-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IGKqGBTY2w9qNS4/oeLbQbarvF7Qw/YOfklWOStel8AJXbo3dLFdhiGFQSesGDiR omALsQ2OW8EI2kdqpgCbdQ== 0000724910-96-000008.txt : 19960620 0000724910-96-000008.hdr.sgml : 19960620 ACCESSION NUMBER: 0000724910-96-000008 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960619 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIS CORP CENTRAL INDEX KEY: 0000724910 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 411424202 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-12196 FILM NUMBER: 96582721 BUSINESS ADDRESS: STREET 1: 15301 HIGHWAY 55 WEST CITY: PLYMOUTH STATE: MN ZIP: 55447 BUSINESS PHONE: 6125501999 MAIL ADDRESS: STREET 1: 15301 HIGHWAY 55 WEST CITY: PLYMOUTH STATE: MN ZIP: 55447 10KSB 1 SECURITIES AND EXCHANGE COMMISSION Washington D. C. 20549 FORM 10-KSB ( X ) ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURTIES EXCHANGE ACT OF 1934 (Fee required) For the fiscal year ended March 31, 1996 ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (No fee required) For the transition period form ____________ to _____________ Commision file number 0-12196 PREMIS CORPORATION Minnesota 41-1424202 (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation of organization) 15301 Highway 55 West, Plymouth, MINNESOTA 55447 (Address of principal executive offices) Issurer's telephone number, including area code; (612) 550-1999 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock, $.01 par value (Title of class) State the aggregate market value of the voting stock held by non-affiliates: ($5,244,498 using the average of bid and asked prices on June 12, 1996 As of June 12, 1996, ther were outstanding: 2,609,444 shares of Common Stock 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 . Indicate by check mark if disclosure of delinquent filer pursuant to item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporatioed by reference in Part III of this Form 10-KSB or any amendment to the Form 10-KSB ( X ). Issurer's Revenue for the most recent fiscal year: $5,902,161 Definitive Proxy Statement for Annual Meeting on July 17, 1996, which will be filed with the Securities and Exchange Commission within 120 days of the end of the registrant's fiscal year, are incorporated by reference in Part III of this report. PART I Item 1. Description of Business (a) General development of business: PREMIS Corporation was incorporated as a Minnesota Corporation in April 1982 to design, develop, market and support integrated turnkey computer systems based on the Company's proprietary applications software. The Company's systems are designed for use by medium and large businesses, which are in need of multi-user systems for department or enterprise wide management. Our systems have been purchased by Food Broker representatives of food processors, manufacturers and distributors of food products, multi-store chain retailers and the governmental entites. (b) Financial information by industry segment: Net sales, operating income and identifiable assets of the Registrant's integrated turnkey systems business constitute 100% of the Company's Operations and therefore segment information is not applicable. With the exception of portions of the IRIS product line, the application software sold by the Company is generally developed by the Company. The Company represents only a few other software developers at this time and these products do not comprise more than 5% of its revenues. (c) Narrative description of business: Prior to April of 1994 all of the registrant's sales were to manufacturers, brokers, and distributors of food and related products in the United States. In April 1994 the registrant purchased exclusive software license and distribution rights to the IRIS product from Commercial Systems Corporation of Knoxville, Tennessee. The IRIS product is a management information system for multi-store retail chains. These exclusive rights were purchased with the intent to grow and expand the business for the IRIS product line. See NOTE 7 of the financial statements for further information. The Company's products generally consist of software designed and developed by the Company and hardware which is produced by others. The Company's software had been designed and programmed to operate on a wide variety of UNIX based computer hardware. Recent sales have been trending toward larger multi-processor UNIX based systems. The Company's main products are the IRIS, ADVANTAGE and RETAIN systems. These systems consist of standardized and optional applications software developed by the Company