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 0-21958
QUICKRESPONSE SERVICES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0102251
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 MARINA WAY SOUTH, RICHMOND, CA 94804
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(Address of principal executive offices) (Zip code)
(510) 215-5000
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(Registrant's phone 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. 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.
Classes of Common Stock Outstanding at June 30, 1996
- --------------------------- -----------------------------
Common Stock, no par value 8,347,080 shares
This document contains 14 pages.
The Exhibit listing appears on Page 10.
QUICKRESPONSE SERVICES, INC.
FORM 10-Q
INDEX
PAGE NUMBER
------------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of June 30, 1996 and December 31, 1995 3
Condensed Statements of Earnings for the Three and Six Months Ended June 30, 1996
and 1995 4
Condensed Statement of Shareholders' Equity for the Six Months Ended June 30, 1996 5
Condensed Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
A. Exhibits 10
B. Reports on Form 8-K 11
SIGNATURES 12
PART I .FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUICKRESPONSE SERVICES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
--------
JUNE 30, DECEMBER 31,
1996 1995
--------- ------------
Current assets:
Cash and cash equivalents $17,672 $6,460
Marketable securities, available for sale 10,069 17,976
Accounts receivable - net of allowance for doubtful accounts of $522 in 1996 and $460 in 1995 8,232 8,032
Prepaid expenses and other 586 812
--------- ------------
Total current assets 36,559 33,280
--------- ------------
Property and equipment:
Furniture and fixtures 1,107 1,052
Equipment 3,549 3,005
Leasehold improvements 1,276 1,249
--------- ------------
5,932 5,306
Less accumulated depreciation 2,377 1,946
--------- ------------
Total 3,555 3,360
Deferred income tax assets 7,943 9,502
Other assets 514 450
--------- ------------
Total assets $48,571 $46,592
--------- ------------
--------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $2,939 $3,582
Other accrued liabilities 2,951 3,437
Current portion of sublease loss reserves 873 873
--------- ------------
Total current liabilities 6,763 7,892
--------- ------------
Deferred rent 1,032 1,141
Sublease loss reserve 1,850 2,129
--------- ------------
Total liabilities 9,645 11,162
--------- ------------
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; 8,347,080 shares outstanding in
1996 and 8,305,824 shares in 1995 60,521 59,907
Accumulated deficit (21,595) (24,477)
--------- ------------
Total shareholders' equity 38,926 35,430
--------- ------------
Total liabilities and shareholders' equity $48,571 $46,592
--------- ------------
--------- ------------
See notes to condensed financial statements.
3
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues $13,607 $9,914 $26,324 $19,433
Cost of sales 8,288 6,031 16,064 11,875
-------- -------- -------- --------
Gross profit 5,319 3,883 10,260 7,558
Operating expenses:
Sales and marketing 1,635 1,166 3,172 2,354
Product development 658 453 1,331 809
General and administrative 866 730 1,667 1,493
-------- -------- -------- --------
Total operating expenses 3,159 2,349 6,170 4,656
-------- -------- -------- --------
Operating earnings 2,160 1,534 4,090 2,902
Interest income 360 371 717 689
-------- -------- -------- --------
Earnings before income taxes 2,520 1,905 4,807 3,591
Income taxes 1,009 787 1,925 1,462
-------- -------- -------- --------
Net earnings $1,511 $1,118 $2,882 $2,129
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per common and common equivalent share $0.18 $0.13 $0.34 $0.25
-------- -------- -------- --------
-------- -------- -------- --------
Shares used to compute per share amounts 8,624 8,499 8,582 8,465
-------- -------- -------- --------
-------- -------- -------- --------
See notes to condensed financial statements.
4
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
COMMON STOCK
---------------------------
ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT DEFICIT EQUITY
------------ ---------- ------------- --------------
Balance, December 31, 1995 8,305,824 $59,907 $(24,477) $35,430
Stock option compensation - 18 - 18
Exercise of stock options, including tax benefit 41,256 596 - 596
Net earnings - - 2,882 2,882
------------ ---------- ----------- --------------
Balance, June 30, 1996 8,347,080 $60,521 $(21,595) $38,926
------------ ---------- ----------- --------------
------------ ---------- ----------- --------------
See notes to condensed financial statements.
