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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended NOVEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission File No. 0-5954
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COMPUTER RESEARCH, INC.
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(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1201499
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
Cherrington Corporate Center, Building 200, Coraopolis, Pennsylvania 15108
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(Address of principal executive offices)
(412) 262-4430
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(Issuer's telephone number)
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(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
4,037,255 (AS OF NOVEMBER 30, 1996)
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PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
NOVEMBER 30, 1996 (UNAUDITED) AND AUGUST 31, 1996 (AUDITED)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1996 1996
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<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $1,152,424 $1,486,924
Short-Term Investments 1,000,000 741,146
Accounts Receivable - Trade
(net of allowance for doubtful accounts
$30,000 each year) 922,272 831,421
Inventories
(first-in, first-out) or market 47,577 41,958
Prepaid Expenses 65,941 64,411
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Total Current Assets 3,188,214 3,165,860
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EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 4,360,903 4,355,558
Data Processing Equipment Under Capital Leases 143,615 143,615
Other 835,388 813,221
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5,339,906 5,312,394
Less Accumulated Depreciation and Amortization 5,067,649 5,019,740
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272,257 292,654
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$3,460,471 $3,458,514
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D.
NOVEMBER 30, 1996 (UNAUDITED) AND AUGUST 31, 1996 (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOVEMBER 30, AUGUST 31,
1996 1996
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<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Current Portion of Long-Term Obligations $ 53,650 $ 64,731
Accounts Payable 92,673 128,232
Accrued Payroll 322,064 232,112
Accrued Income Taxes 107,050 272,000
Accrued Vacation 308,364 301,614
Customer Deposits 115,554 88,450
Accrued Rent 17,855 63,642
Accrued Lease Obligation 13,427 13,952
Other Liabilities 4,147 5,911
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Total Current Liabilities 1,034,784 1,170,644
LONG-TERM OBLIGATIONS 4,808 12,019
ACCRUED LEASE OBLIGATION 989 3,953
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Total Liabilities 1,040,581 1,186,616
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COMMITMENTS -- --
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STOCKHOLDERS' EQUITY
Common Stock - No Par Value; $.0008 Stated Value;
5,000,000 Shares Authorized; 4,037,255 Shares
Issued and Outstanding Each Year 3,230 3,230
Additional Paid-In Capital 744,342 744,342
Retained Earnings 1,672,318 1,524,326
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Total Stockholders' Equity 2,419,890 2,271,898
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$3,460,471 $3,458,514
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
B. COMPUTER RESEARCH, INC. CAPITALIZATION AND STOCKHOLDERS' EQUITY
NOVEMBER 30, 1996 (UNAUDITED)
<TABLE>
DEBT AMOUNT
---------
<S> <C>
Short-Term Loans, Notes $ -0-
Long-Term Debt (Including $53,650 due within one year) 58,458
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Total Debt $58,458
=======
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
SHARES ISSUED AMOUNT
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<S> <C> <C>
Preferred Stock -0- $ -0-
Common Stock 4,037,255 3,230
Capital in Excess of Par Value 744,342
Retained Earnings -
Balance at Beginning of Current Fiscal Year 1,524,326
Net Income for Period 147,992
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1,672,318
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Total Stockholders' Equity $2,419,890
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
REVENUES
Sales of Services $1,741,452 $1,757,843
Sales of Equipment, Software and Supplies 25,181 530
Rental Income From Operating Leases 5,310 11,565
Other Income 34,204 15,752
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1,806,147 1,785,690
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COSTS AND EXPENSES
Operating Expenses 1,047,380 953,549
Selling and Administrative Expenses 450,772 462,184
Depreciation and Amortization 47,909 23,162
Cost of Equipment, Software and Supplies Sold 17,643 --
Interest Expense 2,451 3,709
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1,566,155 1,442,604
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INCOME BEFORE INCOME TAXES 239,992 343,086
LESS: PROVISION FOR INCOME TAXES 92,000 65,000
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NET INCOME $ 147,992 $ 278,086
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Average Number of Shares Outstanding 4,037,255 3,887,338
Earnings Per Common Share $ .04 $ .07
