<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, 1999
---------------------
[ ] 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)
(724) 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 May 31, 1999)
- ------------------------------
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PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
May 31, 1999 (Unaudited) and August 31, 1998 (Audited)
<TABLE>
<CAPTION>
ASSETS
------
MAY 31, AUGUST 31,
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 460,513 $ 766,823
Short-Term Investments 2,151,273 1,996,700
Accounts Receivable - Trade
(net of allowance for doubtful accounts
of $37,500 and $30,000) 1,165,590 721,239
Inventories at the Lower of Cost
(first-in, first-out) or market 41,621 43,891
Prepaid Expenses 58,695 79,955
---------- ----------
Total Current Assets 3,877,692 3,608,608
---------- ----------
EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 1,725,495 1,672,213
Data Processing Equipment Under Capital Leases 446,471 256,471
Leasehold Improvements 171,816 154,551
Office Equipment 572,402 535,887
---------- ----------
2,916,184 2,619,122
Less Accumulated Depreciation and Amortization 2,190,411 2,064,718
---------- ----------
725,773 554,404
---------- ----------
OTHER ASSETS 59,109 39,905
---------- ----------
$4,662,574 $4,202,917
========== ==========
</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, 1999 (Unaudited) and August 31, 1998 (Audited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1999 1998
---------- ----------
LIABILITIES
- -----------
<S> <C> <C>
CURRENT LIABILITIES
Line of Credit Payable $ 50,000 $ -0-
Current Portion of Long-Term Obligations 84,555 37,765
Accounts Payable 120,681 149,382
Accrued Payroll and Related Costs 124,588 76,281
Accrued Income Taxes 20,000 13,000
Accrued Vacation 278,230 281,058
Customer Deposits 90,400 97,650
Other Liabilities 94 330
---------- ----------
Total Current Liabilities 768,548 655,466
LONG-TERM OBLIGATIONS 180,370 97,061
---------- ----------
Total Liabilities 948,918 752,527
---------- ----------
STOCKHOLDERS' EQUITY
Common Stock - No Par Value; $.0008 Stated Value;
10,000,000 Shares Authorized; 4,037,255 Shares
Issued and Outstanding 3,230 3,230
Additional Paid-In Capital 744,342 744,342
Retained Earnings 2,966,084 2,702,818
---------- ----------
Total Stockholders' Equity 3,713,656 3,450,390
---------- ----------
$4,662,574 $4,202,917
========== ==========
</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, 1999 (Unaudited)
<TABLE>
<CAPTION>
DEBT AMOUNT
---- ------
<S> <C>
Short-Term Line of Credit $ 50,000
Long-Term Debt (Including $84,555 due within one year) 264,925
--------
Total Debt $314,925
========
</TABLE>
<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
- --------------------
SHARES ISSUED AMOUNT
------------- ------
<S> <C> <C>
Common Stock 4,037,255 $ 3,230
Capital in Excess of Par Value 744,342
Retained Earnings -
Balance at Beginning of Current Fiscal Year 2,702,818
Net Income for Period 263,266
----------
2,966,084
----------
Total Stockholders' Equity $3,713,656
==========
</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, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
- --------
Sales of Services $5,650,543 $4,870,821
Sales of Equipment, Software and Supplies 27,500 10,293
Other Income 85,874 110,080
---------- ----------
5,763,917 4,991,194
---------- ----------
COSTS AND EXPENSES
- ------------------
Operating Expenses 3,365,520 2,895,258
Selling and Administrative Expenses 1,841,200 1,600,984
Depreciation and Amortization 133,929 121,998
Cost of Equipment, Software and Supplies Sold 21,111 7,593
Interest Expense 19,759 10,660
---------- ----------
5,381,519 4,636,493
---------- ----------
INCOME BEFORE INCOME TAXES 382,398 354,701
LESS: PROVISION FOR INCOME TAXES 119,132 128,000
---------- ----------
NET INCOME $ 263,266 $ 226,701
========== ==========
Average Number of Shares Outstanding 4,037,255 4,037,255
---------- ----------
EARNINGS PER COMMON SHARE $ .07 $ .06
(Basic and Diluted) ========== ==========
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the periods ended May 31, 1999 and 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 nine months ended May 31, 1999 and 1998.
