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Previous: COMMERCIAL CREDIT CO, 8-K, 1997-04-14 |
Next: PRICE T ROWE TAX FREE INCOME FUND INC, N-30D, 1997-04-14 |
<PAGE> 1
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 February 28, 1997
---------------------
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT
For the transition period from to
--------- ---------
Commission File No. 0-5954
COMPUTER RESEARCH, INC.
- ------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Pennsylvania 25-1201499
- ------------------------------- ------------------
(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification No.
Cherrington Corporate Center, Building 200, Coraopolis, Pennsylvania 15108
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(412) 262-4430
- ------------------------------------------------------------------------------
(Issuer's telephone number)
- ------------------------------------------------------------------------------
(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 ___
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 ___
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 February 28, 1997)
- -------------------------------------------------------
<PAGE> 2
PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
ASSETS
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 489,575 $1,486,924
Short-Term Investments 1,373,206 741,146
Accounts Receivable - Trade
(net of allowance for doubtful accounts
of $55,000 and $30,000 at 2/28/97 and
8/31/96 respectively) 1,207,799 831,421
Inventories
(first-in, first-out) or market 82,883 41,958
Prepaid Expenses 70,925 64,411
---------- ----------
Total Current Assets 3,224,388 3,165,860
---------- ----------
EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 4,400,416 4,355,558
Data Processing Equipment Under Capital Leases 143,615 143,615
Other 845,180 813,221
---------- ----------
5,389,211 5,312,394
Less Accumulated Depreciation and Amortization 5,118,231 5,019,740
---------- ----------
270,980 292,654
---------- ----------
$3,495,368 $3,458,514
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D.
February 28, 1997 (Unaudited) and August 31, 1996 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FEBRUARY 28, AUGUST 31,
1997 1996
------------ ----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Current Portion of Long-Term Obligations $ 39,895 $ 64,731
Accounts Payable 154,465 128,232
Accrued Payroll 120,170 232,112
Accrued Income Taxes 74,140 272,000
Accrued Vacation 315,114 301,614
Customer Deposits 92,800 88,450
Accrued Rent 22,220 63,642
Accrued Lease Obligation 10,927 13,952
Other Liabilities 4,715 5,911
---------- ----------
Total Current Liabilities 834,446 1,170,644
LONG-TERM OBLIGATIONS -0- 12,019
ACCRUED LEASE OBLIGATION -0- 3,953
---------- ----------
Total Liabilities 834,446 1,186,616
---------- ----------
COMMITMENTS -0- -0-
---------- ----------
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 1,913,350 1,524,326
---------- ----------
Total Stockholders' Equity 2,660,922 2,271,898
---------- ----------
$3,495,368 $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
February 28, 1997 (Unaudited)
<TABLE>
<CAPTION>
DEBT AMOUNT
------
<S> <C>
Short-Term Loans, Notes $ -0-
Long-Term Debt (Including $39,895 due within one year) 39,895
----------
Total Debt $ 39,895
==========
</TABLE>
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SHARES ISSUED AMOUNT
------------- ------
<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 389,024
----------
1,913,350
----------
Total Stockholders' Equity $2,660,922
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
For the Six Months Ended February 28, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES
Sales of Services $3,776,226 $3,678,635
Sales of Equipment, Software and Supplies 25,477 19,596
Rental Income From Operating Leases 10,620 20,640
Other Income 68,285 39,148
---------- ----------
3,880,608 3,758,019
---------- ----------
COSTS AND EXPENSES
Operating Expenses 2,175,756 1,973,256
Selling and Administrative Expenses 956,866 934,053
Depreciation and Amortization 98,491 69,138
Cost of Equipment, Software and Supplies Sold 17,842 13,955
Interest Expense 4,629 6,752
---------- ----------
3,253,584 2,997,154
---------- ----------
INCOME BEFORE INCOME TAXES 627,024 760,865
LESS: PROVISION FOR INCOME TAXES 238,000 150,000
---------- ----------
NET INCOME $ 389,024 $ 610,865
========== ==========
Average Number of Shares Outstanding 4,037,255 4,014,300
---------- ----------
Earnings Per Common Share $ .10 $ .15
---------- ----------
DIVIDENDS PER COMMON SHARE $ - $ -
========== ==========
</TABLE>
The results for the period ended February 28, 1997, 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 six months ended February 28, 1997 and
1996.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
For the Fiscal Second Quarter Ended February 28, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES
Sales of Services $2,034,774 $1,920,796
Sales of Equipment, Software and Supplies 296 19,065
Rental Income From Operating Leases 5,310 9,075
Other Income 34,081 23,395
---------- ----------
2,074,461 1,972,331
---------- ----------
COSTS AND EXPENSES
Operating Expenses 1,128,375 1,019,709
Selling and Administrative Expenses 506,094 471,870
Depreciation and Amortization 50,582 45,976
Cost of Equipment, Software and Supplies Sold 198 13,955
Interest Expense 2,178 3,042
---------- ----------
1,687,427 1,554,552
---------- ----------
INCOME BEFORE INCOME TAXES 387,034 417,779
LESS: PROVISION FOR INCOME TAXES 146,000 85,000
---------- ----------
NET INCOME $ 241,034 $ 332,779
========== ==========
Average Number of Shares Outstanding 4,037,255 4,014,300
---------- ----------
Earnings Per Common Share $ .06 $ .08
---------- ----------
Dividends Per Common Share $ - $ -
========== ==========
</TABLE>
The results for the period ended February 28, 1997, 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 February 28, 1997
and 1996.
