SSI Announces QueryJoiner™ and Fourth Quarter Results
Calgary, Canada - February 6th, 2003 - Sterne Stackhouse Inc. ("SSI") (TSX:SSX), a leading provider of data query, reporting, and analysis software services and solutions, announced today its 4th Quarter financials. As a result of increased Petro-LAB™ royalties, and continued reduction in expenses, the Company produced fourth quarter net income of $435,201. Although it still fluctuates dramatically on a quarterly basis, Petro-LAB™ revenue has remained strong. In this regard, the Company continues to work closely with its most prominent business partner, QByte Services/IBM Global Services. SSI and QByte combined resources very effectively to complete the release of Petro-LAB™, version 8.0, on schedule.
The website has been completely rebuilt to reflect current initiatives, particularly its LabradorÒ Partner Program. As reflected in the 3rd Quarter Report to Shareholders, the Company is focused on finding the right business partners to work with to distribute both U.S./ International Petro-LAB™ and/or Web-LAB™. The Ontario initiative is proceeding and will assist with International endeavours. All other relationships remain stable, and expenses have been reduced again.
The Company is particularly pleased to announce the development of QueryJoinerä, scheduled for release in the third quarter of 2003. The release of QueryJoiner™ will be an "Add-In" to Microsoft ExcelÒ , and will work with relational databases as well as with LabradorÒ /Petro-LABä. QueryJoiner™ will allow 'advanced users' to query data from two or more different servers at the same time, and combine the data in one report. The User Interface is key. It will be textual as well as graphical, allowing users to employ both interfaces to simplify the complex process of creating and joining queries.
The importance of QueryJoiner™ will be especially clear to users who have 'hit a wall' when they have needed to retrieve data from a number of different sources into a single report, without special purpose programming. Although the Company has always strived to provide user self-sufficiency with Labrador®/Petro-LAB™, it has been unable to find a third party software offering which satisfactorily addresses 'joins across servers'. In fact, this is a 'wall' that has been tackled unsuccessfully by some of the biggest software companies in the world.
After years of trying to find methods to overcome this problem, SSI has worked its way past the obstacles, through to a solution. As its name suggests, QueryJoiner™ will allow users to formulate queries, sourced from different SQL databases, and join them, with or without the use of LabradorÒ. The most daunting challenges are performance and ease of use. Nevertheless, the Company believes that it can deliver both during the third quarter of this fiscal year. SSI is in its 23rd year of software development, and all of its experience has been brought to this endeavour.
Management is optimistic.
Financial Results
In the 4th Quarter, the Company incurred a net increase in cash of $269,140. Expenses have been substantially reduced from the same period in the previous year and expenses are continuing to be monitored closely.
Cash Flow Analysis
| Three months ended | Yearended | |||
| Oct 31, 2002 | Oct 31, 2001 | Oct 31, 2002 | Oct 31, 2001 | |
|
Sources of cash |
||||
| Operations |
$ 540,200 |
$ - |
$ - |
$ 174,354 |
| Decrease in accounts receivable - QByte |
- |
148,500 |
756,138 |
- |
| Decrease in accounts receivable - other |
110,783 |
409,137 |
26,491 |
1,230,981 |
| Increase in acc pay and acc liab |
- |
- |
- |
- |
| Issuance of share capital |
- |
- |
- |
944,000 |
|
650,983 |
557,637 |
782,629 |
2,349,335 |
|
|
Uses of cash |
||||
| Operations |
- |
786,211 |
566,502 |
- |
| Increase in accounts receivable - QByte |
367,581 |
- |
- |
1,422,958 |
| Increase in accounts receivable - other |
- |
- |
- |
- |
| Decrease in acc pay and acc liab |
4,865 |
28,053 |
35,321 |
9,235 |
| Expenditures on software development |
- |
- |
- |
122,061 |
| Capital asset additions |
9,397 |
12,970 |
46,956 |
73,944 |
| Repayment of loans |
- |
- |
- |
397,736 |
|
381,843 |
827,234 |
648,779 |
2,025,934 |
|
|
Sources of cash minus Uses of cash |
269,140 |
(269,597) |
133,850 |
323,401 |
|
Cash balance at the beginning of the period |
138,366 |
543,253 |
273,656 |
(49,745) |
|
Cash balance at the end of the period |
407,506 |
273,656 |
407,506 |
273,656 |
In the foregoing table, cash used in Operations is equal to the net income (loss) shown on the Statement of Operations and Deficit adjusted for: depreciation and amortization, deferred revenue and prepaid expenses. These adjustments are shown in the following table.
