<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 May 31, 1997
--------------------------
[ ] 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)
- -----------------------------------------------------------------------------
(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
----- -----
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 May 31, 1997)
<PAGE> 2
PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
May 31, 1997 (Unaudited) and August 31, 1996 (Audited)
ASSETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
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<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $1,211,530 $1,486,924
Short-Term Investments 1,288,838 741,146
Accounts Receivable - Trade
(net of allowance for doubtful accounts
of $40,000 and $30,000 at 5/31/97 and
8/31/96 respectively) 915,423 831,421
Inventories
(first-in, first-out) or market 62,537 41,958
Prepaid Expenses 39,803 64,411
---------- ----------
Total Current Assets 3,518,131 3,165,860
---------- ----------
EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 4,429,988 4,355,558
Data Processing Equipment Under Capital Leases 143,615 143,615
Other 850,542 813,221
---------- ----------
5,424,145 5,312,394
Less Accumulated Depreciation and Amortization 5,170,481 5,019,740
---------- ----------
253,664 292,654
---------- ----------
$3,771,795 $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.
May 31, 1997 (Unaudited) and August 31, 1996 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
---------- ----------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Current Portion of Long-Term Obligations $ 22,106 $ 64,731
Accounts Payable 98,743 128,232
Accrued Payroll 225,630 232,112
Accrued Income Taxes 99,021, 272,000
Accrued Vacation 321,864 301,614
Customer Deposits 93,800 88,450
Accrued Rent 15,715 163,642
Accrued Lease Obligation 7,438 13,952
Other Liabilities 8,833 5,911
---------- ----------
Total Current Liabilities 893,150 1,170,644
LONG-TERM OBLIGATIONS -0- 12,019
ACCRUED LEASE OBLIGATION -0- 3,953
---------- ----------
Total Liabilities 893,150 1,186,616
---------- ----------
COMMITMENTS -0- -0-
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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 2,131,073 1,524,326
---------- ----------
Total Stockholders' Equity 2,878,645 2,271,898
---------- ----------
$3,771,795 $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
May 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
DEBT AMOUNT
---- ------
<S> <C> <C>
Short-Term Loans, Notes $ -0-
Long-Term Debt (Including $22,106 due within one year) 22,106
-------
Total Debt $22,106
=======
STOCKHOLDERS' EQUITY
- --------------------
SHARES ISSUED AMOUNT
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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 606,747
----------
$2,131,073
----------
Total Stockholders' Equity $2,878,645
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
For the Nine Months Ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES
--------
Sales of Services $5,605,866 $5,463,468
Sales of Equipment, Software and Supplies 101,714 48,971
Rental Income From Operating Leases 14,730 28,205
Other Income 105,065 63,761
---------- ----------
5,827,375 5,604,405
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COSTS AND EXPENSES
------------------
Operating Expenses 3,250,781 3,029,025
Selling and Administrative Expenses 1,378,382 1,392,315
Depreciation and Amortization 150,741 116,087
Cost of Equipment, Software and Supplies Sold 73,196 37,347
Interest Expense 6,528 9,824
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4,859,628 4,584,598
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INCOME BEFORE INCOME TAXES 967,747 1,019,807
LESS: PROVISION FOR INCOME TAXES 361,000 210,000
---------- ----------
NET INCOME $ 606,747 $ 809,807
========== ==========
Average Number of Shares Outstanding 4,037,255 4,014,300
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EARNINGS PER COMMON SHARE $ .15 $ .20
========== ==========
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the period ended May 31, 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 nine months ended May 31, 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 Third Quarter Ended May 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
REVENUES
--------
Sales of Services $1,829,640 $1,784,830
Sales of Equipment, Software and Supplies 76,238 29,375
Rental Income From Operating Leases 4,110 7,565
Other Income 36,780 24,613
---------- ----------
1,946,768 1,846,383
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COSTS AND EXPENSES
------------------
Operating Expenses 1,075,026 1,055,769
Selling and Administrative Expenses 421,515 458,262
Depreciation and Amortization 52,250 46,949
Cost of Equipment, Software and Supplies Sold 55,355 23,391
Interest Expense 1,899 3,072
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1,606,045 1,587,443
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INCOME BEFORE INCOME TAXES 340,723 258,940
LESS: PROVISION FOR INCOME TAXES 123,000 60,000
---------- ----------
NET INCOME $ 217,723 $ 198,940
========== ==========
Average Number of Shares Outstanding 4,037,255 4,014,300
---------- ----------
EARNINGS PER COMMON SHARE $ .05 $ .05
========== ==========
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the period ended May 31, 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 May 31, 1997 and
1996.
