UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
---- For the transition period from to
Commission file number 0-21958
QUICKRESPONSE SERVICES, INC.
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(Exact name of registrant as specified in its charter)
CALIFORNIA 68-0102251
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1400 MARINA WAY SOUTH, RICHMOND, CA 94804
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(Address of principal executive offices) (Zip code)
(510) 215-5000
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(Registrant's phone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X YES NO
---- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASSES OF COMMON STOCK OUTSTANDING AT MARCH 31, 1997
- ----------------------- -----------------------------
Common Stock, no par value 8,416,845
This document contains 13 pages.
The Exhibit listing appears on Page 10.
QUICKRESPONSE SERVICES, INC.
FORM 10-Q
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Balance Sheets as of March 31, 1997
and December 31, 1996 3
Condensed Statements of Earnings for the Three Months
Ended March 31, 1997 and 1996 4
Condensed Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
A. Exhibits
B. Reports on Form 8-K
SIGNATURES 11
2
PART I . FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
QUICKRESPONSE SERVICES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
------
MARCH 31, DECEMBER 31,
1997 1996
---- ----
Current assets:
Cash and cash equivalents.................... $7,248 $16,022
Marketable securities available-for-sale..... 13,527 8,605
Accounts receivable - net of allowance for
in 1996 doubtful accounts of $780 in 1997
and $763................................... 10,787 9,294
Deferred income tax assets................... 2,939 4,130
Prepaid expenses and other................... 1,478 1,141
---------- ---------
Total current assets.......... 35,979 39,192
Property and equipment:
Furniture and fixtures....................... 1,536 1,322
Equipment.................................... 4,951 4,017
Leasehold improvements....................... 1,375 1,344
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7,862 6,683
Less accumulated depreciation................ 3,044 2,747
---------- ---------
Total.............................. 4,818 3,936
Marketable securities available-for-sale......... 12,120 9,985
Deferred income tax assets....................... 2,309 2,308
Other assets..................................... 607 525
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Total assets..................................... $55,833 $55,946
---------- ---------
---------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable............................. $3,675 $5,480
Other accrued liabilities.................... 3,269 3,435
Current portion of sublease loss reserve..... 861 861
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Total current liabilities.......... 7,805 9,776
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Deferred rent.................................... 868 923
Sublease loss reserve............................ 1,553 1,677
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Total liabilities.................. 10,226 12,376
---------- ---------
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; 8,416,845 shares outstanding
in 1997 and 8,365,805 shares in 1996....... 61,541 61,394
Unrealized gain on investments............... 7 42
Accumulated deficit.......................... (15,941) (17,866)
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Total shareholders' equity......... 45,607 43,570
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Total liabilities and shareholders' equity....... $55,833 $55,946
---------- ---------
---------- ---------
See notes to condensed financial statements.
3
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- ---------------
Revenues................................ $16,354 $12,717
Cost of revenues........................ 9,123 7,776
-------------- ---------------
Gross profit............................ 7,231 4,941
Operating expenses:
Sales and marketing................. 2,293 1,537
Product development................. 1,001 673
General and administrative.......... 1,169 801
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Total operating expenses....... 4,463 3,011
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Operating earnings...................... 2,768 1,930
Interest income......................... 441 357
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Earnings before income taxes............ 3,209 2,287
Income taxes............................ 1,284 916
-------------- ---------------
Net earnings............................ $1,925 $1,371
-------------- ---------------
-------------- ---------------
Net earnings per common and common
equivalent share....................... $0.22 $0.16
-------------- ---------------
-------------- ---------------
Shares used to compute per share
amounts................................ 8,648,306 8,573,972
-------------- ---------------
-------------- ---------------
See notes to condensed financial statements.
4
QUICKRESPONSE SERVICES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1996
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Operating activities:
Net earnings...................................................... $1,925 $1,371
Adjustment to reconcile net earnings to net cash provided by (used in)
operating activities:
Depreciation and amortization................................ 357 281
Deferred rent................................................ (55) (54)
Stock option compensation.................................... 8 8
Changes in:
Accounts receivable.......................................... (1,493) 329
Prepaid expenses and other................................... (337) 338
Deferred income tax assets................................... 1,274 905
Other assets................................................. (15) -
Accounts payable............................................. (1,805) (222)
Sublease loss reserve (net).................................. (124) (143)
Other accrued liabilities.................................... (166) (942)
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Net cash provided by (used in) operating activities... (431) 1,871
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Investing activities:
Marketable securities-available for sale (net).................... (7,092) 9,379
Purchase of property and equipment................................ (1,179) (299)
Capitalization of product development costs....................... (127) (72)
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Net cash provided by (used in) investing activities... (8,398) 9,008
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Financing activities:
Exercise of stock options......................................... 55 71
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Net cash provided by financing activities............. 55 71
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Net increase (decrease) in cash and cash equivalents.................. (8,774) 10,950
Cash and cash equivalents at beginning of period...................... 16,022 6,460
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Cash and cash equivalents at end of period............................ $7,248 $17,410
---------- ---------
---------- ---------
Other cash flow information:
Taxes paid during the period...................................... $122 $13
---------- ---------
---------- ---------
Noncash financing activities:
Tax benefit from non-qualified stock options exercised............ $84 $112
---------- ---------
---------- ---------
Unrealized gain on investments.................................... ($35) -
---------- ---------
---------- ---------
See notes to condensed financial statements.