Cash Used in Operations
| Three months ended | Yearended | |||
| Oct 31, 2002 | Oct 31, 2001 | Oct 31, 2002 | Oct 31, 2001 | |
|
Operations: |
||||
| Revenue |
$ 1,077,104 |
$ 400,483 |
$ 1, 817,395 |
$ 1,776,789 |
| Expenses |
(641,903) |
(888,862) |
(2,562,484) |
(4,760,392) |
| Gain on sale of Petro-LAB |
- |
- |
- |
4,480,619 |
| Bad debt expense |
- |
(300,000) |
- |
(300,000) |
|
Net income (loss) |
435,201 |
(788,379) |
(745,089) |
1,197,016 |
|
Non-cash adjustments |
||||
| Non-cash reorg. and related costs |
96,000 |
- |
96,000 |
- |
| Depreciation and amortization |
8,639 |
25,793 |
95,039 |
232,193 |
| Deferred revenue |
- |
(24,000) |
(32,000) |
(1,963,751) |
| Prepaid expenses |
360 |
375 |
19,548 |
15,826 |
| Write-off of software dev costs |
- |
- |
- |
693,070 |
|
Cash provided by (used in) operations |
540,200 |
(786,211) |
(566,502) |
174,354 |
Results of Operations
Financial Summary
As explained in previous quarterly reports, according to the terms of the QByte Agreement, revenue is only recognized as the licenses are renewed. In the 4th Quarter, there was renewal revenue of $962,581.
|
Three months ended |
Year ended |
|||
|
Oct 31 |
Oct 31 |
Oct 31 |
Oct 31 |
|
|
2002 |
2001 |
2002 |
2001 |
|
|
Revenue |
$ 1,077,104 |
$ 400,483 |
$1,817,395 |
$1,776,789 |
|
Expenses |
641,903 |
888,862 |
2,562,484 |
4,760,392 |
|
Income (loss) |
435,201 |
(488,379) |
(745,089) |
(2,983,603) |
|
Gain on sale of Petro-LAB |
- |
- |
- |
4,480,619 |
|
Bad debt expense |
- |
(300,000) |
- |
(300,000) |
|
Net income (loss) |
435,201 |
(788,379) |
(745,089) |
1,197,016 |
|
Earnings per share |
0.05 |
(0.09) |
(0.09) |
0.14 |
|
Outstanding shares |
8,549,685 |
8,549,685 |
8,549,685 |
8,549,685 |
|
Oct 31, 2002 |
Oct 31, 2001 |
|||
|
Cash balance |
$407,506 |
$ 273,656 |
||
|
Shareholders' equity |
1,113,045 |
1,858,134 |
||
|
Total assets |
1,239,575 |
2,051,985 |
||
Revenue
SSI's total revenue for the three months ended October 31, 2002 was $1,077,104 compared to $400,483 for the three months ended October 31, 2001, an increase of $676,621. The revenue for the period is comprised of $962,581 of revenue recognized on the renewal of Petro-LAB licenses and $114,523 for consulting services to QByte related to Petro-LABä
Petro-LABä - QByte Agreement
On March 16th, 2001, the Company negotiated a cash and royalty-bearing agreement with QByte, a leading provider of software to the Canadian oil and gas industry. Under the agreement, QByte will acquire the rights to SSI's Petro-LABä application over 5 years. The effective date of the agreement was February 28th, 2001.
Terms of the Agreement
Under the terms of the agreement, SSI has agreed to grant to QByte an exclusive, royalty-bearing license to develop, market, and license Petro-LABä. SSI has granted these rights for the Canadian oil and gas up-stream and mid-stream market for 5 years. Title to the existing Petro-LABä software becomes QByte's at the end of the 5 year term provided all payments have been made, and all obligations have been fulfilled. Since the Petro-LABä software requires the use of LabradorÒ, SSI's dynamic query generation engine, to function, SSI has also granted QByte an exclusive, perpetual, royalty-bearing license to use, market, and license LabradorÒ, to the mid-stream and up-stream oil and gas market in Canada.