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 7
D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 606,747 $ 809,807
----------- ----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 150,741 116,087
Provision for Losses on Doubtful Accounts 25,114 15,000
Change in Assets and Liabilities:
Accounts Receivable (109,116) (143,068)
Inventories (20,579) 31,114
Prepaid Expenses 24,608 29,151
Other Assets -0- 1,341
Accounts Payable, Accrued Expenses and Other Current Liabilities (233,705) 239,120
Customer Deposits 5,350 57,588
Accrued Lease Obligation (10,467) (15,153)
----------- ----------
Total Adjustments (168,054) 331,180
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Net Cash Provided by Operating Activities 438,693 1,140,987
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (111,751) (89,221)
Short-Term Investment Maturities 1,020,000 -0-
Additions to Short-Term Investments (1,567,692) -0-
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Net Cash (Used In) Investing (659,443) (89,221)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Stock -0- 28,620
Payments on Capital Lease Obligations (54,644) (44,653)
Payments on Line of Credit -0- (25,000)
----------- ----------
Net Cash (Used In) Financing Activities (54,644) (41,033)
----------- ----------
Net Increase (Decrease) in Cash 1,010,733
(275,394)
Cash and Cash Equivalents at August 31, 1996 and 1995 1,486,924 873,508
----------- ----------
Cash and Cash Equivalents at May 31, 1997 and 1996 $ 1,211,530 $1,884,241
----------- ----------
CASH PAID DURING THE PERIOD 5/31/97 5/31/96
----------- ----------
Interest $ 6,528 $ 9,824
=========== ==========
Income Taxes $ 533,979 $ 22,500
=========== ==========
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities
For the nine months ended May 31, 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.
8
<PAGE> 8
COMPUTER RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 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.
9
<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.
Since these statements involve risks and uncertainties and are subject
to change at anytime, the Company's actual results could differ
materially from expected results. The Company's forward looking
statements are based upon operating budgets and many detailed
assumptions. While the Company believes that its assumptions are
reasonable, it cautions that there are inherent difficulties in
predicting certain important factors which could directly affect the
business. Some 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, or costs and other effects related to
unanticipated 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 could be subject to mergers and acquisitions or may
choose to convert their business from self-clearing to a fully
disclosed basis which would eliminate the need for the accounting
service provided by the Company. 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 nine months of the current
year ended May 31, 1997, were $5,827,375 which is
approximately 4% higher than the comparable period for the
previous year. The primary reason for the increase is due to
additional service revenues generated during the current year.
10
<PAGE> 10
The revenues for the fiscal third quarter of the current year
were $1,946,768 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 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, Management of the Company believes that
the conversion of its existing software to the IBM AS/400
configuration should enhance the ability to secure software
license revenues. Management also believes that while the
revenues for the first half 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 nine months of the
current year increased approximately 6% over the comparable
period of the previous year. This is primarily attributable
to increased equipment costs, 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) as well as an increase in payroll costs due to staffing
requirements in support of modifying the Company's software to
accurately process transactions beginning with the year 2000.
The total costs and expenses for the fiscal third quarter of
the current year increased approximately 1% over the comparable
period of the previous year. The primary reasons for these
increases are consistent with what is defined for the first six
months of the current year.
11
<PAGE> 11
NET INCOME
The net income for the first nine months of the current fiscal
year was $606,747 or $.15 per share compared to $809,807 or
$.20 per share for the comparable period of the previous year.
While pretax revenues for the period decreased approximately
5% from the previous year, the net income reduction of
approximately 25% is attributable to the fact the Company is
now on a fully taxed basis as opposed to the previous year
when tax loss carry forward was utilized to reduce income
taxes payable.
The net income for the fiscal third quarter of the current
year was $217,723 or $.05 per share as opposed to $198,940 or
$.05 per share for the comparable period of the previous year.
3. CAPITAL RESOURCES AND LIQUIDITY
The Company had approximately $2.5 million in cash, cash equivalents
and short- term investments as of the end of May 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, the Company entered into a lease, which will
become effective during the fourth quarter of this year, 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.
12
<PAGE> 12
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.
---------------------------------------
(Registrant)
Date 7/9/97 /s/ James L. Schultz
-------------------------- ---------------------------------------
James L. Schultz, President & Treasurer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000201511
<NAME> COMPUTER RESEARCH, INC.
<MULTIPLIER> 1
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1
<CASH> 1,211,530
<SECURITIES> 1,288,838
<RECEIVABLES> 955,423
<ALLOWANCES> 40,000
<INVENTORY> 62,537
<CURRENT-ASSETS> 3,518,131
<PP&E> 5,424,145
<DEPRECIATION> 5,170,481
<TOTAL-ASSETS> 3,771,795
<CURRENT-LIABILITIES> 893,150
<BONDS> 22,106
0
0
<COMMON> 3,230
<OTHER-SE> 2,875,415
<TOTAL-LIABILITY-AND-EQUITY> 3,771,795
<SALES> 101,714
<TOTAL-REVENUES> 5,827,375
<CGS> 73,196
<TOTAL-COSTS> 4,859,628
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 25,114
<INTEREST-EXPENSE> 6,528
<INCOME-PRETAX> 967,747
<INCOME-TAX> 361,000
<INCOME-CONTINUING> 606,747
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 606,747
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
