SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For The Fiscal Year Ended January 31, 1996
Commission File Number 1-9115
COMPUTRAC, INC.
(Exact name of registrant as specified in its charter)
Texas 75-1540265
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
222 Municipal Drive Richardson, Texas 75080
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (214) 234-4241
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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 ( )
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [ ]
As of April 23, 1996, the aggregate market value of the voting stock held
by non-affiliates of the Registrant was $7,859,854.
As of April 23, 1996, the number of shares outstanding of the
Registrant's common stock was 6,223,368.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant's Proxy Statement for the registrant's 1996
Annual Meeting of Shareholders are incorporated by reference to Part III
of this Form 10-K Report.
<PAGE>
PART I
Item 1. Business
General
The Company was organized under the laws of the State of Texas
in January, 1977. The Company develops, markets, services and supports
integrated computer systems and software applications designed for law
firms. The Company's installed software programs assist its customers in
such applications as timekeeping, billing, disbursements, accounting,
report writing, conflict of interest and other practice support
applications. The Company has marketed its systems throughout the United
States and Canada. All of the current systems utilize Hewlett-Packard
equipment, which the Company is authorized to resell to end-users. The
Company believes that historically, it has been one of the major
suppliers of computer systems and services to mid-size and large law
firms.
Prices for CompuTrac systems currently range from $60,000 for a
low end legal accounting system to $650,000 or more for an integrated
system for accounting and other applications in a large law firm. The
Company's system sales in fiscal 1996 utilized the Hewlett-Packard 3000
or 9000 series hardware and applications software developed and marketed
by the Company.
The Company is completing a three year development of its new
product generation. The Dimension product is client/server software
created exclusively with Microsoft development tools that will run on
micro-computers as a 32-bit Windows95 time and billing system.
All of the Company's systems are sold in conjunction with
services which customarily include a separately priced annual maintenance
agreement, customer training, customer support, product enhancements and
software maintenance services. The maintenance agreements and support
services provide the Company with a continuing stream of revenue during
the term of the agreement. As of March 31, 1996, the Company had 112
maintenance agreements in effect, one of which covered an earlier
generation system.
Software
Software which enables law firms to more efficiently perform and
evaluate administrative and management functions constitutes the
Company's principal product. The Company's core of currently marketed
software runs on mini-computers in either the Hewlett-Packard (HP) 3000
Series or the HP 9000 Series while some peripheral products run on IBM-
compatible micro-computers. Full interoperability support is provided
for all popular network operating systems, including Novell NetWare,
Banyan Vines, and Microsoft NT, thus enabling a law firm to upgrade its
computer hardware without having to replace the software. The Company's
software applications run in several different operating system
environments, including UNIX, MPE/iX (native HP), MS/DOS and MS/Windows.
CompuTrac OPEN!. CompuTrac OPEN! is the umbrella name used to
describe all of the Company's current software products. Under the
CompuTrac OPEN! umbrella are four major product categories or groupings
as decribed below. All CompuTrac OPEN! products are fully integrated
with master data files and each other; utilize the firm-wide Informix
relational database or IMAGE/SQL database; and offer easy access to PC
users on a local area network. Following is a summary description of the
four major application software groups developed and/or marketed by the
Company under the CompuTrac OPEN! title.
. Financial Management Software. The financial management
software group is the core accounting and financial management system
which includes such applications as: Billing and Timekeeping, Management
and Financial Reporting, Trust Accounting, Extended History, General
Ledger, Accounts Payable and Device Interface.
<PAGE>
. Practice Management Software Group. The Practice Management
Software group consists of optional software modules and products
including such applications as Conflict of Interest, Marketing and
Profitability Reporting.
. Executive Information Software. The Executive Information
Software group is software designed for lawyers and law firm management
and includes Zoom, a real-time inquiry application tool designed for use
by lawyers to provide easy access to real-time client data.
. Programming Tools. The Programming Tools group includes
such software applications as: PIE (Programmatic Interface for the End-
User) that allows firms to define and implement changes to input screens
and output formats and FOCUS, a third-party SQL reporting product.
Dimension. The Dimension product is a next generation law firm
timekeeping, billing and management product created exclusively with
Microsoft development tools such as MSAccess, SQL-Server, C++, Visual
Basic, OLE and ODBC. The Company is currently in the beta testing phase
of Dimension development and anticipates initial sales to commence in the
Company's third quarter of fiscal 1997.
The Company does not sell or transfer title to its software.
Software products are licensed by the Company on a "right to use" basis
pursuant to license agreements. Each license is non-transferable by the
customer and restricts use of the software to the customer's internal
purposes at one or more designated computer sites.
The Company regards its software as proprietary and relies for
protection upon trade secret laws and internal non-disclosure safeguards
as well as restrictions on disclosure and transferability incorporated in
its software license agreements. Despite these restrictions, it may be
possible for competitors or users to copy aspects of the Company's
products or to obtain information which the Company regards as its trade
secrets. Computer software generally cannot be patented, and existing
copyright laws afford only limited protection.
Hardware
All of the Company's currently marketed software to the legal
profession is designed to use in connection with various network
operating systems operating with either the Hewlett-Packard 3000 or 9000
UNIX-based computer systems which the customer typically purchases from
the Company.
The Dimension single user software version will run on a
personal computer. The Dimension client/server software version will be
available for firms wanting multiple user access and may be installed in
a Microsoft or Novell network environment.
Marketing
The Company markets its systems through presentations at
conventions of regional and national associations of lawyers, firm
administrators and information system managers. The Company also
advertises in regional and national journals or periodicals that are
disseminated to the legal profession. The Company engages in direct
mailing campaigns and demonstrates its systems at product shows, industry
seminars and within prospective law firm client offices. The Company has
installed over 275 of its systems in law firms and expects to continue to
benefit from positive referrals. During fiscal year 1996, the costs
associated with the Company's direct mail and general advertising efforts
were insignificant to the costs associated with the Company's operations
as a whole. The Company believes its
<PAGE>
marketing efforts will increase when its next-generation, Windows-based
software product is available for general release, currently targeted for
the later half of fiscal year 1997.
The Dimension products open a significantly expanded market to
the Company's products. For the past 20 years, the market focus was on
mid-size to large law firms. In its first release, the Dimension product
is designed to meet the needs of small firms, including sole
practitioners. Subsequent product releases will accomodate larger law
firms. A reseller channel is currently in development by the Company to
market, install and train users on the Dimension products.
