UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
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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.
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(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 September 30, 1996
- ----------------------- ---------------------------------
Common Stock, no par value 8,365,805
This document contains 14 pages.
The Exhibit listing appears on Page 10.
QUICKRESPONSE SERVICES, INC.
FORM 10-Q
INDEX
PAGE NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995 3
Condensed Statements of Earnings for the Three and
Nine Months Ended September 30, 1996 and 1995 4
Condensed Statement of Shareholders' Equity for the
Nine Months Ended September 30, 1996 5
Condensed Statements of Cash Flows for the Nine Months
Ended September 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 8
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
B. Reports on Form 8-K
SIGNATURES 12
2
PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUICKRESPONSE SERVICES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1996 1995
---- ----
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . $9,921 $6,460
Marketable securities available-for-sale . . . . . . . . . . . 12,528 17,976
Accounts receivable - net of allowance for doubtful
accounts of $763 in 1996 and $422 in 1995. . . . . . . . . . 8,627 8,032
Prepaid expenses and other . . . . . . . . . . . . . . . . . . 910 812
------------- ------------
Total current assets. . . . . . . . . . . . . . . . . . 31,986 33,280
------------- ------------
Property and equipment:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . 1,145 1,052
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,802 3,005
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 1,285 1,249
------------- ------------
6,232 5,306
Less accumulated depreciation. . . . . . . . . . . . . . . . . 2,610 1,946
------------- ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . 3,622 3,360
Marketable securities available-for-sale . . . . . . . . . . . . 9,957 -
Deferred income tax assets . . . . . . . . . . . . . . . . . . . 7,204 9,502
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 504 450
------------- ------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . $53,273 $46,592
------------- ------------
------------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . $5,776 $3,582
Other accrued liabilities. . . . . . . . . . . . . . . . . . . 2,990 3,437
Current portion of sublease loss reserve . . . . . . . . . . . 873 873
------------- ------------
Total current liabilities . . . . . . . . . . . . . . . 9,639 7,892
------------- ------------
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . 977 1,141
Sublease loss reserve. . . . . . . . . . . . . . . . . . . . . . 1,764 2,129
------------- ------------
Total liabilities . . . . . . . . . . . . . . . . . . . 12,380 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; 8,365,805 shares outstanding
in 1996 and 8,305,824 shares in 1995. . . . . . . . . . . . 60,775 59,907
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (19,882) (24,477)
------------- ------------
Total shareholders' equity. . . . . . . . . . . . . . . 40,893 35,430
------------- ------------
Total liabilities and shareholders' equity . . . . . . . . . . . $53,273 $46,592
------------- ------------
------------- ------------
See notes to condensed financial statements.
3
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,657 $10,932 $40,981 $30,365
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . 8,767 6,658 24,831 18,533
--------- --------- --------- ---------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . 5,890 4,274 16,150 11,832
Operating expenses:
Sales and marketing. . . . . . . . . . . . . . . . . . . . . 1,637 1,248 4,809 3,601
Product development. . . . . . . . . . . . . . . . . . . . . 865 517 2,196 1.326
General and administrative . . . . . . . . . . . . . . . . . 952 765 2,619 2,258
--------- --------- --------- ---------
Total operating expenses. . . . . . . . . . . . . . . . 3,454 2,530 9,624 7,185
--------- --------- --------- ---------
Operating earnings . . . . . . . . . . . . . . . . . . . . . . . 2,436 1,744 6,526 4,647
Interest income. . . . . . . . . . . . . . . . . . . . . . . . . 418 402 1,135 1,091
--------- --------- --------- ---------
Earnings before income taxes . . . . . . . . . . . . . . . . . . 2,854 2,146 7,661 5,738
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141 852 3,066 2,314
--------- --------- --------- ---------
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $1,713 $1,294 $4,595 $3,424
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per common and common equivalent share. . . . . . . $0.20 $0.15 $0.54 $0.40
--------- --------- --------- ---------
--------- --------- --------- ---------
Shares used to compute per share amounts . . . . . . . . . . . . 8,618,903 8,537,969 8,586,845 8,489,977
--------- --------- --------- ---------
--------- --------- --------- ---------
See notes to condensed financial statements.
4
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 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. . . . . . . . . . . . . . . . . . . . - 26 - 26
Exercise of stock options, including tax benefit . . . . . . . . 57,981 837 - 837
Exercise of stock warrants . . . . . . . . . . . . . . . . . . . 2,000 5 5
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,595 4,595
----------- --------- ------------ -------------
Balance, September 30, 1996. . . . . . . . . . . . . . . . . . . 8,365,805 $60,775 $(19,882) $40,893
----------- --------- ------------ -------------
----------- --------- ------------ -------------
See notes to condensed financial statements.
