UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21958
QUICKRESPONSE SERVICES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0102251
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
1400 MARINA WAY SOUTH, RICHMOND, CALIFORNIA 94804
(Address of principal executive offices, including zip code)
(510) 215-5000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, no par value
(Title of Class)
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 filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of February 28, 1997 was approximately $231,215,738 (based upon
the closing price for shares of the Registrant's common stock as reported by the
Nasdaq National Market). Shares of common stock held by each officer, director
and holder of 5% or more of the outstanding common stock have been excluded in
that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
Number of shares of common stock outstanding as of February 28, 1997: 8,407,845
DOCUMENTS INCORPORATED BY REFERENCE
Designated portions of the following document are incorporated by reference into
this Report on Form 10-K where indicated:
QuickResponse Services, Inc. Proxy Statement for the Annual Meeting of
Stockholders to be held on or about May 30, 1997, Part III.
The exhibit index appears on Pages 41-42.
QUICKRESPONSE SERVICES, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
ITEM 1 Business 3
ITEM 2 Facilities 13
ITEM 3 Legal Proceedings 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
PART II
ITEM 5 Market for Registrant's Common Equity
and Related Shareholder Matters 14
ITEM 6 Selected Financial Data 15
ITEM 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
ITEM 8 Financial Statements 19
ITEM 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 33
PART III
ITEM 10 Directors and Executive Officers of the Registrant 34
ITEM 11 Executive Compensation 36
ITEM 12 Security Ownership of Certain Beneficial Owners and Management 36
ITEM 13 Certain Relationships and Related Transactions 36
PART IV
ITEM 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 37
SIGNATURES 40
2
PART I
ITEM 1. BUSINESS
QuickResponse Services, Inc. (the "Company" or "QRS" ) is a leading provider of
electronic commerce merchandising and logistics solutions that optimize its
customers' performance throughout the retail demand chain. The Company's
primary products include the world's largest centralized product information
database ("The QRS Catalog"), an integrated replenishment and sales analysis
service ("Collaborative Replenishment Services" or "CRS"), transportation and
logistics solutions ("Easy EDI" and "LMS") and electronic data interchange and
related network services ("EDI Services" and "EConnect Services") and Internet
services. The Company's business is subject to various risks and uncertainties
(see "Item 1. Business - Risk Factors").
The QRS Catalog was the first independent product information database using the
industry standard Universal Product Code ("U.P.C.") numbering system. Retailers
and vendors access The QRS Catalog and electronically exchange industry standard
business documents using EDI Services. Collaborative Replenishment Services is
a network-centric inventory management system that processes daily sales
information for specific products at specific stores. The system analyzes the
sales data, determines recommended order quantity and electronically
communicates and tracks the flow of the reordered items to ensure timely
delivery. QRS' transportation and logistics services allow retailers and
manufacturers to tender and track motor freight shipments to carriers using EDI
Services and provide delivery performance reporting. Integral to all of these
value-added services are the Company's EDI Services, which support retailers and
vendors' electronic exchange of purchase orders, invoices, shipping notices and
other business documents, including information from The QRS Catalog.
The Company provides its retailer, vendor and carrier customers with a single
source for implementing demand chain management solutions. The QRS Catalog is a
central repository of timely, complete and accurate vendor product information.
CRS is a network-centric application that eliminates the costly capital and
operating investment of a replenishment and sales analysis solution located at
the vendor or retailer site. The transportation and logistics solution
represents a single source of information that provides trading partners with
the information necessary to evaluate carrier performance and efficiency.
The Company was incorporated in California in 1985 and had 148 employees at
December 31, 1996. The Company's principal executive offices are located at
1400 Marina Way South, Richmond, California 94804, and its telephone number is
510-215-5000.
INDUSTRY BACKGROUND
The United States general merchandise retail industry accounts for revenues in
excess of $1.5 trillion, with approximately 1,000 retailers recording sales in
excess of $80 million. As competitive pressures within the industry have
intensified, retailers have focused increasingly upon the importance of
efficient merchandise management to improve their financial performance.
Failure to manage merchandise to meet customer demand results in lost sales. In
the soft goods industry alone, inefficiencies such as inadequate information,
excess inventories and slow communications between vendor and retailers have
been estimated to cost over $25 billion in lost revenues each year. Merchandise
management is a complex problem. For example, the average department store
carries more than one million stockkeeping units ("SKUs") at a time, each unique
in terms of product style, size and color. Each retailer's SKUs are produced by
hundreds, or in some cases thousands, of vendors. These vendors are required to
manage rapid production and accurate delivery of ordered merchandise to multiple
retail locations. To address these issues, retailers and vendors have in recent
years sought to develop strategies for optimizing selection and availability
while minimizing absolute inventory levels. These strategies are known
collectively in the industry as "quick response merchandise management" and are
intended to improve the efficiency of the retail demand chain. The participants
in the demand chain are actively pursuing ways to optimize the flow of
merchandise by improving procurement, inventory and distribution management.
QRS' network-centric applications align closely with the Company's customers'
needs in these three key strategic areas: The QRS Catalog and EDI Services
assist in procurement, Collaborative Replenishment Services provides valuable
inventory management tools through its replenishment, sales analysis and
forecasting services, and Easy EDI and LMS aid in transportation and logistics
services.
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Technology has made significant contributions to the evolution of merchandise
management. The replacement of cash registers with point of sale terminals
during the 1980s made possible automatic price look-up and merchandise tracking.
These capabilities, and the rapid spread of bar coding, soon led to the retail
industry's adoption of a standardized product identification, numbering and
communication format. Known as the universal product code, or U.P.C., this
standard has greatly increased the efficiency with which retailers and vendors
can mark, track and exchange product information.
During the same period, advances in data communications and the availability of
public data networks fostered the use of computers for the electronic
transmission of transaction documents, including purchase orders, invoices and
shipping instructions. Such paperless transactions are widely referred to as
electronic data interchange, or EDI. In conjunction with the broad use of
standard U.P.C.-based data, EDI has benefited retailers by lowering costs,
reducing errors and improving the timeliness of the merchandise ordering
process.
Despite the benefits of EDI, retailers have continued to rely on paper U.P.C.
catalogs or magnetic tapes published by each vendor as their primary source of
product information. Although updated frequently, such information quickly
becomes outdated and as a result these catalogs and tapes cannot provide the
real-time information necessary for quick response merchandise management. In
order to efficiently implement quick response merchandise management, retailers
and vendors need an independent, reliable centralized database containing U.P.C.
product information accessible through a reliable and secure data network.
QRS SERVICES
In order to improve the flow of information, goods and services throughout the
retail demand chain, the Company offers a range of services, including The QRS
Catalog, Collaborative Replenishment Services, transportation and logistics
solutions, electronic commerce solutions, Internet services and related
training, implementation and support. These services may be implemented
incrementally, allowing customers to integrate functions over time within their
organizations and with their trading partners.
THE QRS CATALOG
The QRS Catalog is the retail industry's largest U.P.C. database. As of
December 31, 1996, The QRS Catalog contained over 48 million U.P.C. entries and
supported a vendor customer base of over 1,500 companies. A vendor's
merchandise entries are classified by name, merchandise classification, style
number and U.P.C., as well as size, color and other relevant characteristics.
The U.P.C. classification system underlies all subsequent transaction
processing. When loaded into the database, the data is screened for accuracy
and completeness by the Company's software and is further reviewed by a Company
customer support representative. Vendor information is protected, and is
available only to trading partners approved by the vendor.
Pricing of The QRS Catalog services is based upon the formation of trading
partnerships between vendors and retailers. Each time a retailer accesses a
vendor's data in The QRS Catalog a trading partnership is formed and a specific
fee is charged for that month. In addition to the trading partnership charges,
a usage fee is charged based on the actual number of records the retailer
retrieves from The QRS Catalog.
The QRS Catalog is continually upgraded and enhanced to meet the needs of our
customers. In 1996, a Windows-based version of The QRS Catalog was released.
This version provides additional ordering information through the addition of
26 new data elements and increases the efficiency of the end users by providing
new filtering techniques to quickly access information.
COLLABORATIVE REPLENISHMENT SERVICES
CRS is a customized network-centric application for inventory management based
on individual manufacturer and retailer needs. CRS is intended to maximize both
retailers' and manufacturers' inventory management and increase sales by having
the right merchandise at the right place at the right time. CRS is comprised of
three services that aid in optimizing inventory and sales: replenishment, sales
analysis and forecasting.
4
Based on actual customer results, the initial replenishment program resulted in
a 25% increase in sales with a 30% decrease in inventory. While customers have
a choice of implementing third-party or in-house services, QRS believes its
replenishment solution is superior because it permits replenishment models to be
run daily, by U.P.C. and by store location. This permits optimum merchandise
management at the SKU level on a daily basis. Most in-house and third-party
applications are run monthly or bi-monthly and require large capital and
operating cost investments. Because all components of CRS are network-centric,
the Company believes that capital and operating costs for both the retailer and
the manufacturer will be reduced.
Released in 1996, Sales Analysis provides additional tools for the retailer and
vendor to enhance inventory management. Through Sales Analysis, both retailers
and their vendors can view daily sales in an easy-to-use Windows environment.
The information is available by product, by size and color down to the specific
store location. This information provides immediate data on which products are
doing well and which should be discontinued.
Forecasting, which is expected to be released in the first half of 1997, will
enable both retailers and their vendors to forecast sales for up to 53 weeks
using seasonal and promotional variables. From the simplest statistical method
to sophisticated neural networking technologies, Forecasting will support a
variety of statistical methods, allowing users to facilitate informed buying
and/or production decisions.
TRANSPORTATION AND LOGISTICS SERVICES
The Company's ShipNet division, with approximately 1000 enabled customers, is a
market leader in providing logistical information and communication services.
The Logistics Management System ("LMS") enables shippers to tender and track
motor freight shipments to carriers via EDI, and provides delivery performance
reporting. Easy EDI software provides entry level logistics solutions and EDI
interfaces for shippers and carriers.
The LMS and its PC-based enablement tool, Easy EDI, allow the capture,
transmission, storage and management of shipment information. This provides
customers electronic access to real-time information and allows both retailers
and manufacturers to conduct electronic commerce for tendering, freight
invoicing and other functions, track the current status of in-transit shipments
and notify affected parties of impending service failures.
The proactive notification of potential service failures and easy access to
accurate, timely information helps eliminate the uncertainty surrounding
individual orders or shipments. This leads to a reduction in costs and
order-fulfillment cycles as distribution channels become more efficient.
ELECTRONIC COMMERCE SOLUTIONS
Electronic commerce involves the automation of business-to-business transactions
through the use of telecommunications and computers to exchange and process
electronically commercial information and business transaction documents. Due
to the critical nature of these transactions, electronic commerce requires
reliable, secure, automated connectivity between businesses. Advantages of
electronic commerce include reduced clerical workload and elimination of
unnecessary paper handling; rapid, accurate, secure exchange of time sensitive
business information; reduced operating and inventory carrying costs; and
improved speed for ordering, delivering and paying for goods and services.
Electronic commerce typically involves software and network services to perform
critical business functions such as EDI, which facilitates uniform communication
with different trading partners, including suppliers, customers, transportation
carriers, financial institutions and governmental agencies. In addition,
electronic commerce includes value-added services such as e-mail, electronic
funds transfer, electronic forms and bulletin board and catalog services.
Currently, EDI is the most widely adopted component of electronic commerce.
EDI services provide the vehicle for electronic communication to and from QRS'
network-centric applications. In addition to providing access to QRS' demand
chain management applications, EDI enables retailers, vendors and carriers to
electronically exchange industry standard business documents, permitting
communication of purchase orders, invoices, shipping notices and other business
documents. As retailers, vendors and carriers expand their
5
utilization of QRS' value-added applications, the Company anticipates a shift in
revenue from the basic EDI services to more value-added services.