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Dividends Per Common Share $ -- $ --
========== ==========
</TABLE>
The results for the period ended November 30, 1996, are unaudited and are not
necessarily indicative of the results to be expected for the year. All known
adjustments necessary for a fair presentation of the financial information of
the Company have been reflected for the three months ended November 30, 1996
and 1995.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Net Income $ 147,992 $ 278,086
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ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 47,909 23,162
Provision for Losses on Doubtful Accounts -- 5,000
Change in Assets and Liabilities:
Accounts Receivable (90,851) (197,217)
Inventories (5,619) 2,772
Prepaid Expenses (1,530) 5,479
Accounts Payable, Accrued Expenses and Other Current
Liabilities (151,358) 114,200
Customer Deposits 27,104 38,829
Accrued Lease Obligation ( 3,489) (5,052)
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Total Adjustments (177,834) (12,827)
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Net Cash (Used In) Provided by Operating Activities (29,842) 265,259
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (27,512) (7,310)
Short-Term Investment Maturities 361,000 --
Additions to Short-Term Investments (619,854) --
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Net Cash (Used In) Investing (286,366) (7,310)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Reacquisition of Stock -- (176)
Payments on Capital Lease Obligations (18,292) (11,851)
Payments on Line of Credit -- (20,000)
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Net Cash (Used In) Financing Activities (18,292) (32,027)
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Net Increase (Decrease) in Cash (334,500) 225,922
Cash and Cash Equivalents at August 31, 1996 and 1995 1,486,924 873,508
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Cash and Cash Equivalents at November 30, 1996 and 1995 $1,152,424 $1,099,430
========== ==========
CASH PAID DURING THE PERIOD 11/30/96 11/30/95
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Interest $ 2,451 $ 3,709
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Income Taxes $ 256,950 $ 1,630
========== ==========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
There were no noncash investing and financing activities for the three months
ended November 30, 1996 and 1995.
The accompanying notes are an integral part of these financial statement.
6
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COMPUTER RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 1996
NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB
The accompanying financial information should be read in conjunction
with the Company's 1996 Annual Report on Form 10-KSB.
NOTE B - ADJUSTMENTS
In the opinion of management, all adjustments that were made, which
are necessary to a fair statement of the results for the interim
periods, were of a normal and recurring nature. November 30, 1995,
income statement amounts have been reclassified for comparative
purposes.
7
<PAGE> 8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
1. "SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
Statements regarding the Company's expectations as to its future
operations and financial condition and certain other information
presented in this report constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
Although we believe that our expectations are based on reasonable
assumptions within the bounds of our knowledge of our business and
operations, there can be no assurance that actual results will not
differ materially from our expectations. Factors which could cause
actual results to differ from expectations include a general downturn
in the economy or the stock markets and related transaction activity,
gain or loss of significant clients, unforeseen new competition,
changes in government policy or regulation of unforeseen costs and
other effects related to legal proceedings.
2. RESULTS OF OPERATIONS
The Company's principal source of revenue is derived from providing
computerized accounting and support services to securities firms,
banks and other financial institutions. Our revenues are directly
affected by stock and bond market trading volume which indirectly
impacts the number of transactions we process for our clients. The
clients served are subject to mergers and acquisitions and may choose
to convert their business from self-clearing to a fully disclosed
basis. The Company could be positively or negatively impacted by a
merger involving one of its clients. Also, due to the volatile nature
of the industry we serve, the results of operations for the period
represented are not necessarily indicative of results to be expected
for the coming year or any specific period.
8
<PAGE> 9
REVENUES
The total revenues for the first three months of the current
year ended November 30, 1996, were $1,806,147 which is
approximately 1% above the first three months of the previous
year. While service revenues for the period decreased
approximately 6% from the previous year due to a decrease in
transactions processed, there was a corresponding increase in
systems and programming revenues as well as in interest
income.
