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, 1999
[ ] 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 5,293,352 as of December 31, 1999.
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,
1999 1998 1999 1998
REVENUES:
Systems $ $ 474 $ 3,199 $ 4,313
Maintenance and other services 55 250 559 739
_______ _______ _______ _______
Total revenues 55 724 3,758 5,052
COST OF REVENUES
Systems 25 126
Support and other 52 82 124 345
_______ _______ _______ _______
Total cost of revenues 52 107 124 471
_______ _______ _______ _______
GROSS PROFIT 3 617 3,634 4,581
OPERATING EXPENSES
Selling, general and administrative 30 94 292 1,580
Research and development 410 1,522
_______ _______ _______ _______
Total operating expenses 30 1,317 292 3,572
_______ _______ _______ _______
Operating income (loss) (27) (287) 3.342 1,479
Interest income, net 62 39 116 48
Investment Capital Loss (3,732) (3,732)
Other (expense) income 238 46 257 20
_______ _______ _______ _______
NET INCOME (LOSS) BEFORE TAXES (3,459) (202) (17) 1,547
Income tax (benefit) expense (50) (41) 244 (46)
_______ _______ _______ _______
NET INCOME (LOSS) $(3,409) $ (161) $ (261) $ 1,593
_______ _______ _______ _______
Basic earnings (loss) per share $ (.64) $ (.03) $ (.05) $ .34
Diluted earnings (loss) per share $ (.64) $ (.03) $ (.05) $ .33
Shares used to compute:
Basic earnings (loss) per share 5,293 4,734 5,115 4,732
Diluted earnings (loss) per share 5,283 4,734 5,115 4,830
PREMIS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, 1999 March 31, 1999
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,063 $ 2,781
Accounts receivable, net 30 116
Current Portion of Note Receivable 100
Prepaid expenses and other current assets 40 41
Refundable income taxes 264
_________ _________
Total current assets 1,133 3,302
_________ _________
Property and equipment, net 45
_________ _________
TOTAL ASSETS $ 1,133 $ 3,347
_________ _________
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 1 $ 479
Unearned revenue 456
_________ _________
Total current liabilities 1 935
_________ _________
Shareholders' equity:
Common stock 52 50
Additional paid in capital 3,876 9,659
Stock Subscription Receivable (51)
Accumulated deficit (2,796) (7,549)
Cumulative translation adjustment 302
_________ _________
Total shareholders' equity 1,132 2,412
_________ _________
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,133 $ 3,347
_________ _________
PREMIS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands) (unaudited)
Nine Months Ended
December 31,
1999 1998
OPERATING ACTIVITIES
Net income (loss) $ 3,715 $ 1,593
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 250
Gain on sale of fixed assets (86)
Proceeds from note receivable 77
Changes in assets and liabilities:
Current assets 450 586
Current liabilities (934) (161)
________ _______
Net cash provided by operating activities 3,231 2,259
________ _______
INVESTING ACTIVITIES
Proceeds from the sale of property and equipment (45) 16
Sale of Subsidiary 755
Purchase of property and equipment (147)
________ _______
Net cash provided by (used in) investing activities 800 (131)
________ _______
FINANCING ACTIVITIES
Proceeds from the exercise of common stock options 2 4
Partial Liquidating Distribution (5,783) -
Additional Paid in Capital 25 -
Capital lease obligations - (46)
Repayment of debt - (63)
________ _______
Net cash (used in) financing activities (5,756) (105)
________ _______
Effect of exchange rate changes on cash 6 (57)
________ _______
Net increase in cash and cash equivalents (1,719) 2,080
Cash and cash equivalents, beginning of fiscal year 2,782 1,360
________ _______
Cash and cash equivalents, end of period $ 1,063 $ 3,440
________ _______
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, 1999, 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, 1999.
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
In February 1998, the Financial Accounting Standards Board issued Statement No.