Installation and Maintenance
The Company and Hewlett-Packard coordinate the installation of
current hardware at the customer's premises. In most cases,
representatives of the Company, Hewlett-Packard and the customer meet at
the site where the system is to be installed, and examine and approve the
suitability of the ambient environment at the installation site.
Subsequently, Hewlett-Packard installs the hardware and provides its
standard warranty. Hewlett-Packard maintains and services the hardware
pursuant to an agreement with the customer.
The Company provides software maintenance for a fixed monthly
fee, which covers enhancements, modifications and improvements to the
licensed software. Such services do not generally require customer site
visits from Company personnel.
Competition
The computer software systems industry is highly competitive.
Software designed to accomplish substantially the same purposes as the
products of the Company is readily available from numerous competitors.
Although many competitors have announced development plans to release
next generation client/server products, few such products are available
today. The Company competes on the basis of the quality of its products
and services, its insights into the needs of law firms and its
reputation. The Company believes that its pricing policies are
competitive with those of other competitors.
Multimedia Products
In May, 1992, the Company established its Panamar Systems
division. Panamar Systems provides video and multimedia services to
targeted market segments within the legal industry, selected commercial
accounts and the general corporate community. During the fiscal year
ended January 31, 1996, the operations of the Company's Panamar Systems
division were not material to the Company's business as a whole.
In July 1994, the Company discontinued the operations of its
MediaMagic subsidiary, an advanced multimedia applications company that
designed, marketed, manufactured and sold full motion video and CD
quality audio software and hardware products. The MediaMagic products
were not dependent on or related to the Company's core legal hardware and
software products, but were designed to provide sophisticated multimedia
applications to any user of Hewlett-Packard Unix-based workstations.
Employees
As of March 31, 1996, the Company employed 52 full-time
employees, 34 of whom provided technical support and product development
services, 7 were engaged in sales and marketing and 11 were employed in
finance, accounting and administration. No employees are represented by a
union or collective bargaining agreement. The Company believes that its
relationship with its employees is good.
<PAGE>
Research and Development
During the year ended January 31, 1996, the Company expended
approximately $933,000 on software research, development and production
costs. This compares with approximately $1.0 million and $1.9 million
expended during the fiscal years ended January 1995 and 1994,
respectively. Net software research, development and production
expenses, after capitalization of certain software development costs,
amounted to approximately $195,700 in fiscal 1996 versus $700,000 in the
prior fiscal year. The Company anticipates its expenditures for
research, development and production in fiscal 1997 will approximate
current levels.
Item 2. Properties
The Company owns its corporate headquarters and operating
facilities located in Richardson (Dallas County), Texas. The building
contains approximately 20,000 square feet and has a parking area of
approximately 50,000 square feet. These facilities are subject to a
$344,000 mortgage note payable at January 31, 1996. The Company
believes its current facility is adequate to conduct its business. The
Company also owns 10.97 acres of undeveloped land located in Frisco,
Texas.
In connection with its systems development and servicing
programs, the Company owns and utilizes one HP 1000 computer, one HP 3000
Micro Classic, one HP 3000 series 937LX, one HP 3000 series 957, one HP
9000 series 817 and one HP 9000 series 800/G50. The company also
utilizes various other peripheral equipment, including printers, micro-
computers, UNIX workstations, scanners and other equipment.
Item 3. Legal Proceedings
The Company is a party to certain legal proceedings arising in
the ordinary course of business, none of which is believed to be material
to the financial position of the Company. The Company is not aware of
any pending or contemplated proceeding against it by governmental
authorities concerning environmental matters. The Company knows of no
legal proceedings, pending or threatened, or judgments entered against
any Director or Officer of the Company in his or her capacity as such.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the
Company during the fourth quarter of the fiscal year ended January 31,
1996.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Public trading of the Company's Common Stock commenced on the
over-the-counter market on July 19, 1983. On January 22, 1985, the
Company's stock began trading on the NASDAQ National Market System. The
Company's Common Stock began trading on the American Stock Exchange on
April 9, 1986. The Company's Common Stock is traded under the trading
symbol "LLB". The Company has not declared or paid cash dividends since
fiscal 1988 and does not anticipate any dividends will be declared or
paid in the foreseeable future. The Company intends to retain any
earnings to finance the development and expansion of the Company's
operations.
At April 23, 1996, there were approximately 300 holders of
record and approximately 1,000 beneficial owners of the Company's Common
Stock. For the periods indicated below, the following table sets forth
the high and low trading prices as reported by the American Stock
Exchange.