5
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
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Operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,595 $3,424
Adjustment to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 785 432
Deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (447) (22)
Stock option compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 26
Purchase of trading securities (net). . . . . . . . . . . . . . . . . . . . . . . . . - (8,401)
Changes in:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (595) (842)
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (98) (270)
Deferred income tax assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,834 2,216
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (15)
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,194 988
Sublease loss reserve (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (365) 501
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (164) 396
---------- ----------
Net cash provided by (used in) operating activities. . . . . . . . . . . . . . . 8,762 (1,567)
---------- ----------
---------- ----------
Investing activities:
Sale of marketable securities-available for sale (net) . . . . . . . . . . . . . . . . . . (4,509) (1,421)
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (926) (1,517)
Capitalization of product development costs. . . . . . . . . . . . . . . . . . . . . . . . (172) (180)
---------- ----------
Net cash used in investing activities. . . . . . . . . . . . . . . . . . . . . . (5,607) (3,118)
---------- ----------
Financing activities:
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306 319
Exercise of stock warrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38
---------- ----------
Net cash provided by (used in) financing activities. . . . . . . . . . . . . . . 306 357
---------- ----------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 3,461 (4,328)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . 6,460 8,629
---------- ----------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . $9,921 $4,301
---------- ----------
---------- ----------
Other cash flow information:
Taxes paid during the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $232 $147
---------- ----------
---------- ----------
Noncash financing activities:
Tax benefit from non-qualified stock options exercised . . . . . . . . . . . . . . . . . . $536 $811
---------- ----------
---------- ----------
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 September 30, 1996, the statements of earnings for
the three and nine months ended September 30, 1996 and 1995, the statement
of shareholders' equity for the nine months ended September 30, 1996, and
the statements of cash flows for the nine months ended September 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 September 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 September 30, 1996 and 1995
are not necessarily indicative of the operating results anticipated for the
full year.
2. STOCK OPTIONS
During the first nine months of 1996, the Company granted options to
purchase 70,000 shares of the Company's common stock at prices of $21.875
to $36.5625 based on quoted market prices at the dates of the grant under
the Company's incentive compensation and automatic grant plans. During the
first nine months of 1996, options to purchase 57,981 shares of common
stock and warrants to purchase 2,000 shares of common stock were exercised.
At September 30, 1996, 665,511 shares are subject to outstanding options,
of which 165,761 options are exercisable. During the first nine months of
1996, shareholders approved an additional 500,000 share allocation to the
stock option pool. Options to purchase approximately 696,496 shares of
common stock are available for future grants under plans. During the nine
months ended September 30, 1996, compensation expense recognized pursuant
to the granting of stock options totaled $26,000 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. 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 34% to $14.7 million for the third
quarter of 1996, from $10.9 million for the third quarter of 1995. The
Company's revenues increased by 35% to $41.0 million during the first nine
months of 1996 from $30.4 million for the same period of 1995. These
increases were primarily attributable to three factors. First, the number
of customers increased from 151 retailers and 4,129 vendors as of
September 30, 1995 to 196 retailers and 5,006 vendors and carriers as of
September 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 the Company's
other products have not contributed a significant amount of revenue to the
Company during the first nine 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 32% to $8.8 million for the third
quarter of 1996, from $6.7 million for the third quarter of 1995. Cost of
sales increased by 34% to $24.8 million during the first nine months of
1996 from $18.5 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 40% for the third quarter of
1996 and 39% for 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 31% to $1.6 million for the third quarter of 1996, from
$1.2 million for the third quarter of 1995. Sales and marketing expenses
increased by 34% to $4.8 million for the first nine months of 1996,
compared to $3.6 million for the same period of 1995. The increase results
from increased introduction expenditures related to the Company's new
product releases in the first half 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
8
increased by 67% to $865,000 for the third quarter of 1996, from $517,000
for the third quarter of 1995. Product development costs increased by 66%
to $2.2 million for the first nine months of 1996 compared to $1.3 million
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 24% to
$952,000 for the third quarter of 1996, compared to $765,000 for the third
quarter of 1995. General and administrative expenses increased by 16% to
$2.6 million for the first nine months of 1996 compared to $2.3 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 increased to
$418,000 for the third quarter of 1996, compared to $402,000 for the third
quarter of 1995 as a result of higher invested balances offset partially by
a lower yield on investments. Interest income was $1.1 million for the
first nine months of 1996 and 1995.
Income tax was $1.1 million for the third quarter of 1996, compared to
$852,000 for the third quarter of 1995. Income taxes were $3.1 million for
the first nine months of 1996 compared to $2.3 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 32% to $1.7 million
for the third quarter of 1996, compared to $1.3 million for the third
quarter of 1995. Net earnings for the first nine months of 1996 was $4.6
million compared to $3.4 million for the same period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $25.4 million at December 31,
1995 to $22.3 million at September 30, 1996. Cash, cash equivalents and
marketable securities available-for-sale increased from $24.4 million at
December 31, 1995 to $32.4 million at September 30, 1996. Total assets
increased from $46.6 million at December 31, 1995 to $53.3 million at
September 30, 1996, while total liabilities increased from $11.2 million to
$12.4 million.
The increase in cash and cash equivalents from December 31, 1995 to
September 30, 1996 results primarily from cash provided by operating
activities.
Management believes that the cash resources available at September 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 through June 1997. The Company does not intend to pay cash
dividends with respect to common stock in the foreseeable future.
9
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
None
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
None
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
----------------------------------------
November 1, 1996 Tania Amochaev
President and Chief Executive Officer
\s\ Shawn M. O'Connor
----------------------------------------
November 1, 1996 Shawn M. O'Connor
Vice President and Chief Financial Officer
(Principal Financial Officer)
12