128, "Earnings Per Share", which was adopted on December 31, 1998. All
earnings (loss) per share amounts for all periods have been presented, and
where necessary, restated to conform to the Statement 128 requirements. Shares
used in the net income (loss) per share calculation are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
Shares in (000's) used to compute:
Basic earnings (loss) per share 5,293 4,734 5,115 4,732
Dilutive common stock equivalents -- -- -- 98
_____ _____ _____ _____
Dilutive earnings (loss) per share 5,293 4,714 5,115 4,830
_____ _____ _____ _____
Basic earnings (loss) per share is computed on the basis of the weighted
average number of common shares outstanding. Diluted earnings (loss) per share
does not include the effect of outstanding stock options and warrants in a loss
period as they are anti-dilutive.
4. COMPREHENSIVE INCOME (LOSS)
The Company adopted Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("SFAS No. 130"), effective April 1, 1999. SFAS
No. 130 requires that items defined as other comprehensive income, such as
foreign currency translation adjustments, be separately classified in the
financial statements and that the accumulated balance of other comprehensive
income be reported separately from retained earnings and additional paid-in
capital in the equity section of the balance sheet. The components of
comprehensive income for the three and nine months ended December 31, 1999 and
1998 (in 000's) are as follows:
Three Months Ended Nine Months Ended
December 31, December 31,
1999 1998 1999 1998
Comprehensive income (loss):
Net income (loss) $ (3,409) $ (161) $ (261) $ 1,593
Other comprehensive income (loss):
Foreign currency translation
adjustments (12) 77
_________ _________ ________ _______
Comprehensive income (loss) $ (3,409) $ (173) $ (261) $ 1,670
5. SEGMENT DISCLOSURES
The Company adopted Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information ("SFAS No.
131"), effective April 1, 1999. SFAS No. 131 requires public companies to
report certain information about operating segments in their financial
statements, and establishes related disclosures about products and services,
geographic areas and major customers. SFAS No. 131 does not need to be applied
to interim financial statements in the initial year of application; however,
comparative information for interim periods in the initial year of application
will be reported in the financial statements for interim periods in fiscal 2000.
6. SOFTWARE REVENUE RECOGNITION
In November 1998, the Financial Accounting Standards Board issued Statement of
Position ("SOP") 97-2 "Software Revenue Recognition" to replace SOP-91-1. The
Company adopted SOP 97-2 in the first quarter of fiscal 1999 and it has not had
a material impact on revenue recognition in fiscal 1999, to date.
6. SALE OF FOREIGN SUBSIDIARY
On November 17, 1999 the Company sold all of the issued and outstanding shares
of its wholly owned subsidiary, PREMIS Systems Canada Incorporated to ACA Group
Canada Inc. The purchase price for the stock was $1,000,000 in cash and
assumption of $1,607,045 in inter-company debt. With respect to this sale the
Company recorded an Investment Capital Loss of $3,731,904 in the third fiscal
quarter ending December 31, 1999.
7. PARTIAL LIQUIDATING DISTRIBUTION
On December 2, 1999, pursuant to a plan of liquidation approved by the board
and the shareholders in July 1999, the board of directors approved a partial
liquidating distribution to its shareholders of $1.1266 per share. The
distribution was paid on December 6, 1999. Pursuant to the discussion on
"CERTAIN TAX MATTERS" in the annual proxy statement to its shareholders dated
June 7, 1999, the Company determined that it had no accumulated earnings and
profits at the time of this distribution and as such the distribution was
deemed to be a partial liquidating distribution of 84% of the assets of the
Company as of November 30, 1999.
8. HOLD BACK AND SEARCH FOR A MERGER PARTNER
Pursuant to the plan approved by its shareholders at the Annual Meeting on July
15, 1999, the Company has held back $1 million plus a provision for known wind
down expenses from its cash assets which were distributed under the partial
liquidating distribution on December 6, 1999 and the Company has proceeded to
seek a merger partner.
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: The likelihood and
volatility regarding the expected date of arrival of certain cash payments
under maintenance agreements, and the time, expense and uncertainty entailed in
the Company's search for a merger partner. 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 is of the date hereof. The Company does
not undertake, and shall have no obligation, to publicly release the results of
any revision 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.
