<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ____
Commission file number 0-21958
<TABLE>
<CAPTION>
<S><C>
QUICKRESPONSE SERVICES, INC.
- -----------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 68-0102251
- ------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1400 MARINA WAY SOUTH, RICHMOND, CA 94804
- -------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(510) 215-5000
- -------------------------------------------------------------------------------------------------------
(Registrant's phone number, including area code)
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. X YES NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
<S> <C>
CLASSES OF COMMON STOCK OUTSTANDING AT SEPTEMBER 30, 1997
- -------------------------- ---------------------------------
Common Stock, $0.001 par value per share 8,490,870
</TABLE>
The Exhibit listing appears on Page 11.
<PAGE>
QUICKRESPONSE SERVICES, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of September 30, 1997 and December 31, 1996 3
Condensed Statements of Earnings for the Three and Nine Months
Ended September 30, 1997 and 1996 4
Condensed Statements of Cash Flows for the Nine Months Ended September 30, 1997
and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
A. Exhibits
B. Reports on Form 8-K
SIGNATURES 12
</TABLE>
2
<PAGE>
PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUICKRESPONSE SERVICES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,239 $16,022
Marketable securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,230 8,605
Accounts receivable - net of allowance for doubtful accounts of $618 in 1997 and $763 in 1996 12,523 9,294
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,939 4,130
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,010 1,141
---------- ----------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,941 39,192
Property and equipment:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,089 1,322
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,848 2,993
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,717 1,344
---------- ----------
10,654 5,659
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,556 2,572
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,098 3,087
Marketable securities available for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 9,985
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 2,308
Capitalized product development costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,830 1,199
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221 175
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,637 $55,946
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,349 $5,480
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,022 3,435
Current portion of sublease loss reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . 861 861
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,232 9,776
---------- ----------
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 782 923
Sublease loss reserve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,297 1,677
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,311 12,376
---------- ----------
Shareholders' equity :
Preferred stock - $.01 par value; 10,000,000 shares authorized; none issued and outstanding. . - -
Common stock - no par value; 20,000,000 shares authorized; 8,490,870 shares outstanding
in 1997 and 8,365,805 shares in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . 62,944 61,394
Treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35) -
Unrealized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 42
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,592) (17,866)
---------- ----------
Total shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51,326 43,750
---------- ----------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,637 $55,946
---------- ----------
---------- ----------
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . $18,253 $14,657 $51,610 $40,981
Cost of revenues . . . . . . . . . . . . . . . . . . . . . 10,494 8,767 29,231 24,831
---------- ---------- ---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 7,759 5,890 22,379 16,150
Operating expenses:
Sales and marketing. . . . . . . . . . . . . . . . . . 2,115 1,637 6,391 4,809
Product development. . . . . . . . . . . . . . . . . . 1,215 865 3,426 2,196
General and administrative . . . . . . . . . . . . . . 1,196 952 3,574 2,619
---------- ---------- ---------- ----------
Total operating expenses . . . . . . . . . . . . . . . 4,526 3,454 13,391 9,624
---------- ---------- ---------- ----------
Operating earnings . . . . . . . . . . . . . . . . . . . . 3,233 2,436 8,988 6,526
Interest income. . . . . . . . . . . . . . . . . . . . . . 523 418 1,468 1,135
---------- ---------- ---------- ----------
Earnings before income taxes . . . . . . . . . . . . . . . 3,756 2,854 10,456 7,661
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 1,502 1,141 4,182 3,066
---------- ---------- ---------- ----------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . $2,254 $1,713 $6,274 $4,595
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per common and common equivalent share. . . . . . $0.26 $0.20 $0.72 $0.54
Shares used to compute per share amounts . . . . . . . . . 8,762,347 8,618,903 8,712,147 8,586,845
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to condensed financial statements.