In order to support its customers' goals of achieving 100% electronic commerce
implementation, QRS provides its customers with EDI-to-Fax, a service whereby
QRS receives EDI documents from retailers and translates and faxes the documents
to non-EDI enabled vendors. In addition, QRS continually increases its ability
to enable increased numbers of trading partners quickly through its multi-tiered
support organizations, including account management, program sales and services
and customer and production support.
In 1996, QRS developed and released EConnect, a Windows-based software product
that allows vendors to communicate with their retailers electronically. From a
retailer's perspective, EConnect is a seamless EDI solution, while on the
vendor's side, it is an easy-to-use solution without the traditional start-up
costs associated with an EDI program.
INTERNET SERVICES
The Company provides its value-added services in a network-centric model. The
Company's applications for Catalog, CRS and transportation and logistic services
reside within the Company's data operations environment and are accessible
primarily through the IBM Global Network ("IGN") which is a Value-Added Network
("VAN").
Due to the "mission critical" nature of the customers' network activity, high
performance standards for reliability, auditability and enabling, and
maintenance services have been required for the successful implementation of
electronic commerce solutions. To date, the network access preferred by
customers to meet these needs has been that access provided by a VAN.
The emergence of the Internet as an alternative network access continues to gain
momentum. Although it appears at this time to present an opportunity for a more
cost-effective network service, the Internet has yet to achieve the performance
standards demanded for mission critical activities. Solutions for such
deficiencies are currently the subject of much effort and investment. The
Company views the Internet as a significant opportunity to expand the reach and
coverage of its value-added applications to trading partners who previously were
unable to participate in electronic commerce solutions due to technical or cost
constraints.
The Company is positioning itself to take advantage of the Internet as it
develops to meet the needs of its customers. Today, the Company provides
Internet services, including connectivity through its network services provided
by IGN, and assists customers in establishing a World Wide Web presence and
developing custom dial capabilities. The Company has developed and is beta
testing an Internet enableable graphical user interface, QRSolutions, to each of
its value-added service offerings. Implemented in a Windows environment, these
products allow delivery of a user friendly solution using an Internet protocol.
The products will be generally available initially through private Internet
protocol network access, such as IGN, to ensure performance standards are
achieved, but can be provided over the public Internet as such standards are
addressed. Finally, the Company has established an Internet presence to provide
customer support, including technical support, as well as forums for exchange of
information among retailers and vendors.
MARKETING, SALES AND CUSTOMER SUPPORT
The Company's marketing strategy is to be the driving force in retail demand
chain management. With the introduction of new products, the Company's
strategic reach significantly expanded in 1996 and now covers a greater portion
of the demand chain. The Company's marketing activities include participation
in industry conventions, trade shows and user groups. The Company's sales and
marketing personnel include numerous individuals with prior retail,
replenishment, transportation and EDI experience.
The Company utilizes experienced software development and customer service
personnel to assist customers in implementing and using the Company's catalog
and EDI services. The Company operates a 24-hour hotline for customers to call
with questions and problems and has a program to regularly contact its customers
by telephone to ensure customer satisfaction, currency of catalog data and
maximization of trading partner opportunities.
6
In addition to its own sales force, the Company also benefits from the marketing
efforts of IBM. IBM, in coordination with the Company, actively promotes the
use of its network services in the retail industry. The Company cooperates with
IBM marketing teams to generate leads and qualify prospects. IBM field sales
personnel currently are compensated for generating EDI revenue for IBM through
customer use of QRS services.
RETAILERS AND VENDOR CUSTOMERS
The Company markets its services to retailers and vendors, primarily in the
United States and Canada. As of December 31, 1996, the Company's Catalog and
EDI Services were being utilized by 205 retailers representing all segments of
the retail industry, with an emphasis in apparel and department store retailers.
The Company's customers also included approximately 4,700 general merchandise
vendors, selling a variety of goods ranging from apparel and shoes to cosmetics
to electronics and automotive goods.
The Company's customer base increased 6% from approximately 4,900 customers at
December 31, 1995 to approximately 5,200 customers at December 31, 1996. Its
QRS Catalog customer base remained stable with approximately 1,500 at December
31, 1995 and 1996. The number of U.P.C.s active in The QRS Catalog grew 13%
from 43 million at December 31, 1995 to 48 million at December 31, 1996. By
December 1996, there were 205 retailers, including 22 retailers who made the use
of The QRS Catalog a mandate or requirement to their vendors. These statistics
demonstrate the support of the retail industry for quick response merchandise
management.
Although none of the Company's customers accounted for more than 10% of its
revenues for any of the three years in the period ended December 31, 1996,
trading activities of three of the Company's retail customers, and their
vendors, represent a significant amount of the Company's business. Because of
the large number of vendors that transact business with each of these and other
retailers, the difficulty of allocating vendor EDI services to any particular
retailer trading partnership program, and differences in the manner in which
vendors and retailers allocate the cost of EDI services among each other, the
Company cannot precisely attribute revenues to particular retailer trading
partnership programs. Revenues attributable to three major retailers, and their
vendors, amounted to approximately $19 million, $16 million and $14 million in
1996, 1995 and 1994, respectively. Such amounts represented 34%, 38%, and 45%
of revenues for the years ended December 31, 1996, 1995 and 1994, respectively.
COMPETITION
The Company competes on the basis of service offerings, availability and quality
of support, implementation services, sales and marketing resources, and price.
The Company's competitors include a number of companies providing EDI services
to retailers and vendors. The EDI services business is highly competitive, and
competitive pricing may materially and adversely affect the prices the Company
can charge for its services. Competition may also affect the Company's ability
to attract new customers and retain and expand business with its existing
customers and may impact negatively the range of services offered to its
customers. The Company expects competition to increase as more companies enter
the market and existing competitors continue to change and expand their product
offerings. Several companies, including General Electric Information Services
Company, Sterling Commerce, Inc. and others, offer EDI and certain other network
services, including, a U.P.C. catalog. In-house systems and third-party
software providers are the Company's largest competitors relative to its CRS
products and services. The Company believes it provides a competitive advantage
relative to these products by offering daily management of inventory at the
U.P.C. and store level and significantly lower capital and operating costs.
Competitors for the Company's transportation and logistics offerings are
primarily other freight carriers who provide outsourcing to customers.
The Company differentiates itself from its competitors in part by providing the
U.P.C. catalog containing product information from the largest number of
vendors. The Company's business and results of operations could be materially
and adversely affected if other competitors introduce catalogs or if any
competitor provides a catalog that is superior to the Company's catalog. Many
of the Company's existing and potential competitors have financial, marketing or
technological resources that are greater than those of the Company, and there
can be no
7
assurance that the Company will be able to compete successfully. Some large
retailers and vendors operate private computer networks for transacting business
with their trading partners. It is possible that additional retailers and
vendors, including certain of the Company's existing customers, may develop and
implement similar private networks, thereby reducing the demand for the
Company's services. IGN has, under certain license and maintenance agreements
with the Company, the right to market the Company's catalog applications in
competition with the Company, in return for prescribed royalty and maintenance
payments. Although the Company does not believe that IGN has any current
intention to enter the Company's market, there can be no assurance that IGN will
not exercise its license rights and become a competitor, and the Company's
inability to obtain information may limit the Company's ability to provide for
any such contingency.
DATA CENTER
The Company operates its primary data center at its Richmond, California
offices, with additional capabilities at its Lisle, Illinois facilities. The
data center operates 24 hours a day, seven days a week, and is connected to the
Company's network provider through three leased data circuits in two routings to
ensure availability. The data center consists primarily of leased mainframe,
client/server, disk storage, tape drive and other peripheral technology to
provide on-line, batch and back-up operations. Catalog data is backed up and
shipped off site daily. The Company's facility and data center are both secured
with controlled access doors and the data center is equipped with a Halon fire
protection system, an Uninterrupted Power Supply (UPS) permitting an additional
20 minutes of continuous electrical power in the event of a power failure, and a
diesel generator permitting 24 hours of continuous electrical power. The data
center has a separate, isolated power source from the remainder of the facility.
The Company has contracted for an alternative operations facility in the event
of physical disaster.
PRODUCT DEVELOPMENT
The Company is focused on the development and upgrading of its valued added
applications: The QRS Catalog, CRS and transportation and logistic services.
IGN currently develops, implements and operates the network applications used by
the Company and many of its customers.
In 1996, 1995, and 1994, the Company expensed $3,127,000, $2,023,000, and
$961,000 respectively, of product development costs and capitalized $245,000,
$252,000, and $133,000 in 1996, 1995, and 1994, respectively, related to the
development and enhancement of The QRS Catalog interface, enhancement of network
support, Collaborative Replenishment Services, new technology and architecture
research. Capitalized software development costs are amortized over three
years. The Company's product development effort consists of in-house
development of software applications and integration of third-party software
tools to provide service offerings and contracted software development.
PROPRIETARY RIGHTS
The Company regards certain features of its software and documentation as
proprietary information and relies on a combination of contract, copyright,
trademark and trade secret laws and other measures for its protection. Although
data provided to QRS by its vendor customers is not proprietary to the Company,
the Company seeks to protect its U.P.C. catalog applications through copyright
laws. The Company has no patents, and existing copyright laws afford only
limited protection. The Company believes that, because of the rapid pace of
technological change in the EDI and other network services industry, trade
secret and copyright protection are less significant than factors such as the
knowledge, ability and experience of the Company's employees, product
enhancements and the timeliness and quality of support services.
VALUE-ADDED NETWORK SERVICES
The Company remarkets Value Added Network services provided through the IBM
Global Network ("IGN"). The Company is IGN's preferred industry remarketer of
network services to the retail market. Services provided include EDI,
connectivity, e-mail, Internet, electronic funds transfer and bulletin board
services.
The Company remarkets such services under a five year agreement commencing
January 1, 1993 that requires the Company to purchase $80 million of network
services over the term of the agreement in order to be eligible for increased
discounts. The Company has fulfilled its purchase obligation under this
agreement. In the fourth quarter
8
of 1996, the Company received further discount concessions from IGN without any
other material changes in the terms of its agreement.
UNIQUEST
On May 20, 1993, the Company sold its software and services business to
Uniquest, a publicly held company. The gain recognized from the sale of this
business for the year ended December 31, 1993 was $1,441,000. In connection with
the sale, the Company entered into various agreements with the buyer, including
the sublease of approximately 40,000 square feet of office space through
June 30, 2000. Minimum monthly lease payments ranged from $53,000 to $75,000
through the seven-year term of the lease.
At December 31, 1993, Uniquest was delinquent in its payments and owed the
Company approximately $1,358,000 under sublease and data center cost sharing
agreements. As a result, the Company provided an allowance of $1,018,000
against these receivables and made additional provisions of $2,009,000 against
nonpayment of future obligations. The result of the allowance and provision
described was to reduce the gain from sale of the software and services business
by $3,027,000. A $1,700,000 reserve provided in 1992 for lease payments related
to another vacant building was included to sublease loss reserves at December
31, 1993.
In May 1995, Uniquest entered into voluntary bankruptcy and subsequently
dissolved, resulting in the termination of the Company's sublease with Uniquest.
The Company received a payment of $923,000 and wrote off the balance of a note
for delinquent rent and data cost sharing amounts of approximately $1,158,000
against the sublease loss reserves. The Company filed a claim with the
Creditors' Committee for unsecured amounts owed by Uniquest totaling
approximately $740,000.
At December 31, 1996, the Company maintains sublease loss reserves of
$2,538,000. The Company may recognize additional gain from sale of the software
and services business at such time that all outstanding matters with the
discontinued business are resolved.