and often combined with computer hardware. The Computer Hardware is manufactured by various suppliers of hardware which offer UNIX operating systems. The Company purchases the hardware elements from manufacturers and distributors at prices that allow the Company to profit from the sale. The company has structured its pricing to derive much of its gross margin from its software products, which reduces its reliance on highly competitive hardware sales. The IRIS System provides the agressive retailer with information management and control both within the store and at headquarters. This product is directed at integrated point of sale and inventory management for mid-sized companies with multiple sales outlets. Elements of this system control the point of sale transaction, store ordering, receiving and inventory, while the headquarters portion provides executive reporting, central buying and merchandising. The IRIS product is targeted to the hardgoods retailers in the specialty store segment of the market. Customers using a variety of retail formats have purchased the IRIS system. This system was develped in the late 1980's and is written in the "C" programming language. Prices of IRIS Central System have ranged from $10,000 to $100,000 depending upon the software options chosen and whether hardware was included. Individual store configurations will range in price from $8,000 to $80,000, depending on the number of registers and whether hardware is included. Some of the current customers are; Truck Stops of America, Marriott Hotels, Paper Warehouse, Springs Industries, and the U.S. Postal Service. Sales of IRIS systems to the U. S. Postal Service have been for a postal concept called the "Store of the Future". Postal stores designated as "Store of the Future" have been remodeled or are new construction which includes an area for retail display of postal products. A kiosk with a point of sale register is placed within the retail display area to allow for faster service. According to a Business Week article in February 1996 the Postal Service is experiencing higher sales with these store formats. To support these concept stores Premis has provided a centralized inventory control system at the Postal Service administrative headquarters in Virginia. In addition Premis, is one of two suppliers installing point of sale registers and support systems in these new postal stores. The U. S. Postal Service has a larger plan to replace all point of sales registers in the Postal Service under the project name POS1. This project has been underway for some time and is anticipated to be awarded later this year for major installs in 1997 and beyond. The Company expects that a good portion of its future revenues from "Store of the Future" will be replaced by POS1. The Company has submitted bids to participate in the installation and training for the POS1 project and expects that its experience with "Store of the Future" will have an influence on those bids. If the POS1 installation schedule is delayed the Company expects that its revenues from "Store of the Future" installations will be extended. The ADVANTAGE System is designed to assist food brokers with the day to day management of their business. It controls orders and commissions and reports on sales performance of sales people, product lines, and customers. It is integrated with optional financial reporting systems for accounts receivable, accounts payable, and general ledger. The ADVANTAGE System also has communications capabilities to receive and send Electronic Data Interchange (EDI) which is computer-to-computer transmission of sales orders, confirmations, promotions, price changes, invoices, etc. between our client and their customers and manufacturers. The ADVANTAGE System was introduced during fiscal 1992 after a two year development program. This system contains the latest techniques in Client/Server relational database, variable overlapping windows, and pop-up or pull-down menus. It was written in the "C" programming language with the use of object oriented techniques. The prices of ADVANTAGE Systems have ranged from $7,900 to $215,000 depending upon the software options chosen and whether hardware was included. The RETAIN Retail Item Tracking System was introduced in 1985. This computer system, which includes both hardware and software elements, is designed to assist food brokers, manufacturers' representatives and manufacturers to obtain and analyze highly valued information concerning the retail distribution of their products. The RETAIN System utilizes optional handheld