<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, 1998
-------------------
/ / 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.
Southpointe Plaza I, Suite 300, 400 Southpointe Boulevard, Canonsburg, PA 15317
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(412) 745-0600
- --------------------------------------------------------------------------------
(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, 1998)
- -------------------------------------------------------
<PAGE> 2
PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
February 28, 1998 (Unaudited) and August 31, 1997 (Audited)
<TABLE>
<CAPTION>
ASSETS
------
FEBRUARY 28, AUGUST 31,
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 515,806 $ 336,259
Short-Term Investments 1,988,331 2,378,249
Accounts Receivable - Trade
(net of allowance for doubtful accounts
of $30,000 at 2/28/98 and 8/31/97) 1,031,058 856,223
Inventories
(first-in, first-out) or market 55,187 40,770
Prepaid Expenses 104,472 66,713
---------- ----------
Total Current Assets 3,694,854 3,678,214
---------- ----------
EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 4,626,905 4,439,883
Data Processing Equipment Under Capital Leases 256,471 319,163
Leasehold Improvements 302,958 271,610
Office Equipment 596,196 577,004
---------- ----------
5,782,530 5,607,660
Less Accumulated Depreciation and Amortization 5,262,991 5,182,993
---------- ----------
519,539 424,667
---------- ----------
OTHER ASSETS 45,359 -0-
---------- ----------
$4,259,752 $4,102,881
========== ==========
</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, 1998 (Unaudited) and August 31, 1997 (Audited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
FEBRUARY 28, AUGUST 31,
1998 1997
---- ----
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Current Portion of Long-Term Obligations $ 56,488 $ 12,017
Accounts Payable 141,710 84,216
Accrued Payroll 62,374 237,068
Accrued Income Taxes 61,000 -0-
Accrued Vacation 332,114 328,613
Customer Deposits 87,900 96,800
Accrued Rent -0- 4,888
Accrued Lease Obligation -0- 37,765
Other Liabilities 246 115
---------- ----------
Total Current Liabilities 741,832 801,482
LONG-TERM OBLIGATIONS 105,951 108,882
ACCRUED LEASE OBLIGATION -0- 3,949
---------- ----------
Total Liabilities 847,783 914,313
---------- ----------
COMMITMENTS -0- -0-
---------- ----------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock - No Par Value; $.0008 Stated Value;
10,000,000 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 2,664,397 2,440,996
---------- ----------
Total Stockholders' Equity 3,411,969 3,188,568
---------- ----------
$4,259,752 $4,102,881
========== ==========
</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, 1998 (Unaudited)
DEBT AMOUNT
---- ------
Short-Term Loans, Notes $ -0-
Long-Term Debt (Including $56,488 due within one year) 162,439
-----------
Total Debt $ 162,439
==========
STOCKHOLDERS' EQUITY
- --------------------
SHARES ISSUED AMOUNT
------------- ------
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 2,440,996
Net Income for Period 223,401
----------
2,664,397
----------
Total Stockholders' Equity $3,411,969
==========
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, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES
- --------
Sales of Services $3,392,419 $3,776,226
Sales of Equipment, Software and Supplies 10,293 25,477
Rental Income From Operating Leases 120 10,620
Other Income 75,916 68,285
---------- ----------
3,478,748 3,880,608
---------- ----------
COSTS AND EXPENSES
- ------------------
Operating Expenses 1,968,691 2,175,756
Selling and Administrative Expenses 1,065,528 956,866
Depreciation and Amortization 80,049 98,491
Cost of Equipment, Software and Supplies Sold 7,593 17,842
Interest Expense 7,486 4,629
---------- ----------
3,129,347 3,253,584
---------- ----------
INCOME BEFORE INCOME TAXES 349,401 627,024
LESS: PROVISION FOR INCOME TAXES 126,000 238,000
---------- ----------
NET INCOME $ 223,401 $ 389,024
========== ==========
Average Number of Shares Outstanding 4,037,255 4,037,255
---------- ----------
EARNINGS PER COMMON SHARE $ .06 $ .10
(Basic and Diluted) ---------- ----------
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the period ended February 28, 1998, 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, 1998 and
1997.
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, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES
- --------
Sales of Services $1,525,061 $2,034,774
Sales of Equipment, Software and Supplies 10,293 296
Rental Income From Operating Leases 30 5,310
Other Income 34,601 34,081
---------- ----------
1,569,985 2,074,461
---------- ----------
COSTS AND EXPENSES
- ------------------
Operating Expenses 939,415 1,128,375
Selling and Administrative Expenses 570,247 506,094
Depreciation and Amortization 41,517 50,582
Cost of Equipment, Software and Supplies Sold 7,593 198
Interest Expense 3,632 2,178
---------- ----------
1,562,404 1,687,427
---------- ----------
INCOME BEFORE INCOME TAXES 7,581 387,034
LESS: PROVISION FOR INCOME TAXES 4,000 146,000
---------- ----------
NET INCOME $ 3,581 $ 241,034
========== ==========
Average Number of Shares Outstanding 4,037,255 4,037,255
---------- ----------
EARNINGS PER COMMON SHARE $ .00 $ .06
========== ==========
(Basic and Diluted)
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the period ended February 28, 1998, 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, 1998 and
1997.