General
On July 15, 1999 the shareholders of the Company approved the following three
proposals placed before the Annual Meeting:
1. Sale of the Company's ownership of its subsidiary, PREMIS Systems Canada
Incorporated ("PSC") and PSC's OpenEnterprise software (the "Transaction"):
2. Adoption of a Plan of Complete Liquidation and Dissolution of the Company
(the "Plan of Liquidation"):
3. Holdback of up to $1 million of the proceeds of the Transaction for a period
of up to 12 months to identify and secure a business combination which may
provide shareholders with additional value, and thereby delaying or terminating
implementation of the Plan of Liquidation.
On November 17, 1999 the Company sold all of the issued and outstanding shares
of its wholly owned subsidiary, PREMIS Systems Canada Incorporated to ACA Group
Canada Inc. The purchase price for the stock was $1,000,000 in cash and
assumption of approximately $1,750,000 in inter-company debt.
On December 2, 1999 the board of directors approved a partial liquidating
distribution to its shareholders of $1.1266 per share which was paid on
December 6, 1999.
The management of the Company is proceeding to satisfy the obligations of the
Company, and review opportunities for a business combination.
The results of the quarter ended December 31, 1999 should not be viewed as the
results of a company seeking to operate in the normal course of business. The
staff has been reduced to a small group of people whom are meeting the
obligations of extended software maintenance contracts, and reviewing
opportunities for a business combination. The comparisons of current and prior
year periods set forth below should be evaluated in light of the Company's
objective, which is winding down and ceasing operations.
Results of Operations
Revenue. The Company's revenues are divided into two categories: systems
revenues and maintenance and other services revenues. Maintenance fees and
other services revenues are composed principally of system maintenance
contracts. Revenues derived from system maintenance contracts are deferred and
recognized ratably over the contract period, which is typically twelve months.
Total revenues for the third quarter of fiscal 2000, were $55,000 compared to
$724,000 for the same period in fiscal 1999. The Company expects continued low
level of maintenance and support revenues throughout the remainder of fiscal
2000. For the nine months ended December 31, 1999 the total revenues were
$3,750,000 compared to $5,052,000 for the same period in the prior year.
Under a software license agreement with NCR Corporation, a one-time software
license fee was paid to the Company by NCR in two installments of $3,250,000.
The first license fee installment was received during the third quarter of
fiscal 1999. The second and final installment was received during the second
quarter of fiscal 2000 and recorded as systems revenues.
Gross Profit. Gross profit for the third quarter of fiscal 2000 was $3,000
compared to $617,000 for the same period in fiscal 1999. For the remainder of
the fiscal year, the Company is not expected to record any Gross Profit,
because the cost of supporting the one remaining software maintenance agreement
is approximately equal to the revenue received. For the nine months ended
December 31, 1999 the gross profit was $3,634,000 compared to $4,581,000 for
the same period in the prior year.
Selling, General And Administrative. Selling, general and administrative
expenses for the third quarter of fiscal 2000 were $30,000 compared to $494,000
for the same period in fiscal 1999. A large portion of the fiscal 2000 SG&A
are one-time expenses related to the liquidation. For the nine months ended
December 31, 1999 the selling, general and administrative expense was $292,000
compared to $1,580,000 for the same period in the prior year.
Research And Development. The Company had no research and development expense
for the third quarter period ended December 31, 1999 compared to $410,000 for
the period ending September 30, 1999. The Company does not expect to have
research and development expense during the remainder of the fiscal year 2000.
For the nine months ended December 31, 1999 there were no research and
development expenditures compared to $1,522,000 for the same period in the
prior year.