During 1995 and 1994, the Company recorded $164,000 and $624,000 as sublease
income and $77,000 and $1,102,000 as data center cost reimbursements from
Uniquest as reductions of occupancy expense and data center-cost of sales,
respectively.
RISK FACTORS
INTENSE COMPETITION. The Company competes with a number of companies providing
electronic commerce services to retailers and vendors. The electronic commerce
services business is highly competitive, and competitive pricing may materially
adversely affect the prices the Company can charge. Competition may also affect
the Company's ability to gain new customers and retain and expand business with
its existing customers, and the range of services offered to its customers. The
Company expects competition to increase as more companies enter the market and
existing competitors continue to change and expand their product offerings.
Many of the Company's existing and potential competitors have financial,
marketing or technological resources that are greater than those of the Company,
and there can be no assurance that the Company will be able to compete
successfully. Some large retailers and vendors operate private computer
networks for transacting business with their trading partners. It is possible
that additional retailers and vendors, including certain of the Company's
existing customers, may develop and implement similar private networks, thereby
reducing the demand for the Company's services. IBM has, under certain license
and maintenance agreements with the Company, the right to market the Company's
catalog applications in competition with the Company, in return for prescribed
royalty and maintenance payments. IBM has informed the Company that various
types of information regarding such matters as IBM's current activities,
intentions, plans and projections with respect to its business are confidential
to IBM and, accordingly, will not be disclosed. Although the Company does not
believe that IBM has any current intention to enter the Company's market, there
can be no assurance that IBM will not exercise its license rights and become a
competitor, and the Company's inability to obtain information may limit the
Company's ability to provide for any such contingency. If IBM were to become a
competitor, the Company's business and results of operations could be materially
adversely affected. See "Item 1. Risk Factors - Dependence on IGN" and "Item 1.
Business - Competition."
9
DEPENDENCE ON KEY RETAILERS. The Company's customers include several retailers
with a large number of vendor trading partners. Although none of the Company's
customers accounted for more than 10% of its revenues for the three years ended
December 31, 1996, trading activities of three of the Company's retail
customers, and their vendors, represent a significant amount of the Company's
business. Because of the large number of vendors that transact business with
each of these and other retailers, the difficulty of allocating vendor EDI
services to any particular retailer, and differences in the manner in which
vendors and retailers allocate the cost of EDI services among each other, the
Company cannot precisely attribute revenues to particular retailers. However,
the Company estimates that slightly over 34% of its revenue for 1996 could be
attributable to trading activities involving these three retailers and their
vendors. In addition, one or more of the Company's retailers could elect either
to develop their own catalog and EDI services or to transfer all or a
significant portion of their trading activities to a competitor. In addition,
any such transfer could result in many of the retailer's vendor partners
electing not to maintain their U.P.C. catalog information with the Company. Any
transfer that results in a loss or significant reduction in the Company's
catalog and EDI services business could have a material adverse effect on the
Company's business and results of operations. See "Item 1. Business - Retailer
and Vendor Customers" and Note 8 of the Notes to Financial Statements.
DEPENDENCE ON IGN. Since 1988, the Company has used the IGN value-added network
("VAN") to provide customers with certain electronic commerce services,
including EDI and connectivity. The maintenance and operation of the VAN is
controlled solely by IGN. The Company depends on the IGN VAN for a substantial
part of its revenues and such dependence is expected to continue for the
foreseeable future. Since the Company has no right to control the maintenance
and operation of the VAN, IGN's decision with respect to such matters may have a
material impact on the Company's business and results of operations. In
addition, disruption or unavailability of the IGN VAN could have a material
adverse effect on the Company's business and results of operations.
IGN charges the Company for the network services used by its customers. These
charges are subject to specified volume discounts and allowances. In the event
that IGN determines to increase the prices that it charges the Company or
reduces the amount of discounts or allowances, there can be no assurance that
the Company will be able to pass along these changes to its customers. If it
cannot do so, the Company's business and results of operations could be
materially adversely affected. The Company has an agreement with IGN for the
purchase of $80 million of network services over a five year period which began
January 1, 1993. Based upon the current relationship with IGN, the Company
anticipates an ability to renew the agreement beyond December 31, 1997.
While the Company believes that it is the only remarketer of IGN services to the
retail industry, the Company does not have an exclusive arrangement with IGN.
If IGN marketed its network services directly to the Company's customers or
permitted a competitor of QRS to use and remarket these services to the retail
industry, the Company's business and results of operations could be materially
adversely affected. IGN is free to compete against the Company, and there can
be no assurance that IGN will not choose to compete with the Company in the
future.
IGN provides the Company's customers certain EDI implementation and support
services. If IGN were unable or unwilling to provides these services, the
Company would either have to provide these services directly or arrange for a
third-party to provide such services. There can be no assurance that the
Company would be able to do so on a timely basis, if at all, or that the costs
of any such arrangements would not materially adversely affect the Company's
business and results of operations. See "Item 1. Business - Value Added Network
Services."
TECHNOLOGICAL CHANGE. The EDI services industry is characterized by continuously
evolving standards and technology. The Company's ability to anticipate or guide
retail industry standards, to continue to apply advances in network technology
and to develop new catalog and other applications will be a significant factor
in the Company's ability to grow and remain competitive. Because the Company's
current pricing structure is partially based on the number of characters
transmitted, the Company's business and results of operations could be
materially adversely affected if new compression technology were introduced
which reduces the number of characters needed to transmit electronically
business documents. In addition, new technologies could be developed or
enhanced that could make existing catalog and EDI services technology obsolete.
There can be no assurance that the Company will be able to respond in a timely
manner to technological changes or that the ability of
10
competitors to successfully incorporate evolving standards and technologies into
new services will not render the Company's services noncompetitive. The failure
by the Company to adapt to or incorporate new standards or technology could have
a material adverse effect on the Company's business and results of operation.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS. The Company's future growth depends on
its successful and timely introduction of new products and services in markets
that do not currently exist or are just emerging. The Company, however, has not
yet completed development of all of these services and there can be no assurance
that the Company will successfully complete any such development or that if such
development is completed, the Company's planned introduction of these services
will realize market acceptance or will meet the technical or other requirements
of potential customers.
Software products as complex as those used in the electronic commerce industry
may contain undetected errors or failures when first introduced or when new
versions are released. If software errors are discovered after introduction,
the Company could experience delays or lost revenues during the period required
to correct these errors. There can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of, or delay in, market acceptance, which could have a material adverse
effect on the business, results of operations and financial condition of the
Company. See "Item 1. Business - Product Development."
DEPENDENCE ON DATA CENTER. The QRS Catalog runs on a computer system contained
in the Company's data center facility in Richmond, California. The data center
is located in a single facility and the Company has no present intention of
establishing an additional data center in a separate location. The Company
utilizes fault tolerant IBM mainframe computer equipment. The Company has
arranged for use of off-site computer facilities, if necessary, and has taken
other precautions to protect itself and its customers from events that could
interrupt delivery of the Company's services. These precautions include
off-site storage of back-up data, fire protection and physical security systems
and an early warning detection and Halon fire extinguishing system.
Notwithstanding these precautions, there can be no assurance that a fire,
earthquake or other natural disaster affecting the data center would not disable
the Company's computer system. The Company's data center connects to the IGN
San Francisco hub. In the event that service through this location is
interrupted, the Company has back-up access through the IGN Seattle hub. Any
significant damage to the Company's data center or disruption of its
connectivity to the IGN network could have a material adverse effect on the
Company's business and results of operations. See "Item 1. Business - Data
Center."
ABILITY TO MANAGE GROWTH. The Company has significantly increased its service
offerings and customers. Maintaining profitability during a period of expansion
will depend, among other things, on the Company's ability to manage effectively
its operations. Difficulties in managing continued growth could have a material
adverse effect on the Company's business and results of operations.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
extent upon the performance of its executive officers and other key employees,
particularly the members of senior management. The Company has no
"key-personnel" life insurance for any of its senior management and does not
currently intend to purchase any such policies. There is no assurance that QRS
will be able to continue to attract and retain the qualified personnel necessary
for the development of its business. The loss of the services of key personnel
or the failure to recruit necessary additional personnel could have a material
adverse effect on the Company's business and results of operations.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY. The Company relies on a
combination of copyright, trade secret, and trademark laws and nondisclosure
agreements to protects its proprietary rights. Existing copyright laws afford
only limited protection. While the Company uses both internal proprietary and
IGN network security measures, it may be possible for unauthorized third parties
to copy the Company's products and services or to reverse engineer or otherwise
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products and services is difficult. Further,
the laws of certain countries in which the Company's products or services may be
distributed may not protect the Company's products or services and intellectual
rights
11
to the same extent as the laws of the United States. If unauthorized third
parties copy or reverse engineer or otherwise obtain and use information the
Company regards as proprietary, the Company's business and results of operations
could be materially adversely affected.
THE INTERNET. The Internet is an interconnected global network of computer
systems linked together through a common protocol. Although the Company
believes that the Internet will provide opportunities to expand the electronic
commerce market, there can be no assurance that the Company's efforts to exploit
such opportunities will be successful or that increased usage of the Internet
for electronic commerce or increased competition will not adversely affect the
business, results of operations and financial condition of the Company. To
date, the Internet's use by the Company's customers or potential customers to
exchange their "mission critical" data significant to their business has been
limited.
FACTORS AFFECTING OPERATION RESULTS; POTENTIAL FLUCTUATIONS IN QUARTERLY
RESULTS. The Company's future quarterly operating results may vary and reduced
levels of earnings or losses could be experienced in one or more quarters.
Fluctuations in the Company's quarterly operating results could result from a
variety of factors, including changes in the levels of revenues derived from
each product, the timing of new service announcements by the Company or its
competitors, changes in pricing policies by the Company or its competitors,
market acceptance of new and enhanced versions of the products and services of
the Company or its competitors, the size and timing of significant orders,
changes in operation expenses, changes in the Company's strategy, the
introduction of alternative technologies, the effect of potential acquisitions
and industry and general economic factors. The Company has limited or no
control over many of these factors.
GOVERNMENT REGULATORY AND INDUSTRIAL POLICY RISKS. Current regulations and laws
governing the telecommunications industry generally do not apply to providers of
electronic commerce services and products. Except for government regulations in
certain foreign countries (which may affect the provision of certain of the
Company's services or use of certain of its products) and regulations governing
the ability of the Company to disclose the contents of communications by its
customers, there are no government regulations pertaining to the pricing,
service characteristics or capabilities, geographic distribution or quality
control features of the Company's electronic commerce services or products.
There exists, however, the risk that governmental policies affecting the
electronic commerce industry could be implemented by executive order,
legislation, administrative order or otherwise. If such policies are adopted,
they could have a material adverse effect on the business, results of operations
and financial condition of the Company.
VOLATILITY OF STOCK PRICE. The market price of the Company's Common Stock has
fluctuated significantly since the initial public offering in August 1993. The
market price of the Common Stock could be subject to significant fluctuations in
the future based on factors such as announcements of new products by QRS or its
competitors, quarterly fluctuations in the Company's financial results or other
electronic commerce services companies' financial results, changes in analysts'
estimates of the Company's financial performance, general conditions in the
electronic commerce services industry and conditions in the financial markets.
In addition, the stock market in general has experienced extreme price and
volume fluctuations, which have particularly affected the market prices for many
high technology companies and which have often been unrelated to the operating
performance of the specific companies. Many technology companies, including the
Company, have recently experienced historic highs in the market price of their
equity securities. There can be no assurance that the market price of the
Common Stock will not decline substantially from such historic highs, or
otherwise continue to experience significant fluctuations in the future.
