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 June 30, 1996
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: 0-26544
PREMENOS TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0367912
(State of incorporation) (IRS Employer
Identification No.)
1000 Burnett Avenue
Concord, California 94520
(Address of principal executive offices)
510-688-2700
(Registrant's telephone number, including area code)
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.
Yes [ X ] No [ ]
The number of shares outstanding of the registrant's common stock as of
July 31, 1996 was 11,086,878.
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PREMENOS TECHNOLOGY CORP.
INDEX TO JUNE 30, 1996 FORM 10-Q
<CAPTION>
Page
----
PART I - Financial Information
Item 1 Financial Statements (unaudited)
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three
and six month periods ended June 30, 1996 and 1995 5
Condensed Consolidated Statements of Cash Flows for the
six month periods ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
PART II - Other Information
Items 1, 2, 3, 4, 5 and 6 12
SIGNATURE 13
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<TABLE>
PART I
Item 1
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
( in thousands)
<CAPTION>
June 30, 1996 December 31,1995
( unaudited )
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $60,141 $11,495
Short-term investments - 51,722
Trade accounts receivable, net 6,826 7,182
Income taxes recoverable 1,091 80
Prepaid expenses and other assets 1,508 735
Restricted cash 50 50
Deferred income taxes 1,376 1,376
----- -----
Total current assets 70,992 72,640
Property and equipment, net 5,208 3,526
Capitalized software development costs, net 4,459 3,054
Other long-term assets 595 243
------ ------
Total assets $81,254 $79,463
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $4,090 $4,698
Deferred revenue 6,109 5,658
Current portion of long-term debt 617 681
------ ------
Total current liabilities 10,816 11,037
Long-term debt 519 769
Deferred revenue 494 634
Deferred income taxes 1,520 1,319
------ ------
Total liabilities 13,349 13,759
------ ------
Minority interest in consolidated subsidiary 19 18
------ ------
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Stockholders' equity:
Common stock 109 106
Additional paid-in capital 65,186 62,006
Deferred compensation (103) (137)
Retained earnings 2,694 3,711
------ ------
Total stockholders' equity 67,886 65,686
------ ------
Total liabilities and stockholders' equity $81,254 $79,463
======= =======
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
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<TABLE>
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
( unaudited )
( in thousands, except per share data )
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues:
<S> <C> <C> <C> <C>
Software licenses $5,179 $4,107 $9,103 $6,679
Services 2,830 1,830 5,460 3,646
----- ----- ------ ------
Total revenues 8,009 5,937 14,563 10,325
----- ----- ------ ------
Cost of revenues:
Software licenses 754 793 1,461 1,429
Services 1,210 817 2,360 1,551
----- ----- ----- -----
Total cost of revenues 1,964 1,610 3,821 2,980
----- ----- ----- -----
Gross margin 6,045 4,327 10,742 7,345
----- ----- ------ -----
Operating expenses:
Product development 2,046 1,644 3,843 3,064
Sales and marketing 2,705 2,023 5,054 3,762
General and administrative 914 555 1,760 953
Acquisition-related costs 2,216 - 2,216 -
----- ----- ------ -----
Total operating expenses 7,881 4,222 12,873 7,779
----- ----- ------ -----
Income (loss) from operations (1,836) 105 (2,131) (434)
Interest income 764 16 1,565 25
Interest expense (50) (42) (94) (86)
----- ----- ----- -----
Income (loss) before provision
(credit) for income taxes and
minority interest (1,122) 79 (660) (495)
Provision (credit) for income taxes 456 (102) 641 (334)
Minority interest 1 27 (1) (23)
----- ----- ------ ------
Net income (loss) $(1,579) $154 $(1,300) $(138)
======= ===== ======== =====
Net income (loss) per share $(0.15) $0.02 $(0.12) $(0.02)
======= ===== ======== ======
<FN>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
</TABLE>
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<TABLE>
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
( unaudited )
( in thousands )
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net cash provided by operating activities $1,628 $1,401
------ ------
Cash flows from investing activities:
Payment for acquisition of subsidiary, net (1,386) -
Proceeds from sale of short-term investments 51,855 -
Capitalized software development costs (1,427) (884)
Acquisition of property and equipment (2,397) (654)
Proceeds from disposal of property and equipment - 14
------ ------
Net cash provided by (used in)
investing activities 46,645 (1,524)
------ ------
Cash flows from financing activities:
Principal payments on long-term debt (314) (330)
Proceeds from bank borrowings - 200
Deferred public offering costs - (222)
Proceeds from exercise of options 687 -
------ ------
Net cash used in (provided by)
financing activities 373 (352)
------ ------
Increase (decrease) in cash
and cash equivalents 48,646 (475)
Cash and cash equivalents, beginning of period 11,495 3,167
------ ------
Cash and cash equivalents, end of period $60,141 $2,692
======= ======
<FN>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
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PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
( unaudited )
Note 1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared on the same basis as the audited annual consolidated
financial statements and, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the Company's financial position, results of
operations, and cash flows. The results of operations for the three and
six month periods ended June 30, 1996 are not necessarily indicative of
the results to be expected for the full year. Certain information and
footnote disclosures normally contained in financial statements prepared
in accordance with generally accepted accounting principles have been
condensed or omitted. These condensed consolidated financial statements
should be read in conjunction with the annual Consolidated Financial
Statements contained in the Company's December 31, 1995 annual report on
Form 10-K.