The Agreement provides for the following payments to SSI:
- A royalty prepayment of $1,500,000 that was paid on signing;
- An annual payment, paid monthly, of $1,900,000 from March 2001 to February 2002; $2,380,000 from March 2002 to February 2003; $530,000 from March 2003 to February 2004 ($530,000 is the net royalty payment after deduction of the royalty prepayment of $1,500,000); $398,750 from March 2004 to February 2005; and $290,000 from March 2005 to February 2006;
- SSI's payments will be adjusted, after the end of years 2, 3, 4, and 5 of the agreement, based on a comparison of actual Petro-LABä license renewal revenues from existing clients to the following forecast of license renewal revenues from existing clients: $1,900,000 from March 2001 to February 2002; $2,380,000 from March 2002 to February 2003; $2,030,000 from March 2003 to February 2004; $1,595,000 from March 2004 to February 2005; and $1,160,000 from March 2005 to February 2006. SSI will receive 50% of any excess of actual revenues above, and QByte will reduce its royalty obligation by 50% of any shortfall of actual revenues below the agreed to Petro-LABä license renewal revenue forecast from existing clients;
- A 25% royalty, in perpetuity, on all revenue from new clients of Petro-LABä, on all new business from existing Petro-LABä clients, and on all business from existing Petro-LABä clients after year 5 using LabradorÒ ; and
- 65% of all revenue generated from LabradorÒ licenses not associated with the Petro-LABä software.
Based on the above, if actual Petro-LABä license renewals were equal to the license renewal revenue forecast stated above and there was no new business (i.e. no revenue from the 25% royalty in perpetuity), SSI would still receive total payments of $6,998,750. Nevertheless, as indicated below, there has been new Petro-LAB business.
From the effective date of the Agreement (February 28, 2001) to October 31, 2002, SSI has received cash payments from QByte, related to the sale of Petro-LAB, of $4,437,578 ($1,500,000 from the royalty prepayment, $1,900,000 from the first year of monthly payments, $1,586,665 being eight months payments from the second year of monthly payments, and $45,912 from new business royalties). In addition, from the effective date of the Agreement to October 31, 2002, actual Petro-LABä license renewal revenue from existing clients was $4,308,225.
On the effective date of the agreement, February 28th, 2001, the Company recorded a cash receipt of $1,500,000 from the QByte agreement and an account receivable of $1,999,375. The account receivable is reduced by the monthly payments received from QByte, and is increased by an amount equal to the royalty revenue recognized when a license renewal occurs. As a result, the account receivable from QByte at October 31, 2002 was equal to $666,821 (i.e. $1,999,375 less monthly payments totaling $3,486,666, plus royalty revenue recognized from Petro-LABä license renewals from existing clients of $2,154,112).
Revenue Recognition
Royalty revenue from the QByte agreement is recognized as follows:
- Royalty revenue from Petro-LABä license renewals from existing clients is recognized when the license renewals occur. Since $0.50 of each $1.00 of license renewal revenue has already been recognized in the one-time gain of $4,480,619, the remaining $0.50 of each $1.00 of license renewal revenue is recognized when the renewal invoice is sent to the client. As a result, as of October 31, 2002, QByte had invoiced $4,308,224 of Petro-LABälicense renewal fees. SSI recognized $2,154,112 or half of these renewal fees, as revenue; and
- Royalty revenue from new Petro-LABä business is recognized when QByte pays the royalties to SSI. During the three months ended October 31, 2002, there was no royalty revenue from new Petro-LABä business.
Expenses
General and Administrative
This category of expenses is comprised primarily of office rent, office equipment rentals, administrative salaries, corporate expenses related to shareholder reporting, and professional fees. G&A expenses for the three months ended October 31, 2002 were $223,899 compared to $324,627 for the three months ended October 31, 2001, a decrease of $100,728. The decrease is due primarily to a reduction in salary costs of $48,500 and a reduction in office equipment rentals of $37,418 as agreements matured. In an effort to further reduce costs, the Company is attempting to sub-lease its excess office space. The space has been on the market for the past nine months, but a sub-tenant has not yet been found.