12
ITEM 2. FACILITIES
The Company leases approximately 40,000 square feet of office space in Richmond,
California for its corporate headquarters. The lease expires on June 30, 2000.
The Company leases approximately 8,000 square feet of office space in Lisle,
Illinois. The leases expire on December 31, 1997. Management believes that
the Company's facilities are adequate for its level of business and its
near-term growth requirements.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The Company's common stock has been traded in the over-the-counter market on the
Nasdaq National Market under the symbol QRSI since the Company's initial public
offering in August 1993. According to records of the Company's transfer agent,
the Company had approximately 52 shareholders of record as of February 28, 1997.
Because many of such shares are held by brokers and other institutions on behalf
of shareholders, the Company is unable to estimate the total number of
beneficial holders of the common stock. The following table sets forth the low
and high sale price of the Company's common stock for the period ended December
31, 1996:
PERIOD ENDED LOW HIGH
- ------------------------------------------ --------- ---------
Four quarters ended December 31, 1995:
First Quarter 11.00 19.25
Second Quarter 17.25 23.50
Third Quarter 20.00 26.00
Fourth Quarter 18.38 26.75
Four quarters ended December 31, 1996:
First Quarter 17.75 26.25
Second Quarter 25.50 37.13
Third Quarter 27.75 41.50
Fourth Quarter 28.00 40.25
The Company's policy has been to reinvest earnings to fund future growth.
Accordingly, the Company has paid no cash dividends on its common stock and does
not anticipate declaring dividends on its common stock in the foreseeable
future.
14
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER, 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
STATEMENTS OF OPERATIONS DATA
Revenues $56,746 $42,134 $31,382 $22,457 $13,253
Operating earnings 9,442 2,479 (1) 5,311 3,124 1,429
Earnings (loss) from continuing
operations before income taxes 11,019 3,961 5,980 1,911 (90)
Discontinued operations:
Earnings (loss) from operations of
software and services business - - - - (3,119)
Gain from sale of software and
services business - - - 1,441 -
Income tax expense (benefit) 4,408 1,574 (7,985) - -
Extraordinary loss on extinguishment
of debt - - - (763) -
------- ------- ------- ------- -------
Net earnings (loss) $6,611 $2,387 $13,965 $2,589 $(3,209)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
Earnings (loss) per share - continuing
operations $0.77 $0.28 $1.67 $.31 $(.12)
Earnings (loss) per share -
discontinued operations - - - .26 (.93)
Extraordinary item - - - (.14) -
------- ------- ------- ------- -------
Net earnings (loss) per share $0.77 $0.28 $1.67 $.43 $(1.05)
------- ------- ------- ------- -------
------- ------- ------- ------- -------
(1) 1995 results include write-off of purchased in-process research and
development of $4,318.
DECEMBER 31,
(IN THOUSANDS)
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
BALANCE SHEET DATA
Working capital (deficit) $29,416 $30,248 $23,024 $17,946 $(19,219)
Total assets 55,946 46,592 39,910 23,135 12,564
Long-term debt - - - 493 849
Convertible redeemable preferred
stock - - - - 3,299
Shareholders' equity (deficit) 43,570 35,430 31,427 15,485 (25,272)
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FORM 10-K 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. FACTORS THAT MIGHT CAUSE A
DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "ITEM 1. BUSINESS
- - RISK FACTORS."
GENERAL
QRS 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 and vendors to automate and improve
their merchandise management. 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. EDI services
pricing also incorporates discounts based on volume.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain line items in the Company's statements of
operations:
YEARS ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
Revenues 100% 100% 100%
Cost of sales 60 61 61
----------- ----------- -----------
Gross profit 40 39 39
Operating expenses:
Sales and marketing 11 11 11
Product development 6 5 3
General and administrative 7 7 8
Purchased in-process research
and development - 10 -
----------- ----------- -----------
Total operating expenses 24 33 22
----------- ----------- -----------
Operating earnings 16 6 17
Interest income (net of expense) 3 3 2
----------- ----------- -----------
Earnings before income taxes 19% 9% 19%
----------- ----------- -----------
----------- ----------- -----------
REVENUES
Revenues increased from $31.4 million in 1994 to $42.1 million in 1995 and to
$56.7 million in 1996 representing increases of 34% from 1994 to 1995 and 35%
from 1995 to 1996. These increases were primarily attributable to four factors.
First, the number of customers increased from 131 retailers and 3,692 vendors at
December 31, 1994 to 156 retailers and 4,865 vendors as of December 31, 1995 and
to 205 retailers and 4,973 vendors and carriers as of December 31, 1996.
Second, the number of catalog trading partnerships increased significantly 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. Fourth, the Company expanded its product offerings by introducing
Collaborative Replenishment Services and transportation and logistics services.
16
COST OF SALES
Cost of sales consists primarily of the cost of purchasing network services, the
cost of the Company's data centers and technical customer support services.
Cost of sales increased from $19.1 million in 1994 to $25.5 million in 1995 and
to $33.8 million in 1996. These increases were principally due to increases in
purchased network services reflecting growth in EDI services purchased under a
long-term contract, discounted based upon a multi-year volume commitment, and an
expanded customer support group reflecting growth in customers and products.
The Company's data center costs declined from 1994 to 1995 due to lowered
hardware and software costs and increased in 1996 due to additional equipment
leases. The expense reductions from 1994 and 1995 were offset by, and the
expense increases from 1995 to 1996 were augmented by, lower cost-reimbursements
from Uniquest which decreased from $1.1 million in 1994 to $77,000 in 1995 and
$0 in 1996. Cost of sales as a percentage of revenue decreased from 61% in 1994
and 1995 to 60% in 1996. Cost of sales as a percentage of revenues decreased
slightly in 1996 due to increases in higher margin revenue from The QRS Catalog,
increased operating efficiencies in data center operations, and higher discounts
on EDI services partially offset by increased sales of certain lower margin
network services and volume discounts earned by larger customers.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of personnel and related costs in
the Company's sales and marketing organizations, as well as the costs of various
marketing programs. Sales and marketing costs increased from $3.6 million in
1994 to $4.7 million in 1995 and to $6.5 million in 1996 , reflecting the
general increase in the number of customers and the size of the Company's
operations, and represented 11% of revenues in years 1994, 1995 and 1996.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses consist primarily of personnel and equipment costs
related to research, development and implementation of new services, and
maintenance of existing services. Product development expenses increased from
$1.0 million in 1994 to $2.0 million in 1995 and to $3.1 million in 1996 and
represented 3%, 5% and 6% of revenues, respectively. The 1996 increase is
consistent with the incremental effort to support expanding service offerings.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of personnel and related
costs of the Company's finance and administrative organizations, as well as
professional fees and other costs. General and administrative expenses
increased from $2.4 million in 1994 to $3.1 million in 1995 and to $3.9 million
in 1996 and represented 8%, 7% and 7% of revenues, respectively. These dollar
increases resulted primarily from increased staffing to support the Company's
growth.
PURCHASED IN-PROCESS RESEARCH AND DEVELOPMENT
In October 1995, the Company acquired certain assets and liabilities of ShipNet
Systems, Inc. ("ShipNet"), a provider of transportation logistics services. The
total acquisition cost was $4.9 million, including $200,000 paid in cash,
assumption of certain liabilities of $3.3 million, shutdown, relocation and
severance expenses of $1.1 million associated with integrating ShipNet's
operations, and $300,000 in transaction costs related to the acquisition.
The acquisition was accounted for as a purchase transaction. In connection with
the acquisition and in conjunction with the Company's capitalized software
policies, $4.3 million of the purchase price was allocated to purchased
in-process research and development and charged to operations as technological
feasibility had not been established and no alternative future uses existed at
the acquisition date. The Company allocated $0.6 million of the purchase price
to current assets and property and equipment.
17
In addition, the Company spent approximately $100,000 and $600,000 in 1995 and
1996, respectively, in order to complete the development of the acquired
in-process products.
INTEREST INCOME
Interest income consists primarily of interest earned on cash, cash equivalents
and investment securities, including cash accumulated from the Company's initial
public offering of common stock in August 1993, as well as subsequent positive
cash flow from operations. Interest income increased from $0.7 million in 1994
to $1.5 million in 1995 and to $1.6 million in 1996.
INCOME TAXES
In 1993, the Company established a valuation reserve for its deferred tax assets
which primarily consisted of the tax benefits of prior year losses and tax
credits, because there was no assurance that sufficient taxable income would be
generated in the future to realize these deferred tax assets. The valuation
allowance totaled $10.6 million at December 31, 1993. At December 31, 1994,
management evaluated its 1994 and 1993 operating results as well as its
projections for 1995 and future years and concluded that it was more likely than
not that the deferred tax assets would be realized. Accordingly, the valuation
allowance was removed resulting in an income tax credit of $8.0 million for the
year ended December 31, 1994. The Company's effective income tax rate in 1996
and 1995 was 40%.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $30.2 million at December 31, 1995
to $29.4 million at December 31, 1996. Cash, cash equivalents and marketable
securities available-for-sale increased from $24.4 million at December 31, 1995
to $34.6 million at December 31, 1996. At December 31, 1996, $10.0 million of
marketable securities available-for-sale were classified as non-current assets
and therefore were not included in working capital. Total assets increased from
$46.6 million at December 31, 1995 to $55.9 million at December 31, 1996, while
total liabilities increased from $11.2 million at December 31, 1995 to $12.4
million at December 31, 1997.
During 1995, the Company acquired certain assets ShipNet for $4.9 million
including the assumption of certain liabilities, relocation, personnel and
transaction costs. The Company disbursed approximately $2.3 million and $1.2
million of such funds in 1995 and 1996 respectively, and expects the remaining
funds to be disbursed in 1997.
Income tax net operating loss carryforwards are anticipated to run out during
1997 and will result in an increased use of cash for payment of taxes.
Management believes that the cash, cash equivalents and marketable securities
available-for-sale at December 31, 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 1997. However, the Company may
choose to raise additional cash through the sale of equity or debt prior to such
time. The Company has no plans to pay dividends with respect to common stock in
the foreseeable future.
18
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report 20
Balance Sheets 21
Statements of Earnings 22
Statements of Shareholders' Equity 23
Statements of Cash Flows 24
Notes to Financial Statements 25-32
19
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
QuickResponse Services, Inc.:
We have audited the accompanying balance sheets of QuickResponse Services, Inc.
(the "Company") as of December 31, 1996 and 1995, and the related statements of
earnings, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of QuickResponse Services, Inc. at December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Jose, California
January 30, 1997
20
QUICKRESPONSE SERVICES, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(DOLLARS IN THOUSANDS)
ASSETS
1996 1995
------- -------
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . $16,022 $ 6,460
Marketable securities, available-for-sale. . . . . . . . . . . . . . . . . . . 8,605 17,976
Accounts receivable - net of allowance for doubtful accounts of $722 and
$460 in 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,294 8,032
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 4,130 4,860
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,141 812
------- -------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 39,192 38,140
------- -------
Property and equipment:
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,322 1,052
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,017 3,005
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,344 1,249
------- -------
6,683 5,306
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . 2,747 1,946
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,936 3,360
Marketable securities, available-for-sale. . . . . . . . . . . . . . . . . . . . 9,985 -
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,308 4,642
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525 450
------- -------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $55,946 $46,592
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,480 $ 3,582
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,435 3,437
Current portion of sublease loss reserves. . . . . . . . . . . . . . . . . . . 861 873
------- -------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 9,776 7,892
------- -------
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923 1,141
Sublease loss reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,677 2,129
------- -------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,376 11,162
Commitments and contingencies (Note 7) . . . . . . . . . . . . . . . . . . . . . - -
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; 8,407,220
shares outstanding in 1996 and 8,305,824 in 1995. . . . . . . . . . . . . . . 61,394 59,907
Unrealized gain on investments . . . . . . . . . . . . . . . . . . . . . . . . 42 -
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,866) (24,477)
------- -------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . 43,570 35,430
------- -------
Total liabilities and shareholders' equity . . . . . . . . . . . . . . . . . . . $55,946 $46,592
------- -------
------- -------
See notes to financial statements.
