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, 1998
[ ] 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 4,733,552 as of June 30, 1998.
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,
------------------
1998 1997
---- ----
REVENUES:
Systems $ 108 $ 1,583
Maintenance fees and other revenue 455 493
------- -------
Total revenues 563 2,076
COST OF REVENUES:
Systems 64 1,067
Maintenance fees and other revenue 180 164
------- -------
Total cost of revenues 244 1,231
------- -------
GROSS PROFIT 319 845
OPERATING EXPENSES:
Selling, general and administrative 575 727
Research and development 658 385
------- -------
Total operating expenses 1,233 1,112
------- -------
OPERATING LOSS (914) (267)
Interest income, net 2 33
Other income 56 25
------- -------
LOSS BEFORE INCOME TAXES (856) (209)
Income tax expense (benefit) (4) 2
------- -------
NET LOSS $ (852) $ (211)
======= =======
Net loss per share - basic and diluted $ (.18) $ (.04)
======= =======
Weighted average shares outstanding 4,729 4,716
===== =====
PREMIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 1998 March 31, 1998
------------- --------------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 593 $ 1,360
Accounts receivable, net 583 610
Inventory 47 13
Prepaid expenses and other current assets 392 408
Refundable income taxes 147 149
-------- --------
Total current assets 1,762 2,540
-------- --------
Property and equipment, net 1,257 1,316
Note receivable 374 405
Software distribution rights, net 62 83
-------- --------
TOTAL ASSETS $ 3,455 $ 4,344
======== ========
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 554 $ 608
Unearned revenue 917 858
Current portion of notes payable 62 82
Current portion of capital lease obligation 65 63
-------- --------
Total current liabilities 1,598 1,611
-------- --------
Long-term liabilities:
Capital lease obligation 776 793
Notes payable 66 78
-------- --------
Total long-term liabilities 842 871
-------- --------
Shareholders' equity:
Common stock 47 47
Additional paid in capital 9,648 9,644
Accumulated deficit (8,685) (7,833)
Foreign currency translation 5 4
-------- --------
Total shareholders' equity 1,015 1,862
-------- --------
TOTAL LIABILITIES AND -------- --------
SHAREHOLDERS' EQUITY $ 3,455 $ 4,344
======== ========
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Three Months Ended
June 30,
----------------------
1998 1997
------ ------
OPERATING ACTIVITIES
Net Loss $ (852) $ (211)
Adjustments to reconcile net income to net
cash (used) provided by operating activities:
Depreciation and amortization 83 82
Changes in assets and liabilities:
Current assets 25 824
Current liabilities 4 (136)
------- -------
Net cash (used in) provided by
operating activities (740) 559
------- -------
INVESTING ACTIVITIES
Repurchase of common stock - (61)
Purchase of property and equipment (3) (41)
------- -------
Net cash (used in) investing activities (3) (102)
------- -------
FINANCING ACTIVITIES
Proceeds from the exercise of common
stock options 4 1
Proceeds from note payable - 47
Proceeds from notes receivable 19 25
Repayment of bank line of credit - (181)
Capital lease obligations (15) (13)
Payments on notes payable (32) (49)
------- -------
Net cash (used in) financing activities (24) (170)
------- -------
Net (decrease) increase in cash and
cash equivalents (767) 287
Cash and cash equivalents, beginning of
fiscal year 1,360 2,434
------- -------
Cash and cash equivalents, at end of period $ 593 $ 2,721
======= =======
PREMIS CORPORATION
NOTES TO CONDENSED CONSOLIDATED 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, 1998, 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, 1998.
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 LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share", which was adopted on
December 31, 1997. All earnings (loss) per share amounts for all
periods have been presented, and where necessary, restated to conform
to the Statement 128 requirements. Basic earnings per share is computed
on the basis of the average number of common shares outstanding.
Diluted earnings per share is not presented as the effect of
outstanding stock options and warrants in a loss period are
anti-dilutive.
4. SIGNIFICANT ACCOUNTING POLICIES
In November 1997, the Financial Accounting Standards Board issued
SOP 97-2 "Software Revenue Recognition" to replace SOP-91-1. The
Company adopted 97-2 in the first quarter of fiscal 1999 and it did
not materially impact revenue recognition for this time period.
