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, 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 December 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 Nine Months Ended
December 31, December 31,
------------------ -----------------
1997 1996 1997 1996
---- ---- ---- ----
REVENUES:
Systems $ 791 $ 2,490 $ 3,640 $ 5,702
Maintenance and other services 413 522 1,283 1,173
----- ----- ----- -----
Total revenues 1,204 3,012 4,923 6,875
COST OF REVENUES:
Systems 540 1,392 2,400 3,289
Support and other 168 59 498 194
----- ----- ----- -----
Total cost of revenues 708 1,451 2,898 3,483
----- ----- ----- -----
GROSS PROFIT 496 1,561 2,025 3,392
OPERATING EXPENSES:
Selling, general and
administrative 796 823 2,217 1,588
Research and development 521 335 1,355 335
Purchased research and
development - 6,510 - 6,510
----- ----- ----- -----
Total operating expenses 1,317 7,668 3,572 8,433
----- ----- ----- -----
Operating loss (821) (6,107) (1,547) (5,041)
Interest income, net 13 25 58 25
Other income - 19 29 19
----- ----- ----- -----
LOSS BEFORE TAXES (808) 6,063) (1,460) (4,997)
Income tax expense - 104 2 520
----- ----- ----- -----
NET LOSS $ (808) $(6,167) $(1,462) $(5,517)
===== ===== ===== =====
Net loss per common share $ (.17) $ (1.31) $ (.31) $ (1.65)
===== ===== ===== =====
Shares used in per share
calculation 4,714 4,707 4,714 3,350
===== ===== ===== =====
PREMIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1997 March 31, 1997
----------------- --------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,140 $ 2,434
Accounts receivable, net 830 2,137
Inventory 64 396
Prepaid expenses and other
current assets 636 883
Deferred income taxes 134 134
----- -----
Total current assets 3,804 5,984
----- -----
Property and equipment, net 1,368 1,395
Note receivable 446 523
Software distribution rights, net 103 165
----- -----
TOTAL ASSETS $ 5,721 $ 8,067
===== =====
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 805 $ 1,272
Unearned revenue 941 787
Bank line of credit 50 246
Current portion of notes payable 122 174
Current portion of capital lease
obligation 61 56
----- -----
Total current liabilities 1,979 2,535
----- -----
Long-term liabilities:
Capital lease obligation 809 855
Unearned income 21 187
Notes payable 97 152
----- -----
Total long-term liabilities 927 1,194
----- -----
Shareholders' equity:
Common stock 47 47
Additional paid in capital 9,644 9,703
Accumulated Deficit (6,868) (5,406)
Foreign currency translation adjustment (8) (6)
----- -----
Total shareholders' equity 2,815 4,338
----- -----
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,721 $ 8,067
===== =====
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (Unaudited)
Nine Months Ended
December 31,
-----------------
1997 1996
---- ----
OPERATING ACTIVITIES
Net loss $ (1,462) $ (5,517)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 254 168
Purchased research and development 6,510
Changes in assets and liabilities,
net of effect from acquisition:
Current assets 1,892 (1,692)
Current liabilities (479) 350
----- -----
Net cash provided by (used in) operating activities 205 (181)
----- -----
INVESTING ACTIVITIES
Repurchase of common stock (61) -
Purchase of property and equipment (164) (155)
Cash paid in purchase of REF Retail Systems - (6,572)
Cash acquired in purchase of REF Retail Systems - 174
----- -----
Net cash used in investing activities (225) (6,553)
----- -----
FINANCING ACTIVITIES
Proceeds from common stock offering - 8,730
Proceeds from the exercise of common stock options 2 136
Proceeds from issuance notes payable 47 -
Proceeds from notes receivable 68 -
Repayments (borrowings) under bank line of credit (195) -
Capital lease obligations (41) (26)
Payments on notes payable (155) (219)
----- -----
Net cash (used in) provided by financing activities (274) 8,621
----- -----
Net increase (decrease) in cash and cash equivalents (294) 1,887
Cash and cash equivalents, beginning of fiscal year 2,434 968
----- -----
Cash and cash equivalents, end of the quarter $ 2,140 $ 2,855
===== =====
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 loss per share for the three month and nine month periods ended
December 31, 1997 and 1996 are computed using the weighted average
number of shares of common stock outstanding during the periods,
excluding common stock equivalents.
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 postponement 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. The Company's revenues are divided into two categories:
systems revenues and maintenance and other services revenues. Systems
revenues are comprised principally of software license, hardware,
long-term system development contracts and U.S. Postal Service site
installation revenues. Maintenance and other services revenues are
comprised principally of system maintenance contracts. The Company
records revenues from software licenses, hardware and site
installations upon the completion of services and customer acceptance.
Revenues under long-term system development contracts are recognized
over the period the Company satisfies its obligation using the
percentage-of-completion method of accounting. Progress on the
contracts is measured by the percentage of cost incurred to date to
the total estimated cost of each contract. Revenues derived from
system maintenance contracts are deferred and recognized ratably over
the contract period, which is typically twelve months.
Total revenues decreased by 60 percent to $1,204,000 for the third
quarter of fiscal 1998, down from $3,012,000 in the same period of
fiscal 1997. For the nine months ended December 31, 1997, revenue
decreased 28 percent to $4,923,000 from $6,875,000 in fiscal 1997.