4
<PAGE>
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1997 1996
-------- ---------
<S> <C> <C>
Operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $6,274 $4,595
Adjustment to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 1,157 785
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . (141) (447)
Stock option compensation. . . . . . . . . . . . . . . . . . . 26 26
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . (3,229) (595)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . (869) (98)
Deferred income tax assets . . . . . . . . . . . . . . . . . . 4,156 2,834
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . (245) (3)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (1,131) 2,194
Sublease loss reserve (net). . . . . . . . . . . . . . . . . . (380) (365)
Other accrued liabilities. . . . . . . . . . . . . . . . . . . (1,413) (164)
-------- --------
Net cash provided by operating activities . . . . . . . . . 4,205 8,762
-------- --------
Investing activities:
Sale (purchase) of marketable securities-available for sale (net) (3,173) (4,509)
Purchase of property and equipment . . . . . . . . . . . . . . . (4,995) (926)
Capitalization of product development costs. . . . . . . . . . . (605) (172)
-------- --------
Net cash used in investing activities . . . . . . . . . . . (8,773) (5,607)
-------- --------
Financing activities:
Exercise of stock options. . . . . . . . . . . . . . . . . . . . 807 306
Exercise of stock warrant. . . . . . . . . . . . . . . . . . . . 13 -
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . (35) -
-------- --------
Net cash provided by financing activities . . . . . . . . . 785 306
-------- --------
Net increase (decrease) in cash and cash equivalents . . . . . . . (3,783) 3,461
Cash and cash equivalents at beginning of period . . . . . . . . . 16,022 6,460
-------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . $12,239 $9,921
-------- --------
-------- --------
Other cash flow information:
Taxes paid during the period . . . . . . . . . . . . . . . . . . $116 $232
-------- --------
-------- --------
Non-cash financing activities:
Tax benefit from non-qualified stock options exercised . . . . . $704 $536
-------- --------
-------- --------
</TABLE>
See notes to condensed financial statements.
5
<PAGE>
QUICKRESPONSE SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
QuickResponse Services, Inc. (the Company) provides a centralized product
information database (The QRS Catalog), Inventory Management Services (QRS
Catalyst, a sales analysis tool, QRS Replenishment and QRS Forecasting),
network services including electronic data interchange services (EDI
services), and QRS Logistics Management Systems to retailers and
merchandise suppliers and carriers, to automate and improve their
merchandise and logistics management.
The balance sheet as of September 30, 1997, the statements of earnings for
the three and nine months ended September 30, 1997 and 1996, and the
statements of cash flows for the nine months ended September 30, 1997 and
1996 have been prepared by the Company without audit. In the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1997 and for all periods
presented have been made. The balance sheet as of December 31, 1996 is
derived from the Company's audited financial statements as of that date.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted as permitted by regulations of
the Securities and Exchange Commission. Certain previously furnished
amounts have been reclassified to conform to presentations made during the
current periods. It is suggested that these interim condensed financial
statements be read in conjunction with the annual audited financial
statements and notes thereto included in the Company's Form 10-K for the
year ended December 31, 1996.
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
balance sheet dates and the reported amounts of revenues and expenses for
the periods presented. Actual amounts may differ from such estimates.
The results of operations for the periods ended September 30, 1997 and 1996
are not necessarily indicative of the operating results anticipated for the
full year.
Certain prior year amounts have been reclassified to conform to the
1997 presentation.
2. STOCK OPTIONS
During the first nine months of 1997, the Company granted 226,650 options
to purchase shares of the Company's common stock at prices of $28.38 to
$37.75 based on quoted market prices at the dates of the grant under the
Company's incentive compensation and automatic grant plans. During the
first nine months of 1997, options to purchase 79,950 shares of common
stock and warrants to purchase 5,000 shares of common stock were exercised.
At September 30, 1997, 956,296 shares are subject to outstanding options,
of which 227,396 options are exercisable. Options to purchase approximately
304,096 shares of common stock are available for future grants under plans.
During the nine months ended September 30, 1997, compensation expense
recognized pursuant to the granting of stock options totaled $26,000 as a
result of amendments to certain options.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128).
The Company is required to adopt SFAS 128 in the fourth quarter of fiscal
1997 and will restate at that time earnings per share (EPS) data for prior
periods to conform with SFAS 128. Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income by the
6
<PAGE>
weighted average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common
stock.
If SFAS 128 had been in effect during the current and prior year period,
basic EPS would have been $0.27 and $0.20 for the quarters ended September
30, 1997 and 1996, respectively, and $0.74 and $0.55 for the nine months
ended September 30, 1997 and 1996, respectively. Diluted EPS under SFAS
128 would not have been significantly different than primary or
fully-diluted EPS currently reported for the periods.
3. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which requires that an entity
report, by major components and as a single total, the change in its
net assets during the period from non-shareholder sources; and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information," which establishes annual and interim reporting standards
for an entity's business segments and related disclosures about its
products, services, geographic areas, and major customers. Adoption of
these statements will not impact the Company's financial position,
results of operations, or cash flows. Both SFAS statements are
effective for fiscal years beginning after December 15, 1997, with
earlier application permitted.
Also see comments in note 2 regarding SFAS No. 128.
7
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN OF
THE RISK FACTORS SET FORTH IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1996.
GENERAL
QuickResponse Services, Inc. is the leading provider of merchandise logistics
solutions throughout the entire retail demand chain. The Company works with its
customers and partners to facilitate and optimize the flow of information, goods
and services throughout the retail industry. The Company's products include: a
centralized product information database (The QRS Catalog); Network Services,
which include electronic data interchange (EDI) and related network services,
QRS EConnect and Internet Services; transportation and logistics services,
including QRS Logistics Management Services; and QRS Inventory Management
Services, which includes sales analysis, replenishment and forecasting service
offerings. In addition to these network centric applications, the Company also
provides consulting services. The Company derives revenues from five principal
and related sources: the transmission of standard business documents over a
network; monthly charges for accessing The QRS Catalog; Inventory Management
Services fees based upon the number of products and retail outlets under
management; Logistics Management Services fees based on the number of loads
tendered; and consulting fees. Network Services pricing is based primarily on
the volume of characters transmitted and the type of network access utilized,
and also incorporates discounts based on volume.
DELAWARE REINCORPORATION
On October 21, 1997, the Company completed its plan to reincorporate in Delaware
(the "Reincorporation") through the merger (the "Merger") of QuickResponse
Services, Inc., a California corporation ("QRS-Cal."), with and into the
Company. As a result of the Merger, the outstanding shares of QRS-Cal. were
automatically converted into shares of the Company.
RESULTS OF OPERATIONS
The Company's revenues increased by 25% to $18.3 million for the third quarter
of 1997, from $14.7 million for the third quarter of 1996. The Company's
revenues increased by 26% to $51.6 million during the first nine months of 1997
from $41.0 million for the same period of 1996. These increases were primarily
attributable to three factors. First, the number of customers increased from 196
retailers and 5,006 vendors and carriers as of September 30, 1996 to 238
retailers and 5,172 vendors and carriers as of September 30, 1997. Second, the
number of catalog trading partnerships increased as a result of the increase in
the number of customers and their trading links with each other. Third,
customers increased the number, type and size of transactions transmitted over
the network, as well as the utilization of The QRS Catalog and Logistics
Management Services. Revenues from other products have not represented a
significant portion of the Company's total revenue during the first nine months
of 1997. However, Inventory Management Services revenue did grow as a result of
the increase in the number of extensions managed from 5.0 million at June 30,
1997 to 8.0 million as of September 30, 1997.
Cost of sales consists primarily of the cost of purchasing network services and
the cost of the Company's data center and technical customer support services.
Cost of sales increased by 20% to $10.5 million for the third quarter of 1997,
from $8.8 million for the third quarter of 1996. Cost of sales increased by 18%
to $29.2 million during the first nine months of 1997, from $24.8 million for
the same period of 1996. The increase was principally due to increases in
purchased network services, reflecting growth in EDI services, and expanded
customer support, technical support groups and data center operations,
reflecting growth in the Company's value-added applications. The gross profit
8
<PAGE>
margin was 43% for the third quarter of 1997 compared to 40% for the third
quarter of 1996. This improved margin is primarily due to network service
margins which were favorably impacted as a result of certain negotiated discount
adjustments, announced and implemented in the fourth quarter of 1996, with the
IBM International Global Network, the Company's primary provider of network
services. Furthermore, the Company experienced increases in higher margin
revenue from The QRS Catalog and increased operating efficiencies in data center
operations, which were partially offset by increased sales of certain lower
margin network services and volume discounts earned by larger customers.