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 and corresponding payment 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. Readers are
cautioned not to place undue reliance on the forward-looking statements
contained in this Report, since such statements necessarily reflect the
knowledge and belief of the Company 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 composed principally of software license, hardware,
long-term system development contracts and U.S. Postal Service site
installation revenues. Maintenance fees and other revenue are composed
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 73 percent to $563,000 for the first quarter
of fiscal 1999, down from $2,076,000 in the same period of fiscal 1998.
Total revenues for the three month period ended June 30, 1998 were
generated primarily from maintenance contracts and sale of legacy system
source code and reflect an anticipated decline associated with the
Company's continued transition from providing custom system development
solutions to selling the OpenEnterprise suite of products. With the
first installation of OpenEnterprise announced in July 1998 the Company
expects revenues derived from its systems revenue to increase during
fiscal 1999.
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 1999.
GROSS PROFIT. Gross profit decreased to $319,000 in the first quarter
of fiscal 1999 down from $845,000 in the same period of fiscal 1998.
Gross profit as a percentage of revenue increased from 41 percent in the
first quarter of fiscal 1998 to 57 percent in the first quarter of
fiscal 1999. The increase in the margin as a percentage of revenue is
primarily attributable to higher margin legacy system source code sales
during the first quarter of fiscal 1999. The Company expects gross
profit to fluctuate based on the level and composition of revenues.
Additionally, the expected roll-out of U.S. Postal Service POS ONE
software will favorably impact gross profit in the near term.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and
administrative expenses decreased by 21 percent to $575,000 in the first
quarter of fiscal 1999 down from $727,000 in the same period of fiscal
1998. The decline is primarily attributed to a reduction in
administrative personnel and related costs. The Company expects to
continue to invest in infrastructure, sales and marketing activities of
its products, development of market opportunities, and promotion of
PREMIS Corporation's competitive position. SG&A expenses are expected
to continue at current levels for the remainder of fiscal 1999. The
Company would expect to modestly increase its selling and marketing
related expenditures in the second half of fiscal 1999 contingent
upon receipt of the first installment due under the Software License
Agreement with NCR Corporation. See Part 2, Item 6(b) herein for
information on the Software License Agreement with NCR Corporation.
RESEARCH AND DEVELOPMENT. Research and development expense for the
first quarter ended June 30, 1998 was $658,000. This compares to
$385,000 for the three month period ended June 30, 1997. 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 fiscal 1999 are expected to continue
at approximately the same levels incurred for the first quarter of
fiscal 1999, however, such expenditures are contingent upon receipt
of the first installment due under the Software License Agreement
with NCR Corporation. See Part 2, Item 6(b) herein for information
on the Software License Agreement with NCR Corporation.
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 for the first quarter
of fiscal 1999 was primarily generated from certain facility improvement
allowances utilized for the Canadian operating location. Other income
for the three month period ended June 30, 1997 was primarily generated
from a sub-leasing arrangement for a portion of the Company's U.S.
office facility. The sub-leasing arrangement expired on June 30, 1997.
INCOME TAX EXPENSE. The Company recognized a $4,000 income tax benefit
during the first quarter of fiscal 1999, compared to income tax expense
of $2,000 in the same period of fiscal 1998. The Company had no
deferred tax asset or liability recorded as of June 30, 1998.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased by $767,000 from
March 31, 1998 to June 30, 1998. The decrease resulted primarily from
an operating loss of $852,000 and repayment of notes payable. As of
June 30, 1998, the Company had working capital of $164,000. PREMIS
Systems Canada Incorporated, the Company's Canadian subsidiary, had a
line of credit of $289,000 ($400,000 CAN) bearing interest at the
Canadian prime rate plus 1% which was not renewed as of June 1, 1998.
The line of credit was uncommitted and payable upon demand. Borrowings
were limited to 75% of eligible accounts receivable, as defined. There
was no outstanding balance at June 30, 1998. The line of credit was
collateralized by substantially all the assets of the Canadian
subsidiary (PREMIS Systems Canada Incorporated).
Capital expenditures for property and equipment in the first quarter of
fiscal 1999 were $3,000. These expenditures primarily consisted of
sales promotional equipment, computers and related equipment.
Effective June 3, 1998 the Company settled litigation which it commenced
against Edward W. Anderson, formally employed by the Company as
President and Chief Executive Officer of PREMIS Systems Canada
Incorporated (formerly, REF Retail Systems Corp. Incorporated).