data entry units and portable Pen-Based systems for data collection and transmission. The RETAIN System is priced between $14,000 to $50,000 depending on the options selected by the customer. The RETAIN System may also be purchased as an option to the ADVANTAGE System. When sold as an option to the ADVANTAGE System, the RETAIN System selling price would range from $10,000 to $30,000 plus optional handheld units. The Registrant's business is not seasonal, however, installations of IRIS systems are lower during the December Holiday season. The Company has three basic types of competitors. First, there are other companies that have designed and developed a system which operates on a specific computer and is sold as a complete turnkey package. Second, there are systems developers that have designed a generalized system and have made that system available through a number of computer hardware manufacturers. Third, there are custom software manufacturers which design and develop software to meet the needs of a specific customer. The Company believes the third competitor is only viable where a customer is unaware that complete packages, such as the IRIS and ADVANTAGE Systems, are already on the market. The cost of developing a system for a specific customer is many times more costly and inherently more risk intensive than purchasing an already completed system. The first and second types are viable competitors of the Company. The Company has chosen to compete with the first and second types by offering its products through its own marketing and sales force. In the Company's view, its strongest competitors are those that have designed, developed and are prepared to install a computer system themselves. They are the most knowledgeable about the customer's business and the capabilities of their own product. The Company believes that it has several major competitors that have sufficient installations and resources to continue to generate substantial sales. The Company is not aware of any major computer manufacturer presently offering products which are competitive with its food distribution systems. Manufacturers view vertical market software as assets to their product marketing. The Company has been encouraged by manufacturers to remarket their hardware, and has established arrangements to remarket the products of IBM and NCR corporations. On the other hand some computer manufacturers offer systems which compete with portions of the IRIS system. Even these manufacturers would like to see the IRIS products sold with their hardware. Should any of the major hardware manufacturers choose to invest the necessary capital, it is the Company's opinion that they could develop excellent competitive products for this market. The Company has an agreement to purchase handheld data entry devices for the RETAIN and IRIS products from Telxon Corporation of Akron, Ohio. Telxon has proven devices that have been used extensively for ordering, auditing, receiving and other applications. The Company believes that Telxon can satisfy its requirements, but, there are many other suppliers of handheld data entry devices which provide similar functions. The Registrant has expended a significant amount of its resources for research and development since its inception, and continues to rely on its own staff for technical support and product development. R & D Expenses Year Ending March 31, 1996 $303,000 Year Ending March 31, 1995 $368,161 The Company usually ships orders for systems within 60 days of receipt. Orders are received on irregular schedules, which renders backlog statistics as poor predictors of sales and earnings. As of March 31, 1996, the Company had a backlog of $309,509 in sales not installed, compared to $333,409 for March 31, 1995. Backlog is not a significant predictor of future business because new sales contracts are not received on a regular basis. The Registrant does not own any patents. The Company does have trademarks, but does not consider them to be material to its operations. The Company presently maintains small amounts of inventory of its computer system products because the hardware elements are readily available and the software elements can be produced by copying as needed. The Registrant had 36 employees as of June 12, 1996. (d) Financial information about foreign and domestic operations and export sales: To date, the Registrant has had no foreign operations or export sales. Item 2. Description of Properties The Registrant leases office space at Plymouth, Minnesota. This leased office space consists of 14,371 square feet