Market Price
High Low
1994 Calendar Year:
First Quarter 1 3/8 1
Second Quarter 1 1/8 1/2
Third Quarter 7/8 7/16
Fourth Quarter 1 1/4 5/8
1995 Calendar Year:
First Quarter 1 7/8 7/8
Second Quarter 1 3/16 15/16
Third Quarter 2 15/16 15/16
Fourth Quarter 2 11/16 2
1996 Calendar Year:
First Quarter 2 1/2 1 1/2
The closing sales price per share of the Common Stock on the American
Stock Exchange on April 23, 1996 was $1 13/16.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
FIVE-YEAR CONSOLIDATED FINANCIAL SUMMARY
<CAPTION>
Year Ended January 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
For The Year:
Operating
revenues $5,259,131 $6,766,987 $9,670,772 $11,920,815 $12,176,764
Income (loss)
from
continuing
operations,
before income
taxes $664,117 $703,088 $(5,653,656) $440,401 $(1,904,121)
Income (loss)
from
continuing
operations $664,117 $703,088 $(4,653,656) $270,401 $(1,194,121)
Loss from
discontinued
operations
of MediaMagic $(495,579) $(712,143)
Net income
(loss) $664,117 $207,509 $(5,365,799) $270,401 $(1,194,121)
Income (loss)
per common
share from
continuing
operations $ 0.11 $ 0.11 $(0.78) $ 0.05 $(0.20)
Loss per
common share
from
discontinued
operations of
MediaMagic $(0.08) $(0.12)
Net income
(loss) per
common
share $ 0.11 $ 0.03 $(0.90) $0.05 $(0.20)
Weighted
average
shares
outstanding 6,210,164 6,051,492 5,985,170 5,940,577 5,995,385
At Year End:
Total assets $10,875,308 $10,577,025 $13,321,039 $17,422,059 $17,640,264
Total
liabilities $1,360,719 $1,905,724 $4,909,919 $3,752,292 $4,012,208
Shareholders'
equity $9,514,589 $8,671,301 $8,411,120 $13,669,767 $13,628,056
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The following table sets forth, for the fiscal years indicated,
items in the Consolidated Statements of Operations expressed as a
percentage of operating revenues:
<TABLE>
Year Ended January
31,
1996 1995 1994
<S> <C> <C> <C>
Operating revenues:
System sales 14 % 21% 39 %
Services and support 86 79 61
100 100 100
Costs and expenses:
Cost of system sales 9 12 22
Cost of services and
support 6 6 6
Amortization of capitalized
software 5 3 4
Operating expenses 25 22 28
Selling, general and
administrative expenses 43 37 61
Software research and
development costs 4 11 11
Restructuring charges 26
92 91 158
Operating income (loss) from
continuing operations 8 9 (58)
Interest income
(expense), net 5 1
Income (loss) from continuing
operations before taxes 13 10 (58)
Income tax benefit (10)
Income (loss) from continuing
operations 13 10 (48)
Discontinued operations, net of
related income taxes:
Loss from discontinued
operations of MediaMagic (3) (7)
Loss on disposal of MediaMagic (4)
Loss from discontinued operations
of MediaMagic (7) (7)
Net income (loss) 13 % 3% (55) %
</TABLE>
<PAGE>
Year Ended January 31, 1996 compared to Year Ended January 31, 1995
Total revenues from operations declined $1.5 million, or 22%, from
$6.8 million in fiscal 1995 to $5.3 million in fiscal 1996. System sales
revenues decreased $662,833, or 48%, from $1,390,296 in fiscal 1995 to
$727,463 in fiscal 1996. Substantially all of the Company's system sales
revenues in both fiscal years were from client system upgrades and
peripheral sales as opposed to new system sales. The Company continues
to attribute overall decreased sales activity to economic pressures in
the legal marketplace. Additionally, the Company believes that its
fiscal 1994 decision to abandon certain software projects and to focus
its development efforts in the direction of current Windows-based
software technology, further contributed to the decline in system sales
as competitors' host-based, client server products became available to
the legal industry marketplace. New system sales efforts have been, and
will be, minimal until the Company releases its next generation, Windows-
based, legal software product called ``Dimension''. Dimension is the
result of three years of development efforts, utilizing current Microsoft
technology to address current software market demands. The Company is
currently in the beta-testing phase of Dimension development and
anticipates improved sales revenues once the Company completes beta-
testing of the software and begins initial marketing efforts, currently
anticipated for the later half of fiscal year 1997. However, there can
be no assurance that the new Dimension products will successfully compete
with competitive products or that the Company's revenues or results of
operations will improve in future periods with the introduction of the
Dimension product line. See Revenue Recognition and Company Operations
Note in ``Notes to Consolidated Financial Statements''.
Service and support revenues decreased $845,023, or 16%, from
$5,376,691 in fiscal 1995 to $4,531,668 in fiscal 1996. This decrease
was primarily attributable to reduced training, support, and conversion
service revenue due primarily to fewer new system sales during the year.
Costs of system sales as a percentage of system sales revenues was
62% in fiscal 1996 compared to 59% in the previous fiscal year. Costs of
services and support as a percentage of services and support revenue was
7% in fiscal 1996, compared to 8% in the prior fiscal year. Costs of
services and support is primarily comprised of personnel costs directly
associated with the performance of the service and certain third party
costs associated with the maintenance revenues included in service and
support revenues. Amortization of capitalized software increased
$52,000, or 22%, from $236,000 in fiscal 1995 to $288,000 in fiscal 1996.
Operating expenses decreased $106,291, or 8%, from $1,413,942 in fiscal
1995 to $1,307,651 in fiscal 1996. Selling, general and administrative
expenses decreased $216,430, or 9%, from $2,502,030 in fiscal 1995 to
$2,285,600 in fiscal 1996. The decrease in operating expenses and
selling, general and administrative expenses was primarily attributable
to the fiscal year 1996 reallocation of resources to software development
efforts qualifying for capitalization. See Note 1 of ``Notes to
Consolidated Financial Statements''.
Software research and development expenses decreased 72%, from
$700,000 in fiscal 1995 to $195,700 in fiscal 1996. The primary
contributing factor to this decrease was the fiscal 1996 capitalization
of approximately $738,000 in product development costs primarily
associated with the development of the Company's Dimension software
product. The Company expects its Dimension product development efforts
to continue through the first half of fiscal 1997 and that enhancements
and improvements to the product will be made on an on-going basis
thereafter. The Company will begin amortization of the Dimension product
development costs in the later half of fiscal 1997.
Interest income (expense), net increased over 400%, from $48,058 in
fiscal 1995 to $260,640 in fiscal 1996. Interest income in fiscal 1995
was comprised of approximately $155,000 in interest income offset by
approximately $107,000 in interest expense. In fiscal 1996, non-
operating income was comprised of approximately $303,000 in interest
income, relating primarily to investment income interest, offset by
approximately $42,000 in mortgage interest expense on the Company's
corporate facility.
Net income from continuing operations decreased $38,971, or 6%, from
$703,088 in fiscal 1995 to $664,117 in fiscal 1996. Net losses from
discontinued operations were $495,579 in fiscal 1995, resulting in net
income for fiscal 1995 of $207,509 compared with net income in fiscal
1996 of $664,117.
<PAGE>
Year Ended January 31, 1995 compared to Year Ended January 31, 1994
Total operating revenues from continuing operations decreased
$2,903,785, or 30%, from $9,670,772 in fiscal 1994 to $6,766,987 in
fiscal 1995. System sales revenues decreased $2,342,508, or 63%, from
$3,732,804 in fiscal 1994 to $1,390,296 in fiscal 1995. Substantially
all of the Company's system sales revenues in fiscal 1995 were from
client system upgrades and peripheral sales as opposed to new system
sales. Service and support revenues decreased $561,277, or 9%, from
$5,937,968 in fiscal 1994 to $5,376,691 in fiscal 1995. This decrease
was primarily attributable to decreased training, support, and conversion
service revenue due to fewer new system sales for the year.