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
For the Three Months Ended May 31, 1999 and 1998 (Unaudited)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
- --------
Sales of Services $2,019,438 $1,478,402
Sales of Equipment, Software and Supplies -0- -0-
Other Income 27,136 34,044
---------- ----------
2,046,574 1,512,446
---------- ----------
COSTS AND EXPENSES
- ------------------
Operating Expenses 1,202,379 926,567
Selling and Administrative Expenses 579,233 535,456
Depreciation and Amortization 54,501 41,949
Cost of Equipment, Software and Supplies Sold -0- -0-
Interest Expense 7,610 3,175
---------- ----------
1,843,723 1,507,147
---------- ----------
INCOME BEFORE INCOME TAXES 202,851 5,299
LESS: PROVISION FOR INCOME TAXES 75,000 2,000
---------- ----------
NET INCOME $ 127,851 $ 3,299
========== ==========
Average Number of Shares Outstanding 4,037,255 4,037,255
---------- ----------
EARNINGS PER COMMON SHARE $ .03 $ .00
(Basic and Diluted) ========== ==========
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the period ended May 31, 1999 and 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 May 31, 1999 and
1998.
The accompanying notes are an integral part of these financial statements.
6
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D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED MAY 31, 1999 AND 1998 (UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 263,266 $ 226,701
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 133,929 121,998
Provision for Losses on Accounts Receivable 7,500 -0-
Change in Assets and Liabilities:
Accounts Receivable (451,851) (72,065)
Inventories 2,270 (106,357)
Prepaid Expenses 21,260 (4,943)
Accounts Payable, Accrued Expenses and Other Current Liabilities 23,542 (47,989)
Customer Deposits (7,250) 17,666
----------- -----------
Total Adjustments (270,600) (91,690)
----------- -----------
Net Cash Provided by (Used by) Operating Activities (7,334) 135,011
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (107,062) (198,037)
Short-Term Investment Maturities 2,125,000 1,519,033
Additions to Other Assets (27,440) (47,454)
Additions to Short-Term Investments (2,279,573) (900,000)
----------- -----------
Net Cash Provided by (Used by)Investing Activities (289,075) 373,542
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Capital Lease Obligations (59,901) (46,938)
Proceeds from Line of Credit 200,000 -0-
Payment on Line of Credit (150,000) -0-
----------- -----------
Net Cash (Used by) Financing Activities (9,901) (46,938)
----------- -----------
Net Increase (Decrease) in Cash (306,310) 461,615
Cash and Cash Equivalents at August 31, 1998 and 1997 766,823 336,259
----------- -----------
Cash and Cash Equivalents at May 31, 1999 and 1998 $ 460,513 $ 797,874
=========== ===========
CASH PAID DURING THE PERIOD
Interest $ 19,759 $ 10,660
=========== ===========
Income Taxes $ 85,000 $ 97,000
=========== ===========
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
In December 1998, the Company entered into a long term capital lease for
additional computer equipment at a cost of $190,000. Additionally, 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 statements.
7
<PAGE> 8
COMPUTER RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED MAY 31, 1999
NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB
The accompanying financial information should be read in conjunction
with the Company's 1998 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.
REVENUES
The total revenues for the first nine months of the 1999
fiscal year increased approximately 16% over the previous year
to a total of $5,763,917. This is attributable to increased
revenues from some existing clients, as well as from new
clients added during the period.
The total revenues for the third quarter of the 1999 year were
$2,046,575 or an increase of approximately 35% over the
previous year. This increase resulted primarily from
additional clients during the current year, as well as
increased revenues from some existing clients.
COSTS AND EXPENSES
The total costs and expenses for the first nine months of the
1999 fiscal year increased approximately 16% over the
comparable period of the previous year to a figure of
$5,381,519. The primary contributors to this increase were
increased data communications costs and fees for outside
services, as well as increased payroll costs.