located in a professional office building at 15301 Highway 55 West. The office carries a 36 month minimum lease expiring April 30, 1998. Future minimum rentals under this lease are $86,967 for the fiscal year ending March 31, 1997. Item 3. Legal Proceedings The Registrant is not presently involved in any material legal proceedings or claims. Item 4. Submission of Matters to Vote of Security Holders None. PART II Item 5. Market For Registrant's Common Equity and Related Stockholder Matters As of June 1, 1996, there were approximately 105 record holders of common stock of the corporation. The corporation has never paid cash dividends on its common stock. The common stock $.01 par value, of the corporation has been listed on the NASDAQ Bulletin Board since March of 1995. As of June 12, 1996 there are five market makers for the shares. The table below lists the high and low bid prices for the two prior fiscal years. COMMON STOCK DATA Fiscal Years Ended March 31, 1996 1995 Bid Price Bid Price High Low High Low 1st quarter 7/8 1/4 (NO QUOTE AVAILABLE) 2nd quarter 1 7/5 3/4 (NO QUOTE AVAILABLE) 3rd quarter 2 1/4 1 1/8 (NO QUOTE AVAILABLE) 4th quarter 2 1/2 1 1/2 1/4 1/4 Item 6. Management's Discussion and Analysis of Financial Condition and Results of Operations For the year ended March 31, 1996, sales increased $2,884,593 over the fiscal year ended March 31, 1995, compared to an increase of $2,125,351 from 1994 to 1995. The Company increased sales and installations in food distribution from the prior year and converted a number of competitive systems. IRIS significantly increased its sales from existing customers, while expanding new installs for the U.S. Postal Service. System sales were $2,497,250 higher for the fiscal year ended March 31, 1996 than in the prior year, at $4,923,132 verses $2,425,882. The company witnessed an increase with the food distribution systems, as well as significant additional sales from the IRIS system. In the early 1990's the Company witnessed a reduction in the amount of hardware purchased with our systems. This produced a steady decrease in cost of sales from 38% in 1991 and 35% in 1992 to 27% in 1993. During 1994 the Company became a remarketer for the IBM RS/6000, a powerful mid size system. When the IRIS marketing rights were purchased The Company became a remarketer for NCR products including point of sale registers and multi-user workgroup servers. The Company now strives to include hardware with sales to larger clients. This movement toward more hardware sales combined with an increased commitment to customer support has increased our cost of sales as a percentage of total revenues to 47% in fiscal 1995 and 51% in fiscal 1996. Maintenance fees and other revenues were up 65% for the fiscal year ended March 31, 1996 after rising 175% in the prior year. Customers have the option of purchasing software upgrades and customer support through an annual software maintenance contract. In both, Fiscal 1995 and 1996 maintenance revenues have risen proportionally to new installations and the addition of prior IRIS customers. Pretax income was for the year was up $879,945 verses $325,756 for the prior fiscal year. The net income for the year was $352,945 higher than in fiscal 1995, and fiscal 1995 was higher by $325,756 compared to the prior year. Income was fully taxed in the fiscal 1996 while a loss carryforward offset income tax liability in the prior year. These numbers reflect results from increased sales and marketing efforts and the additon of the IRIS product line. Net cash provided by operating activities were $713,071 compared to net cash provided by operating activities of $419,620 in fiscal 1995. During fiscal 1996 the Company was able to attract some additional large highly respected Food Brokers to our products. These installations also position the Company to attract other large customers in fiscal 1997. IRIS sales to large customers have also grown significantly. Research & Development expenditures have been expanded to enhance our products and develop new products such as the client/server systems with relational database and Windows clients. We continue to look to new products to broaden our sustainable business and open new markets. As of March 31, 1996, the Company had current assets of $2,500,214 versus $1,184,954 a year earlier. Current liabilities were $1,208,488 versus $651,527 a year earlier, with a majority of the difference represented by accrued income taxes. Stockholders equity was up 121% to $1,512,455 verses $682,010 at March 31, 1995. The long term obligations are