Costs of system sales as a percentage of system sales revenues
remained unchanged at 59% in both fiscal 1994 and fiscal 1995. Costs of
services and support as a percentage of services and support revenue was
8% in fiscal 1995, compared to 9% in the prior fiscal year.
Operating expenses from continuing operations decreased 48%, or
$1,310,393, from $2,724,335 in fiscal 1994 to $1,413,942 in fiscal 1995.
This decrease was primarily attributable to staff reductions made during
the Company's fourth quarter fiscal 1994 restructuring effort.
Selling, general and administrative expenses from continuing
operations decreased $3,374,917, or 57%, from $5,876,947 in fiscal 1994
to $2,502,030 in fiscal 1995. This decrease was attributable to
reductions in personnel and personnel-related costs in fiscal 1995 as
compared with fiscal 1994. Also contributing to the decrease were
significant reductions in discretionary spending as a result of better
management of overhead costs.
Software development costs decreased $400,000, or 36%, from
$1,100,000 in fiscal 1994 to $700,000 in fiscal 1995. This decrease is
primarily the result of decisions made in fiscal 1994 to abandon software
projects determined to have minimal future value. The Company continued
to expend significant amounts in its product development efforts. In
fiscal 1995, new software products were being designed with current
software technology to allow the Company to stay competitive with current
software market demands.
Losses from the Company's discontinued MediaMagic operations were
$495,579 in fiscal 1995. Included in the loss was $235,648 in losses
relating to adjustments and writedowns of the subsidiary's fixed assets
and inventory during the second quarter of fiscal 1995, when the Company
discontinued the operations of MediaMagic. The Company did not incur any
losses relating to MediaMagic in the Company's third and fourth quarters
of fiscal 1995 and the Company does not anticipate any further losses
with respect to the discontinued subsidiary. MediaMagic operating losses
reported in the previous fiscal year were $712,143. See Note 11 of
``Notes to Consolidated Financial Statements''.
The Company's fiscal 1994 restructuring contributed to the
Company's improved operating performance during fiscal 1995. Although
sales revenues significantly declined in fiscal 1995, the Company
reported net income of $207,509 in fiscal 1995 as compared to a net loss
of $5,365,799 in fiscal 1994. The fiscal 1994 restructuring contributed
to the increase in net income in fiscal 1995 by providing for reductions
in excess personnel and personnel-related costs in addition to
significant reductions in discretionary spending. Cost control programs
implemented early in the fourth quarter of fiscal 1994 have contributed
to a better management of overall expenses in fiscal 1995. In addition,
the Company's decision to discontinue the operations of its MediaMagic
subsidiary allowed the Company to focus its attentions and resources to
its core legal software business.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, ``Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of'' (SFAS 121), which the Company is required to adopt no later than the
first quarter of fiscal 1997. SFAS 121 establishes accounting standards
<PAGE>
for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and
for long-lived assets and certain intangible assets to be disposed of.
The Company will adopt SFAS 121 in fiscal 1997, however, management does
not believe the adoption of SFAS 121 will have a material effect on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ``Accounting for
Stock-based Compensation'' (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans. This statement requires the fair value of stock options and other
stock-based compensation issued to employees to either be included as
compensation expense in the income statement, or the pro forma effect on
net income and earnings per share of such compensation expense to be
disclosed in the footnotes of the Company's financial statements
commencing in fiscal year 1997. The Company will adopt SFAS 123 on a
footnote disclosure only basis in fiscal 1997. As such, implementation
of SFAS 123 is not expected to impact the Company's financial position or
results of operations.
Fluctuations in Interim Period Operating Results
Management of the Company believes that historically, interim
results and period-to-period comparisons have been neither predictable
nor an accurate measure of the annual performance of the Company. The
Company has experienced and expects to continue to experience period-to-
period fluctuations in the number of systems sold, revenues and net
income. Although recent operating revenues of the Company have mostly
been derived from service and support revenues, fluctuations in system
sales revenues have historically resulted from the revenues of the
Company being generated principally by the sale of a small number of
relatively expensive systems, the policy of the Company of recognizing
revenue upon delivery of the hardware and delivery and acceptance of the
software, the equipment availability of hardware from the Company's
hardware supplier, and the desire of the customer to accelerate or delay
the date of delivery. These factors tend to distort the operating
results of an interim period. Additionally, sales are not made or
recognized evenly throughout the fiscal year or any interim period, thus
making meaningful interim period comparisons difficult. These
fluctuations may also have a significant impact on profitability in any
interim period as a result of the relatively fixed nature of operating
costs and selling, general and administrative expenses.
Liquidity and Capital Resources
Net cash provided by operating activities was approximately $1.9
million in fiscal 1996 as compared to approximately $2.2 million in cash
provided by operating activities in fiscal 1995. During fiscal 1995,
liquidity was substantially improved due to receipt by the Company of
approximately $1 million in federal income tax refunds. Additional
liquidity in both fiscal years resulted from interest received on funds
invested in certificates of deposit and treasury bills. The Company's
current financial position remains strong with cash, certificates of
deposit and treasury bill investments totaling $5.5 million, or 50%, of
total assets at January 31, 1996 compared with $4.4 million, or 41%, of
total assets at January 31, 1995. Capital expenditures totaling $966,000
were made during fiscal year 1996 compared to $411,000 in the previous
fiscal year. Of the $966,000 expended in fiscal 1996, $738,000 relates
to capitalized software development; the remainder to acquire equipment
and software for use in the Company's support and development efforts.
Cash flows from financing activities improved in fiscal 1996 due to cash
receipts of approximately $186,000 obtained from employee common stock
purchases and stock option exercises associated with various employee
benefit plans and a reduction in funds used for payment of the mortgage
note payable from $631,000 in fiscal 1995 to $63,000 in fiscal 1996.
The Company has not made any material commitments for capital
expenditures; however, the Company anticipates substantial expenditures
will be made during fiscal year 1997 in the areas of development, sales,
marketing and support to complete and introduce its next generation
Dimension software products.
<PAGE>
At January 31, 1996 and 1995, the Company has established a 100%
valuation allowance to fully offset the net deferred tax asset balances
of $731,000 and $716,000, respectively. Factors leading to management's
assessment that significant uncertainties exist regarding the realization
of these assets include (1) recent decline in system sales revenues, (2)
uncertainty regarding the future success and timing of sales of the
Company's new Windows-based products, and (3) financial and economic
problems in the Company's primary customer market (i.e. legal industry).