21
QUICKRESPONSE SERVICES, INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994
------- ------- -------
Revenues . . . . . . . . . . . . . . . . . . . . . . . $56,746 $42,134 $31,382
Cost of sales. . . . . . . . . . . . . . . . . . . . . 33,802 25,520 19,126
------- ------- -------
Gross profit . . . . . . . . . . . . . . . . . . . . . 22,944 16,614 12,256
Operating expenses:
Sales and marketing. . . . . . . . . . . . . . . . . 6,512 4,707 3,580
Product development. . . . . . . . . . . . . . . . . 3,127 2,023 961
General and administrative . . . . . . . . . . . . . 3,863 3,087 2,404
Purchased in-process research and development. . . . - 4,318 -
------- ------- -------
Total operating expenses. . . . . . . . . . . . . 13,502 14,135 6,945
Operating earnings . . . . . . . . . . . . . . . . . . 9,442 2,479 5,311
Interest income (net). . . . . . . . . . . . . . . . . 1,577 1,482 669
------- ------- -------
Earnings before income taxes . . . . . . . . . . . . . 11,019 3,961 5,980
Income tax expense (benefit) . . . . . . . . . . . . . 4,408 1,574 (7,985)
------- ------- -------
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 6,611 $ 2,387 $13,965
------- ------- -------
------- ------- -------
Net earnings per common and common share equivalents . $0.77 $0.28 $1.67
------- ------- -------
------- ------- -------
Shares used to compute per share amounts . . . . . . . 8,613 8,499 8,379
------- ------- -------
------- ------- -------
See notes to financial statements.
22
QUICKRESPONSE SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
UNREALIZED
COMMON STOCK GAIN ON ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT INVESTMENT DEFICIT EQUITY
------------------------ ---------- ----------- ------------
Balance, January 1, 1994 . . . . . . . . 7,862,384 $56,314 $ - $(40,829) $15,485
Stock option compensation. . . . . . . . - 35 - - 35
Exercise of stock options, including tax
benefit. . . . . . . . . . . . . . . . 238,517 1,765 - - 1,765
Issuance of common stock under Employee
Stock Purchase Plan. . . . . . . . . . 13,392 137 - - 137
Exercise of warrant. . . . . . . . . . . 16,000 40 - - 40
Net earnings . . . . . . . . . . . . . . - - - 13,965 13,965
--------- --------- --------- --------- ---------
Balance, December 31, 1994 . . . . . . . 8,130,293 58,291 - (26,864) 31,427
Stock option compensation. . . . . . . . - 35 - - 35
Exercise of stock options, including tax
benefit. . . . . . . . . . . . . . . . 143,951 1,363 - - 1,363
Issuance of common stock under Employee
Stock Purchase Plan. . . . . . . . . . 16,580 180 - - 180
Exercise of warrant. . . . . . . . . . . 15,000 38 - - 38
Net earnings . . . . . . . . . . . . . . - - - 2,387 2,387
--------- --------- --------- --------- ---------
Balance, December 31, 1995 . . . . . . . 8,305,824 59,907 - (24,477) 35,430
Stock option compensation. . . . . . . . - 35 - - 35
Exercise of stock options, including tax
benefit. . . . . . . . . . . . . . . . 80,190 1,141 - - 1,141
Issuance of common stock under Employee
Stock Purchase Plan. . . . . . . . . . 19,206 306 - - 306
Exercise of warrant. . . . . . . . . . . 2,000 5 - - 5
Unrealized gain on investments . . . . . 42 42
Net earnings . . . . . . . . . . . . . . - - - 6,611 6,611
--------- --------- --------- --------- ---------
Balance, December 31, 1996 . . . . . . . 8,407,220 $61,394 $42 $(17,866) $43,570
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
See notes to financial statements.
23
QUICKRESPONSE SERVICES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)
1996 1995 1994
------- ------- -------
Operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,611 $ 2,387 $13,965
Adjustment to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 1,153 618 419
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 35 64
Purchased in-process research and development . . . . . . . . . . . - 4,318 -
Purchase of trading securities - net. . . . . . . . . . . . . . . . - (8,401) (3,163)
Changes in deferred income tax assets . . . . . . . . . . . . . . . . 3,877 1,338 (8,256)
Changes in:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . (1,262) (2,273) (1,867)
Prepaid expenses and other . . . . . . . . . . . . . . . . . . . . (329) (343) 18
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (5) 150
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . 1,898 1,750 285
Other accrued liabilities. . . . . . . . . . . . . . . . . . . . . 1,149 61 466
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . (218) (99) 116
Sublease loss reserves (net) . . . . . . . . . . . . . . . . . . . (464) 326 (769)
------- ------- -------
Net cash provided by (used in) operating activities . . . . . . 12,442 (288) 1,428
Investing activities:
Marketable securities - available for sale (net) . . . . . . . . . . . . (572) 2,335 -
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . (1,551) (2,197) (518)
Capitalization of product development costs. . . . . . . . . . . . . . . (245) (252) (133)
Payment of liabilities assumed in the acquisition of Shipnet . . . . . . (1,151) (2,339) -
------- ------- -------
Net cash used in investing activities . . . . . . . . . . . . . (3,519) (2,453) (651)
Financing activities:
Proceeds from issuance of common stock -net. . . . . . . . . . . . . . . 306 180 137
Exercise of stock options. . . . . . . . . . . . . . . . . . . . . . . . 328 354 189
Exercise of warrants . . . . . . . . . . . . . . . . . . . . . . . . . . 5 38 40
Payments on long-term debt . . . . . . . . . . . . . . . . . . . . . . . - - (669)
------- ------- -------
Net cash provided by (used in) financing activities . . . . . . 639 572 (303)
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . 9,562 (2,169) 474
Cash and cash equivalents at beginning of year . . . . . . . . . . . . . . 6,460 8,629 8,155
------- ------- -------
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . $16,022 $ 6,460 $ 8,629
------- ------- -------
------- ------- -------
Other cash flow information:
Interest paid during the year. . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 73
------- ------- -------
------- ------- -------
Taxes paid during the year . . . . . . . . . . . . . . . . . . . . . . . $ 498 $ 284 $ 129
------- ------- -------
------- ------- -------
Noncash investing and financing activities:
Conversion of accounts receivable from Uniquest to subordinated note
Conversion of accounts receivable from Uniquest to subordinated
note receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ - $ 2,178
Tax benefit from non-qualified stock options exercised . . . . . . . . . 813 1,009 1,576
Assumption of liabilities related to ShipNet acquisition . . . . . . . . - 4,724 -
Assumption of accounts receivable, property and equipment, and other
assets related to ShipNet acquisition . . . . . . . . . . . . . . . . - 406 -
Unrealized gains on marketable securities, available-for-sale. . . . . . 42 - -
See notes to financial statements
24
QUICKRESPONSE SERVICES, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF THE BUSINESS
QuickResponse Services, Inc. provides electronic commerce and merchandise
logistics solutions that optimize its customers' performance throughout the
retail demand chain. The Company's products include The QRS Catalog,
Collaborative Replenishment Services, Electronic Data Interchange and related
network services and transportation services including Logistics Management
Systems and EasyEDI-SM-.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
All services revenues are recognized in the month in which the service is
performed.
PRODUCT DEVELOPMENT COSTS
The Company capitalizes certain development costs related to its product
offerings based upon the establishment of technological feasibility. Capitalized
development costs are amortized over various periods up to three years. The
capitalization and ongoing assessment of recoverability of development costs
requires considerable judgment by management with respect to certain external
factors, including, but not limited to, technological and economic feasibility,
and estimated economic life. Costs incurred to maintain existing product
offerings are expensed as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated on a straight-line
basis over their estimated useful lives, which are generally five years or the
life of the lease, whichever is shorter. Depreciation expense for the years
ended December 31, 1996, 1995 and 1994 was $924,000, $516,000 and $353,000,
respectively.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.
MARKETABLE SECURITIES, AVAILABLE-FOR-SALE
Effective April 1, 1995, the Company determined that its portfolio of marketable
debt securities met the criteria for being classified as "Available for Sale"
under Statement of Financial Accounting Standard No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." Previously the Company had
classified its marketable securities as "Trading Securities" under that
Standard. There was no effect on the financial statements of the change in
classification of these marketable debt securities, since the cost of such
securities approximated the fair market value at March 31, 1995. The Company
classifies those marketable securities which mature in less than one year as
short-term marketable securities.
EARNINGS PER SHARE
Primary earnings per share is based on the weighted average of common and common
equivalent shares outstanding, which includes stock options and warrants if
dilutive.
STOCK OPTION COMPENSATION
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation" effective for the Company's year ended
December 31, 1996. SFAS No. 123 establishes accounting and disclosure
requirements using a fair-value based method of accounting for stock-based
employee compensation plans. As allowed under provisions of SFAS No. 123, the
Company has chosen to continue the intrinsic value based method and provide pro
forma disclosures of net earnings and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted; therefore such adoption has no
effect on the Company's earnings or cash flows. See Note 10.
25
USE OF ESTIMATES
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.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the 1996
presentation.
3. MARKETABLE SECURITIES, AVAILABLE FOR SALE
Marketable securities, available-for-sale are summarized as follows (in
thousands):
GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
December 31, 1996
Debt issued by:
Government/Agencies $ 7,965 $20 $- $ 7,985
Corporate bonds 10,583 22 - 10,605
---------- ---------- ---------- ----------
Total marketable securities 18,548 42 - 18,590
Long-term marketable
securities, available-for-sale 9,965 20 - 9,985
---------- ---------- ---------- ----------
Short-term marketable
securities, available-for-sale $ 8,583 $22 $- $ 8,605
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
December 31, 1995
Debt issued by:
Government/Agencies $ 2,511 $- $- $ 2,511
Corporate bonds 15,466 - - 15,466
---------- ---------- ---------- ----------
Total short -term marketable
securities, available-for-sale $17,976 $- $- $17,976
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
The long-term marketable securities held at December 31, 1996 have contractual
maturities of two years or less.
4. INCOME TAXES
The Company accounts for income taxes using the asset and liability method under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes".
The Company provides a deferred tax expense or benefit for differences between
financial accounting and tax reporting. Deferred income taxes represent
operating loss carryforwards, tax credit carryforwards and future net tax
effects resulting from temporary differences between the financial statement and
tax bases of assets and liabilities, using enacted tax rates in effect for the
year in which the differences are expected to reverse.