down from $226,084 in 1995 to $112,097 in 1996 and primarily represents reduced obligations attributable to the purchase of IRIS software distribution rights. Similarily, assets decreased for Software distribution rights by $76,615 from March 31, 1995 to March 31, 1996. As of March 31, 1996 the Company had no material commitment for capital expenditures. Working Capital was $1,291,726 on March 31, 1996 verses $533,427 for the prior year. Management believes Working Capital is suffienct to fund current operations, and planned growth through internal sources or other options. Inflation has had no significant impact on the revenues of the Company during the two most recent fiscal years. Item 7. Financial Statements The information required by Item 7 is included in the PREMIS Corporation Audited Financial Statements for the year ended March 31, 1996, which are included as Exhibit 13. Item 8. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure There has been neither a change in the Company's independent Certified Public Accountant nor any disagreements on any matter regarding accounting principles or financial statement disclosure with the Company's independent Certified Public Accountant during the twenty-four month period ended March 31, 1996. PART III Item 9. Directors and Executive Officers of the Registrant The executive officers are elected annually by the Board of Directors. There are no arrangements or understandings among the officers and any other person pursuant to which he was selected as an officer. Director Name Position Age Since F. T. Biermeier President, Chief Executive 56 1982 Officer and Treasurer Mary Ann Calhoun Vice President, Secretary 37 1986 All other information required by Item 9 is included in the PREMIS Corporation Definitive Proxy Statement which will be filed by the Registrant on or before July 1, 1996 and which is incorporated herein by reference. Item 10. Executive Compensation The information required by Item 10 is included in the PREMIS Corporation Definitive Proxy Statement which will be filed by the Registrant on or before July 1, 1996 and which is incorporated herein by reference. Item 11. Security Ownership of Certain Beneficial Owners and Management The information required by Item 11 is included in the PREMIS Corporation Definitive Proxy Statement which will be filed by the Registrant on or before July 1, 1996 and which is incorporated herein by reference. Item 12. Certain Relationships and Related Transactions None Item 13. Exhibits and Reports on Form 8-K (a) 1. Financial Statements: The following PREMIS Corporation Audited Financial Statements are included as Exhibit 13: Report of Independent Accountants. Balance Sheets at March 31, 1996 and 1995. Statement of Operations for two years ended March 31, 1996. Statement of Stockholders' Equity for two years ended March 31, 1996. Statement of Cash Flows for two years ended March 31, 1996. Notes to the Financial Statement (b) Reports on Form 8-K: None (c) Exhibits: (3.1) Articles of Incorporation, as amended* (3.2) By Laws* (4) Instruments defining the rights of security holders, is the certificate of incorporation (incorporated by reference to Item (3) above) (10) Material Contracts - (13) This Annual Report on Form 10-K, with Financial Statements, without the remaining exhibits, constitutes the 1996 Annual Report to Shareholders. (23) Consent of Price Waterhouse to incorporate by reference in Form S-8 Registration Statement. * Incorporated by reference to Registration Statement on Form S-18, Commission File #2-85498C, filed on July 29, 1983. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. PREMIS CORPORATION BY /s/ F. T. Biermeier F. T. Biermeier, President, Chief Executive Officer, and Chief Financial Officer DATE: June 18, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. DIRECTORS /s/ Mary Ann Calhoun June 18, 1996 Mary Ann Calhoun Date /s/ Gerald F. Schmidt June 18, 1996 Gerald F. Schmidt Date Exhibit 13 PREMIS CORPORATION FINANCIAL STATEMENTS MARCH 31, 1996 AND 1995 May 10, 1996 To the Stockholders and Board of Directors of PREMIS Corporation In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' equity and of cash flows present fairly, in all material respects, the financial position of PREMIS Corporation at March 31, 1996 and 1995, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Minneapolis, Minnesota PREMIS CORPORATION BALANCE SHEET March 31, ASSETS 1996 1995 Current assets: Cash and cash equivalents $ 668,083 $ 426,959 Short-term investments 300,000 Trade accounts receivable, net of allowance for doubtful