Sales and marketing expenses consist primarily of personnel and
personnel-related costs in the Company's sales and marketing organizations, as
well as the costs of various marketing programs. Sales and marketing expenses
increased 29% to $2.1 million for the third quarter of 1997, from $1.6 million
for the third quarter of 1996. Sales and marketing expenses increased by 33% to
$6.4 million for the first nine months of 1997, compared to $4.8 million for the
same period of 1996. This increase reflects additional sales staff, product
branding activities and incremental trade show activities to support the
increase in the number of customers and the size of the Company's operations.
Product development expenses consist primarily of personnel and equipment costs
related to new product development and upgrade of existing service offerings.
Product development expenses increased by 40% to $1.2 million for the third
quarter of 1997, from $0.9 million for the third quarter of 1996. Product
development expenses increased by 56% to $3.4 million for the first nine months
of 1997, compared to $2.2 million for the same period in 1996. The increase
primarily resulted from additional employees and consultants working on product
development projects. The Company capitalized product development costs of
$387,000 and $34,000 for the third quarters of 1997 and 1996, respectively, and
$605,000 and $172,000 for the first nine months of 1997 and 1996, respectively.
The increase in capitalized product development costs in 1997 is due to
increased product development on products which had reached technological
feasibility. In order to actively compete in the market of EDI applications, the
Company plans to continue to invest in the development of new and existing
software products and technology.
General and administrative expenses consist primarily of the personnel and
related costs of the Company's finance and administrative organizations, as well
as professional fees and other costs, such as directors and officers' liability
insurance. General and administrative expenses increased 26% to $1.2 million for
the third quarter of 1997, compared to $1.0 million for the third quarter of
1996. General and administrative expenses increased by 36% to $3.6 million for
the first nine months of 1997, compared to $2.6 million for the same period in
1996. The increase was primarily due to increased payroll and professional fees
and also includes certain costs associated with hiring a new President and Chief
Executive Officer in February 1997.
Interest income consists primarily of interest earned on cash, cash equivalents
and investment securities. Interest income increased to $523,000 for the third
quarter of 1997, compared to $418,000 for the third quarter of 1996, as a result
of higher invested balances. Interest income was $1.5 million for the first nine
months of 1997 and $1.1 million for the same period in 1996.
Income taxes were $1.5 and $1.1 million for the third quarters of 1997 and 1996,
respectively. Income taxes were $4.2 million for the first nine months of 1997,
compared to $3.1 million for the same period in 1996. The 1997 and 1996 income
tax rates of 40% approximate the combined effective federal and state income tax
rates.
As a result of the foregoing, net earnings increased 32% to $2.3 million for the
third quarter of 1997, compared to $1.7 million for the third quarter of 1996.
Net earnings for the first nine months of 1997 were $6.3 million, compared to
$4.6 million for the same period in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $29.4 million at December 31, 1996
to $42.7 million at September 30, 1997, primarily due to a shift in marketable
securities from long-term to short-term and positive cash flow from operations.
Deferred income tax assets decreased as the Company continued to use tax Net
Operating Losses (NOLs) to defer the Company's cash requirements for tax
payments. The Company expects to have utilized all such NOLs during 1997, and
expects an increase in the
9
<PAGE>
use of cash for payment of taxes thereafter. Cash, cash equivalents and
marketable securities decreased from $34.6 million at December 31, 1996 to $34.0
million at September 30, 1997. Total assets increased from $55.9 million at
December 31, 1996 to $60.6 million at September 30, 1997, while total
liabilities decreased from $12.4 million at December 31, 1996 to $9.3 million at
September 30, 1997.
The decrease of $0.6 million in cash, cash equivalents and marketable securities
from December 31, 1996 to September 30, 1997 resulted primarily from purchase of
property and equipment and an increase in capitalized product development costs,
offset by positive cash flow from operations.
On April 22, 1997, the Company announced that its Board of Directors has
authorized the repurchase from time to time of up to $5 million of its Common
Stock in both open market and block transactions. Shares purchased under this
program will be held in the corporate treasury for future use including employee
stock option grants and the employee stock purchase plan. The Company may
discontinue purchases of its Common Stock at any time that management determines
additional purchases are not warranted. During the third quarter of 1997, the
Company repurchased no shares of common stock. During the nine months ended
September 30, 1997 the Company repurchased a total of 1,300 shares of common
stock for $35,000.