Working capital and the ratio of current assets to current liabilities
are as follows:
Working Current
capital ratio
At January 31:
1996 $6,094,071 6.6 to 1
1995 $5,428,002 4.5 to 1
1994 $4,495,403 1.9 to 1
Current assets consist primarily of cash, short-term investments,
accounts receivable and unbilled revenues from system sales and services.
<PAGE>
<TABLE>
Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
<CAPTION>
January 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 807,965 $ 1,499,733
Short-term investments 4,648,774 2,881,030
Accounts receivable, net of allowance
of $170,000 and
$286,000, respectively 1,161,224 1,160,516
Unbilled revenue 338,774 966,102
Other current assets 224,022 482,608
Total current assets 7,180,759 6,989,989
Property, furniture and equipment,net of
accumulated depreciation 2,152,718 2,548,222
Capitalized software, net of accumulated
amortization 1,150,575 700,694
Other assets 391,256 338,120
Total assets $ 10,875,308 $ 10,577,025
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 448,965 $ 398,485
Accrued expenses 264,002 268,366
Accrued contract completion costs 214,100 388,155
Accrued contract settlement
liabilities 312,571
Deferred systems revenues 89,915 130,998
Short-term portion of mortgage note
payable 69,706 63,412
Total current liabilities 1,086,688 1,561,987
Long-term portion of mortgage note
payable 274,031 343,737
Total liabilities 1,360,719 1,905,724
Commitments and Contingencies (Note 12)
Shareholders' equity:
Preferred stock, $1.00 par value,
2,000,000 shares authorized, no shares
issued and outstanding
Common stock, $.01 par value, 13,000,000
shares authorized, 7,048,947 and 6,910,692
shares issued, respectively 70,489 69,107
Additional paid-in capital 10,131,927 9,947,369
Retained earnings 2,171,460 1,507,343
12,373,876 11,523,819
Less: Treasury stock, 842,106 and (2,859,287) (2,852,518)
839,256 shares, respectively
Total shareholders' equity 9,514,589 8,671,301
Total liabilities and shareholders'
equity $10,875,308 $10,577,025
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Operating revenues from
continuing operations:
System sales $ 727,463 $ 1,390,296 $ 3,732,804
Services and support 4,531,668 5,376,691 5,937,968
5,259,131 6,766,987 9,670,772
Costs and expenses:
Cost of system sales 448,756 820,146 2,185,469
Cost of services and
support 329,947 439,839 552,745
Amortization of
capitalized software 288,000 236,000 390,000
Operating expenses 1,307,651 1,413,942 2,724,335
Selling, general and
administrative expenses 2,285,600 2,502,030 5,876,947
Software research and
development costs 195,700 700,000 1,100,000
Restructuring
charges 2,479,661
4,855,654 6,111,957 15,309,157
Operating income (loss) from
continuing operations 403,477 655,030 (5,638,385)
Interest income (expense),
net 260,640 48,058 (15,271)
Income (loss) from continuing
operations before taxes 664,117 703,088 (5,653,656)
Income tax benefit (1,000,000)
Income (loss) from continuing
operations $ 664,117 $ 703,088 $(4,653,656)
Discontinued operations, net
of related income taxes:
Loss from discontinued
operations of MediaMagic (236,214) (712,143)
Loss on disposal of
MediaMagic (259,365)
Loss from discontinued operations
of MediaMagic (495,579) (712,143)
Net income (loss) $ 664,117 $ 207,509 $ (5,365,799)
Income (loss) from continuing
operations per common share $ .11 $ .11 $ (.78)
Loss from discontinued
operations per common share $ $ (.08) $ (.12)
Net income (loss) per common
share $ .11 $ .03 $ (.90)
Weighted average shares
outstanding 6,210,164 6,051,492 5,985,170
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 664,117 $ 207,509 $ (5,365,799)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation of property,
furniture and equipment 582,143 712,806 982,772
Amortization of capitalized
software costs 288,000 236,000 390,000
Writedown of land to net
realizable value 300,000
Write-off of abandoned
software projects 1,209,405
Write-off, net of
depreciation, of computer
equipment from
discontinued operations 92,557
Other 4,126 5,646
Changes in assets and liabilities:
Accounts receivable (708) 199,435 1,086,581
Unbilled revenue 627,328 1,908,166 615,821
Other current
assets 258,586 1,135,895 (525,433)
Other assets (53,136) (318,227) 420,586
Accounts payable and accrued
expenses (440,510) (1,899,396) 1,321,739
Deferred systems revenues (41,083) (474,053) 60,678
Deferred taxes 388,524 (426,524)
Net cash provided by operating
activities 1,884,737 2,193,342 75,472
Cash flows from investing
activities:
Additions to property, furniture
and equipment (228,350) (127,610) (796,228)
Additions to capitalized
software (737,881) (283,303) (1,030,432)
(Purchase) sale of certificates
of deposit (581,000) 100,000 490,000
Purchase of U.S. Treasury
Bills (1,186,744) (2,485,030)
Other 41,711 12,332
Net cash used in investing
activities (2,692,264) (2,783,611) (1,336,660)
Cash flows from financing
activities:
Issuance of common
stock 185,940 52,672 107,152
Payments of mortgage note
payable (63,412) (630,746) (53,790)
Purchase of treasury shares (6,769)
Net cash provided by (used in)
financing activities 115,759 (578,074) 53,362
Net decrease in cash (691,768) (1,168,343) (1,207,826)
Cash and cash equivalents at
beginning of period 1,499,733 2,668,076 3,875,902
Cash and cash equivalents at end
of period $ 807,965 $ 1,499,733 $ 2,668,076
Supplemental disclosures of cash flow information:
Interest expense paid $ 42,000 $ 120,597 $ 137,597
Income taxes paid $ 116,167
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Common Stock
Shares Amount
<S> <C> <C>
Balance at January 31, 1993 6,772,719 $ 67,727
Issuance of common stock 84,471 845
Net loss
Balance at January 31, 1994 6,857,190 68,572
Issuance of common stock 53,502 535
Net income
Balance at January 31, 1995 6,910,692 69,107
Issuance of common stock 113,814 1,138
Stock options exercised 24,441 244
Purchase of treasury stock
Net income
Balance at January 31, 1996 7,048,947 $ 70,489
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Continued)
<CAPTION>
Additional
paid-in Retained Treasury Shareholders'
capital earnings stock equity
<S> <C> <C> <C> <C>
Balance at
January 31, 1993 $ 9,788,925 $ 6,665,633 $ (2,852,518) $ 13,669,767
Issuance of common
stock 106,307 107,152
Net loss (5,365,799) (5,365,799)
Balance at
January 31, 1994 9,895,232 1,299,834 (2,852,518) 8,411,120
Issuance of common
stock 52,137 52,672
Net
income 207,509 207,509
Balance at
January 31, 1995 9,947,369 1,507,343 (2,852,518) 8,671,301
Issuance of common
stock 149,842 150,980
Stock options
exercised 34,716 34,960
Purchase of
treasury stock (6,769) (6,769)
Net
income 664,117 664,117
Balance at
January 31, 1996 $ 10,131,927 $ 2,171,460 $ (2,859,287) $ 9,514,589
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Summary of Significant Accounting Policies
CompuTrac, Inc. (the "Company") was formed in 1977 to develop,
market, service and support integrated turnkey computer systems for law
firms. The Company's significant accounting policies are as follows:
Principles of Consolidation
The financial statements for fiscal year 1994, 1995 and 1996 are
consolidated and include the accounts of the Company's MediaMagic
subsidiary. The operations of MediaMagic were discontinued in July 1994
and accordingly, the Company reflected the results from discontinued
operations as a separate component in the Consolidated Statements of
Operations for fiscal years 1994 and 1995. All significant intercompany
transactions and balances were appropriately eliminated.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenue Recognition and Company Operations
The Company develops, markets, services and supports computer
systems for the legal profession. The Company develops the software and
is a Distributor Authorized Reseller of Hewlett-Packard systems hardware.
