<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 29, 2000
-----------------
/ / 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 February 29, 2000)
- ---------------------------------------------------------------
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PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
-------------------------------------
February 29, 2000 (Unaudited) and August 31, 1999 (Audited)
<TABLE>
<CAPTION>
ASSETS
------
FEBRUARY 29, AUGUST 31,
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 511,709 $ 449,698
Short-Term Investments 2,782,151 2,439,882
Accounts Receivable - Trade
(net of allowance for doubtful accounts
of $37,500) 1,074,334 1,058,999
Inventories at the Lower of Cost
(first-in, first-out) or market 4,675 7,152
Prepaid Expenses 121,679 52,689
Deferred Tax Asset 25,000 25,000
----------- -----------
Total Current Assets 4,519,548 4,033,420
----------- -----------
EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 819,117 1,765,116
Data Processing Equipment Under Capital Leases 388,779 446,471
Leasehold Improvements 218,724 185,008
Office Equipment 598,181 580,574
----------- -----------
2,024,801 2,977,169
Less Accumulated Depreciation and Amortization (1,241,931) (2,249,900)
----------- -----------
782,870 727,269
----------- -----------
OTHER ASSETS 23,172 43,998
----------- -----------
$ 5,325,590 $ 4,804,687
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 3
A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D.
-----------------------------------------------
February 29, 2000 (Unaudited) and August 31, 1999 (Audited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
FEBRUARY 29, AUGUST 31,
2000 1999
---- ----
<S> <C> <C>
LIABILITIES
- -----------
CURRENT LIABILITIES
Current Portion of Long-Term Obligations $ 77,241 $ 81,072
Accounts Payable 111,281 125,117
Accrued Payroll and Related Costs 163,788 129,607
Accrued Income Taxes 141,941 42,000
Accrued Vacation 260,593 260,593
Customer Deposits 76,700 93,701
Other Liabilities 466 290
---------- ----------
Total Current Liabilities 832,01 732,380
LONG-TERM OBLIGATIONS 121,839 161,266
---------- ----------
Total Liabilities 953,849 893,646
---------- ----------
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 3,624,169 3,163,469
---------- ----------
Total Stockholders' Equity 3,911,041
----------
$5,325,590 $4,804,687
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
B. COMPUTER RESEARCH, INC. CAPITALIZATION AND STOCKHOLDERS' EQUITY
---------------------------------------------------------------
February 29, 2000 (Unaudited)
DEBT AMOUNT
---- ------
Short-Term Line of Credit $ -0-
Long-Term Debt (Including $77,241 due within one year) 199,080
---------
Total Debt $ 199,080
=========
STOCKHOLDERS' EQUITY
- --------------------
SHARES ISSUED AMOUNT
------------- ------
Common Stock 4,037,255 $ 3,230
Capital in Excess of Par Value 744,342
Retained Earnings -
Balance at Beginning of Current Fiscal Year 3,163,469
Net Income for Period 460,700
----------
3,624,169
Total Stockholders' Equity $4,371,741
==========
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 Six Months Ended February 29, 2000 and 1999 (Unaudited)
---------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES
- --------
Sales of Services $4,190,915 $3,631,103
Sales of Equipment, Software and Supplies 45,000 27,500
Other Income 75,820 58,738
---------- ----------
4,311,735 3,717,341
---------- ----------
COSTS AND EXPENSES
- ------------------
Operating Expenses 2,100,442 2,163,141
Selling and Administrative Expenses 1,284,635 1,261,967
Depreciation and Amortization 132,679 79,428
Cost of Equipment, Software and Supplies Sold 39,477 21,111
Interest Expense 9,728 12,149
---------- ----------
3,566,961 3,537,796
---------- ----------
INCOME BEFORE INCOME TAXES 744,774 179,545
LESS: PROVISION FOR INCOME TAXES 284,074 44,132
---------- ----------
NET INCOME $ 460,700 $ 135,413
========== ==========
Average Number of Shares Outstanding 4,037,255 4,037,255
----------
EARNINGS PER COMMON SHARE $ .11 $ .03
========== ==========
(Basic and Diluted)
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the periods ended February 29, 2000 and 1999 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 29, 2000
and 1999.
The accompanying notes are an integral part of these financial statements.
5
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C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
-------------------------------------------
For the Fiscal Second Quarter Ended February 29, 2000 and 1999
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<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
REVENUES
- --------
Sales of Services $2,045,357 $1,987,396
Sales of Equipment, Software and Supplies 42,000 -0-
Other Income 41,032 27,792
---------- ----------
2,128,389 2,015,188
---------- ----------
COSTS AND EXPENSES
- ------------------
Operating Expenses 1,020,638 1,128,781
Selling and Administrative Expenses 661,098 657,110
Depreciation and Amortization 71,189 41,699
Cost of Equipment, Software and Supplies Sold 37,0 -0-
Interest Expense 4,561 9,598
---------- ----------
1,794,486 1,837,188
---------- ----------
INCOME BEFORE INCOME TAXES 333,903 178,000
LESS: PROVISION FOR INCOME TAXES 128,074 43,632
---------- ----------
NET INCOME $ 205,829 $ 134,368
========== ==========
Average Number of Shares Outstanding 4,037,255 4,037,255
---------- ----------
EARNINGS PER COMMON SHARE $ .05 $ .03
========== ==========
(Basic and Diluted)
DIVIDENDS PER COMMON SHARE $ -- $ --
========== ==========
</TABLE>
The results for the periods ended February 29, 2000 and 1999 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 29, 2000
and 1999.
The accompanying notes are an integral part of these financial statements.
