UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-QSB (Mark One) [ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1996	 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT Commission file number 0-12196 PREMIS CORPORATION (Exact name of small business issuer as specified in its charter) 	Minnesota	 41-14240202 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization)	 13220 County Road 6, Plymouth, Minnesota 55441 (Address of principal executive office) (612) 550-1999 (Issuer's telephone number) Not Applicable (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ x ] No [ ] The number of shares outstanding of the Issuer's Common Stock, $.01 par value, was 4,740,802 as of February 10, 1997. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ x ] PART 1 - FINANCIAL INFORMATION: ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS PREMIS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended December 31, December 31,	 1996 1995	 1996 1995 REVENUES: Systems	 $ 2,490 $ 1,466 $ 5,703 $ 3,577 Maintenance and other services	 598 240 1,249 669 									 Total revenues 3,088 1,706 6,952 4,246 COST OF REVENUES: Systems 1,310 743 3,054 1,759 Royalty expense 67 83 221 205 Support and other 59 37 194 107 									 Total cost of revenues 1,436 863 3,469 2,071 GROSS PROFIT 1,652 843 3,483 2,175 OPERATING EXPENSES: Selling, general and administrative 1,205 452 1,970 1,179 Purchased research and development 6,510 - 6,510 - 									 Total operating expenses 7,715 452 8,480 1,179 INCOME BEFORE TAXES (6,063) 391 (4,997) 996 Income tax expense 104 155 520 394 									 NET INCOME $ (6,167) $ 236 $ (5,517)	$ 602 Net income (loss) per share $ (1.31) $	.08 $ (1.65)	$ .20 	 Shares used in per share calculation 4,707 2,994 3,350 2,967 PREMIS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) December 31, 1996 March 31, 1996 (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 2,855 $ 968 Accounts receivable, net 2,558 1,205 Inventory 531 283 Prepaid expenses and other current assets 784 11	 Deferred income taxes 56 33 	Total current assets 6,784 2,500 Property and equipment, net 461 84 Capital lease building, net 918 0 Software distribution rights, net 150 249 						 TOTAL ASSETS $ 8,313 $ 2,833 LIABILITIES Current liabilities: Accounts payable $ 1,544 $ 138 Accrued and other liabilities 507 458 Accrued income taxes 140 510 Capital lease obligation 224 0 Notes payable 86 103	 	Total current liabilities 	 2,501 1,209 Long-term liabilities: Capital lease obligation 700 0 Note payable 174 112 	Total long-term liabilities 874 112 Shareholders' equity: Common stock 47 26 Additional paid in capital 9,658 731 Retained earnings (4,761) 755 Foreign currency translation adjustment (6) 0 	Total shareholders' equity 4,938 1,512 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,313 $ 2,833 PREMIS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) Nine Months Ended December 31, 1996 1995	 OPERATING ACTIVITIES Net income $ (5,517) $ 602 Adjustments to reconcile net income to net cash (used) provided by operating activities 	Depreciation and amortization 168 7 	Write-off of purchase research and 	 development 6,510 - Changes in assets and liabilities, net of effect from purchase of REF Retail Systems: 	Current assets (1,692) (655) 	Current liabilities 350 319 Net cash (used) provided by operating activities (181) 273 INVESTING ACTIVITIES Purchase of property and equipment (155) (40) Cash paid in purchase of REF Retail Systems (6,572) - Cash acquired from purchase of REF Retail Systems 174 - Net cash (used) by investing activities (6,553) (40) FINANCING ACTIVITIES Proceeds from common stock offering, net 8,730 - Proceeds from the exercise of common stock options 218 - Capital lease payments (26) - Payments on notes payable (219) - Net cash provided by financing activities 8,621 - Net increase (decrease) in cash and cash equivalents 1,887 233 Cash and cash equivalents at the beginning of the year 968 427 Cash and cash equivalents at the end of the quarter $ 2,855 $ 660 PREMIS CORPORATION NOTES TO CONDENSED FINANCIAL STATEMENTS UNAUDITED 1. BASIS OF PRESENTATION The accompanying condensed consolidated financial statements have been prepared by the Company without audit, with the exception of the balance sheet for March 31, 1996 which was derived from audited financial statements, and reflect all adjustments (consisting only of normal and recurring adjustments and accruals) which are, in the opinion of management, necessary to present a fair statement of the results for the interim periods presented. The statements have been prepared in accordance with the regulations of the Securities and Exchange Commission, but omit certain information and footnote disclosures necessary to present the statements in accordance with generally accepted accounting principles. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year. These condensed consolidated financial statements should be read in conjunction with the Financial Statements and footnotes thereto included as an exhibit to the Company's Annual 10-KSB Report for the fiscal year ended March 31, 1996 and the Registration Statement on Form S-2 (SEC File No. 333-10917) which was declared effective September 26, 1996 as previously filed with the Securities and Exchange Commission. 2. COMPLETION OF COMMON STOCK OFFERING On October 1, 1996, the Company successfully completed a secondary offering of common stock. The Company sold 2,012,500 shares of common stock in the offering for $8,729,889 net of issuance costs of $1,332,611. 3. ACQUISITION OF REF RETAIL SYSTEMS CORPORATION In October 1996, the Company completed the acquisition of REF Retail Systems Corporation ("REF"), a Toronto based provider of Windows NT.-based specialty retailing management software, for a total cost of $6,500,000 in exchange for all outstanding shares of REF, and approximately $72,000 of acquisition-related expenses. REF has been merged into PREMIS Systems Canada LTD, a newly formed Canadian Subsidiary of PREMIS Corporation. The acquisition was accounted for under the purchase method, and results of REF's operations since October 1996 are included in the Company's statement of operations. In conjunction with the purchase, the Company expensed all purchased research and development in process based upon an independent appraisal. The amount expensed was approximately $6,510,000. ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 		 Forward Looking Statements The forward looking statements included in Management's Discussion and Analysis of Financial Condition and Results of Operations, except for the historical information contained herein, contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by that statute. Such statements are subject to certain risks and uncertainties. In addition to the factors discussed below, other factors that could cause actual results to differ materially from those described in the forward- looking statements include: volatility in the demand and price for software systems; the risk of push-outs of delivery dates for system orders; the risk of order cancellations; the risk of delays in introducing new software products and the market's acceptance of such products; the successful integration of the personnel, products and operations of REF Retail Systems Corporation with those of PREMIS Corporation. The reader is urged to consider the more comprehensive summary of such risks found in the Company's Registration Statement on Form S-2 (SEC File No. 333- 10917) which was declared effective September 26, 1996. Readers are cautioned not to place undue reliance on those forward looking statements which speak as to matters only as of the date hereof. The Company has no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Results of Operations REVENUE. Revenues increased 81 percent to $3,088,000 over third quarter revenues in the prior fiscal quarter. For the nine-month period ended December 31, 1996, revenue increased 64 percent to $6,952,000 from $4,246,000 in 1995. The increase resulted from higher revenues from both commercial and U.S. Postal Service "Store of the Future" systems. There has been a tempory interuption in "Store of the Future" installs during January and early February 1997 while additional funding is authorized at the U.S. Postal Service. The company expects to complete these delayed installs later in the 4th fiscal quarter or early in the 1st fiscal quarter of 1998. GROSS PROFIT. Gross profit increased 96 percent to $1,652,000 over third quarter gross profit in the prior fiscal year. The gross profit as a percentage of revenue increased to 54 percent for the three month period ended December 31, 1996 compared to 49 percent for the three month period ended December 31, 1995. The increase in the gross profit as a percentage of revenue resulted primarily from a higher mix of software revenue in the three month period ended December 31, 1996. The gross profit percentage decreased to 50 percent for the nine-month period ended December 31, 1996 from 51 percent for nine-month period ended December 31, 1995. The lower margin resulted from a slightly higher mix of lower margin hardware compared to software. The Company expects margins to trend higher in fiscal 1998 as the proportion of higher margin software revenues increases. SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative expenses increased by 93 percent to $871,000 in the third quarter of 1996 up from $452,000 in the same period of 1995. Selling, general and administrative expenses also increased in the nine-month period ended December 31, 1996 to $1,636,000 up from $1,179,000 in the same period of 1995. As a percentage of revenue, expenses were 28 and 24 percent for the three month and nine month period ended December 31, 1996 compared to 27 and 28 percent in 1995. The Company currently expects selling, general and administrative expenses will continue to increase in absolute dollars, but remain constant or decrease as a percentage of total revenues. The Company will continue to invest in infrastructure and in sales and marketing of its products, to develop market opportunities, and to promote PREMIS Corporation's competitive position. PURCHASED RESEARCH AND DEVELOPMENT. The one-time charge of $6,510,000 relates to purchased research and development in progress, expensed in accordance with purchase accounting rules, in connection with the REF Retail Systems acquisition on October 1, 1996. INCOME TAX EXPENSE. The Company's effective income tax rate was 23.3 percent in the third quarter of fiscal year 1997 as compared to 39.6 percent in the same quarter of the prior fiscal year. The decrease in the effective income tax rate was attributed to certain tax refunds recognized in the third quarter of fiscal 1997. The Company expects the effective tax rate for future quarters to be approximately 39 percent. The one time charge related to purchased research and development in progress does not result in tax benefit due to differences between financial and tax reporting requirements. Liquidity and Capital Resources The Company's cash and cash equivalents increased by approximately $1.9 million from March 31, 1996 to December 31, 1996. The increase resulted mainly from the completion of the Company's secondary offering in October 1996 whereby the net proceeds to the Company were approximately $8.7 million. The Company used approximately $6.6 million of the net offering proceeds to purchase REF Retail Systems Corporation in October 1996. As of December 31, 1996, the Company had working capital of $4.3 million. At its current level of operations, the Company believes that its existing cash and cash equivalents are sufficient to meet the Company's working capital and capital expenditure requirements through at least the next 12 months. PART 2 - OTHER INFROMATION: ITEM 6. EXHIBITS AND REPORTS ON FORM 8K On October 16, 1996, the Company filed Current a Report on FORM 8K, dated October 1, 1996, which reported the Company's acquisition of all the outstanding shares of REF Retail Systems Corporation. The acquisition was reported under Item 2 (The Acqusition or Disposition of Assets) and financial statements were provided under Item 7 (Financial Statements and Exhibits), of the FORM 8K. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 	Dated: February 14, 1997 	PREMIS CORPORATION 	(Registrant) 	 	/S/ F. T. Biermeier 	F. T. Biermeier 	Chairman and Chief Executive Officer 	/S/ Richard R. Peterson 	Richard R. Peterson 	Chief Financial Officer 	(Principal Financial and Accounting Officer)