System sales, service and support revenues are generally realized
pursuant to a contract with the customer. Contracts typically provide
for the shipment of hardware direct from the supplier to the customer,
where it is installed by Hewlett-Packard personnel. After hardware
installation, personnel from the Company install the software components.
Hardware and software installation is generally provided for all
significant components within four to six weeks after the hardware
delivery process begins.
The Company enters into software license agreements whereby the
Company licenses software to a customer, providing that customer with the
right to use the software. In accordance with the provisions of the
American Institute of Certified Public Accountants' Statement of Position
(SOP 91-1) ``Software Revenue Recognition'', the Company recognizes
software license revenue upon delivery of the hardware, software and
confirmation of customer acceptance per the terms of the contract. Each
software license agreement is evaluated by management to determine if
significant vendor obligations exist, such as post-contract customer
support, and to determine whether collection of the associated receivable
is probable. Post-contract customer support revenue is deferred and
amortized over the period of the service, usually not exceeding one year
from the inception of the contract.
Other contractual services may include data conversion and training
conducted by Company personnel following installation of the major
components of hardware and software. Revenues related to these services
are deferred and recognized as revenue at the time the services are
rendered, usually not exceeding one year from inception of the contract.
In addition, the contract may provide for add-on software applications
which are still under development and which complement the core system,
but are not integral to the basic functionality of the core system.
Uncompleted add-on software application revenue is deferred until
delivery occurs and evidence of customer acceptance has been obtained.
Unbilled revenue represents the excess of system sales contracts over
progress billings. Accrued contract completion costs represent estimated
software project completion costs necessary to fulfill client contract
obligations.
<PAGE>
Cash Equivalents
The Company considers investments with original maturity dates of 90
days or less to be cash equivalents.
Short-Term Investments
The Company considers investments with original maturity dates that
are greater than 90 days but less than one year, to be short-term
investments. The carrying values of these investments are approximately
equal to their fair market values at the end of each year.
Capitalized Software
The Company capitalizes the costs of developing and testing new or
significantly enhanced software products in accordance with the
provisions of Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed''. Capitalized software development costs are
amortized on a product-by-product basis using the greater of the amount
computed by the ratio of current year net revenue to estimated future net
revenue, or the amount computed by the straight-line method over a period
which approximates the estimated economic life of the products, which
historically has been four years. The amount by which unamortized
software costs exceed the net realizable value, if any, is recognized in
the period the excess is determined.
Property, Furniture, Equipment and Depreciation
Property, furniture and equipment are recorded at cost. The cost of
such assets, other than land, is depreciated on a straight-line basis
over the estimated useful life of the asset (generally three to ten
years). The Company's corporate facility is being depreciated using the
straight-line method over an estimated useful life of 30 years.
Maintenance and repair expenditures are charged to operations; renewals
and betterments are capitalized.
Income Taxes
Income taxes are provided for taxes currently payable based on
taxable income. Deferred income taxes are provided for the tax effects
of temporary differences between the financial reporting basis and the
tax basis of the Company's assets and liabilities. A valuation allowance
is recognized if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will
not be realized.
Earnings Per Share
Earnings per share are based on the weighted average number of
common shares of stock outstanding. Options and warrants, when dilutive,
have been included in the calculation of weighted average number of
shares outstanding.
Reclassification
Certain prior year financial statement information has been
reclassified to conform to the current year presentation.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, ``Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed
of'' (SFAS 121), which the Company is required to adopt no later than the
first quarter of fiscal 1997. SFAS 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used and
for long-lived assets and certain intangible assets to be disposed of.
<PAGE>
The Company will adopt SFAS 121 in fiscal 1997, however, management does
not believe the adoption of SFAS 121 will have a material effect on the
Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, ``Accounting for
Stock-based Compensation'' (SFAS 123). SFAS 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans. This statement requires the fair value of stock options and other
stock-based compensation issued to employees to either be included as
compensation expense in the income statement, or the pro forma effect on
net income and earnings per share of such compensation expense to be
disclosed in the footnotes of the Company's financial statements
commencing in fiscal year 1997. The Company will adopt SFAS 123 on a
disclosure basis only in fiscal 1997. As such, implementation of SFAS
123 is not expected to impact the Company's consolidated balance sheets
or consolidated statements of operations.
Note 2 - Accrued Expenses
Included in accrued expenses at January 31, 1996 are legal fees
totaling $65,000 and sales taxes totaling $100,231.
Note 3 - Restructuring and Other Non-Recurring Charges
In December 1993, the responsibilities of the Company's former
President and Chief Operating Officer were assumed by the Company's
founder and Chairman, who initiated a change in the strategic direction
of the Company. This change resulted in a major corporate restructuring
effort by the Company and resulted in a charge against earnings of
approximately $2.5 million in the Company's 1994 fiscal year.