Management believes that the cash resources available at September 30, 1997, and
cash anticipated to be generated from future operations will be sufficient for
the Company to meet its working capital needs, capital expenditures and Common
Stock repurchases for the next year. The Company does not intend to pay cash
dividends with respect to common stock in the foreseeable future.
10
<PAGE>
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 21, 1997 the Company completed the Reincorporation.
The Reincorporation was effected through the merger of QRS-Cal.
with and into the Company. As a result of the Merger, the
outstanding shares of QRS-Cal. were automatically converted into
a like number of shares of the Company. Pursuant to Rule
145(a)(2) of the Securities Act of 1993, as amended (the "Act"),
the issuance of shares of the Company in the Merger was exempt
from the registration requirements of the Act because the sole
purpose of the Merger was to change the Company's domicile solely
within the United States.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2.01 Agreement and Plan of Merger of QuickResponse Delaware, Inc.
and QuickResponse Services, Inc. (incorporated by reference
from Appendix A to the Schedule 14A of the Company filed on
April 29, 1997).
3.01 Certificate of Incorporation of the Company (incorporated by
reference from Appendix B to the Schedule 14A of the Company
filed on April 29, 1997).
3.02 Bylaws of the Company (incorporated by reference from Appendix C
to the Schedule 14A of the Company filed on April 29, 1997).
10.38 Form of Indemnity Agreement (incorporated by reference from Appendix D
to the Schedule 14 A of the Company filed on April 29, 1997).
10.39 Fourth Amendment, dated August 7, 1997, to Lease Agreement between the
Registrant and Marina Westshore Partners, LLC, successor in interest
to Schooner Drive Association, a California Limited Partnership.
10.40 Option Agreement dated August 7, 1997 between the Registrant and
Marina Westshore Partners, LLC.
11.1 Computation of Earnings Per Share - Primary
11.2 Computation of Earnings Per Share - Fully Diluted
11
<PAGE>
B. REPORTS ON FORM 8-K
None
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
QUICKRESPONSE SERVICES, INC.
-----------------------------
(Registrant)
\s\ H. Lynn Hazlett
----------------------------------------
October 30, 1997 H. Lynn Hazlett
President and Chief Executive Officer
\s\ Shawn M. O'Connor
-----------------------------------------
October 30, 1997 Shawn M. O'Connor
Vice President and Chief Financial Officer
(Principal Financial Officer)
13
<PAGE>
FOURTH AMENDMENT TO LEASE
This Fourth Amendment to Lease ("Amendment") is made and entered into as of
August 7, 1997 by and between MARINA WESTSHORE PARTNERS, LLC a California
limited liability company ("Landlord") and QUICKRESPONSE SERVICES, INC., a
California corporation ("Tenant").
RECITALS
A. Landlord's predecessor in interest and Tenant's predecessor in
interest entered into that certain lease captioned "Marina Bay Business Park
Phase I Office Lease" dated April 27, 1990, which lease has been amended by that
certain First Amendment of Lease dated July 1, 1992, that certain Second
Amendment to Lease dated August 20, 1993 and that certain Third Amendment to
Lease dated as of October 8, 1993 (the "Lease").
B. Pursuant to the above-referenced Third Amendment to Lease, the Lease
was bifurcated and now consists of two separate leases, one lease pertaining to
Building C to which Tenant is not a party, and the second lease pertaining to
Buildings A and B, which are the premises leased by Tenant from Landlord.
C. Landlord and Tenant have discussed an extension of the term of the
Lease and an adjustment in the rental rates in conjunction with such extension,
and have reached agreement on modifications to the Lease, as set forth below.
1
<PAGE>
NOW, THEREFORE, for mutual consideration, the receipt and adequacy of which
is hereby acknowledged, Landlord and Tenant hereby amend the Lease as follows:
1. The Basic Lease Information pertaining to Buildings A and B is hereby
deleted in its entirety and the Basic Lease Information attached to this
amendment as Appendix A is inserted in its place, effective as of September 1,
1997.
2. By virtue of the changes to the Basic Lease Information, the Term of
the Lease has been extended to expire on June 30, 2010. Accordingly, Section 25
of the Lease is deleted, it being the intent of Landlord and Tenant that Tenant
shall have no further option to extend the Term.