26
The income tax expense (credit) for the years ended December 31, 1996, 1995 and
1994 consisted of (in thousands):
1996 1995 1994
------- ------- -------
Current:
Federal $ 906 $ 127 $2,394
State 438 284 662
------- ------- -------
1,344 411 3,056
------- ------- -------
Deferred:
Federal 2,519 1,303 (10,439)
State 545 (140) (602)
------- ------- -------
3,064 1,163 (11,041)
------- ------- -------
Total $4,408 $1,574 $(7,985)
------- ------- -------
------- ------- -------
Significant components of the Company's deferred tax balances as of December 31,
1996 and 1995 are as follows (in thousands):
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
Deferred tax assets:
Minimum tax credit carryforwards. . . . . . . . . . $ 391 $ 345
Net operating loss carryforwards . . . . . . . . . 1,916 4,160
Research and development credit carryforwards. . . 899 1,152
Purchased in-process research and development. . . 973 1,288
Allowance for doubtful accounts. . . . . . . . . . 282 111
Other reserves not currently deductible. . . . . . 1,807 1,644
Depreciation . . . . . . . . . . . . . . . . . . . - 266
Deferred rent. . . . . . . . . . . . . . . . . . . 399 513
State taxes. . . . . . . . . . . . . . . . . . . . 39 97
------------ ------------
Total deferred income tax assets. . . . . . . . 6,706 9,576
Deferred tax liabilities:
Depreciation . . . . . . . . . . . . . . . . . . . 126 -
Deducted research and development expenses . . . . 142 74
------------ ------------
Total deferred income tax liabilities. . . . . . . 268 74
------------ ------------
Deferred income tax assets. . . . . . . . . . . $6,438 $9,502
------------ ------------
------------ ------------
A reconciliation of the federal statutory tax rate to the Company's effective
tax rate is as follows (dollars in thousands):
DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
------- ------- ------- ------- ------- -------
Provision at statutory tax rate. . . . $3,746 34% $1,347 34% $2,034 34%
State income taxes, net of federal
tax benefit . . . . . . . . . . . . 649 6 243 6 383 7
Change in deferred tax assets, net
of benefit. . . . . . . . . . . . . - - - - (10,533) (176)
Other. . . . . . . . . . . . . . . . . 13 - (16) - 131 2
------- ------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . $4,408 40% $1,574 40% $(7,985) (133)%
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
27
In 1993, the Company estimated a valuation reserve for its deferred tax assets
which primarily consisted of the tax benefits of prior year losses and tax
credits because there was no assurance that sufficient taxable income would be
generated in the future to realize these deferred tax assets. The valuation
allowance totaled $10,623,000 at December 31, 1993. At December 31, 1994,
management evaluated its 1994 and 1993 operating results as well as its
projections for 1995 and future years and concluded that it was more likely than
not that the deferred tax assets would be realized. Accordingly, the valuation
allowance was removed resulting in an income tax credit of $7,985,000 for the
year ended December 31, 1994.
For income tax purposes, the Company had federal operating loss carryforwards at
December 31, 1996 of approximately $5,634,000 which expire in 2008. In
addition, the Company has federal research and development credit carryforwards
of approximately $899,000 which expire from 2005 to 2012, and federal credits
for prior year minimum tax paid of $391,000 which have an indefinite life.
Section 382 of the Internal Revenue Code imposes limitations on the utilization
of loss and credit carryforwards when changes in control, as defined, have
occurred. Primarily as a result of the sale of shares in the Company's public
offering in 1993, a change of control occurred. As a result, the utilization of
the loss and credit carryforwards is limited to approximately $4,300,000
annually under Section 382. The Company does not believe that the Section 382
limitations will result in the loss of any benefits related to the
carryforwards.
5. ACQUISITION OF SHIPNET SYSTEMS, INC. ("SHIPNET")
In October 1995, the Company acquired certain assets and liabilities of ShipNet
Systems, Inc. ("ShipNet"), a provider of transportation logistics services. The
total acquisition cost was $4,902,000, comprised of $200,000 paid in cash,
assumption of certain liabilities of $3,302,000, shutdown, relocation and
severance expenses of $1,100,000 associated with rationalizing ShipNet's
operations, and $300,000 in transaction costs related to the acquisition.
The acquisition was accounted for as a purchase transaction. In connection with
the acquisition and in conjunction with the Company's capitalized software
policies, $4,318,000 of the purchase price was allocated to in-process research
and development and, as technological feasibility had not been established and
no alternative future uses existed at the acquisition date, charged to
operations. The Company allocated $584,000 of the purchase price to current
assets and property and equipment.
6. SUBLEASE LOSS RESERVES
On May 20, 1993, the Company divested its software and services business to
Uniquest, a publicly held company. In connection with the sale, the Company
entered into various agreements with the buyer, including the sublease of
approximately 40,000 square feet of office space through June 30, 2000. Minimum
monthly lease payments ranged from $53,000 to $75,000 through the seven-year
term of the lease.
At December 31, 1993, Uniquest owed the Company approximately $1,358,000 which
was delinquent under sublease and data center cost sharing agreements. As a
result, the Company provided an allowance of $1,018,000 against these
receivables and made additional provisions of $2,009,000 against nonpayment of
future obligations. The result of the allowance and provision described was to
reduce the gain from sale of the software and services business by $3,027,000.
A $1,700,000 reserve provided in 1992 for lease payments related to another
vacant building was added to sublease loss reserves at December 31, 1993.
In May 1995, Uniquest entered into voluntary bankruptcy and subsequently
dissolved, resulting in the termination of the Company's sublease with Uniquest.
The Company received a payment of $923,000 and wrote off the balance of a note
for delinquent rent and data cost sharing amounts of approximately $1,158,000
against the sublease loss reserves. The Company filed a claim with the
Creditors' Committee for unsecured amounts owed by Uniquest totaling
approximately $750,000.
28
At December 31, 1996, the Company maintains sublease loss reserves of
$2,538,000. The Company may recognize additional gain from sale of the software
and services business at such time that all outstanding matters with the
discontinued business are resolved.
During 1995 and 1994, the Company recorded $164,000, and $624,000 as sublease
income and $77,000 and $1,102,000 as data center cost reimbursements from
Uniquest as reductions of occupancy expense and data center-cost of sales,
respectively.
7. COMMITMENTS AND CONTINGENCIES
The Company leases office buildings and certain equipment under various
non-cancelable operating lease agreements expiring through the year 2000. The
leases for office buildings generally provide renewal options and additional
rents based on increases in operating expenses of the buildings.
The Company's corporate building lease agreement provides for significant
periods of "free rent" when no cash is required. The total cash payments over
the life of the lease are divided by the total number of months in the lease
period and the average rent is charged to expense each month during the lease
period. During the periods of "free rent", this expense creates a deferred
liability which is amortized to expense over the life of the lease.
Total rent expense charged to continuing operations for the years ended December
31, 1996, 1995 and 1994 was $1,331,000, $1,272,000 and $1,536,000
respectively.
At December 31, 1996, future minimum payments under long-term operating leases
are as follows (in thousands):
Year ending December 31:
1997. . . . . . . . . . . . . . . . $1,598
1998. . . . . . . . . . . . . . . . 1,509
1999. . . . . . . . . . . . . . . . 1,437
2000. . . . . . . . . . . . . . . . 715
------
Total $5,259
------
------
The Company has an agreement with IBM Global Network ("IGN") for the purchase of
$80 million of network services over a five-year period which began January 1,
1993. The Company has fulfilled its purchase obligation under this agreement.
In the fourth quarter of 1996, the Company received further discount concessions
from IGN without any other material changes in the terms of its agreement.
Based upon the current relationship with IGN, the Company anticipates an ability
to renew the agreement beyond December 31, 1997.
8. MAJOR RETAILER TRADING PARTNERSHIP PROGRAMS
Although none of the Company's customers accounted for more than 10% of its
revenues for any of the three years in the period ended December 31, 1996,
trading activities of three of the Company's retail customers, and their
vendors, represent a significant amount of the Company's business. Because of
the large number of vendors that transact business with each of these and other
retailers, the difficulty of allocating vendor EDI services to any particular
retailer trading partnership program, and differences in the manner in which
vendors and retailers allocate the cost of EDI services among each other, the
Company cannot precisely attribute revenues to particular retailer trading
partnership programs. Revenues attributable to three major retailers, and their
vendors, amounted to approximately $19 million, $16 million and $14 million in
1996, 1995 and 1994, respectively. Such amounts represented 34%, 38%, and 45%
of revenues for the years ended December 31, 1996, 1995 and 1994, respectively.
29
9. RETIREMENT SAVINGS PLAN
The Company has a defined contribution retirement savings plan for all eligible
employees. Until December 31, 1994, the Company made discretionary matching
contributions of up to 50% of each employee's contribution to a maximum of
$2,000 for the year . The plan was modified, effective January 1, 1995, to allow
discretionary matching employer contributions of up to 50% of the maximum
allowable employee contribution ($9,500 in 1996 and $9,240 in 1995 and 1994).
The amount charged to continuing operations during 1996, 1995 and 1994 was
approximately $ 238,000, $135,000 and $45,000, respectively.
10. COMMON STOCK, STOCK OPTIONS AND WARRANTS
In 1989, the Board of Directors approved a Non-Qualified Stock Option Plan (the
"Plan"). The Plan was amended in 1990. The Plan provides for the granting of
options to certain employees and directors to purchase shares of common stock of
the Company at prices determined by the Board of Directors.
In June 1993, the Board of Directors adopted an Employee Stock Purchase Plan
(the "Purchase Plan"). The Purchase Plan provides for the purchase of common
stock by eligible employees. A total of 150,000 shares of common stock has been
reserved for purchase under the Purchase Plan. The purchase price per share is
85% of the lower of (i) the fair market value of the common stock on the
participant's entry date (first business day in January, April, July and October
each year) into a purchase period (first business day in January and through the
last business day in December each year) or (ii) the fair market value on the
annual purchase date (the last business day in December each year). For a
participant whose entry date is subsequent to the start date of the purchase
period (first business day in January each year), the clause (i) value will not
be less than the fair market value of the common stock on the start date of the
purchase period. In 1996 and 1995, employees acquired 19,206 and 16,580 shares
of common stock, respectively, under the Purchase Plan.
In June 1993, the Board of Directors also approved the 1993 Stock Option/Stock
Issuance Plan (the "1993 Plan"). A total of 1,850,000 shares of common stock
has been reserved for issuance under this plan. The 1993 Plan is divided into
three separate components: (i) the Discretionary Option Grant Program under
which key employees (including officers), certain non-employee directors and
consultants may, at the discretion of the Plan Administrator, be granted options
to purchase shares of Common Stock at an exercise price not less than 85% of the
fair market value of such shares on the grant date, (ii) the Automatic Option
Grant Program under which option grants will automatically be made at periodic
intervals to certain non-employee members of the Board to purchase shares of
Common Stock at an exercise price equal to 100% of the fair market value of the
option shares on the grant date, and (iii) the Stock Issuance Program under
which key employees (including officers), certain non-employee and consultants
may, in the Plan Administrator's discretion, be issued shares of Common Stock
directly, either through the purchase of such shares at a price not less than
85% of their fair market value at the time of issuance or as a bonus tied to the
performance of services or the Company's attainment of financial objectives,
without any cash payment required of the recipient.
All outstanding options under the 1993 Stock Option/Stock Issuance Plan (the
"1993 Plan") have been granted at fair market value on the date of grant and
vest in equal annual installments over periods up to four years. Outstanding
options granted under earlier plans were granted in fair market value or lesser
values, and vest over different periods, primarily over periods up to four
years.
Shareholders approved additional allocations of 500,000 shares of common stock
to the stock option pool under the 1993 Stock Option/ Issuance Plan in each of
May 1995 and May 1996 (1,000,000 shares total).
30
The following table shows the activity in the Company's stock option plans:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- --------
Balance, January 1, 1994 (198,414 exercisable at $0.31 weighted average price per share). . . 630,256 $ 3.83
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,500 13.56
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (238,517) 0.79
Canceled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (85,877) 16.73
--------- -------
Balance, December 31, 1994 (97,469 exercisable at $5.25 weighted average price per share) . . 543,362 7.45
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 294,000 17.98
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (143,951) 2.46
Canceled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24,125) 12.79
--------- -------
Balance, December 31, 1995 (93,276 exercisable at $9.72 weighted average price per share) . . 669,286 12.94
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265,750 29.75
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (80,190) 4.09
Canceled. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15,500) 12.82
--------- -------
Balance, December 31, 1996 (205,408 exercisable at $13.70 weighted average price per share) . 839,346 $19.11
--------- -------
--------- -------
Warrants issued in connection with a line of credit and the public offering to
purchase 21,756 shares of common stock at $2.50 to $18.50 were outstanding at
December 31, 1996. Options to purchase approximately 500,996 shares of common
stock are available for future grants under the plans.