5
QUICKRESPONSE SERVICES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
QuickResponse Services, Inc. (the Company) provides a centralized
product information database (The QRS Catalog), Inventory Management
Services (QRS Catalyst, a sales analysis tool, QRS Replenishment and
QRS Forecasting), network services including electronic data
interchange services (EDI services), and QRS Logistics Management
Systems to retailers and merchandise suppliers and carriers, to
automate and improve their merchandise and logistics management.
The balance sheet as of March 31, 1997, the statements of earnings and
the statements of cash flows for the three months ended March 31, 1997
and 1996 have been prepared by the Company without audit. In the
opinion of management, all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows at March 31, 1997 and
for all periods presented have been made. The balance sheet as of
December 31, 1996 is derived from the Company's audited financial
statements as of that date.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted as permitted by
regulations of the Securities and Exchange Commission. Certain
previously furnished amounts have been reclassified to conform with
presentations made during the current periods. It is suggested that
these interim condensed financial statements be read in conjunction
with the annual audited financial statements and notes thereto
included in the Company's Form 10-K for the year ended December 31,
1996.
The preparation of the Company's financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the balance sheet dates and the reported amounts of
revenues and expenses for the periods presented. Actual amounts may
differ from such estimates.
The results of operations for the periods ended March 31, 1997 and
1996 are not necessarily indicative of the operating results
anticipated for the full year.
2. STOCK OPTIONS
During the first three months of 1997, the Company granted options to
purchase 150,000 shares of the Company's common stock at the price of
$28.375 based on quoted market prices at the dates of the grant under
the Company's incentive compensation and automatic grant plans.
During the first three months of 1997, options to purchase 9,625
shares of common stock were exercised. At March 31, 1997, 962,971
shares were subject to outstanding options, of which 225,846 options
were exercisable. Options to purchase approximately 367,746 shares of
common stock are available for future grants under plans. During the
three months ended March 31, 1997, compensation expense recognized
pursuant to the granting of stock options totaled $9,000 as a result
of amendments to certain options.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). The Company is required to adopt SFAS 128 in the
fourth quarter of fiscal 1997 and will restate at that time earnings
per share (EPS) data for prior periods to conform with SFAS 128.
Earlier application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into
common stock.
6
If SFAS 128 had been in effect during the current and prior year
period, basic EPS would have been $0.23 and $0.16 for the quarters
ended March 31, 1997 and 1996, respectively. Diluted EPS under SFAS
128 would not have been significantly different than primary or
fully-diluted EPS currently reported for the periods.
7
PART 1. FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER
SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31,
1996.
GENERAL
QuickResponse Services, Inc. is the leading provider of merchandise
logistics solutions throughout the entire retail demand chain. The
Company works with its customers and partners to facilitate and
optimize the flow of information, goods and services throughout the
retail industry. The Company's products include: a centralized
product information database (The QRS Catalog); Network Services,
which include electronic data interchange (EDI) and related network
services, QRS EConnect and Internet Services; transportation and
logistics services, including QRS Logistics Management Services; and
QRS Inventory Management Services, which includes QRS Catalyst,
replenishment and forecasting. In addition to these network centric
applications, the Company also provides consulting services. The
Company derives revenues from five principal and related sources: the
transmission of standard business documents over a network; monthly
charges for accessing The QRS Catalog; Inventory Management Services
fees based upon the number of products and retail outlets under
management; and Logistics Management Services fees based on the number
of loads tendered; and consulting fees. Network Services pricing is
based primarily on the volume of characters transmitted and the type
of network access utilized, and also incorporates discounts based on
volume.
RESULTS OF OPERATIONS
The Company's revenues increased by 29% to $16.4 million for the first
quarter of 1997, from $12.7 million for the first quarter of 1996.
The increase was primarily attributable to three factors driving
Catalog, EDI and Logistics Management Services revenue growth. First,
the number of customers increased from 186 retailers and 4,803
vendors as of March 31, 1996 to 217 retailers and 4,818 vendors and
carriers as of March 31, 1997. Second, the number of catalog trading
partnerships increased as a result of the increase in the number of
customers and their trading links with each other. Third, customers
increased the number, type and size of transactions transmitted over
the network, as well as the utilization of The QRS Catalog and
Logistics Management Services. Revenues associated with the Company's
other products did not contribute a significant amount of revenue to
the Company during the first three months of 1997. However, Inventory
Management Services revenue did grow as a result of the increase in
the number of products managed from 75,000 at March 31, 1996 to 3.1
million at December 31, 1997.
