NVE CORP /NEW/ — Audit Report / Information 1996

Oct 15, 1996

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 Date of Report (Date of earliest event reported): October 1, 1996 PREMIS Corporation (Name of small business issuer in its charter) Minnesota 0-12196 41-1424202 (State of other jurisdiction (Commission File No.) (IRS Employer of incorporation) Identification Number) 15301 Highway 55 West, Plymouth, MN 55447 (Address of principal executive offices) (Zip Code) Issuer's telephone number: 612/550-1999 (Former name, former address and former fiscal year, if changed since last report): N/A TABLE OF CONTENTS Item 2. Acquisition or Disposition of Assets 3 Item 7. Financial Statements and Exhibits 3 INDEX TO EXHIBITS 4 SIGNATURE 5 -2- ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On October 1, 1996, PREMIS Corporation (the "Company") completed the acquisition of all of the issued and outstanding equity securities of REF Retail Systems Corporation ("REF"), a closely-held corporation organized under the laws of Ontario, Canada, from the several shareholders of REF. The purchase price for the acquisition was paid in cash in the amount of $6,500,000 on the date of closing. The purchase price was determined by negotiation based upon various factors, including, principally, management's assessment that the REF products, which are complementary to the Company's products, offer significant growth opportunities. The payment of the purchase price was not financed by any third party but was paid from funds of the Company obtained through a public offering of its Common Stock. The Company and REF both engage in businesses involving the development and marketing of computer software which, in overview, provide multi-store retailers and food brokers with an integrated system for: point of sale data collection and management review of transactions "real time" sales analysis reporting by store, product, customer, salesperson individual store stock positions and enterprise inventory tracking purchasing, order tracking and warehouse control accounts receivable management and commission receivable accounting sales promotion fund management and advertising budget accounting electronic data interface for on-line ordering from vendors and customers intranet communications connections between stores and main corporate office ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS The following financial statements are filed herewith: Audited consolidated balance sheets of REF as of March 31, 1995 and 1996 and related consolidated statements of operations, shareholders equity and cash flows for the years then ended; -3- Unaudited interim consolidated balance sheet of REF as of June 30, 1996 and related consolidated statements of operations, shareholders' equity and cash flows for the three months ended June 30, 1996 and 1995; Pro forma combined balance sheet as of June 30, 1996 and pro forma combined statements of operation for the year ended March 31, 1996 and for the three months ended June 30, 1996. The following exhibits are filed herewith. Exhibit No. Description of Exhibit Stock Purchase Agreement by and between PREMIS Corporation dated July 9, 1996(1) (1)Incorporated by reference to exhibit filed as part of registration statement of Form S-2, Commission file no. 333-10917. -4- SIGNATURE 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 hereunto duly authorized. Dated: October 15, 1996. PREMIS CORPORATION By /s/ F. T. Biermeier F.T. Biermeier Financial Officer (Principal accounting and financial officer) -5- INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholders and Board of Directors of REF Retail Systems Corporation In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of REF Retail Systems Corporation and its subsidiary at March 31, 1995 and 1996, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Minneapolis, Minnesota August 7, 1996 F-12 REF RETAIL SYSTEMS CORPORATION CONSOLIDATED BALANCE SHEET ASSETS

See accompanying notes to the consolidated financial statements. F-13 REF RETAIL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS

See accompanying notes to the consolidated financial statements. F-14 REF RETAIL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

See accompanying notes to the consolidated financial statements. F-15 REF RETAIL SYSTEMS CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS

See accompanying notes to the consolidated financial statements. F-16 REF RETAIL SYSTEMS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- ORGANIZATION REF Retail Systems Corporation (the "Company") is a Canadian business that develops and markets point-of-sale application software to the retail distribution marketplace. In August, 1995, the Company acquired 100% of the outstanding common shares of Softworks Group, Inc. ("Softworks"). The operations of Softworks have been incorporated into the Company on the date of acquisition. NOTE 2 -- ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and investments in Canadian treasuries with an original maturity of three months or less. Investments are valued at cost, which approximates market. BASIS OF PRESENTATION The consolidated financial statements are presented in U.S. dollars and are presented in accordance with accounting principles generally accepted in the United States. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany accounts are eliminated in consolidation. INVENTORY Inventory is stated at the lower of cost (first-in, first-out) or market. Inventory consists primarily of software licenses held for resale. No reserves have been provided, since historical writedowns have been insignificant. PROPERTY AND EQUIPMENT Property and equipment are stated at cost and depreciated for financial statement purposes on a declining-balance basis over the estimated useful lives of the assets, which is three to five years for furniture and equipment. RESEARCH AND DEVELOPMENT COSTS Costs incurred to establish the technological feasibility of computer software to be marketed are expensed as research and development costs in the period incurred. Costs incurred subsequent to the establishment of technological feasibility and before the software is released to the general public are capitalized as software development costs. Such costs are amortized to cost of revenues at the greater of straight-line amortization over three years or the proportion of the current period's product revenues to total expected product revenues. Recording of amortization of software development cost began in May, 1996 when certain modules of the software were released to the general public. REVENUE RECOGNITION Revenues derived from system installation contracts are recognized over the period the Company satisfies its obligations using the percentage-of-completion method. Progress on the contracts is measured by the percentage of cost incurred to date to the total estimated cost for each contract. Management considers cost to be the best available measure of progress on these contracts. Changes in conditions and estimated earnings may result in revisions of estimated costs and earnings during the course of the contract and are reflected in the accounting period in which the facts which require the revision become known. In the normal course of business, the Company may also be subject to a risk of loss by incurring costs to complete a contract in excess of the fixed bid price. Customers are provided with a warranty which provides customer support for a 90-day period. No reserve has been provided, since warranty costs have been insignificant. After the 90-day warranty period, support is provided only if a maintenance contract is in place. Revenues derived from system maintenance contracts are deferred and recognized ratably over the contract period. F-17 REF RETAIL SYSTEMS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 2 -- ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Company accounts for income taxes under the liability method of accounting. Deferred tax assets are determined based on the difference between the financial statement and tax basis of assets and liabilities using currently enacted tax rates. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments consist of cash and cash equivalents, short-term trade receivables and payables for which current carrying amounts approximate fair market value. Additionally, interest rates on outstanding debt are at rates which approximate market rates for debt with similar terms and average maturities. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. CASH FLOW DISCLOSURE For the years ended March 31, 1995 and 1996, the Company made cash payments for interest of $3,026 and $5,475, respectively. UNAUDITED INTERIM FINANCIAL STATEMENTS In the opinion of management, REF Retail Systems Corporation has made all adjustments consisting primarily of normal recurring accruals, necessary for a fair presentation of the financial condition of the Company as of June 30, 1996 and the results of operations and cash flows for the three month periods ended June 30, 1996 and 1995, as presented in the accompanying unaudited financial statements. NOTE 3 -- COSTS, ESTIMATED EARNINGS AND BILLINGS ON UNCOMPLETED CONTRACTS IN PROGRESS Costs, estimated earnings and billings on uncompleted contracts are summarized as follows:

This amount is included in current assets as all contracts in progress are expected to be completed within one year. Billings in excess of costs and estimated earnings of $65,080 and $82,008 are reported as customer deposits at March 31, 1995 and 1996, respectively. F-18 REF RETAIL SYSTEMS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 4 -- BUSINESS COMBINATIONS In August, 1995, the Company acquired all of the outstanding shares of Softworks for $207,539 (CDN$283,000) in a transaction accounted for as a purchase. For financial statement purposes, the assets acquired and liabilities assumed were recorded at their respective fair market values as follows:

The software development costs relate to specific products which were determined to be technologically feasible at the date of acquisition and will be amortized in accordance with the polices disclosed in Note 2. NOTE 5 -- LEASE COMMITMENTS The Company leases equipment and its facilities under various operating leases. Future minimum payments under noncancelable leases are as follows:

Rental expense under operating leases was $84,090 and $139,235 for the years ended March 31, 1995 and 1996, respectively. NOTE 6 -- NOTES PAYABLE The Company's notes payable to banks at March 31, 1996 are Small Business Development Loans, are secured by assets of the Company and consist of the following:

F-19 REF RETAIL SYSTEMS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6 -- NOTES PAYABLE (CONTINUED) The Company has notes payable at March 31, 1996 for the purchase of a software license and distribution rights and the purchase of inventory as follows:

The Company also has an interest bearing note payable to an officer with a balance of $28,305 and $63 at March 31, 1995 and 1996, respectively. The note carries an interest rate of 7.42% and is payable in monthly installments of $1,471. NOTE 7 -- INCOME TAXES Income tax expense is comprised of the following at March 31:

A reconciliation of the expected Canadian federal income taxes for the years ended March 31, 1995 and 1996 is as follows:

Deferred tax (assets) liabilities are comprised of the following at March 31:

F-20 REF RETAIL SYSTEMS CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 8 -- EMPLOYEE BENEFITS During fiscal year 1996, the Company established a defined contribution employee retirement plan. All employees with at least one year of employment are eligible to participate. The Company's contributions to the plan range from 1% to 2% of the employee's compensation depending upon length of service. The Company's contribution for the year ended March 31, 1996 was $15,504. NOTE 9 -- SIGNIFICANT CUSTOMERS Sales to one customer represented 42% and 40% of total revenues during 1995 and 1996, respectively. This customer represented 14% of trade accounts receivable at March 31, 1996. In addition, two different customers represented 10% and 13% of 1995 revenues and two separate customers represented 10% and 11% of 1996 revenues. NOTE 10 -- OTHER INCOME Other income in 1996 represents proceeds from the settlement of a law suit brought against former employees. F-21 PREMIS CORPORATION PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited pro forma financial statements give effect to the acquisition by PREMIS Corporation (PREMIS) of REF Retail Systems Corporation (REF) in a transaction to be accounted for as a purchase. The unaudited pro forma balance sheet is based on the individual balance sheets of PREMIS and REF appearing elsewhere in this Prospectus and has been prepared to reflect the acquisition by PREMIS of REF as of June 30, 1996. The unaudited pro forma statement of income is based on the individual statements of income of PREMIS and REF appearing elsewhere in this Prospectus, and combines the results of operations of PREMIS and REF for the year ended March 31, 1996 and for the three months ended June 30, 1996 as if the acquisition occurred on April 1, 1995. These unaudited pro forma financial statements should be read in connection with the historical financial statements and notes thereto of PREMIS and REF included elsewhere in this Prospectus. The accompanying unaudited pro forma financial statements do not necessarily reflect the financial position or results of operations of the Company had the Company acquired REF as of June 30, 1996 (for purposes of the Pro Forma Combined Balance Sheet) or as of April 1, 1995 (for purposes of the Pro Forma Combined Statement of Operations for the year ended March 31, 1996 or for the three months ended June 30, 1996). F-22 PREMIS CORPORATION PRO FORMA COMBINED BALANCE SHEET YEAR ENDED JUNE 30, 1996 (UNAUDITED)

F-23 PREMIS CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED MARCH 31, 1996 (UNAUDITED)

F-24 PREMIS CORPORATION PRO FORMA COMBINED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996 (UNAUDITED)

F-25 PREMIS CORPORATION NOTES TO PRO FORMA INFORMATION (UNAUDITED) REF ACQUISITION ADJUSTMENTS (a) Adjustment to reflect the decrease in salary, benefits and auto expenses for an officer of REF Retail Systems Corporation (REF) whose employment terminates with the acquisition by PREMIS Corporation (PREMIS) and the income tax effect of this adjustment. (b) The purchase price of REF exceeds the fair value of the assets acquired. As a result, PREMIS will record goodwill of approximately $4.9 million with annual amortization of $494,566. The Company amortizes goodwill over a period of 10 years. The recoverability of the unamortized goodwill will be assessed on an ongoing basis by comparing anticipated undiscounted future cash flows from operations to net book value. (c) Adjustment to reflect the elimination of REF shareholder equity and REF retained earnings. (d) Adjusted to reflect net offering proceeds of $6,500,000 needed to fund the acquisition of REF through the issuance of 1,486,928 common shares based on a public offering price of $5.00 per share ($4.37 per share net of offering costs). The weighted average common and common equivalent shares outstanding have been adjusted to reflect the number of shares issued in the offering to provide cash to be paid in connection with the acquisition of REF. (e) Adjustment to give effect to the sale of 1,750,000 shares offered hereby at a public offering price of $5.00 per share ($4.37 per share net of offering costs) and the application of the net proceeds therefrom, including the purchase of REF's stock. F-26