Note 2. Business Combination
On May 14, 1996, the Company acquired all of the common stock of Don
Valley Technology Corporation ("Don Valley"), a Canadian corporation
based in Toronto, Canada, for 57,657 shares of newly issued common stock
and approximately $1.1 million in cash in a transaction accounted for as
a purchase. Accordingly, the results of operations of Don Valley and
the fair values of the acquired assets and liabilities were included in
the Company's financial statements as of the acquisition date.
Approximately $2.0 million of the purchase price was allocated to in-
process product development and, accordingly, was expensed in the
quarter ended June 30, 1996. Additionally, $750,000 was allocated to
capitalized software costs and goodwill. A proforma summary for this
purchase acquisition is not presented as the historical operations are
not material to the Company's consolidated operations and financial
position.
Note 3. Stock and Stock Option Exchange
During the quarter ended June 30, 1996, the Company granted options to
acquire 9,006 shares of Premenos Technology Corp. common stock in
exchange for options to acquire 6,848 shares of Premenos Corp. common
stock. Additionally, the Company issued 920 shares of Premenos
Technology Corp. common stock in exchange for 700 shares of Premenos
Corp. common stock. This transaction resulted in a charge of $232,000
for the quarter ended June 30, 1996.
Note 4. Income Taxes
The Company recorded income tax expense of $456,000 for the quarter
ended June 30, 1996, primarily as a result of the nondeductibility for
tax purposes of the acquisition-related costs of $2,216,000. As a
result of employee stock option exercises during the quarter ended June
30, 1996, the Company recognized a $1.5 million tax benefit. This
benefit was credited directly to shareholders equity and, accordingly,
was not reflected in the income tax provision.
Note 5. Subsequent Event
On July 19, 1996, the Company acquired Prime Factors, Inc. ("Prime
Factors"). Under the terms of the agreement, the Company purchased
Prime Factors for 46,931 shares of newly-issued common stock and
approximately $3.0 million in cash. The transaction will be accounted
for as a purchase and, accordingly, the results of operations of Prime
Factors will be reflected in the Company's consolidated financial
statements from the date of acquisition.
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Item 2
PREMENOS TECHNOLOGY CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors which have affected the Company's operating results
during the periods included in the accompanying condensed consolidated
financial statements.
RESULTS OF OPERATIONS
Revenues
Total revenues for the second quarter of 1996 were $8.0 million, up from
$5.9 million in the same quarter of 1995, representing an increase of
34.9%. Total revenues in the first six months of 1996 were $14.6
million, an increase of 41.0% over the same six month period for 1995.
Software Licenses. Revenues from license fees and royalties increased
to $5.2 million in the second quarter of 1996 from $4.1 million in the
second quarter of 1995, representing an increase of 26.1%. For the
first six months of 1996 compared to the same period for 1995, license
fees and royalties revenues grew to $9.1 million from $6.7 million,
representing an increase of 36.3%. These increases were primarily
attributable to expansion of the Company's sales and marketing
organizations and the increased market acceptance of EDI technology and
the Company's products.
Services. Revenues from services were $2.8 million and $1.8 million for
the second quarters of 1996 and 1995, respectively, representing an
increase of 54.6%. Service revenues include maintenance revenues of
$2.4 million and $1.6 million for the second quarters of 1996 and 1995,
respectively, representing an increase of 49.9%. For the first six
months of 1996 and 1995, revenues from services were $5.5 million and
$3.6 million, respectively, representing an increase of 49.8%. Service
revenues include maintenance revenues of $4.6 million and $3.1 million
for the first six months of 1996 and 1995, respectively, representing
an increase of 47.3%. Generally, increases in licensing activity have
resulted in increases in maintenance-related service revenues.
Gross Margin
Gross margins for the second quarters of 1996 and 1995 were $6.0 million
and $4.3 million representing 75.5% and 72.9% of total revenues,
respectively. For the first six months of 1996 and 1995, gross margins
were $10.7 million and $7.3 million, or 73.8% and 71.1% of total
revenues, respectively.