5
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
-------------------------
1996 1995
----------- ----------
Operating activities:
Net earnings $2,882 $2,129
Adjustment to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization 509 285
Deferred rent (109) 10
Stock option compensation 18 17
Purchase of trading securities (net) - (8,401)
Changes in:
Accounts receivable (200) (309)
Prepaid expenses and other 226 (73)
Deferred income tax assets 1,886 1,364
Other assets (4) (12)
Accounts payable (643) 1,435
Sublease loss reserve (net) (279) 648
Other accrued liabilities (486) 226
----------- ----------
Net cash provided by (used in) operating activities 3,800 (2,681)
----------- ----------
Investing activities:
Sale of marketable securities - available for sale (net) 7,907 1,590
Purchase of property and equipment (626) (1,014)
Capitalization of product development costs (138) (91)
----------- ----------
Net cash provided by (used in) investing activities 7,143 485
----------- ----------
Financing activities:
Exercise of stock options 264 239
Exercise of stock warrant 5 38
----------- ----------
Net cash provided by financing activities 269 277
----------- ----------
Net increase (decrease) in cash 11,212 (1,919)
Cash and cash equivalents at beginning of period 6,460 8,629
----------- ----------
Cash and cash equivalents at end of period $17,672 $6,710
----------- ----------
----------- ----------
Other cash flow information:
Taxes paid during the period $37 $147
----------- ----------
----------- ----------
Noncash financing activities:
Tax benefit from non-qualified stock options exercised $327 $543
----------- ----------
----------- ----------
See notes to condensed financial statements.
6
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), electronic data interchange services
(EDI Services), transportation and logistics services (Easy EDI and LMS) and
Collaborative Replenishment Services (CRS) to retailers and merchandise
suppliers or vendors to automate and improve their merchandise management.
The balance sheet as of June 30, 1996, the statements of earnings for the three
and six months ended June 30, 1996 and 1995, the statement of shareholders'
equity for the six months ended June 30,1996 and the statements of cash flows
for the six months ended June 30, 1996 and 1995 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 June 30, 1996
and for all periods presented have been made. The balance sheet as of December
31, 1995 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 with 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, 1995.
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 June 30, 1996 and 1995 are not
necessarily indicative of the operating results anticipated for the full year.
2. STOCK OPTIONS
During the first six months of 1996, the Company granted options to purchase
35,000 shares of the Company's common stock at prices of $21.875 to $36.5625
determined by the Board of Directors to be 100% of the fair market value at
the dates of the grant under the Company's incentive compensation and
automatic grant plans. During the first six months of 1996, options to
purchase 39,256 shares of common stock and warrants to purchase 2,000 shares
of common stock were exercised. At June 30, 1996, 656,236 shares are subject
to outstanding options, of which 122,851 options are exercisable. During the
first six months of 1996, shareholders approved an additional 500,000
allocation to the stock option pool. Options to purchase approximately
724,496 shares of common stock are available for future grants under the
plans. During the six months ended June 30, 1996, compensation expense
recognized pursuant to the granting of stock options totaled $18,000 as a
result of amendments to certain options.
7
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, 1995.
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),
QRSolutions...Collaborative Replenishment Services (CRS), which includes
replenishment, sales analysis and forecasting, Electronic Data Interchange and
related network services (EDI Services), transportation services including
Logistics Management Systems (EasyEDI and LMS) and internet products and
services (EConnect). The Company derives revenues from four principal and
related sources: the transmission of standard business documents over a
network; monthly charges for accessing The QRS Catalog; CRS related fees based
on the number of U.P.C.'s managed per store and logistics management services
and consulting fees. EDI 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.
RESULTS OF OPERATIONS
The Company's revenues increased by 37% to $13.6 million for the second quarter
of 1996, from $9.9 million for the second quarter of 1995. The Company's
revenues increased by 35% to $26.3 million during the first six months of 1996
from $19.4 million for the same period of 1995. These increases were primarily
attributable to three factors. First, the number of customers increased from
146 retailers and 4,060 vendors as of June 30, 1995 to 196 retailers and 4,606
vendors and carriers as of June 30, 1996. 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. Revenues associated with new products
introduced by the Company in the last twelve months have contributed an
immaterial amount of revenues to the Company during the first six months of
1996.
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 37% to $8.3 million for the second quarter of 1996,
from $6.0 million for the second quarter of 1995. Cost of sales increased by
35% to $16.1 million during the first six months of 1996 from $11.9 million for
the same period of 1995. The increase was principally due to increases in
purchased network services reflecting growth in EDI Services and an expanded
customer support group and data center operations reflecting growth in the
Company's value-added applications. The gross profit margin was 39% for the
second quarters of 1996 and 1995. There were no significant changes in prices
charged to customers for catalog or EDI Services.