3. Notwithstanding the provisions of Article Five of the Lease, for
each 12-month period commencing September 1, 1997 through August 31, 2002,
Tenant's obligation to pay Operating Expenses shall not exceed $75,000. If
for any of said five 12-month periods the share of Operating Expenses
allocated to Tenant, based on 49.9% of Operating Expenses, exceeds $75,000,
the amount in excess shall accrue and the aggregate excess amounts shall be
payable by Tenant to Landlord as Additional Charges in 36 equal monthly
payments commencing June 1, 2007.
4. This Amendment may be executed in several counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the same
document.
2
<PAGE>
5. All terms defined in the Lease shall have the same meaning when used
in this Amendment, unless otherwise defined in this Amendment.
6. This Amendment shall be effective as of the date of this Amendment
and, except as amended herein, the Lease shall remain in full force and effect.
IN WITNESS WHEREOF the parties have executed this Amendment as of the day
and year first above written.
QUICKRESPONSE SERVICES, INC.,
a California corporation
By: /s/ SHAWN M. O'CONNOR
--------------------------------
Name: SHAWN M. O'CONNOR
------------------------------
Its: VP & CFO
-------------------------------
MARINA WESTSHORE PARTNERS,
LLC, a California limited liability
Company
By: /s/ Richard R. Poe
--------------------------------
Richard R. Poe
Its Manager
3
<PAGE>
BASIC LEASE INFORMATION
MARINA BAY BUSINESS PARK
PHASE I
OFFICE LEASE
Lease Date: April 27, 1990
Landlord: MARINA WESTSHORE PARTNERS,
a California limited partnership
Address of Landlord: c/o Pinnacle Maritime Corporation
1391 Marina Way South
Richmond, CA 94804
Contact: Richard R. Poe
Telephone: (510) 233-5832
Tenant: QUICKRESPONSE SERVICES, INC.
a California corporation
Address of Tenant: 1400 Marina Way South
Richmond, California 94804
Contact: Shawn O'Connor
Telephone: (510) 215-3802
Premises: All of Building A and B of Marina Bay Business
Park, Phase I, Richmond, California, as more
fully set forth on Exhibit A herein.
Rentable Area of the Premises: 63,360 square feet as to Building A and B.
Term: Twenty (20) years
Commencement Date: July 1, 1990
Expiration Date: June 30, 2010
Rent Commencement Date: June 15, 1991
Security Deposit: $135,200
Fixed Rent (monthly):
4
<PAGE>
Period of Time Amount
- ------------- ------
July 1, 1990-
June 15, 1991 None
June 16, 1991-
June 30, 1995 $83,952 per month
July 1, 1995-
August 30, 1997 $103,752 per month
September 1, 1997-
June 30, 1998 $88,704 per month
July 1, 1998-
June 30, 2000 $95,040 per month
July 1, 2000-
June 30, 2010 $101,376 per month
Broker: None
Exhibits: Exhibit A Floor Plan
Exhibit B Legal Description
Exhibit C Rules and Regulations
NOTE: This Basic Lease Information is provided solely as a convenience to
summarize certain Lease provisions and is not intended as a complete summary of
all material terms and conditions of the Lease. In the event of any
inconsistency between any formation shown on this Basic Lease Information and
the provisions of the Lease, the provisions of the Lease govern.
5
<PAGE>
OPTION AGREEMENT
This Option Agreement (this "Agreement") is made and entered into as of
August 7, 1997 by and between MARINA WESTSHORE PARTNERS, LLC, a California
limited liability company ("MWP") and QUICKRESPONSE SERVICES, INC., a California
corporation ("QRS").
RECITALS
A. MWP's predecessor in interest and QRS's predecessor in interest
entered into that certain lease captioned "Marina Bay Business Park Phase I
Office Lease" dated April 27, 1990, which lease has been amended by that certain
First Amendment of Lease dated July 1, 1992, that certain Second Amendment to
Lease dated August 20, 1993 and that certain Third Amendment to Lease dated as
of October 8, 1993 (as amended, the "Existing Lease").