The Company applies APB Opinion 25 and related Interpretations in accounting for
its employee stock-based compensation plans. Accordingly, no compensation cost
has been recognized for its stock option plans. Had compensation cost for the
Company's stock-based plans been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of FASB Statement
123, the Company's net earnings and net earnings per share would have been
decreased to the proforma amounts indicated in the following table. As 1996 is
the initial phase-in period for applying this Statement, the proforma results
indicated are not necessarily representative of the effects on proforma
disclosures of net earnings for future periods as they exclude options that were
granted prior to January 1, 1995, with vesting periods in 1995 and later.
YEARS ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------
1996 1995
--------------- ---------------
Net earnings as reported $6,611 $2,387
--------------- ---------------
--------------- ---------------
Proforma $5,489 $2,021
--------------- ---------------
--------------- ---------------
Net earnings per share as
reported $ 0.77 $ 0.28
--------------- ---------------
--------------- ---------------
Proforma $ 0.64 $ 0.24
--------------- ---------------
--------------- ---------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants made in 1996 and 1995 under the 1993 Stock
Option/Stock Issuance Plan and for purchases made in 1996 and 1995 under the
Employee Stock Purchase Plan: risk-free interest rates of 6.07% in 1996 and
5.91% in 1995; expected volatility of 51%; expected lives in both years of 18
months beyond each incremental vesting period (total life of 2 to 5.5 years,
depending upon each grant's individual vesting schedule). No dividends are
assumed for any plan in either year. The weighted average fair value of options
granted during 1996 and 1995 was $13.27 and $8.05, respectively.
31
The status of options outstanding as of December 31, 1996 is summarized as
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------- ----------- ----------- -------- ----------- --------
$ 0.25-2.50 14,947 6.0 $ 2.06 11,947 $ 1.94
5.25-9.00 89,964 6.3 5.92 49,089 6.03
10.37-14.13 172,435 7.8 12.61 46,435 11.55
16.00-19.13 256,250 8.6 17.64 74,187 17.65
20.75-23.00 40,000 8.4 21.17 12,500 21.54
28.00-29.25 235,750 9.9 29.02 3,750 28.00
36.56-36.56 30,000 9.4 36.56 7,500 36.56
----------------- ----------- ----------- -------- ----------- --------
$ 0.25-36.56 839,346 8.5 $ 19.11 205,408 $13.70
----------------- ----------- ----------- -------- ----------- --------
----------------- ----------- ----------- -------- ----------- --------
32
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
NAME AGE POSITION
- ---- --- --------
Peter R. Johnson (2)(3)(4) 48 Chairman of the Board of Directors and the Nomination Committee
Lynn Hazlett 60 President, Chief Executive Officer and Director
Paul Benchener 51 Vice President, Marketing
Stephen Brown 40 Vice President, Sales
Kathleen Dell 40 Vice President, Demand Chain Products
Shawn M. O'Connor 37 Vice President, Chief Financial Officer and Secretary
John S. Simon 39 Executive Vice President
Philip Swift 46 Vice President, Product Development
Tania Amochaev (4) 47 Director, Chairman of the Executive Committee
Steven D. Brooks (2)(3)(4) 45 Director, Chairman of the Audit Committee
John P. Dougall 53 Director
Garth Saloner (1)(2) 42 Director
Philip Schlein (1) 63 Director
Garen K. Staglin (1)(3)(4) 52 Director, Chairman of the Compensation Committee
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee
(3) Member of the Nomination Committee
(4) Member of the Executive Committee
Mr. Johnson founded the Company in 1985 and has been Chairman of the Board since
the Company's inception. Mr. Johnson served as the Chief Executive Officer of
the Company from inception to March 1991 and again from January 1992 to May
1993. Before founding the Company, Mr. Johnson was a corporate general manager
of the Myer Emporium Limited, a large retailer in Australia. Mr. Johnson served
as the Chief Executive Officer of Uniquest Incorporated from December 1993 to
December 1994. From 1995 to the present, Mr. Johnson was a private investor and
a consultant to technology companies.
Dr. Hazlett was named a director of the Company in 1994 and was named President
and Chief Executive Officer in February 1997. Dr. Hazlett served as Vice
President, Business Systems at VF Corporation, a global apparel manufacturer,
from 1989 to 1994. From 1984 to 1989, Dr. Hazlett served as President and Chief
Executive Officer of Information and Communications, Inc., a division of Carson
Pirie Scott & Company, a conglomerate comprised of 33 department stores, 400
specialty stores and a mail order catalog business. Dr. Hazlett also served as
Corporate Vice President and Chief Information Officer at Levi Strauss.
Mr. Benchener joined the Company in August 1996 as Vice President, Marketing.
Prior to joining the Company, from 1992 to 1996, Mr. Benchener was Director of
Global Quick Response Services at Levi Strauss & Co, a manufacturer of apparel.
From 1976 to 1991, Mr. Benchener held various positions with Levi Strauss & Co.
Mr. Benchener current serves as Chair of the Voluntary Interindustry Commerce
Standards Board ("VICS") and on the Executive Committee of the Uniform Code
Council ("UCC").
Ms. Dell joined the Company in February 1993 as Vice President, Marketing and
became Vice President, Demand Chain Products in September 96. The Company has
accepted Ms. Dell's resignation effective March 31, 1997. Before joining the
Company, from 1987 to 1993, Ms. Dell held various management positions with
General Electric Medical Systems, a manufacturer and designer of diagnostic
medical imaging equipment and services.
Mr. Brown joined the Company in June 1995 as Vice President, Sales. Prior to
joining the Company, from 1984 to 1995, Mr. Brown held various management
positions with FedEx, a global transportation and logistics firm.
Mr. O'Connor joined the Company in February 1995 and became Vice President,
Chief Financial Officer and Secretary in March 1995. Before joining the Company,
from 1992 to 1994, Mr. O'Connor was Vice President and Chief Financial Officer
for Diasonics Ultrasound, Inc, a medical equipment manufacturer. From 1988 to
1992, Mr. O'Connor held various management positions, including Chief Financial
Officer with Diasonics, Inc.
34
Mr. Simon has held various positions with the Company since 1988, and currently
serves as Executive Vice President. From 1980 to 1988, Mr. Simon was employed
by Carter Hawley Hale Stores, Inc., a retail company, most recently as Senior
Program Manager of its Information Services Division, and prior to that held a
number of merchandising, store management, and information services positions.
Mr. Swift joined the Company in October 1996 as Vice President, Product
Development. Before joining the Company, from 1992 to 1996, Mr. Swift was
Department Head of Information Products at VISA, a credit card transaction
processing company. From 1989 to 1991, Mr. Swift was Senior Project Manager at
Matson Navigation, a shipping company.
Ms. Amochaev was named a director in May 1993 and was named Chairman of the
Executive Committee of the Board of Directors in February 1997. Ms. Amochaev
served as the President of the Company from May 1992 until February 1997, and as
Chief Executive Officer from May 1993 until February 1997. Before joining the
Company, from 1988 to 1992, Ms. Amochaev was Chief Executive Officer of Natural
Language, Inc., a client server database tool software company. From 1984 to
1987, Ms. Amochaev was President and Chief Executive Officer of Comserv
Corporation, a manufacturing applications software company that was sold in 1987
to Management Science America. Ms. Amochaev currently serves as a director of
Walker Interactive Systems, Inc., a financial software company, and Government
Technology Services, Inc., a government software company.
Mr. Brooks was named a director of the Company in January 1994. From 1996 to the
present, Mr. Brooks was a private investor and a consultant to technology
companies. From 1994 to 1996, Mr. Brooks served as Managing Director and Head
of Global Technology Investment Banking at Union Bank of Switzerland Securities,
LLC. From 1986 to 1988, Mr. Brooks served as Managing Partner of investment
banking at Robertson, Stephens & Co., a San Francisco-based investment bank.
From 1988 to 1994, Mr. Brooks was a private investor and consultant to
high-technology firms. Mr. Brooks is a Director of Paychex, Inc., a national
payroll processing and business services company, as well as several private
companies.
Mr. Dougall has been a director of the company since July 1990. Mr. Dougall has
been employed since November 1996 by Aristocrat Leisure Limited, an Australian
publicly listed company and a supplier to gambling and entertainment companies,
where he currently serves as Chairman and Chief Executive Officer. From January
1992 to September 1996, Mr. Dougall served as Chief Executive Officer of AWA
Limited, an electronics and telecommunications company. Mr. Dougall held various
executive positions with the Company from July 1990 to January 1992, serving as
President of the Company from February 1991 to June 1991. and as President and
Chief Executive Officer from June 1991 to January 1992. From February 1988 to
June 1990, Mr. Dougall was the Executive Director of Paxus Corporation, a
software services and outsourcing firm.
Mr. Saloner was named a director of the Company in December 1993. Mr. Saloner
has served as the Robert A. Magowan Professor of Strategic Management and
Economics at the Graduate School of Business at Stanford University since 1990.
He also serves as Associate Dean for Academic Affairs and Director of Research
and Course Development at Stanford. From 1982 to 1990, Mr. Saloner taught as a
professor in the Economics Department of the Massachusetts Institute of
Technology.
Mr. Schlein was named a director of the Company in February 1996. Mr. Schlein
has been a general partner of BMS Partners L.P., a venture partner of U.S.
Venture Partners, a venture capital firm, since April 1985. Mr. Schlein held
various executive positions with R.H. Macy & Company, Inc. from September 1957
to December 1973 and was President and Chief Executive Officer of Macy's
California division from January 1974 to January 1985. Mr. Schlein currently
serves as a director of Burnham Pacific Incorporated, a commercial real estate
development and leasing company, Ross Stores, a clothing store chain, and
Resound Corporation, a hearing device manufacturing company. Additionally, Mr.
Schlein has previously served as a director of Apple Computer, Inc.
35
Mr. Staglin was named a director of the Company in 1991. Since 1991, Mr.
Staglin has served as the Chief Executive Officer and Chairman of the Board of
Directors of Safelite Glass Corporation, a replacement auto glass manufacturing
and retailing company. From 1980 to 1991, Mr. Staglin was a Vice President and
General Manager of Automatic Data Processing, a computer networking services
company. Mr. Staglin currently serves as a director of First Data Corporation,
a supplier of computer services for credit card processing and other financial
services, Cybercash, Inc., a provider of secure transaction services for the
Internet, and Grimes Aerospace Corporation, a manufacturer of aircraft
replacement parts and repair services. In 1994, he was named a member of the
Advisory Council to the Stanford Graduate School of Business.
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Item 11 of Form 10-K is omitted since the
Company will file, not later than 120 days after the close of the fiscal year
ended December 31, 1996, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in connection with its
1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Item 12 of Form 10-K is omitted since the
Company will file, not later than 120 days after the close of the fiscal year
ended December 31, 1996, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in connection with its
1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Item 13 of Form 10-K is omitted since the
Company will file, not later than 120 days after the close of the fiscal year
ended December 31, 1996, with the Securities and Exchange Commission, a
definitive proxy statement pursuant to Regulation 14A in connection with its
1997 Annual Meeting of Stockholders.
36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed or incorporated by reference as part of this
Form 10-K:
(A) ITEMS FILED AS PART OF REPORT:
1. FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheets
Statements of Earnings
Statements of Shareholders' Equity
Statements of Cash Flows
Notes to Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
All schedules are omitted because they are not applicable or not
required or because the required information is included in the
financial statements or notes thereto.