Following his termination by the Company Mr. Anderson's employment
agreement provided that under certain circumstances, the Company would
have been 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. Under the
settlement agreement, the Company is obligated to pay Mr. Anderson
$50,000 within thirty days after receipt by the Company of at least
$2,000,000 from NCR Corporation, the United States Postal Service, or
other person, in connection with the United States Postal Services'
POS ONE software but the Company does not guarantee when or if this
payment will be received. See Part 2, Item 1 herein for information on
legal proceedings against Mr. Anderson and Mr. Robert E. Ferguson.
The Company experienced a significant loss from operations in both
fiscal 1998 and the first quarter of fiscal 1999, ending June 30, 1998,
which has resulted in a significant reduction in its working capital.
As a result of these losses and the reduction of available funds, the
Company has reduced its expense structure through certain reductions
in personnel, facilities cost and research and development.
Although the Company believes that its current working capital and
anticipated operating cash flows will be sufficient to fund its
operations through March 31, 1999, this belief is contingent upon
the Company receiving a payment of $3,250,000 under a software
license agreement dated August 3, 1998 with NCR Corp. prior to
September 30, 1998. The software license agreement replaces the
Company's former subcontract with NCR Corp. in support of the United
States Postal Service's POS ONE program. The agreement eliminates the
Company's continuing obligations under its previous POS ONE subcontract
with NCR to deliver point-of-sale software to the Postal Service in
support of the POS ONE program. Under the new software license
agreement a one-time software license fee will be paid to the Company by
NCR Corp. in two installments of $3,250,000. The first license fee
installment from NCR is due within 10 days of conditional acceptance of
the POS ONE application software. For the purpose of the software
license agreement, conditional acceptance is deemed to occur as of NCR's
receipt of the Postal Service's written authorization to begin Phase I
production deployment. Phase I deployment is expected to begin before
the end of August 1998. The second installment is payable no later than
June 1, 1999, and is contingent upon NCR's receipt of an order for
Phase II application software as part of the POS ONE program, which
includes PREMIS OpenStore. The $6,500,000 one-time license fee exceeds
the amount anticipated under the former sub-contract for the POS ONE
program. The former sub-contract called for a payment of approximately
$2.2 million upon the USPS's final acceptance of the application
software for Phase I.
If such payment is not received when anticipated the Company's ability
to fund its operations and generate cash flows will be significantly
and adversely affected. There is no assurance that the software license
payment of $3,250,000 will be received prior to September 30, 1998. If
future circumstances indicate that the Company will not receive the
software license payment prior to September 30, 1998 it will require the
Company to seek additional equity or debt financing. There is no
assurance that equity or debt financing will be available or, if
available, on acceptable terms. The Company is currently exploring
opportunities with prospective investors including strategic partners
and other funding sources.
The Company's ability to raise additional capital and/or raise capital
on acceptable terms could be adversely affected as a result of the
Company's delisting from the Nasdaq Stock Market effective with the
close of business on July 17, 1998. See Part 2, Item 5 herein for
information on the Company's delisting from the Nasdaq Stock Market.
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.
("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 which was settled on June 3, 1998,
sought to annul and declare void an employment agreement with
Mr. Anderson dated October 1, 1996. Under the employment agreement
with Mr. Anderson the Company could 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. Under the June 3, 1998,
settlement arrangement with Mr. Anderson the grant of 650,000 common
stock options has been cancelled along with all other rights afforded
to Mr. Anderson under his employment agreement. The settlement requires
the Company to pay Mr. Anderson $50,000 within thirty days after receipt
by the Company of at least $2,000,000 from NCR Corporation, the United
States Postal Service, or other person, in connection with the United
States Postal Services' POS ONE software, but the Company does not
guarantee when or if this payment will be received. Further, the
Company releases Mr. Anderson of any past and future obligations. The
Ferguson suit has not been settled as of August 14, 1998.
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
See proxy.
ITEM 5. OTHER INFORMATION
The Nasdaq Stock Market, Inc. delisted the Company's common stock from
trading on the Nasdaq Stock Market, effective the close of business on
Friday, July 17, 1998, for failure to satisfy the revised listing
maintenance standards adopted by The Nasdaq Stock Market, Inc. The
revised listing maintenance standards became effective
February 23, 1998. The Company's common stock currently trades on the
Over-the-Counter Bulletin Board System under the symbol PMIS.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8K dated August 13, 1998
related to a Software License Agreement with NCR Corporation.
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: August 14, 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)
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