B. Concurrently herewith, MWP and QRS are entering a Fourth Amendment to
Lease (the "Fourth Amendment"), pursuant to which the parties are, among other
things, amending the Existing Lease to extend the term of the Existing Lease and
adjust the amount of rent payable thereunder as provided therein. The Existing
lease, as amended by the Fourth Amendment, is hereinafter referred to as the
"Lease."
C. To induce QRS to enter into the Fourth Amendment, MWP has agreed to
grant to QRS an option to lease additional space on a build to suit basis, as
set forth below.
1
<PAGE>
NOW, THEREFORE, for mutual consideration, the receipt and adequacy of which
are hereby acknowledged, QRS and MWP agree as follows:
1. GRANT OF OPTION. MWP hereby grants QRS an option (the "Option") to
lease all of the rentable space (the "Option Space") in an office building (the
"Building") to be constructed by MWP on property adjacent to the buildings
leased to QRS under the Lease (in the approximate location shown on EXHIBIT A
attached hereto) on the terms set forth in Section 2 below. The Building shall
consist of not less than 75,000 rentable square feet of space and not more than
100,000 rentable square feet of space, and shall be substantially similar in
design to the buildings leased to QRS under the Lease. QRS shall have the right
to approve the plans and specifications for the Building.
2. TERMS OF LEASE. The terms of the lease (the "New Lease") to be entered
into between QRS and MWP for the Option Space are as follows:
a. TERM. The term of the New Lease shall commence on (the
"Commencement Date") MWP's completion of the Building (as evidenced by the
issuance of a certificate of occupancy for the Building) and delivery of
possession of the Option Space to QRS and end on June 30, 2010. MWP shall notify
QRS in writing thirty (30) days' prior to delivering possession of the Option
Space to QRS.
b. DELIVERY OF POSSESSION. MWP shall complete the construction of
the Building and Tenant Improvements (defined below) and deliver possession of
the Option Space to QRS within twelve (12) months after QRS' exercise of its
Option
2
<PAGE>
and approval of Tenant's plans and specifications for the Tenant Improvements
(which approval shall not be unreasonably withheld, conditioned or delayed).
c. BASE RENT. The monthly base rent shall be as follows:
Period Monthly Base Rent
------ -----------------
July 1, 1988- One and 50/100 Dollars
June 30, 2000 ($1.50) per rsf.
July 1, 2000 One and 60/100 Dollars
June 30, 2010 ($1.60) per rsf.
d. ADDITIONAL RENT. MWP shall lease the Option Space to QRS on a
triple net basis, with no expense stop.
e. TI ALLOWANCE. MWP shall provide QRS with a tenant improvement
allowance (the "Tenant Improvement Allowance") in the amount of Twenty-Five
Dollars ($25.00) per rentable square foot to be used to construct certain tenant
improvements (the "Tenant Improvements") in the Option Space. QRS shall pay for
the cost of constructing the Tenant Improvements to the extent the cost of
constructing the Tenant Improvements exceeds the Tenant Improvement Allowance
(not to exceed the estimate of the total amount of constructing the Tenant
Improvements approved by QRS), which such amount is to be paid by QRS to MWP
prior to commencement of the construction of the Tenant Improvements.
f. ROUTING. MWP will finance the cost of installing QRS'
installation of a dual-routing capability from Pacific Bell from the Option
Space to the I-580 corridor not to exceed Five Dollars ($5.00) per rentable
square foot of space
3
<PAGE>
in the Option Space, with such amount to be included in the rent payable by QRS
to MWP under the New Lease (amortized over the term of the New Lease at MWP's
actual cost of funds).
g. SECURITY DEPOSIT. One month's Base Rent, to be paid upon QRS'
exercise of the Option.
h. OTHER TERMS. All other terms and conditions of the New Lease
shall be as set forth in the Lease.
3. TERM OF OPTION. The Option shall commence on September 1, 1997 and
terminate if not exercised on or before September 1, 1999.
4. MANNER OF EXERCISE. Provided QRS is not in default under the Lease
beyond any applicable cure period, QRS may exercise the Option by written notice
of exercise delivered to MWP on or before 5:00 p.m. on September 1, 1999.
5. FAILURE TO CONSTRUCT BUILDING. If for any reason MWP fails to complete
construction of the Building and Tenant Improvements and deliver possession of
the Premises to QRS within twelve (12) months after QRS' exercise of its Option,
QRS shall have the right to terminate the New Lease upon written notice to MWP.