Total revenues for the three month and nine month periods ending
December 31, 1997 were generated primarily from long-term system
development contracts, maintenance contracts and U.S. Postal Service
site installations. As anticipated, these revenue sources continue to
decline during the transition from providing custom system development
solutions to the OpenEnterprise suite of products. The decrease for
the third quarter and nine month period ended December 31, 1997 was
further impacted by lower revenues generated from the U.S. Postal
Service "Store of the Future" contract. In May 1997, the Company
completed its final installation as a prime contractor under the
"Store of the Future" program. Since May 1997, the Company has
transitioned to a subcontractor role under POS ONE funding. Under
the POS ONE contract, the Company as a subcontractor to NCR Corp. no
longer provides the hardware for U.S. Postal site installations. As
a result, the revenue generated per site under POS ONE installations
is approximately 70% less than comparable "Store of the Future" sites.
Additionally, under the POS ONE program, the Company is developing
point-of-sale software as a subcontractor to NCR Corp. POS ONE will
be deployed in three phases. Phase One is expected to generate
revenues of approximately $2,200,000 upon roll-out, which is expected
to commence during the first quarter of fiscal 1999. Phases Two and
Three have not been awarded by the USPS. With the general availability
of PREMIS OpenEnterprise announced in January 1998, the Company expects
revenues derived from its systems sales to increase beginning in fiscal
1999. The Company expects its first customer implementation of PREMIS
OpenEnterprise to commence before the end of fiscal 1998.
The Company derives a substantial amount of its revenues from a small
number of customers. Accordingly, the timing of product deliverables
and amount of services performed for these customers may cause the
Company's systems revenues to fluctuate. The Company expects
continued volatility in systems revenues throughout the remainder of
fiscal 1998 and into fiscal 1999.
GROSS PROFIT. Gross profit decreased to $496,000 in the third quarter
of fiscal 1998, down from $1,561,000 in the same period of fiscal 1997.
Gross profit as a percentage of revenue decreased from 52 percent in
the third quarter of fiscal 1997 to 41 percent in the third quarter of
fiscal 1998. Gross profit decreased to $2,025,000 in the nine month
period ended December 31, 1997, down from $3,392,000 in the same period
of fiscal 1997. As a percentage of revenue, gross profit was 41 and
49 percent for the nine months ended December 31, 1997 and 1996,
respectively. The decline in the margin as a percentage of revenue
is primarily attributable to lower margin custom system development
contracts and the continued support of previously installed custom
development software systems. The Company expects gross profit to
fluctuate based on the level and composition of systems revenues.
Additionally, the expected roll-out of U.S. Postal Service POS ONE
software will favorably impact gross profit.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased by 3 percent to $796,000 in the
third quarter of fiscal 1998, down from $823,000 in the same period
of fiscal 1997. Selling, general and administrative expenses increased
by 40 percent for the nine month period ended December 31, 1997, to
$2,217,000, up from $1,588,000 in the same period of fiscal 1997. As
a percentage of revenue, expenses were 66 and 45 percent for the three
month and nine month period ended December 31, 1997, compared to 27 and
23 percent in the same period of the prior fiscal year. With the
general availability of PREMIS OpenEnterprise, the Company expects
to increase its sales and marketing expenditures during the remainder
of fiscal 1998 and into fiscal 1999. 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
third quarter and nine month period ended December 31, 1997 was
$521,000 and $1,355,000, respectively. This compares to $335,000 for
both the three month and nine month periods ended December 31, 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 fourth quarter of fiscal 1998 are expected to
continue at approximately the same levels incurred for the third
quarter 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 third quarter of fiscal 1998, compared to $104,000 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
December 31, 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 decreased by approximately
$294,000 from March 31, 1997 to December 31, 1997. The decrease
resulted primarily from the use of cash to purchase capital equipment,
repayment of notes payable and reduction in the bank line of credit.
The decrease in cash was partially off-set by cash provided by
operations. Cash provided by operations resulted primarily from the
reduction in accounts receivables. As of December 31, 1997, the
Company had working capital of $1.8 million. The Company's Canadian
subsidiary has a line of credit of $289,000 ($400,000 CAN) bearing
interest at the Canadian prime rate plus 1%. The line of credit is
uncommitted and payable upon demand. Borrowings are limited to 75%
of eligible accounts receivable, as defined. The amount outstanding
at December 31, 1997 was $50,000. The line of credit is
collateralized by substantially all the assets of PREMIS Systems
Canada Incorporated. The Company anticipates using available cash
to fund growth in operations, research and development activities
and investments in capital equipment.
Capital expenditures for property and equipment in the first nine
months of fiscal 1998 were $164,000. These expenditures primarily
consisted of sales promotional equipment, computers and related
equipment. The Company expects to invest another $75,000 throughout
the remainder of fiscal 1998 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 February 13, 1998, 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 February 13, 1998. 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 Incorporated (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
breaches 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 February 1, 1998, 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
None.
ITEM 5. OTHER INFORMATION
Effective August 22, 1997, the NASDAQ Stock Market received approval
from the Securities and Exchange Commission to implement changes to
its initial and continued listing requirements. The new listing
requirements will become effective on February 23, 1998. On
December 2, 1997, the Company received notice from the NASDAQ Stock
Market indicating possible non-compliance with these new requirements.
Under the new continued listing requirements the Company does not meet
the net tangible assets requisite of $4 million, as defined. The
Company's net tangible assets were approximately $2.8 million at
December 31, 1997. The Company is evaluating its options and will be
providing the NASDAQ Stock Market a detailed plan of compliance.
However, there can be no assurance that any such plan provided to the
NASDAQ Stock Market would be approved. In the event the Company does
not meet the new continued listing requirements and a plan for
compliance is not accepted, the Company will be delisted from the
National Market System. If the Company is delisted it will still
meet the continued listing requirements for the NASDAQ Small Cap Market.
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: February 13, 1998
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)
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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