6
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D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS
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FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 AND 1999 (UNAUDITED)
---------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 460,700 $ 135,413
----------- -----------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 132,679 79,428
Provision for Losses on Accounts Receivable -0- 7,500
Change in Assets and Liabilities:
Accounts Receivable (15,335) (446,903)
Inventories 2,477 (11,088)
Prepaid Expenses (68,990) (21,578)
Accounts Payable, Accrued Expenses and Other Current Liabilities 120,462 50,773
Customer Deposits (17,001) (7,250)
Other Assets 8,901 -0-
----------- -----------
Total Adjustments 163,193 (349,118)
----------- -----------
Net Cash Provided by (Used by) Operating Activities 623,893 (213,705)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (176,355) (75,665)
Short-Term Investment Maturities 2,550,000 1,875,000
Additions to Other Assets -0- (29,960)
Additions to Short-Term Investments (2,892,269) (1,694,833)
----------- -----------
Net Cash Provided by (Used by)Investing Activities (518,624) 74,542
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Capital Lease Obligations (43,258) (37,865)
Proceeds from Line of Credit -0- 200,000
Payment on Line of Credit -0- (100,000)
----------- -----------
Net Cash Provided by (Used by) Financing Activities (43,258) 62,135
----------- -----------
Net Increase (Decrease) in Cash 62,011 (77,028)
Cash and Cash Equivalents at August 31, 1999 and 1998 449,698 766,823
----------- -----------
Cash and Cash Equivalents at February 29, 2000 and 1999 $ 511,709 $ 689,795
=========== ===========
CASH PAID DURING THE PERIOD
Interest $ 9,728 $ 12,149
=========== ===========
Income Taxes $ 184,133 $ 9,000
=========== ===========
</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.
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
COMPUTER RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED FEBRUARY 29, 2000
NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB
The accompanying financial information should be read in conjunction
with the Company's 1999 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
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
1. RESULTS OF OPERATIONS
The Company's principal source of revenues 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 and by the
overall condition of the financial services industry. The clients
serviced could become involved in mergers and/or acquisitions or may
choose to convert their business from self-clearing to a fully
disclosed basis which could 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 or by a
consolidation trend in the financial services industry involving
services or products. As the result of being acquired by a third party,
a client that accounted for 12.2% of the firm's revenues for the first
six months of fiscal year 2000 terminated the Company's services at the
close of the second quarter of the current year. Accordingly, the
Company anticipates third and fourth quarter overall performance to be
less than first and second quarter performance, due primarily to an
anticipated decline in revenues resulting from the loss of this
client's business.
Due to the volatile nature of the industry served, the results of
operations, as reported 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 increased approximately 16% over the comparable period of
the previous year to a total of $4,311,735. This is
attributable to an additional client added during the first
six months of the current year as well as to an increase in
revenues from some existing clients that have expanded their
business since the comparable period of the previous year.
The total revenues for the second quarter of the current year
were $2,128,389 or an increase of approximately 6% over the
comparable period of the previous year as explained above.
9
<PAGE> 10
COSTS AND EXPENSES
The costs and expenses for the first six months of the current
year were $3,566,961 or approximately equal to the previous
fiscal year.
The costs and expenses for the fiscal second quarter of the
current year decreased approximately 2% as compared to the
comparable period of the previous year, some of which was
attributable to a reduction in the number of employees on the
payroll during the period which has subsequently been restored
to the previous level.
NET INCOME
The net income for the first six months of the current year
was $460,700 or $.11 per share as compared to $135,413 or $.03
per share for the comparable period of the previous year. This
increase is primarily due to the increase in revenues
generated during the current year as well as to the Company's
ability to maintain operating costs.
The net income for the fiscal second quarter of the current
year was $205,829 or $.05 per share as compared to $134,368 or
$.03 per share for the comparable period of the previous year.
2. CAPITAL RESOURCES AND LIQUIDITY
During the fiscal second quarter of the current year, the Company
disposed of outdated computer equipment that had been previously fully
depreciated.
The Company had approximately $3.3 million in cash, cash equivalents
and short- term investments at the end of the first six months of the
2000 fiscal year. In addition, the Company maintains an approximate
$750,000 line of credit, if needed. This, along with funds generated by
operations, should adequately support the operating needs of the
Company in the near term.
3. "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
10
<PAGE> 11
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
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders of the Company was held on January
25, 2000. 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
K. David Klotz
SIGNATURES
COMPUTER RESEARCH, INC.
------------------------------
(Registrant)
Date April 14, 2000 /s/ James L. Schultz
- ------------------- ---------------------------------------
James L. Schultz, President & Treasurer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<EXCHANGE-RATE> 1
<CASH> 511,709
<SECURITIES> 2,782,151
<RECEIVABLES> 1,111,834
<ALLOWANCES> 37,500
<INVENTORY> 4,675
<CURRENT-ASSETS> 4,519,548
<PP&E> 2,024,801
<DEPRECIATION> 1,241,931
<TOTAL-ASSETS> 5,325,590
<CURRENT-LIABILITIES> 832,010
<BONDS> 121,839
0
0
<COMMON> 3,230
<OTHER-SE> 4,368,511
<TOTAL-LIABILITY-AND-EQUITY> 5,325,590
<SALES> 45,000
<TOTAL-REVENUES> 4,311,735
<CGS> 39,477
<TOTAL-COSTS> 3,557,233
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,728
<INCOME-PRETAX> 744,774
<INCOME-TAX> 284,074
<INCOME-CONTINUING> 460,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460,700
<EPS-BASIC> .11
<EPS-DILUTED> .11
</TABLE>