Sales, Marketing and Support
Sales and marketing expenses include expenses for sales and support salaries, sales commissions, and promotion/advertising. For the three months ended October 31, 2002, sales and marketing expenses were $85,550 compared to $216,734 for the three months ended October 31, 2001, a decrease of $131,184. The decrease is due mainly to a reduction in salary costs of $129,516.
Computer and Related Costs
Computer and Related Costs include hardware maintenance, programmer's salaries, and software costs. This category of expenses totaled $227,815 for the three months ended October 31, 2002, compared to $321,073 for the three months ended October 31, 2001, a decrease of $93,258. The decrease is due primarily to reduced software costs of $22,864 related to the QByte transaction and reduced salary costs of $59,499.
Reorganization and related costs
During the past year, the Company has undergone an internal reorganization. As a result, Reorganization and related costs for the period include a write-off of capital assets totaling $96,000 relating to the fact that certain assets were no longer being fully utilized. Severance costs of $26,364 from the first quarter were also reclassified as Reorganization and related costs.
Depreciation
Depreciation expense for the three months ended October 31, 2002 was $8,639 compared to $25,793 for the previous fiscal period. The reduction of $17,154 is due to reduced capital acquisitions during the year. The Company did not acquire any depreciable assets during the period.
Operating Segments
The Company has two operating segments, the development and marketing of data retrieval technology for the oil and gas industry (Petro-LABä ), and the development and marketing of data retrieval technology and services for generic markets (LabradorÒ ).
Financing and Investing
During the three-month period ended October 31, 2002, the Company's cash position increased by $269,140. During the period, the Company did not undertake any financing or investing activities.
Financial Condition, Liquidity and Requirements Outlook
At October 31, 2002, SSI had cash of $407,506, no debt, and working capital of $992,279. The Company has guaranteed monthly cash inflow from QByte of $198,333 through February 2003 (see Petro-LABä - QByte Agreement above) and an estimated cash inflow from QByte of $75,000 per month from March 2003 to February 2004.
Forward Looking Statements
Certain statements in Management's Financial Discussion and Analysis, other than statements of historical fact, are forward-looking information that involves various risks and uncertainties. These risks and uncertainties include, but are not restricted to, the Company's continuing ability to promote and license its products, the Company's ability to attract and retain key employees, and the Company's ability to raise capital on acceptable terms when needed. These uncertainties may cause actual results to differ from information contained herein. There can be no assurance that such statements will prove to be accurate. Actual results and future events could differ materially from those anticipated in such statements. These forward-looking statements are based on the estimates and opinions of management on the dates they are made and are expressly qualified in their entirety by this notice. The Company assumes no obligation to update forward-looking statements should circumstances, management's estimates, or opinions change.
STERNE STACKHOUSE INC.
Balance Sheets
|
October 31 |
October 31 |
|
|
2002 |
2001 |
|
|
(unaudited) |
(audited) |
|
|
Assets |
||
|
Current assets: |
||
| Cash |
$407,506 |
$273,656 |
| Accounts receivable |
685,006 |
1,467,635 |
| Prepaid expenses |
26,297 |
45,845 |
|
1,118,809 |
1,787,136 |
|
|
Capital assets |
120,766 |
264,849 |
|
$1,239,575 |
$2,051,985 |
|
|
Liabilities and Shareholders' Equity |
||
|
Current liabilities: |
||
| Accounts payable and accrued liabilities |
$126,530 |
$161,851 |
| Deferred revenue |
- |
32,000 |
|
126,530 |
193,851 |
|
|
Shareholders' equity: |
||
| Share capital |
5,081,178 |
5,081,178 |
| Deficit |
(3,968,133) |
(3,223,044) |
|
1,113,045 |
1,858,134 |
|
|
$1,239,575 |
$2,051,985 |
STERNE STACKHOUSE INC.