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
(USED) BY OPERATING ACTIVITIES:
Net Income $ 389,024 $ 610,865
---------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 98,491 69,138
Provision for Losses on Doubtful Accounts 25,000 15,000
Change in Assets and Liabilities:
Accounts Receivable (401,378) (168,677)
Inventories (40,925) (7,872)
Prepaid Expenses (6,514) (5,113)
Accounts Payable, Accrued Expenses and Other Current Liabilities (312,687) 301,686
Customer Deposits 4,350 39,585
Accrued Lease Obligation (6,978) (10,104)
---------- ----------
Total Adjustments (640,641) 233,643
---------- ----------
Net Cash (Used In) Provided by Operating Activities (251,617) 844,508
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (76,817) (72,711)
Short-Term Investment Maturities -0- -0-
Additions to Short-Term Investments (632,060) -0-
---------- ----------
Net Cash (Used In) Investing (708,877) (72,711)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reacquisition of Stock -0- 28,620
Payments on Capital Lease Obligations (36,855) (24,019)
Payments on Line of Credit -0- (25,000)
---------- ----------
Net Cash (Used In) Financing Activities (36,855) (20,399)
---------- ----------
Net Increase (Decrease) in Cash (997,349) 751,398
Cash and Cash Equivalents at August 31, 1996 and 1995 1,486,924 873,508
---------- ----------
Cash and Cash Equivalents at February 28, 1997 and 1996 $ 489,575 $1,624,906
========== ==========
CASH PAID DURING THE PERIOD 2/28/97 2/29/96
---------- ----------
Interest $ 4,629 $ 6,752
========== ==========
Income Taxes $ 441,860 $ 22,500
========== ==========
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities
For the six months ended February 29, 1996, the Company entered into a capital
lease for the purchase of new equipment for $57,692.
The accompanying notes are an integral part of these financial statement.
7
<PAGE> 8
COMPUTER RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED FEBRUARY 28, 1997
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.
8
<PAGE> 9
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. Service revenues are directly
affected by stock and bond trading market volume which indirectly
impacts the number of transactions processed for the 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 served, 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.
REVENUES
The total revenues for the first six months of the current
year ended February 28, 1997, were $3,880,608 which is
approximately 3% higher than the previous year. The primary
reason for the increase is due to additional systems and
programming revenues generated during the current year.
9
<PAGE> 10
The revenues for the fiscal second quarter of the current
year were $2,074,460 or an increase of approximately 5% over
the previous year.
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 currently scheduled to occur at the end of the
current 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. In March of 1997, a client, which
generated approximately 4% of the Company's revenues for the
first six months of the current year, terminated its business
due to financial problems. Management of the Company believes
that while the revenues for the first quarter of fiscal year
1998 may be negatively impacted, the ability to generate
software license revenues and continued growth in recurring
service revenues from existing clients and potential new
clients should serve to offset any decrease in revenues for
the 1998 fiscal year.
COSTS AND EXPENSES
The total costs and expenses for the first six months of the
current year increased approximately 9% over the comparable
period of the previous year. This is primarily attributable
to increased payroll costs and programming staff additions in
support of the conversion of the Company's software for
processing the Year 2000, as well as increased equipment
costs and travel and living costs associated with
transferring some existing clients to the ongoing Company
product 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 fiscal second quarter of
the current year increased by approximately 9% over the
previous year. The primary reasons for these increases are
consistent with what is defined for the first six months of
the current year.
10
<PAGE> 11
NET INCOME
The net income for the first six months of the current fiscal
year was $389,024 or $.10 per share compared to $610,865 or
$.15 per share for the comparable period of the previous
year. The decrease in income for the current year is
attributable to increased costs and expenses as indicated
above, as well as to 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.
The net income for the fiscal second quarter of the current
year was $241,034 or $.06 per share as compared to $332,779
or $.08 per share for the second quarter of the previous
year. The reasons for the reduced second quarter earnings is
consistent with the six month explanation.
3. CAPITAL RESOURCES AND LIQUIDITY
The Company had approximately $1.8 million in cash, cash equivalents
and short-term investments as of the end of February 1997. In
addition, a $750,000 unused line of credit is available. This, along
with funds generated by operations, should adequately support the
operating needs of the Company in the near term.
During the third quarter of this year, the Company plans to enter into
a lease for approximately $160,000 of computer equipment. In addition,
the Company plans to enter into a lease for additional computer
equipment during the 1998 fiscal year.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on January
28, 1997. The following persons were elected to serve as the Company's Board of
Directors until the next annual meeting of stockholders:
James L. Schultz
David J. Vagnoni
Lynn M. Bushman
Kenneth C. Ebbitt
David K. Klotz
SIGNATURES
COMPUTER RESEARCH, INC.
-----------------------------
(Registrant)
Date
--------------------- ---------------------------------------
James L. Schultz, President & Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000201511
<NAME> COMPUTER RESEARCH, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> FEB-28-1997
<EXCHANGE-RATE> 1
<CASH> 489,575
<SECURITIES> 1,373,206
<RECEIVABLES> 1,262,799
<ALLOWANCES> 55,000
<INVENTORY> 82,833
<CURRENT-ASSETS> 3,224,388
<PP&E> 5,389,211
<DEPRECIATION> 5,118,231
<TOTAL-ASSETS> 3,495,368
<CURRENT-LIABILITIES> 834,446
<BONDS> 39,895
0
0
<COMMON> 3,230
<OTHER-SE> 2,657,692
<TOTAL-LIABILITY-AND-EQUITY> 3,495,368
<SALES> 25,477
<TOTAL-REVENUES> 3,880,608
<CGS> 17,842
<TOTAL-COSTS> 3,253,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 4,629
<INCOME-PRETAX> 627,024
<INCOME-TAX> 238,000
<INCOME-CONTINUING> 389,024
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 389,024
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
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