9
<PAGE> 10
The total costs and expenses for the third quarter of the 1999
fiscal year increased approximately 22% over the previous year
to a figure of $1,836,113. This increase is attributable to
the items mentioned above, as well as to the cost associated
with the increased business generated by the Company.
PROVISION FOR INCOME TAXES
Tax expense is normally accrued at 36% of income before taxes
for financial reporting purposes. In filing the year-end 1998
tax returns, the Company generated tax refunds of
approximately $20,000 higher than had been previously
estimated. This tax benefit is recorded as a reduction of
current year tax expense.
NET INCOME
The net income for the first nine months of the 1999 fiscal
year was $263,266 or $.07 per share as compared to $226,701 or
$.06 per share for the previous year.
The net income for the fiscal third quarter of the current
year was $127,851 or $.03 per share as compared to $3,299 or
$.00 per share for the previous year.
2. CAPITAL RESOURCES AND LIQUIDITY
The Company had approximately $2.6 million in cash, cash equivalents
and short- term investments at the end of the third quarter of the
1999 fiscal year. In addition, approximately $700,000 of a $750,000
line of credit was available at the end of the third quarter. This,
along with funds generated by operations, should adequately support the
operating needs of the Company in the near term.
3. SOFTWARE MODIFICATION FOR YEAR 2000
The software product line of the Company had been originally designed
to reflect the year as two digits (i.e, 99 = 1999). This design would
have created problems for processing at the turn of the century since
the 00 representation for the year 2000 would have been interpreted by
the software to be 1900. However, as part of the conversion project to
the IBM AS/400, each date field in the entire product line was modified
to contain a four digit representation for the year. This new design
format should enable the software to accurately handle transactions
beginning in the year 2000. During the first nine months of the 1999
fiscal year, the Company completed extensive securities industry
mandated testing for predetermined critical
10
<PAGE> 11
calendar dates in the year 2000 and above in order to verify system
processing accuracy. While it would be impossible to guarantee that
there will be no problems with the system at the turn of the century,
the management of the Company is confident that there will be little,
if any, disruptions. In any event, the Company has developed
contingency plans which require management, staff members and other
resources to be available to react promptly should a problem occur.
Additionally, the Company is continuing to monitor and evaluate its
third party software and hardware suppliers, as well as firms with
which it has a communications interface to determine that these
suppliers will also be year 2000 compliant. The Company does not expect
to incur any substantial cost in the system testing and vendor
evaluation.
4. CONVERSION OF OPERATIONS TO THE IBM AS/400 COMPUTER CONFIGURATION
During the third quarter of the 1999 fiscal year, the Company completed
the project of converting its service business to operating on the IBM
AS/400 platform. As of the end of the third quarter of the current
year, all of the Company's service business is now operational on the
IBM platform. As a result, the Company is no longer dependent upon
previously utilized computer mainframe equipment which was not year
2000 compliant.
5. "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.
11
<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 July 14, 1999 /s/ James L. Schultz
-------------- ---------------------------------------
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> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<EXCHANGE-RATE> 1
<CASH> 460,513
<SECURITIES> 2,151,273
<RECEIVABLES> 1,203,090
<ALLOWANCES> 37,500
<INVENTORY> 41,621
<CURRENT-ASSETS> 3,877,692
<PP&E> 2,916,184
<DEPRECIATION> 2,190,411
<TOTAL-ASSETS> 4,662,574
<CURRENT-LIABILITIES> 768,548
<BONDS> 264,925
0
0
<COMMON> 3,230
<OTHER-SE> 3,710,426
<TOTAL-LIABILITY-AND-EQUITY> 4,662,574
<SALES> 27,500
<TOTAL-REVENUES> 5,763,917
<CGS> 21,111
<TOTAL-COSTS> 5,381,519
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,500
<INTEREST-EXPENSE> 19,759
<INCOME-PRETAX> 382,398
<INCOME-TAX> 119,132
<INCOME-CONTINUING> 263,266
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 263,266
<EPS-BASIC> .03
<EPS-DILUTED> .03
</TABLE>