Cost of sales consists primarily of the cost of purchasing network
services and the cost of the Company's data center and technical
customer support services. Cost of sales increased by 17% to $9.1
million for the first quarter of 1997, from $7.8 million for the first
quarter of 1996. The increase was principally due to increases in
purchased network services, reflecting growth in EDI services, and
expanded customer support, technical support groups and data center
operations, reflecting growth in the Company's value-added
applications. The gross profit margin was 44% for the first quarter
of 1997 compared to 39% for the first quarter of 1996. This improved
margin is primarily due to network service margins which were
favorably impacted as a result of certain negotiated discount
adjustments, announced and implemented in the fourth quarter of 1997,
with the IBM International Global Network, the Company's primary
provider of network services. Furthermore, the Company experienced
increases in higher margin revenue from The QRS Catalog and increased
operating efficiencies in data center operations, which were partially
offset by increased sales of certain lower margin network services and
volume discounts earned by larger customers.
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
expenses increased 49% to $2.3 million for the first quarter of 1997,
from $1.5 million for
8
the first quarter of 1996. This increase reflects additional sales
staff, product branding activities and incremental trade show activities
to support the increase in the number of customers and the size of
the Company's operations.
Product development expenses consist primarily of personnel and
equipment costs related to research and development, implementation of
new services, and maintenance of existing services, Product
development costs increased 49% to $1.0 million for the first quarter
of 1997, from $673,000 for the first quarter of 1996. The increase
primarily resulted from additional employees and consultants to
support expanding service offerings.
General and administrative expenses consist primarily of the personnel
and related costs of the Company's finance and administrative
organizations, as well as professional fees and other costs, such as
directors and officers' liability insurance. General and
administrative expenses increased 46% to $1.2 million for the first
quarter of 1997, compared to $801,000 for the first quarter of 1996.
The increase was primarily due to increased payroll and professional
fees and also includes certain costs associated with hiring a new
President and Chief Executive Officer in February 1997.
Interest income consists primarily of interest earned on cash, cash
equivalents and investment securities. Interest income increased to
$441,000 for the first quarter of 1997, compared to $357,000 for the
first quarter of 1996 as a result of higher invested balances offset
partially by a lower yield on investments.
Income tax was $1.3 million for the first quarter of 1997, compared to
$916,000 for the first quarter of 1996. The 1997 and 1996 income tax
rates of 40% approximate the combined effective federal and state
income tax rates.
As a result of the foregoing, net earnings increased 40% to $1.9
million for the first quarter of 1997, compared to $1.4 million for
the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital decreased from $29.4 million at December
31, 1996 to $28.2 million at March 31, 1997 related primarily to the
decrease in deferred income tax assets as the Company continued to use
tax Net Operating Losses (NOLs) to defer the Company's cash
requirements for tax payments. The Company expects to have utilized
all such NOLs during 1997, and expects an increase in the use of cash
for payment of taxes thereafter. Cash, cash equivalents and
marketable securities available-for-sale decreased from $34.6 million
at December 31, 1996 to $32.9 million at March 31, 1997. This $1.7
million decrease is related to the timing of payments to certain
significant vendors and is reflected in the reduction in accounts
payable at March 31, 1997. Total assets decreased from $55.9 million
at December 31, 1996 to $55.8 million at March 31, 1997, while total
liabilities decreased from $12.4 million to $10.2 million.
The $8.8 million decrease in cash and cash equivalents from December
31, 1996 to March 31, 1997 results primarily from the $7.1 million
increase in the Company's marketable securities available-for-sale. A
larger portion of the Company's cash not required for operating
activities was invested during the quarter in securities with
maturities over 90 days, which are reported as marketable securities
available-for-sale.
On April 22, 1997, the Company announced that its Board of Directors
has authorized the repurchase from time to time of up to $5 million of
its Common Stock in both open market and block transactions. Shares
purchased under this program will be held in the corporate treasury
for future use including employee stock option grants and the employee
stock purchase plan. The Company may discontinue purchases of its
Common Stock at any time that management determines additional
purchases are not warranted.
Management believes that the cash resources available at March 31,
1997, and cash anticipated to be generated from future operations will
be sufficient for the Company to meet its working capital needs,
capital expenditures and Common Stock repurchases for the next year.
The Company does not intend to pay cash dividends with respect to
common stock in the foreseeable future.
9
II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11.1 Computation of Earnings Per Share - Primary
11.2 Computation of Earnings Per Share - Fully Diluted
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K
None
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized and in the capacity indicated.
QUICKRESPONSE SERVICES, INC.
---------------------------------------
(Registrant)
\s\ H. Lynn Hazlett
----------------------------------------
May 12, 1997 H. Lynn Hazlett
President and Chief Executive Officer
\s\ Shawn M. O'Connor
----------------------------------------
May 12, 1997 Shawn M. O'Connor
Vice President and Chief Financial Officer
(Principal Financial Officer)
11