Interest, Other Income and Investment Capital Loss. Interest income for the
period reflects interest earned on investments. Interest income for the first
quarter period was $62,000 compared to $39,000 for the same period in fiscal
1999. Other income for the quarter was $238,000 as compared to an expense of
$46,000 for the prior year. The greater portion of the other income for the
quarter resulted from the conversion of a customer deposit to income upon the
assignment and assumption of the customer obligation to ACA Group Canada Inc.
in conjunction with the sale of the shares of PREMIS Systems Canada in November
of 1999. During the quarter the Company recorded a non-cash capital loss of
$3,732,000 on the sale of its Canadian subsidiary. For the nine months ended
December 31, 1999 interest income was $116,000 compared to $48,000 for the same
period in the prior year while other income was $257,000 compared to an expense
of $20,000 in the same period in the prior year.
Income Tax Expense. For the three month period ending December 31, 1999, a
$50,000 benefit was recorded for income tax expense, compared to a benefit of
$41,000 for the same period in fiscal 1999. The Company has recorded a
deferred tax asset and related income tax benefit associated with its
accumulated net operating losses in the amount of $249,000, in the 1999 Fiscal
year. The $249,000 was received in December 1999. For the nine months ended
December 31, 1999, $244,000 was recorded for income tax expense compared to a
$46,000 benefit for the same period in the prior year. The $244,000 in income
tax expense was recorded to PREMIS Systems Canada Incorporated, prior to the
sale of its stock to ACA Group Canada Inc., in anticipation of the tax
obligations it would encounter in subsequent reporting periods due to the
receipt of the NCR payment in September 1999.
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased by $1,719,000 for the nine
months ending December 31, 1999. The decrease is primarily the result of the
partial liquidating distribution to shareholders on December 6, 1999. As of
December 31, 1999, the Company had working capital of $1,132,000 compared to
working capital of $2,367,000 at March 31, 1999.
On July 15, 1999, the shareholders of the Company voted to sell its Canadian
subsidiary to ACA Facilitair, liquidate the Company and distribute the cash
assets to the shareholders. The shareholders also approved a holdback from the
distribution of $1,000,000 to seek a merger partner for the Company.
After the closing of the sale of PSC on November 17, 1999, the Company
distributed $1.126 per share in cash as a partial liquidating distribution to
its shareholders on December 6, 1999, and held back $1,000,000 and a provision
for its obligations. During the period from approximately July 15, 1999 to
July 15, 2000 the Company will be seeking a business combination with another
entity. In the absence of such a combination within this general time frame,
the Company will liquidate and distribute the remaining assets to the
shareholders.
There were no capital expenditures for property and equipment in the first nine
months of fiscal 2000.
As of December 31, 1999, the Company has no lease obligations in either Canada
or the US other than month to month leases for storage of its business
records.
PART 2 - OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS
In September 1997, the Company 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, 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 sought
to annul and declare void an employment agreement with Mr. Anderson dated
October 1, 1996. Mr. Anderson ceased to be employed by the Company as
president and chief executive officer of PREMIS Systems Canada Incorporated
(formerly, REF) effective July 15, 1999. Mr. Ferguson resigned as an officer,
director and employee of REF on October 1, 1996 in connection with the Company's
acquisition of REF. The legal proceeding against Mr. Anderson was filed in the
United States District Court, District of Minnesota, Fourth Division on
September 16, 1999 (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, 1999 (Case No. 97-CV-132581). The Anderson proceeding was settled
on June 3, 1999. The settlement arrangement cancels Mr. Anderson's 650,000
common stock options along with all other rights afforded to Mr. Anderson under
his employment agreement. Pursuant to the terms of the settlement agreement,
the Company paid Mr. Anderson $50,000 during the third quarter of fiscal 1998
in full and complete settlement, and released Mr. Anderson of any past and
future obligations. The Ferguson suit has not been settled as of February 11,
2000.
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
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated November 29, 1999 related to the
November 17, 1999, sale of all of the issued and outstanding capital stock of
its wholly-owned subsidiary, Premis Systems Canada Incorporated ("PSC"), a Nova
Scotia corporation, to ACA Group Canada Inc., a Nova Scotia 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: February 11, 2000
PREMIS CORPORATION
(Registrant)
/S/ F. T. Biermeier
F. T. Biermeier
Chairman and Chief Executive Officer
and Chief Financial Office
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