accounts of $82,420 and $35,000, respectively 1,204,874 541,240 Inventory 282,720 165,555 Prepaid expenses 11,537 1,200 Deferred taxes 33,000 50,000 Total current assets 2,500,214 1,184,954 Property and equipment: Furniture and equipment 225,437 197,135 Leasehold improvements 31,773 12,229 Less accumulated depreciation and amortization (173,685) (160,613) Total property and equipment 83,525 48,751 Software distribution rights, net of accumulated amortization of $158,776 and $77,994 249,301 325,916 Total assets $2,833,040 $1,559,621 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable $ 137,964 $ 177,339 Other accrued liabilities 228,524 145,028 Accrued income taxes 510,000 Unearned income 187,211 170,529 Customer deposits 41,861 58,010 Notes payable - banks 17,746 23,513 Note payable 85,182 77,108 Total current liabilities 1,208,488 651,527 Long-term liabilities: Notes payable - banks 9,721 38,526 Note payable 102,376 187,558 Total long-term liabilities 112,097 226,084 Stockholders' equity: Common stock, 4,000,000 shares authorized, 2,609,444 and 2,590,694 shares issued and outstanding, $.01 par value 26,094 25,906 Additional paid-in capital 731,181 728,556 Retained earnings 755,180 (72,452) Total stockholders' equity 1,512,455 682,010 Total liabilities and stockholders' equity $2,833,040 $1,559,621 See accompanying notes to the financial statements. PREMIS CORPORATION STATEMENT OF OPERATIONS Year Ended March 31, 1996 1995 Revenue System sales $4,923,132 $2,425,882 Supplies sales 33,184 15,282 Maintenance fees and other revenue 945,845 576,404 Total revenue 5,902,161 3,017,568 Cost of sales: Systems 2,510,219 1,079,191 Supplies 28,852 11,035 Support 497,251 324,652 Total cost of sales 3,036,322 1,414,878 Gross profit 2,865,839 1,602,690 Selling, general, and administrative expenses 1,204,065 732,324 Research and development expenses 303,000 368,161 Income from operations 1,358,774 502,205 Interest expense, net 4,142 27,518 Net income before income taxes 1,354,632 474,687 Income tax expense 527,000 Net income $827,632 $474,687 Earning per share $0.28 $0.18 Weighted average number of common stock equivalents 2,925,581 2,590,694 See accompanying notes to the financial statements. PREMIS CORPORATION STATEMENT OF CASH FLOWS Year Ended March 31, 1996 1995 Cash flows from operating activities: Net income $ 827,632 $ 474,687 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization 101,983 91,080 Changes in assets and liabilities: Accounts receivable (663,634) (438,917) Inventory (117,165) (147,095) Prepaid expenses (10,337) (1,200) Deferred taxes 17,000 Accounts payable (39,375) 156,546 Accrued liabilities 596,434 124,721 Unearned income 16,682 139,786 Customer deposits (16,149) 21,728 Gain from disposal of fixed assets (1,716) Net cash provided by operating activities 713,071 419,620 Cash flows from investing activities: Short-term investments (300,000) Purchase of property and equipment (72,325) (7,632) Sale of property and equipment 16,350 9,000 Purchase of software distribution rights (4,167) (139,242) Net cash (used) by investing activities (360,142) (137,874) Cash flows from financing activities: Exercising of common stock options 2,813 Repayment of debt (111,680) 29,387 Capital lease obligations (2,938) (3,331) Net cash provided (used) by financing activities (111,805) 26,056 Net increase in cash 241,124 307,802 Cash and cash equivalents at beginning of year 426,959 119,157 Cash and cash equivalents at end of year $ 668,083 $ 426,959 See accompanying notes to the financial statements. PREMIS CORPORATION STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED MARCH 31, 1996 AND 1995 Additional Common Stock Paid-in Retained Shares Amount Capital Earnings Total Balance at March 31, 1994 2,590,694 $ 25,906 $ 728,556 $(547,139) $ 207,323 Net income 474,687 474,687 Balance at March 31, 1995 2,590,694 25,906 728,556 (72,452) 682,010 Stock options exercised 18,750 188 2,625 2,813 Net income 827,632 827,632 Balance at March 31, 1996 2,609,444 $ 26,094 $ 731,181 $ 755,180 $1,512,455 See accompanying notes to the financial statements. PREMIS CORPORATION NOTES TO THE FINANCIAL STATEMENTS NOTE 1 - ORGANIZATION PREMIS Corporation (the "Company") is in the business of developing and selling turnkey computer software systems. NOTE 2 - ACCOUNTING POLICIES Cash and Cash Equivalents Cash and cash equivalents include amounts deposited in checking and money market accounts. Investments Investments include Municipal bonds. Investments are classified as available for sale and carried at fair value, with unrealized appreciation or depreciation included in shareholder's equity, net of deferred income taxes. Generally, realized investment gains and losses are based upon specific identification of the investment assets. Unrealized investment gains and losses, net of deferred income taxes, if applicable, are included in shareholder's equity. There were no unrealized gains or losses on bond investments at March 31, 1996. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market. Inventories consist of computer equipment held for resale. Property and Equipment Property and equipment are stated at cost and depreciated for financial statement purposes on a straight-line basis over the estimated useful life of the assets. Depreciation expense for the years ended March 31, 1996 and 1995 was $21,201 and $26,838, respectively. Software Distribution Rights The Company has acquired certain software marketing licenses and distribution rights. The costs are capitalized and amortized using the straight-line method over the term of the agreements which range from three to five years. Research and Development Costs Expenditures for research and software development costs are expensed as incurred. Such costs are required to be expensed until the point technological feasibility and proven marketability of the product are established. Costs otherwise capitalizable after technological feasibility is achieved have also been expensed because they have been insignificant. No costs have been capitalized due to post-technological feasibility costs being immaterial to both total assets and pre-tax results. Revenue Recognition System sales include software and certain computer equipment. Revenue is recognized after completion of installation. Customers are provided with a warranty period which provides customer support for a period of three months. After the warranty period, support is only provided if a maintenance contract is in place. Maintenance fees are deferred when billed and are recognized ratably over the contract period. Net Earnings Per Share of Common Stock Net earnings per share was computed by dividing net income by the weighted average number of shares of common stock and dilutive common stock equivalents using the treasury method. Income Taxes The Company accounts for income taxes under the liability method of accounting. Deferred tax assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using currently enacted tax rates. Fair Value of Financial Instruments The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables and payables for which current carrying amounts approximate fair market value. Additionally, interest rates on outstanding debt are at rates which approximate market rates for debt with similar terms and average maturities. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. NOTE 3 - LEASE COMMITMENTS The Company leases equipment and its facilities under various operating leases. Future minimum payments under noncancelable leases are as follows: Fiscal Year Ending March 31, 1997 $ 94,080 1998 88,137 1999 7,116 Less interest portion $ 189,333 Rental expense under operating leases was $114,803 and $47,787 for the years ended March 31, 1996 and 1995, respectively. NOTE 4 - EMPLOYEE STOCK OPTION PLAN The PREMIS Corporation 1994 Employee Stock Option Plan (the "Plan") was adopted to provide incentives to selected eligible officers and key employees of the Company. Under the Plan, which supersedes the 1984 plan, the Board of Directors is authorized to issue up to 500,000 shares of employee stock options and 600,000 non-qualified stock options. The Company accounts for stock options and other equity instruments in accordance with APB Opinion No. 25, "Accounting for Stock Issued to Employees." Effective in fiscal 1996, the Company should account for stock options in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting of Stock Based Compensation." SFAS No. 123 establishes accounting standards for organizations that have stock based employee compensation plans. Generally, the statement defines a fair value based method of accounting for these plans which requires the measurement of compensation costs at the grant date be recognized over the service period, which is usually the vesting period. The Company determines option prices at the time any option is granted and the price shall not be less than the fair market value of the stock at the date of grant. Activity under the Company's stock option plans is presented below: Employee Stock Options Non-Qualified Options Price Range Price Range Per Share Options Per Share Options Balance at