The total revenues for the first three months of the previous
year ending November 30, 1995, increased approximately 35%
over the previous year primarily due to an increase in
transactions processed for the brokerage and banking clients
of the firm.
In March of 1996, the Company and Wachovia Operational
Services Corporation, an affiliate of a major service client
that accounts for more than 10% of the consolidated revenues
of the Company, entered into an agreement to convert the
Company's production software (Instant System) from its
existing hardware platform to operate on an IBM AS/400
configuration. Upon successful completion of this project,
which is anticipated to occur during the fourth quarter of
the Company's 1997 fiscal year, the Company intends to begin
licensing the software to third parties for in-house
utilization. The licensing of the software to Wachovia
Operational Services Corporation will result in a reduction
of service fees from the major client in the 1998 fiscal
year. However, the conversion of the Company's existing
software to the IBM AS/400 configuration will enhance the
ability to secure software license revenues. Management
believes the ability to generate software license revenues
and continued growth in recurring service revenues from
existing clients and potential new clients will serve to
offset any decrease in revenues that might occur.
COSTS AND EXPENSES
The total costs and expenses for the first three months of
the current year increased approximately 9% over the previous
year. This increase is primarily due to the cost of
additional computer equipment installed during the second
quarter of the previous year as well as to the one time
installation and training costs associated with transferring
some existing clients to the ongoing Company product
9
<PAGE> 10
line (Instant System) from a processing system that will be
terminated during the current year (BID/BOA System).
The total costs and expenses for the first three months of
the previous year increased approximately 12% primarily due
to an increase in data communications costs as well as costs
associated with systems development.
NET INCOME
The net income for the first three months of the current
fiscal year was $147,992 or $.04 per share as compared to
$278,088 or $.07 per share for the comparable period of the
previous year. This decrease is attributable to additional
shares outstanding in the current year due to exercised
employee stock options, increased costs and expenses as
indicated above, as well as an increase in income taxes due
to the fact that the Company is now on a fully taxed basis as
opposed to the previous year when a net operating loss carry
forward was utilized to reduce taxes payable.
3. CAPITAL RESOURCES AND LIQUIDITY
Cash and cash equivalents on hand as of November 30, 1996, were
approximately $1.1 million. In addition, the Company has approximately
$1 million in short-term investments. Should it be needed, the Company
has a $750,000 line of credit available for future use. The Company's
operating cash flow, borrowing capacity, and liquidity should provide
adequate funds for continuing operations for the foreseeable future.
During the second quarter of the current year, approximately $212,000
will be utilized to fund the Company's fiscal year 1996 contribution
to the employee qualified profit sharing plan.
The management of the Company currently anticipates the leasing or
purchase of an IBM computer system during the fourth quarter of the
current fiscal year.
10
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PART II - OTHER INFORMATION
Not applicable.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
COMPUTER RESEARCH, INC.
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(Registrant)
Date
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James L. Schultz, President & Treasurer
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000201511
<NAME> COMPUTER RESEARCH, INC
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 1,152,424
<SECURITIES> 1,000,000
<RECEIVABLES> 952,272
<ALLOWANCES> 30,000
<INVENTORY> 47,577
<CURRENT-ASSETS> 3,188,214
<PP&E> 5,339,906
<DEPRECIATION> 5,067,649
<TOTAL-ASSETS> 3,460,471
<CURRENT-LIABILITIES> 1,034,784
<BONDS> 0
0
0
<COMMON> 3,230
<OTHER-SE> 2,416,660
<TOTAL-LIABILITY-AND-EQUITY> 3,460,471
<SALES> 25,181
<TOTAL-REVENUES> 1,806,147
<CGS> 17,643
<TOTAL-COSTS> 1,566,155
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,451
<INCOME-PRETAX> 239,992
<INCOME-TAX> 92,000
<INCOME-CONTINUING> 147,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,992
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