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, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 223,401 $ 389,024
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 80,049 98,491
Provision for Losses on Doubtful Accounts -0- 25,000
Change in Assets and Liabilities:
Accounts Receivable (174,835) (401,378)
Inventories (14,417) (40,925)
Prepaid Expenses (37,759) (6,514)
Accounts Payable, Accrued Expenses and Other Current Liabilities (52,568) (312,687)
Customer Deposits (8,900) 4,350
Accrued Lease Obligation (8,836) (6,978)
----------- -----------
Total Adjustments (217,266) (640,641)
----------- -----------
Net Cash Provided by (Used In) Operating Activities 6,135 (251,617)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (137,809) (76,817)
Short-Term Investment Maturities 1,089,918 -0-
Additions to Other Assets (45,410) -0-
Additions to Short-Term Investments (700,000) (632,060)
----------- -----------
Net Cash Provided by (Used In) Investing 206,699 (708,877)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Capital Lease Obligations (33,287) (36,855)
----------- -----------
Net Cash (Used In) Financing Activities (33,287) (36,855)
----------- -----------
Net Increase (Decrease) in Cash 179,547 (997,349)
Cash and Cash Equivalents at August 31, 1997 and 1996 336,259 1,486,924
----------- -----------
Cash and Cash Equivalents at February 28, 1998 and 1997 $ 515,806 $ 489,575
=========== ===========
CASH PAID DURING THE PERIOD 2/28/98 2/28/97
----------- -----------
Interest $ 7,486 $ 4,629
=========== ===========
Income Taxes $ 71,000 $ 441,860
=========== ===========
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities
There were no noncash investing and financing activities for the six months
ended February 28, 1997.
In December 1997, the Company entered into a long term capital lease for a new
phone system at a cost of $37,061.
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, 1998
NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB
The accompanying financial information should be read in conjunction
with the Company's 1997 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. 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. In
addition, the clients serviced could be involved in 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 services 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.
In March of 1996, the Company and Wachovia Operational Services
Corporation (WOSC) entered into an agreement to convert the Company's
production software to operate on an IBM AS/400 configuration. WOSC is
an affiliate of Wachovia Investments, Inc. (WII), a major service
client of the Company that accounted for approximately 20% of the
service revenues in fiscal year 1997. In consideration for providing
funds for the joint conversion project, WOSC has secured a perpetual
software license agreement from the Company for servicing its
affiliate, WII. The Company has retained sole ownership of the
converted software and will continue to offer its services to its
clients on a service bureau basis from the IBM AS/400 platform.
At the start of the second quarter of the current fiscal year, WOSC
began utilizing its software license agreement to offer processing
services to WII. As a result, beginning in the second quarter of the
current year, WII no longer utilizes the Company's data processing
services, but will utilize maintenance and other services offered by
the Company.
The Company is currently in contract discussions with several
prospective new clients and believes it can replace a portion of the
revenues previously attributed to WII during the remainder of its 1998
fiscal year. However, because of the relatively fixed cost element of
the Company's operations, to the extent that such revenues are not
replaced, the percentage decrease in net income will exceed the
percentage decrease in lost revenues.
9
<PAGE> 10
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 other detailed
business 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.
REVENUES
--------
The total revenues for the first six months of the current
year were $3,478,748 or a decrease of approximately 10% from
the comparable period of the previous year. The loss of the
major client revenues at the beginning of the second quarter
of the current year, as explained above, was the primary
reason for this decrease.
The total revenues for the fiscal second quarter of the
current year were approximately $1,569,985 or a decrease of
approximately 24% as compared to the previous year. This
decrease is the result of the loss of the WII revenues as
explained above.
COSTS AND EXPENSES
------------------
The total costs and expenses for the first six months of the
current year decreased approximately 4% as compared to the
previous year. A reduction in computer operations personnel,
repairs and maintenance and the reduction of an allocation
amount to a company profit sharing plan were the primary
reasons for this decrease.
The total costs and expenses for the fiscal second quarter of
the current year decreased approximately 7% as compared to the
comparable period of the previous year.
10
<PAGE> 11
NET INCOME
----------
The net income for the first six months of the current year
was $223,401 or $.06 per share as compared to $389,024 or $.10
per share for the previous year. The reduction in net income
is attributable to the reduced revenues.
The net income for the fiscal second quarter of the current
year was $3,581 or $.00 per share as compared to $241,034 or
$.06 per share for the previous year.
2. CAPITAL RESOURCES AND LIQUIDITY
The Company had approximately $2.5 million in cash, cash equivalents
and short-term investments at the end of the second quarter of the 1998
fiscal year. 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.
In the third quarter of the 1998 fiscal year, the Company will enter
into a lease commitment of approximately $4,300 per month for computer
equipment.
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
27, 1998. 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 4/14/98 /s/ JAMES L. SCHULTZ
--------------------------- ---------------------------------------
James L. Schultz, President & Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000201511
<NAME> COMPUTER RESEARCH, INC.
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<EXCHANGE-RATE> 1
<CASH> 515,806
<SECURITIES> 1,988,331
<RECEIVABLES> 1,061,058
<ALLOWANCES> 30,000
<INVENTORY> 55,187
<CURRENT-ASSETS> 3,694,854
<PP&E> 5,782,530
<DEPRECIATION> 5,262,991
<TOTAL-ASSETS> 4,259,752
<CURRENT-LIABILITIES> 741,832
<BONDS> 162,439
0
0
<COMMON> 3,230
<OTHER-SE> 3,408,739
<TOTAL-LIABILITY-AND-EQUITY> 4,259,752
<SALES> 10,293
<TOTAL-REVENUES> 3,478,748
<CGS> 7,593
<TOTAL-COSTS> 3,129,347
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,486
<INCOME-PRETAX> 349,401
<INCOME-TAX> 126,000
<INCOME-CONTINUING> 223,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 223,401
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