Gross margins from licenses for the second quarters of 1996 and 1995
were $4.4 million and $3.3 million representing 85.4% and 80.7% of
software license revenues, respectively. For the first six months of
1996 and 1995, gross margins from licenses were $7.6 million and $5.3
million, or 84.0% and 78.6% of software license revenues, respectively
These increases are primarily due to reduced costs resulting from the
renegotiation of a third party agreement.
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Gross margins from services for the second quarters of 1996 and 1995
were $1.6 million and $1.0 million representing 57.2% and 55.4% of
service revenues, respectively. For the first six months of 1996 and
1995, gross margins from services were $3.1 million and $2.1 million,
or 56.8% and 57.5% of service revenues, respectively.
Operating Expenses
Product Development. Product development expenditures consist primarily
of personnel and equipment costs required to conduct the Company's
research and development efforts, including project engineers, product
managers, product documentation, internal testing and development,
standards and quality assurance. Product development expenses, net of
capitalized software development expenditures, were $2.0 million and
$1.6 million for the second quarters of 1996 and 1995 representing
25.5% and 27.7% of total revenues, respectively. For the first six
months of 1996 and 1995 product development expenses, net of
capitalized software development expenditures, were $3.8 million and
$3.1 million, representing 26.4% and 29.7% of total revenues,
respectively. The Company capitalized software development
expenditures of $758,000 and $434,000 in the second quarters of 1996
and 1995, respectively, in accordance with Statement of Financial
Accounting Standards No. 86. The amounts capitalized represented 27.0%
and 20.9% of gross development expenditures of $2.8 million and $2.1
million for the second quarters of 1996 and 1995, respectively. For
the first six months of 1996 and 1995, the Company capitalized
$1,427,000 and $884,000, or 27.1% and 22.4% of gross development
expenditures of $5.3 million and $4.0 million, respectively. The
Company believes that a continued commitment to product development
will be necessary for the Company to remain competitive. Accordingly,
the Company intends to continue to expend substantial resources on
product development.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions for sales and marketing personnel and outside
marketing and promotional expenses. Sales and marketing expenses for
the second quarters of 1996 and 1995 were $2.7 million and $2.0 million
representing 33.8% and 34.1% of total revenues, respectively. For the
first six months of 1996 and 1995, sales and marketing expenses were
$5.1 million and $3.8 million representing 34.7% and 36.4% of total
revenues, respectively.
General and Administrative. General and administrative expenses for the
second quarters of 1996 and 1995 were $0.9 million and $0.6 million
representing 11.4% and 9.3% of total revenues, respectively. For the
first six months of 1996 and 1995, general and administrative expenses
were $1.8 million and $1.0 million representing 12.1% and 9.2% of total
revenues, respectively. These increases are due to costs of supporting
the Company's growth, requirements related to being a publicly traded
company and increased mergers and acquisitions activity.
Acquisition-Related Costs
Included in acquisition-related costs for the quarter ended June 30,
1996 were charges for purchased in-process product development arising
from the acquisition of Don Valley Technology Corporation (see Note 2
to Condensed Consolidated Financial Statements) and costs related to
the exchange of Premenos Corp. stock options and stock (see Note 3 to
Condensed Consolidated Financial Statements).
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Interest Income and Interest Expense
Net interest income (expense) for the second quarters of 1996 and 1995
were $714,000 and $(26,000), or 8.9% and (0.4)% of total revenues,
respectively. For the first six months of 1996 and 1995, net interest
income (expense) was $1,471,000 and $(61,000), or 10.1% and (0.6)% of
total revenues, respectively. Interest earned on the proceeds from the
Company's initial public offering of stock accounts for the change
between the periods.
Provision (Credit) for Income Taxes
The Company's provision for income taxes for the three and six month
periods ended June 30, 1996 were $456,000 and $641,000 representing
effective income tax rates of 41.2% and 41.7%, respectively, excluding
the non-deductible acquisition-related costs. The credit for both
periods in 1995 relate primarily to the elimination of the valuation
allowance related to deferred tax assets.
Minority Interest
Minority interest of $1,000 and $27,000 for the second quarters ended
June 30, 1996 and June 30, 1995, respectively, represents the minority
stockholders' proportionate share of the net loss of the Company's
subsidiary, Premenos Corp. For the first six months of 1996 and 1995,
the minority shareholders' proportionate share of reported net losses
were $1,000 and $23,000, respectively.
Net Income (Loss)
Net income (loss) for the second quarters of 1996 and 1995 were
$(1,579,000) and $154,000, representing (19.7)% and 2.6% of total
revenues, respectively. Excluding the acquisition-related costs, net
income for the second quarter of 1996 would have been $637,000, or
$0.05 per share. For the first six months of 1996 and 1995, the net
losses were $1,300,000 and $138,000, representing 8.9% and 1.3% of
total revenues, respectively. Excluding the acquisition-related costs,
net income for the first six months of 1996 would have been $916,000,
or $0.08 per share.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents were $60.1 million at June 30,
1996, which collectively represented approximately 74% of total assets.