Approximately $1.3 million of these charges related specifically to the
Company's decision to abandon certain software projects that no longer
met a market requirement, and to focus its development efforts in the
direction of current Windows-based software technology. The remainder of
the restructuring charges were related to Company-wide staff reductions
and the Company's decision to abandon its plans to relocate to a new
corporate facility.
Although the Company's revised strategy included a continued
resolution toward servicing and supporting existing large mainframe
customers, the Company's reduction in resources and change in strategic
direction required the Company to focus its available resources on
favorable customer relationships, evaluate the collectibility of
outstanding receivables associated with less favorable relationships, and
record charges to bad debt expense, as appropriate. Consequently, the
Company recorded charges to bad debt expense of approximately $400,000 in
fiscal year 1994.
In conjunction with the restructuring, management undertook an
analysis to determine the additional costs expected to be incurred to
successfully fulfill client contract obligations. This analysis resulted
in approximately $500,000 in non-recurring charges reported in fiscal
year 1994. These costs were primarily related to (1) completion of the
development of add-on software applications or the performance of
customer requested customizations to add-on applications not integral to
the functionality of the core system, (2) estimated additional costs
related to the transition of customer service personnel resulting from
significant downsizing in staff, (3) customer-caused delays, and (4)
contract revisions in dispute as to scope and price.
At January 31, 1996, the Company had no accrued liabilities
remaining with respect to the corporate restructuring actions taken
during fiscal 1994. Expenses accrued in connection with the
restructuring were incurred and funded in fiscal 1995.
<PAGE>
<TABLE>
Note 4 - Property, Furniture and Equipment
Property, furniture and equipment costs are summarized as follows:
<CAPTION>
January 31,
1996 1995 1994
<S> <C> <C> <C>
Equipment $ 6,704,956 $ 6,576,973 $ 6,599,292
Building 1,208,179 1,201,950 1,196,968
Land 554,122 554,122 554,122
Furniture, fixtures and
leasehold improvements 721,143 699,415 710,910
9,188,400 9,032,460 9,061,292
Less accumulated
depreciation 7,035,682 6,484,238 5,824,844
$ 2,152,718 $ 2,548,222 $ 3,236,448
Note 5 - Capitalized Software
Capitalized software costs are summarized as follows:
<CAPTION>
January 31,
1996 1995 1994
<S> <C> <C> <C>
Capitalized software
costs $ 3,083,431 $ 2,345,550 $ 3,277,637
Less capitalized software
costs written-off 1,209,405
3,083,431 2,345,550 2,068,232
Less accumulated
amortization of
capitalized
software costs 1,932,856 1,644,856 1,408,856
$ 1,150,575 $ 700,694 $ 659,376
</TABLE>
<PAGE>
<TABLE>
Note 6 - Income Taxes
The effective income tax rates differed from the statutory federal
income tax rates for the following reasons:
<CAPTION>
Year Ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 34% 34 % (34)%
(Reduction) addition resulting
from:
Permanent differences 1 6 1
MediaMagic net operating
loss carryover (37)
Utilization of net
operating loss carryovers (36) 17
Other 2 (4)
Effective rate 0% 0 % (16)%
Benefit for income taxes consist of the following components:
<CAPTION>
Year Ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Current $ 0 $ 0 $ (572,000)
Deferred 0 0 (428,000)
$ 0 $ 0 $ (1,000,000)
</TABLE>
<PAGE>
<TABLE>
Deferred tax (assets) liabilities comprised the following:
<CAPTION>
Year Ended January 31,
1996 1995 1994
<S> <C> <C> <C>
Deferred tax
assets:
Unbenefited net-operating loss
carryforward $ (672,000) $ (121,000) $ (1,129,000)
Allowance for doubtful
accounts (65,000) (97,000) (123,000)
Deferred revenue (9,000) (12,000) 0
Building and land
writedown (791,000) (831,000) (714,000)
Reserve for client
contracts 0 (106,000) (235,000)
Accrued
liabilities (63,000) (35,000) (206,000)
State taxes and
other (57,000) (73,000) (163,000)
Total deferred tax assets (1,657,000) (1,275,000) (2,570,000)
Deferred tax liabilities:
Tax over book
depreciation 521,000 383,000 365,000
Net capitalized
software costs 362,000 176,000 210,000
Deferred revenue 0 0 374,000
Other 43,000 0 0
Total deferred tax
liabilities 926,000 559,000 949,000
Deferred tax assets valuation
allowance 731,000 716,000 1,232,000
Net deferred tax
assets $ 0 $ 0 $ (389,000)
</TABLE>
At January 31, 1996, the Company had a net operating loss carryforward of
approximately $1,767,000 expiring in 2010. Under section 382 of the
Internal Revenue Code, annual use of the operating loss carryforward may
be limited if a cumulative change in ownership of more than 50% has
occurred within a three-year period.
CompuTrac initially anticipated disposing of its subsidiary, MediaMagic,
through a stock disposition in fiscal 1995. Therefore, in the provision
of fiscal 1994 the net operating loss carryforward generated by
MediaMagic was excluded from the Company's net operating loss
carryforward. During fiscal 1995, the Company discontinued the
MediaMagic operations and liquidated its operating assets through sales
of assets to third parties or transfer to the parent company's continuing
operations. As a stock disposition did not occur, the MediaMagic net
operating loss carryforward of $725,000 has been included in the
provision for the year ended January 31, 1996. The Company's net
operating loss carryforwards, including MediaMagic, are fully reserved.
<PAGE>
Note 7 - Mortgage Note Payable
In April 1986, the Company purchased its corporate headquarters for
$2,900,000 through the assumption of a first lien mortgage note payable
having a principal balance of $1,308,558 with the remainder funded in
cash. The note was dated May, 1983, having an original principal balance
of $1,370,000, with the principal payable monthly plus interest at
12.875% over a term of 10 years ended May, 1993. In February, 1994, the
Company obtained a new, ten year, 9.5% fixed rate mortgage on its
corporate headquarters. The closing on the new mortgage occurred on May
1, 1994. The principal amount of maturities for the years subsequent to
January 31, 1996, are:
Principal
Fiscal Year Maturities
1997 $69,706
1998 $76,623
1999 $84,228
2000 $92,588
2001 $20,592
Note 8 - Related Party Transactions
In December, 1992, the Company entered into a five-year employment
agreement with its Chairman which expires in January, 1998. The
agreement currently provides for an annual salary of $530,000, and
entitles the Chairman to receive minimum raises equivalent to any annual
increase in the Consumer Price Index for Dallas, Texas during the
previous year.