March 31, 1994 $.05-$.15 210,000 Granted $.15 290,000 $.17 300,000 Cancelled $.05-$.15 (210,000) Balance at March 31, 1995 $.15 290,000 $.17 300,000 Granted $1.125 55,000 $1.50-$1.75 255,000 Exercised $0.15 (18,750) Cancelled $0.15-$1.125 (169,500) Balance at March 31, 1996 $.15-$1.125 156,750 $.17-$1.75 555,000 Options exercisable at March 31, 1996 27,500 300,000 The outstanding non-qualified options for 300,000 shares are held by an officer-stockholder. All outstanding options expire five years from the date of grant. NOTE 5 - NOTES PAYABLE The Company's notes payable to banks at March 31, 1996 are secured by automobiles, computer equipment and accounts receivable and consist of the following: 1996 1995 Note payable - bank, monthly payments of $439 through May, 1996, interest at 6.9% $ 16,403 Note payable - bank, monthly payments of $299 through December, 1995, interest at 9% 2,580 Note payable - bank, monthly payments of $1,388 through October 20, 1997, variable interest at 10.25% $ 27,467 43,056 27,467 62,039 Less current portion (17,746) (23,513) $ 9,721 $ 38,526 The Company also has a note payable at March 31, 1996 and 1995 for the purchase of a software license and distribution rights as follows: 1996 1995 Note payable, monthly payments of $8,342 through April,1999 $187,558 $264,666 Less current portion (85,182) (77,108) $102,376 $187,558 NOTE 6 - INCOME TAXES Income tax expense is comprised of the following for the year ended March 31, 1996: Current income taxes: Federal $ 400,000 State 110,000 Total current taxes 510,000 Deferred income taxes 17,000 Income tax expense $ 527,000 A earnings and a reconciliation of the expected federal statutory rate for the years ended March 31, 1996 and 1995 is as follows: 1996 1995 --------------- ---------------- Expected tax provision at statutory rate $462,000 34.0% $161,400 34.0% State income tax provision, net of federal tax effect 81,000 5.9 28,480 6.0 Reduction of valuation allowance (112,000) (23.6) Effect of graduated income tax rates (59,000) (12.4) Other (16,000) (1.2) (18,880) (4.0) Total $527,000 38.7% $ 0 0.0% No tax provision was recorded in the fiscal year ended March 31, 1995 due to the utilization of net operating loss (NOL) carryforwards. The deferred tax provisions of approximately $112,000 for the year ended March 31, 1995 is negated by reductions in the valuation allowances as previously established in accordance with Financial Accounting Standards No. 109. Deferred tax assets (liabilities) are comprised of the following at March 31: 1996 1995 Allowance for doubtful accounts $33,000 $14,000 Net operating loss carryforwards 24,000 Business credit carryforwards 12,000 Net deferred tax asset $33,000 $50,000 NOTE 7 - PURCHASE OF SOFTWARE LICENSE AND DISTRIBUTION RIGHTS During fiscal year 1995, PREMIS purchased a software license and distribution rights for a period of 5 years for $403,910. In addition to the purchase price, the Company must make contingent royalty payments based on a percentage of the net cash receipts from related sales. The Company capitalized the purchase price as software distribution rights and is amortizing the amount over the term of the agreement. Amortization of $80,782 and $77,994 is included in cost of sales for the years ended March 31, 1996 and 1995, respectively. NOTE 8 - EMPLOYEE BENEFITS During fiscal year 1995, the Company established a retirement savings plan which qualifies under the Internal Revenue Code Section 401(k). All employees with at least 90 days of employment are eligible to participate in the Plan. The Company's contributions to the Plan are based on 15% of employee contributions which are subject to salary limitations. Company contributions to the Plan were approximately $5,000 during 1996. In fiscal 1996, the Company also paid a one time discretionary profit sharing bonus of $16,000. NOTE 9 - SIGNIFICANT CUSTOMERS Sales to one customer represented 64% of total revenues during 1996. Additionally, this customer represented 61% of trade accounts receivable at March 31, 1996. Exhibit 23 CONSENT OF INDEPENDENT ACOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333.03161) of Premis Corporation of our report dated May 10, 1996 appearing on page 13 of the Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-KSB Price Waterhouse LLP Minneapolis, Minnesota June 17, 1996 EX-27 2 ART. 5 FDS FOR 3RDQUARTER 10-QSB
5 1,000 3-MOS MAR-31-1996 DEC-31-1995 15 645 1159 82 392 2129 519 168 2480 971 226 0 0 0 1283 2480 1706 1706 863 863 452 0 0 391 155 236 0 0 0 236 .09 .08
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