Statements of Operations and Deficit (Unaudited)
|
Three months ended |
Year ended |
|||
|
October 31 |
October 31 |
October 31 |
October 31 |
|
|
2002 |
2001 |
2002 |
2001 |
|
|
Revenues: |
||||
| License fees |
$- |
$11,324 |
$54,800 |
$880,185 |
| Royalty income |
962,581 |
333,893 |
1,491,264 |
708,760 |
| Consulting fees |
114,523 |
55,266 |
271,331 |
187,844 |
|
1,077,104 |
400,483 |
1,817,395 |
1,776,789 |
|
|
Expenses: |
||||
| General and administrative |
223,899 |
324,627 |
1,108,473 |
1,788,496 |
| Sales and marketing |
85,550 |
216,734 |
404,965 |
1,569,541 |
| Computer and related costs |
227,815 |
321,073 |
831,090 |
1,159,669 |
| Reorganization and related costs |
96,000 |
- |
122,364 |
- |
| Amortization of software development costs |
- |
- |
- |
120,000 |
| Depreciation |
8,639 |
25,793 |
95,039 |
112,193 |
| Interest |
- |
635 |
553 |
10,493 |
|
641,903 |
888,862 |
2,562,484 |
4,760,392 |
|
|
Income (loss) before the following |
435,201 |
(488,379) |
(745,089) |
(2,983,603) |
|
Other income items: |
||||
| Gain on sale of Petro-LAB |
- |
- |
- |
4,480,619 |
| Bad debt expense |
- |
(300,000) |
- |
(300,000) |
|
- |
(300,000) |
- |
4,180,619 |
|
|
Net income (loss) |
435,201 |
(788,379) |
(745,089) |
1,197,016 |
|
Deficit, beginning of period |
(4,403,334) |
(2,434,665) |
(3,223,044) |
(4,420,060) |
|
Deficit, end of period |
$(3,968,133) |
$(3,223,044) |
$(3,968,133) |
$(3,223,044) |
|
Net income (loss) per share: |
||||
| Basic and diluted |
0.05 |
(0.09) |
(0.09) |
0.14 |
STERNE STACKHOUSE INC.
Statements of Cash Flows (Unaudited)
|
Three months ended |
Year ended |
|||
|
October 31 |
October 31 |
October 31 |
October 31 |
|
|
2002 |
2001 |
2002 |
2001 |
|
|
(restated - note 2) |
(restated - note 2) |
|||
|
Cash provided by (used in): |
||||
|
Operating activities: |
||||
| Net income (loss) |
$435,201 |
$(788,379) |
$(745,089) |
$1,197,016 |
| Items not involving cash: | ||||
| Non-cash reorganization and related costs |
96,000 |
- |
96,000 |
- |
| Gain on sale of Petro-LAB |
- |
- |
- |
(4,480,619) |
| Depreciation and amortization |
8,639 |
25,793 |
95,039 |
232,193 |
| Bad debt expense |
- |
300,000 |
- |
300,000 |
|
539,840 |
(462,586) |
(554,050) |
(2,751,410) |
|
| Changes in non-cash working capital |
(261,303) |
205,959 |
2,148 |
1,957,260 |
|
278,537 |
(256,627) |
(551,902) |
(794,150) |
|
|
Financing activities: |
||||
| Issuance of share capital |
- |
- |
- |
944,000 |
| Repayment of loans |
- |
- |
- |
(397,736) |
|
- |
- |
- |
546,264 |
|
|
Investing activities: |
||||
| Change in non-cash working capital relating to Investing activities |
- |
- |
732,708 |
(732,708) |
| Proceeds on sale of Petro-LAB |
- |
- |
- |
1,500,000 |
| Expenditures on software development |
- |
- |
- |
(122,061) |
| Capital asset additions |
(9,397) |
(12,970) |
(46,956) |
(73,944) |
|
(9,397) |
(12,970) |
685,752 |
571,287 |
|
|
Net increase (decrease) in cash position |
269,140 |
(269,597) |
133,850 |
323,401 |
|
Cash (bank indebtedness), beginning of period |
138,366 |
543,253 |
273,656 |
(49,745) |
|
Cash (bank indebtedness), end of period |
$407,506 |
$273,656 |
$407,506 |
$273,656 |
Bank indebtedness consists of cheques issued in excess of cash in bank.