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 40% to $1.6 million for the second quarter of 1996, from $1.2 million
for the second
quarter of 1995. Sales and marketing expenses increased by 35% to $3.2 million
for the first six months of 1996, compared to $2.4 million for the same period
of 1995. The increase results from increased introduction expenditures related
to the Company's new product
8
releases in the second quarter of 1996 as well as increased personnel costs to
support the Company's growth in revenues and customers.
Product development expenses consist primarily of personnel and equipment costs
related to new product development and upgrade of existing service offerings.
Product development costs increased 45% to $658,000 for the second quarter of
1996, from $453,000 for the second quarter of 1995. Product development costs
increased by 65% to $1.3 million for the first six months of 1996 compared to
$809,000 for the same period in 1995. The increase primarily resulted from
additional employees and consultants working on product development projects.
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 19% to
$866,000 for the second quarter of 1996, compared to $730,000 for the second
quarter of 1995. General and administrative expenses increased by 12% to $1.7
million for the first six months of 1996 compared to $1.5 million for the same
period in 1995. The increase was primarily due to increased payroll and
professional fees.
Interest income consists primarily of interest earned on cash, cash equivalents
and investment securities. Interest income decreased to $360,000 for the
second quarter of 1996, compared to $371,000 for the second quarter of 1995 as
a result of higher invested balances offset by a lower yield on investments.
Interest income increased to $717,000 for the first six months of 1996 compared
to $689,000 for the same period in 1995.
Income tax was $1.0 million for the second quarter of 1996, compared to
$787,000 for the second quarter of 1995. Income taxes were $1.9 million for the
first six months of 1996 compared to $1.5 million for the same period in 1995.
The 1996 and 1995 income tax rates of 40% approximate the combined effective
federal and state income tax rates.
As a result of the foregoing, net earnings increased by 35% to $1.5 million for
the second quarter of 1996, compared to $1.1 million for the second quarter of
1995. Net earnings for the first six months of 1996 was $2.9 million compared
to $2.1 million for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital improved from $25.4 million at December 31, 1995
to $29.8 million at June 30, 1996. Cash, cash equivalents and marketable
securities available for sale increased from $24.4 million at December 31, 1995
to $27.7 million at June 30, 1996. Total assets increased from $46.6 million
at December 31, 1995 to $48.6 million at June 30, 1996, while total liabilities
decreased from $11.2 million to $9.6 million.
The increase in cash and cash equivalents from December 31, 1995 to June 30,
1996 results primarily from a decrease in the Company's marketable securities.
A larger portion of the Company's cash not required for operating activities
was invested during the quarter in securities with maturities less than 90
days, which are reported as cash and cash equivalents.
Management believes that the cash resources available at June 30, 1996, and
cash anticipated to be generated from future operations will be sufficient for
the Company to meet its working capital needs and capital expenditures for the
balance of the fiscal year. The Company does not intend to pay cash dividends
with respect to common stock in the foreseeable future.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on
May 24, 1996. The following actions were taken at this meeting:
BROKER
AFFIRMATIVE NEGATIVE VOTES NON-
VOTES VOTES WITHHELD VOTES
------------ ------------- ----------- -----------
a. Election of Directors:
Tania Amochaev 7,013,906 - 50,742 -
Steven D. Brooks 7,013,906 - 50,742 -
John P. Dougall 7,013,906 - 50,742 -
Peter R. Johnson 7,013,906 - 50,742 -
Lynn Hazlett 7,013,906 - 50,742 -
Garth Saloner 7,013,906 - 50,742 -
Philip Schein 7,013,906 - 50,742 -
Garen K. Staglin 7,013,906 - 50,742 -
b. Amendment to the 1993 Stock Option/Stock Issuance Plan
4,501,940 1,531,605 6,400 1,024,703
c. Ratification of Deloitte & Touche LLP as auditors 7,059,942 2,100 2,606 -
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11.1 Computation of Earnings Per Share - Primary
11.2 Computation of Earnings Per Share - Fully Diluted
10
B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company this quarter.
11
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\ Tania Amochaev
-------------------------------------------
August 7, 1996 Tania Amochaev
President and Chief Executive Officer
\s\ Shawn M. O'Connor
-------------------------------------------
August 7, 1996 Shawn M. O'Connor
Vice President and Chief Financial Officer
(Principal Financial Officer)
12