6. ASSIGNABILITY OF OPTION. The Option is not assignable; provided
however the Option may be assigned to a permitted assignee of the existing Lease
if assigned concurrently with an assignment of such Lease to such permitted
assignee.
4
<PAGE>
7. BROKERS. QRS and MWP each represent to the other that it is not
obligated to pay any real estate brokerage or other commission or fee in
connection with the Option or the lease contemplated by this Agreement. Each
party shall indemnify and hold the other free and harmless from and against all
claims which may be instituted by any broker, agent, finder, licensed or
otherwise, claiming through, under by reason of the conduct of the indemnifying
party in connection with this transaction.
8. NOTICES. Any notice to be given hereunder shall be in writing and
shall be given either by personal delivery (including nationally recognized
express or courier service), or by registered or certified mail, with return
receipt requested, postage prepaid and addressed as follows or to such other
address as may be specified by a party. Delivery shall be effective upon actual
receipt.
To MWP: Marina Westshore Partners
c/o Penterra Company
1391 Marina Way South
Richmond, CA 94804
Attention: Richard R. Poe
To QRS: QuickResponse Services
1400 Marina Way South
Richmond, CA 94804
Attention: Shawn O'Connor
9. ENTIRE AGREEMENT. This Agreement contains all of the covenants,
conditions and agreements between the parties and shall supersede all prior
correspondence, agreements and understandings, both oral and written.
10. ATTORNEYS' FEES. Should either party employ attorneys to enforce any
of the provisions hereof or to protect its interest in any manner arising under
this
5
<PAGE>
Agreement, or to recover damages for breach of this Agreement, or to enforce any
judgment relating to this Agreement and the transaction contemplated hereby, the
prevailing party shall be entitled to reasonable attorneys' fees and court
costs.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF the parties have executed this Option as of the day and
year first above written.
QUICKRESPONSE SERVICES, INC.,
a California corporation
By: /s/Shawn M. O'Connor
----------------------------------
Name: SHAWN M. O'CONNOR
---------------------------------
Its: VP & CFO
---------------------------------
MARINA WESTSHORE PARTNERS, LLC
a California limited liability company
By /s/Richard R. Poe
-----------------------------------
Richard R. Poe
Its Manager
6
<PAGE>
EXHIBIT 11.1
QUICKRESPONSE SERVICES, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
PRIMARY SHARES
Weighted average common shares outstanding 8,488,553 8,365,393 8,450,616 8,335,330
Common equivalent shares outstanding 273,794 253,510 261,531 251,515
--------- --------- --------- ---------
8,762,347 8,618,903 8,712,147 8,586,845
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings $2,254 $1,713 $6,274 $4,595
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per common and common equivalent share $0.26 $0.20 $0.72 $0.54
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
14
<PAGE>
EXHIBIT 11.2
QUICKRESPONSE SERVICES, INC.
COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
September 30, September 30,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FULLY-DILUTED SHARES
Weighted average common shares outstanding 8,488,553 8,356,393 8,450,616 8,335,330
Common equivalent shares outstanding 273,836 291,806 282,598 303,850
--------- --------- --------- ---------
8,762,389 8,648,199 8,733,214 8,639,180
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings $2,254 $1,713 $6,274 $4,595
--------- --------- --------- ---------
--------- --------- --------- ---------
Earnings per common and common equivalent share: $0.26 $0.20 $0.72 $0.53
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,239
<SECURITIES> 21,730
<RECEIVABLES> 13,141
<ALLOWANCES> (618)
<INVENTORY> 0
<CURRENT-ASSETS> 49,941
<PP&E> 10,654
<DEPRECIATION> (3,556)
<TOTAL-ASSETS> 60,637
<CURRENT-LIABILITIES> 7,232
<BONDS> 0
0
0
<COMMON> 62,944
<OTHER-SE> (11,618)
<TOTAL-LIABILITY-AND-EQUITY> 60,637
<SALES> 0
<TOTAL-REVENUES> 18,253
<CGS> 0
<TOTAL-COSTS> 10,494
<OTHER-EXPENSES> 4,526
<LOSS-PROVISION> 149
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,756
<INCOME-TAX> 1,502
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,254
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