Cash flow provided by operating activities was $1.6 million and $1.4
million for the six months ended June 30, 1996 and 1995, respectively.
Cash provided by operating activities resulted from depreciation,
amortization and other non-cash charges, reduced by net losses and by
investments in the Company's working capital.
Cash provided by (used in) investing activities was $46.6 million and
$(1.5) million for the six months ended June 30, 1996 and 1995,
respectively. Cash used in investing activities for both periods
includes the acquisition of equipment and the capitalization of
software development costs. In addition, for the six months ended June
30, 1996, cash provided by (used in) investing activities included cash
paid of $1.4 million to acquire Don Valley Technology and cash received
of $51.9 million from the sale of short-term investments. Cash used in
(provided by) financing activities was $0.4 million and $(0.4) million
for the six months ended June 30, 1996 and 1995, respectively. Cash
used in financing activities primarily consist of capital lease payments
and repayments of bank borrowings. Also included in cash provided by
financing activities for the six months ended June 30, 1996 are proceeds
of $0.7 million from the exercise of stock options.
The Company's principal commitments consist of leases on its office
facilities and obligations under its bank credit facility and capital
leases. On July 19, 1996, the Company acquired Prime Factors, Inc.
Under the terms of the agreement, the Company purchased Prime Factors,
Inc. for 46,931 shares of newly-issued common stock and approximately
$3.0 million in cash.
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The Company believes that its current cash balances, primarily resulting
from the net proceeds from the sale of common stock from its initial
public offering in 1995 and cash flow from operations, will be
sufficient to meet its working capital and capital expenditure
requirements through the foreseeable future.
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Part II
PREMENOS TECHNOLOGY CORP.
Other Information
Items 1, 2, 3, and 4
The above items have been omitted as inapplicable.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 - Statement of Computation of Earnings Per Common Share
27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1996.
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PREMENOS TECHNOLOGY CORP.
SIGNATURE
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.
PREMENOS TECHNOLOGY CORP.
By:
/s/ H. Ward Wolff
- ---------------------------------------------
H. Ward Wolff
Vice President of Finance and Administration
(Principal Financial and Accounting Officer)
Date: August 14, 1996
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EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Weighted average number
of common shares outstanding 10,789,014 5,851,749 10,684,064 5,851,749
Shares issuable pursuant to
warrants and employee stock
option plan, less shares
assumed repurchased at the
average fair value during the
period (1)
-- 1,131,123 -- --
issuable pursuant to warrants
and stock options issued during
the 12 month period prior to the
filing of the initial public
offering registration statement,
less shares assumed repurchased
at the offering price of $18
per share -- 142,063 -- 142,063
Effect of August 1995 exchange
offer-additional common shares
outstanding -- 967,564 -- --
---------- --------- ---------- ---------
Number of shares for
computation of earnings
per share 10,789,014 8,092,499 10,684,064 6,961,376
========== ========= ========== =========
Net income (loss) $(1,579,000) $154,000 $(1,300,000) $(138,000)
Minority interest (2) -- 27,000 -- (23,000)
----------- --------- ----------- ---------
Net income (loss) for
computation of net income
(loss) per share $(1,579,000) $ 181,000 $(1,300,000) (161,000)
=========== ========= ========== =========
Net income (loss) per
share (3) $ (0.15) $ 0.02 $ (0.12) $ (0.02)
========= ========= ======== ========
<FN>
(1) Excluded in loss periods as impact would be anti-dilutive.
(2) To adjust net income (loss) for minority interest related to the minority
shares exchanged.
(3) There is no difference between primary and fully diluted net income
(loss) per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary financial information extracted from Form
10Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 60,191
<SECURITIES> 0
<RECEIVABLES> 6,826
<ALLOWANCES> 315
<INVENTORY> 0
<CURRENT-ASSETS> 70,992
<PP&E> 6,529
<DEPRECIATION> 2,070
<TOTAL-ASSETS> 81,254
<CURRENT-LIABILITIES> 10,816
<BONDS> 0
0
0
<COMMON> 109
<OTHER-SE> 67,777
<TOTAL-LIABILITY-AND-EQUITY> 81,254
<SALES> 14,563
<TOTAL-REVENUES> 14,563
<CGS> 3,821
<TOTAL-COSTS> 10,657
<OTHER-EXPENSES> 2,216
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94
<INCOME-PRETAX> (660)
<INCOME-TAX> 641
<INCOME-CONTINUING> (1,300)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,300)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
