common stock options under the terms of the employment
agreement. As of October 31, 1997, both Anderson and Ferguson have
filed answers and Anderson has filed a counterclaim alleging breach of
the employment agreement by the Company.
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
The annual meeting of stockholders of the Company was held on
August 6, 1997. At such meeting, the stockholders approved (i) the
election of all four director nominees named in the Company's proxy
statement (F. T. Biermeier For 3,684,639 - Abstain 14,625; Mary Ann
Calhoun For 3,684,639 - Abstain 14,625; Gerald F. Schmidt For
3,684,639 - Abstain 14,625; and S. Albert D. Hanser For 3,684,639 -
Abstain 14,625); (ii) the appointment of Price Waterhouse LLP, as
independent auditors for the Company was ratified (3,687,689 votes
for, 5,075 votes against, 6,500 abstentions and zero broker non-votes).
For further information respecting all such matters, reference is made
to the Company's proxy statement dated July 16, 1997.
ITEM 5. OTHER INFORMATION
None.
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 duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated: November 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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