(B) REPORTS ON FORM 8-K
None
(C) EXHIBITS
EXHIBIT
NO. DESCRIPTION
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company (corrected)
4.1 Specimen of Common Stock Certificate of the Registrant.*
10.1 1993 Stock Option/Stock Insurance Plan and forms of agreement thereunder.*
10.2 Employee Stock Purchase Plan*.
10.3 Form of 1990 Nonqualified Stock Option Agreement.*
10.4 Employment Agreement dated April 22, 1992 between the Registrant and Tania
Amochaev.*
10.5 Employment Agreement dated March 1, 1993 between the Registrant and Tania
Amochaev.*
10.6 Form of Indemnification Agreement.*
10.7 Lease Agreement dated April 27, 1990 between the Registrant and
Schooner Drive Associates, a California Limited Partnership.*
10.8 Sublease dated May 1, 1993 between the Registrant and PRJ&, Inc.*
10.9 Preferred Stock Purchase and Debt Consolidation Agreement, dated as of
March 22, 1991 among the Registrant, Peter R. Johnson and International
Business Machines Corporation.*
37
10.10 First Amendment dated as of May 20, 1993 to the Preferred Stock Purchase
and Debt Consolidation Agreement among the Registrant, Peter R. Johnson,
and International Business Machines Corporation.*
10.11 Replacement Consolidated Convertible Notes dated March 22, 1991
issued to International Business Machines Corporation.*
10.12 Security Agreement dated as of March 22, 1991 between the Registrant and
International Business Machines Corporation.*
10.13 Warrant dated March 22, 1991 issued to International Business Machines
Corporation.*
10.14 License Agreement dated March 22, 1991 between the Registrant and
International Business Machines Corporation.*
10.15 First Amendment dated as of May 20, 1993 to the License Agreement between
the Registrant and International Business Machines Corporation.*
10.16 Maintenance and Support Agreement dated March 22, 1991 between the
Registrant and International Business Machines Corporation.*
10.17 First Amendment dated as of May 20, 1993 to the Maintenance and Support
Agreement between the Registrant and International Business Machines
Corporation.*
10.18 Marketing Agreement dated March 22, 1991 between the Registrant and
International Business Machines Corporation.*
10.19 Common Stock Purchase Agreement dated April 3, 1989 by and among
Registrant and Retail Shopping International (Aust.) Pty. Ltd., Barclays
Investment Pty. Ltd., and Peter R. Johnson.*
10.20 Business Loan Agreement dated May 30, 1990 between Registrant and Silicon
Valley Bank as amended on June 3, 1993.*
10.22 Warrant dated July 16, 1992 issued to Steven D. Brooks.*
10.23 Warrant dated March 31, 1993 issued to Steven D. Brooks.*
10.24**Volume Discount Agreement dated December 16, 1991 between the Registrant
and International Business Machines Corporation.*
10.25 Facilities and Cost Sharing Agreement dated May 1, 1993 between the
Registrant and PRJ&, Inc.*
10.26 Data Center Services Agreement dated April 30, 1993 between the Registrant
and PRJ&, Inc.*
10.27 Agreement and Plan of Merger dated May 20, 1993 among the Registrant,
Uniquest Incorporated, PRJ Acquisition Corp. and PRJ&, Inc.*
10.28 Consent and Release Agreement dated as of May 20, 1993 among the
Registrant, PRJ&, Inc., Peter R. Johnson, Uniquest Incorporated and
International Business Machines Corporation.*
10.29 Separation Agreement dated May 1, 1993 between the Registrant and PRJ&,
Inc.*
10.30 Assignment, Bill of Sale and Assumption Agreement dated as of May 20, 1993
between the Registrant and PRJ&, Inc.*
38
10.31 Escrow Agreement dated May 20, 1993 among the Registrant, Uniquest
Incorporated and Bank of America NT&SA.*
10.32 Pledge Agreement dated as of May 20, 1993 between the Registrant and
International Business Machines Corporation.*
10.33 Agreement dated as of July 13, 1993 between the Registrant and
International Business Machines Corporation.*
10.34 **Advantis Industry Remarketer Agreement dated as of January 6, 1994
between Advantis and the Registrant.
10.35 Uniquest Forbearance Agreement
10.36***International Remarketer Agreement dated as of November 11, 1996 between
Advantis and the Registrant.
10.37***Employment Agreement dated as of February 6, 1997 between Registrant and
Lynn Hazlett.
11.1 Computation of Earnings Per Share - Primary and Fully-diluted
23.1 Consent of Deloitte & Touche LLP, independent auditors
24.1 Power of Attorney
27.1 Financial Data Schedule
* Incorporated by reference to Exhibit of same number of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-63938).
** Confidential treatment has been granted with respect to portions of this
document.
*** Confidential treatment has been requested with respect to portions of this
document.
39
SIGNATURES
In accordance with 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, on this 6th day of March, 1997.
QUICKRESPONSE SERVICES, INC.
/s/ Shawn M. O'Connor
---------------------------------------------
Shawn M. O'Connor, Vice President,
Chief Financial Officer and Secretary
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Tania Amochaev, acting
alone, his or her true and lawful attorney-in-fact with authority to execute in
the name of each person, and to file with the Securities and Exchange
Commission, together with any exhibits thereto and other documents therewith,
any and all amendments to this Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 necessary or advisable to enable QuickResponse Services,
Inc. to comply with the Securities Exchange Act of 1934, any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof,
which amendments may make such other changes in the report as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 has been signed
by the following persons in the capacities indicated and on the dates indicated.
SIGNATURE DATE
/s/ H. Lynn Hazlett March 6, 1997
- ---------------------------------------------------------
H. Lynn Hazlett, President, Chief Executive Officer,
and Director (Principal Executive Officer)
/s/ Peter R. Johnson March 6, 1997
- ---------------------------------------------------------
Peter R. Johnson, Chairman of the Board of Directors
/s/ Tania Amochaev March 6, 1997
- ---------------------------------------------------------
Tania Amochaev, Director
/s/ Steven D. Brooks March 6, 1997
- ---------------------------------------------------------
Steven D. Brooks, Director
/s/ John P. Dougall March 6, 1997
- ---------------------------------------------------------
John P. Dougall, Director
/s/ Philip Schlein March 6, 1997
- ---------------------------------------------------------
Philip Schlein, Director
/s/ Garen K. Staglin March 6, 1997
- ---------------------------------------------------------
Garen K. Staglin, Director
/s/ Garth Saloner March 6, 1997
- ---------------------------------------------------------
Garth Saloner, Director
/s/ Shawn M. O'Connor March 6, 1997
- ---------------------------------------------------------
Shawn M. O'Connor, Vice President, Chief Financial
Officer and Secretary (Principal Financial Officer)
40
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION SEQUENTIAL PAGE NUMBER
3.1 Amended and Restated Articles of Incorporation of the Company.*
3.2 Amended and Restated Bylaws of the Company (corrected).
4.1 Specimen of Common Stock Certificate of the Registrant.*
10.1 1993 Stock Option/Stock Insurance Plan and forms of agreement thereunder.
10.2 Employee Stock Purchase Plan*.
10.3 Form of 1990 Nonqualified Stock Option Agreement.*
10.4 Employment Agreement dated April 22, 1992 between the
Registrant and Tania Amochaev.*
10.5 Employment Agreement dated March 1, 1993 between the
Registrant and Tania Amochaev.*
10.6 Form of Indemnification Agreement.*
10.7 Lease Agreement dated April 27, 1990 between the Registrant
and Schooner Drive Associates, a California Limited Partnership.*
10.8 Sublease dated May 1, 1993 between the Registrant and PRJ&, Inc.*
10.9 Preferred Stock Purchase and Debt Consolidation Agreement, dated
as of March 22, 1991 among the Registrant, Peter R. Johnson and
International Business Machines Corporation.*
10.10 First Amendment dated as of May 20, 1993 to the Preferred Stock Purchase
and Debt Consolidation Agreement among the Registrant, Peter R. Johnson,
and International Business Machines Corporation.*
10.11 Replacement Consolidated Convertible Notes dated March 22, 1991
issued to International Business Machines Corporation.*
10.12 Security Agreement dated as of March 22, 1991 between the Registrant
and International Business Machines Corporation.*
10.13 Warrant dated March 22, 1991 issued to
International Business Machines Corporation.*
10.14 License Agreement dated March 22, 1991 between the Registrant
and International Business Machines Corporation.*
10.15 First Amendment dated as of May 20, 1993 to the License Agreement
between the Registrant and International Business Machines Corporation.*
10.16 Maintenance and Support Agreement dated March 22, 1991 between
the Registrant and International Business Machines Corporation.*
10.17 First Amendment dated as of May 20, 1993 to the Maintenance and
Support Agreement between the Registrant and International Business
Machines Corporation.*
10.18 Marketing Agreement dated March 22, 1991 between the Registrant and
International Business Machines Corporation.*
41
10.19 Common Stock Purchase Agreement dated April 3, 1989 by and among
Registrant and Retail Shopping International (Aust) Pty. Ltd.,
Barclays Investment Pty. Ltd., and Peter R. Johnson.*
10.20 Business Loan Agreement dated May 30, 1990 between Registrant and
Silicon Valley Bank as amended on June 3, 1993.*
10.22 Warrant dated July 16, 1992 issued to Steven D. Brooks.*
10.23 Warrant dated March 31, 1993 issued to Steven D. Brooks.*
10.24**Volume Discount Agreement dated December 16, 1991 between the
Registrant and International Business Machines Corporation.*
10.25 Facilities and Cost Sharing Agreement dated May 1, 1993 between the
Registrant and PRJ&, Inc.*
10.26 Data Center Services Agreement dated April 30, 1993 between the
Registrant and PRJ&, Inc.*
10.27 Agreement and Plan of Merger dated May 20, 1993 among the Registrant,
Uniquest Incorporated, PRJ Acquisition Corp. and PRJ&, Inc.*
10.28 Consent and Release Agreement dated as of May 20, 1993 among the
Registrant, PRJ&, Inc., Peter R. Johnson, Uniquest Incorporated and
International Business Machines Corporation.*
10.29 Separation Agreement dated May 1, 1993 between the Registrant and PRJ&,
Inc.*
10.30 Assignment, Bill of Sale and Assumption Agreement dated as of May 20,
1993 between the Registrant and PRJ&, Inc.*
10.31 Escrow Agreement dated May 20, 1993 among the Registrant, Uniquest
Incorporated and Bank of America NT&SA.*
10.32 Pledge Agreement dated as of May 20, 1993 between the Registrant and
International Business Machines Corporation.*
10.33 Agreement dated as of July 13, 1993 between the Registrant and
International Business Machines Corporation.*
10.34**Advantis Industry Remarketer Agreement dated as of January 6, 1994
between Advantis and the Registrant.
10.35 Uniquest Forbearance Agreement
10.36***International Remarketer Agreement dated as of November 11, 1996 between
Advantis and the Registrant.
10.37***Employment Agreement dated as of February 6, 1997 between Registrant and
Lynn Hazlett
11.1 Computation of Earnings Per Share - Primary and Fully-diluted 43
23.1 Consent of Deloitte & Touche LLP, independent auditors 44
24.1 Power of Attorney
27.1 Financial Data Schedule
* Incorporated by reference to Exhibit of same number of the Registrant's
Registration Statement on Form S-1 (Registration No. 33-63938).
** Confidential treatment has been granted with respect to portions of this
document.
*** Confidential treatment has been requested with respect to portions of
this document.
42