Note 9 - Shareholders' Equity
Stock Repurchase Program
In February, 1988, the Board of Directors authorized a stock
repurchase program whereby the Company may purchase, from time-to-time,
up to 600,000 shares of its outstanding Common Stock in the open
marketplace or through negotiated transactions. During fiscal 1996, the
Company did not purchase any shares of its outstanding Common Stock
pursuant to the terms of the program.
Stock Purchase Plans
In December, 1985, the Company's Board of Directors adopted the
CompuTrac, Inc. Employee Stock Purchase Plan and in May, 1991, adopted
the CompuTrac, Inc. 1991 Employee Stock Purchase Plan. The Company
reserved 300,000 and 500,000 shares of its Common Stock for purchase by
its employees pursuant to the terms of these plans, respectively. Under
both plans, eligible participating employees of the Company may elect to
have an amount up to, but not in excess of, 10% of their regular salary
or wages withheld for the purpose of purchasing the Company's Common
Stock. The Company contributes to the participant's account an amount of
money equal to 33 1/3% of the aggregate contribution made by each
participant since the immediately preceding stock purchase date. All
Common Stock of the Company purchased by the participating employees
pursuant to the plans may be voted by the employee; any shares not so
directed to vote are not voted. During fiscal 1996, the Company
registered 500,000 of its shares to be reserved for future employee stock
purchase activities. At January 31, 1996, 860,240 shares of the
Company's Common Stock had been sold pursuant to these plans.
<PAGE>
1983 Incentive Stock Option Plan
In June, 1983, the Board of Directors adopted and the shareholders
approved the 1983 Incentive Stock Option Plan. Under the terms of the
plan, the Company's Board of Directors is authorized to grant options to
purchase up to 450,000 shares of Common Stock to key employees of the
Company, including officers. The exercise price of an option must be at
least 100% of the fair market value of the Common Stock as determined by
the Board of Directors on the effective date of the grant. Each option
granted under the option plan must be exercised, if at all, during a
period established in the grant by the Board of Directors, but not
exceeding 10 years from the date of grant. Options must be exercised by
an optionee within three to twelve months after termination of
employment. At January 31, 1996, there were 110,422 shares available for
future grant.
1990 Stock Option Plan
In May, 1991, the Board of Directors adopted and the shareholders
approved the 1990 Stock Option Plan. Under the terms of the plan, the
Company's Board of Directors is authorized to grant options to purchase
up to 500,000 shares of Common Stock to key employees of the Company,
including officers and directors. Option grants may be in the form of
either Incentive Stock Options or Non-Statutory Stock Options. The
remaining terms of the option grants are identical to those of the 1983
Incentive Stock Option Plan. At January 31, 1996, there were 169,136
shares available for future grant.
Non-Qualified Stock Options
In May, 1990, the Board of Directors approved a grant by the Company
of options to purchase 65,000 shares of Common Stock to four directors of
the Company. The exercise price of the options is $2.45 per share and
may be exercised at any time during the seven year period ending May,
1997. Options to purchase 15,000 shares of Common Stock granted one
director were subsequently cancelled.
<TABLE>
Stock option activity for all plans is summarized below:
<CAPTION>
Option Price
Options Per Share
<S> <C> <C>
Options outstanding, January
31, 1994 566,580 $1.13 - $4.00
Granted 83,800 $.69 - $1.19
Cancelled (161,913) $1.13 - $2.30
Options outstanding, January
31, 1995 488,467 $.69 - $4.00
Granted 263,000 $.938 - $2.50
Cancelled (117,680) $1.88 - $2.36
Exercised (24,441) $.6875 - $1.88
Options outstanding, January
31, 1996 609,346 $.6875 - $2.50
At January 31, 1996, options for 219,601 shares were exercisable.
</TABLE>
<PAGE>
Note 10 - 401(k) Retirement Plan
In December, 1987, the Board of Directors authorized a simplified
401(k) Retirement Plan which was implemented in February, 1988. Under
the terms of the plan, eligible participating employees of the Company
may elect to have an amount up to, but not in excess of, 15% of their
regular salary or wages withheld for purposes of setting aside funds
available at retirement. Amounts withheld are invested in one or more
available investment alternatives as selected by the individual
employee. Under current tax law, amounts withheld under the plan,
subject to annual limitations, and any interest earnings thereon, are tax
deferred until such time as distributions are made to the employee. The
Company does not contribute to the employee's account. All costs and
expenses of administering the plan are paid by the Company.
Note 11 - Discontinued Operations
On February 1, 1993, the Company purchased 80% of the issued and
outstanding common stock of MediaMagic Corporation, an advanced
multimedia company that designed, developed and manufactured full-motion
video and audio applications for both domestic and international markets,
for a total purchase price of $100,000 in a transaction accounted for as
a purchase. As part of the Company's fourth quarter fiscal 1994
restructuring, the decision was made to cease investing Company resources
into the operations of MediaMagic due to the poor financial performance
of the subsidiary and due to the Company's decision to refocus its
resources on its core software and hardware products for the legal
profession. During fiscal 1995, the subsidiary continued to show
operating losses, resulting in the Company's decision to discontinue the
operations of MediaMagic in the second quarter of fiscal year 1995.
Accordingly, the Company has reflected the results from discontinued
operations as a separate component in the Consolidated Statement of
Operations.
Note 12 - Commitments and Contingencies
The Company's federal tax return for the fiscal year ended January
31, 1993 is under examination by the Internal Revenue Service. In
February 1996, the Company proposed a settlement with the Internal
Revenue Service which called for the Company to remit income tax
deficiencies in the amount of $43,192 in addition to interest charges of
$7,600. The Company paid the proposed tax deficiencies and related
estimated interest charges in fiscal 1997. The Company is currently
awaiting written acceptance of the proposed settlement from the Internal
Revenue Service. Management believes the proposed settlement will be
accepted without material changes. Accordingly, the final resolution is
not expected to materially affect the financial condition or results of
operations of the Company.
The Company is subject to certain other legal proceedings, claims
and disputes which arise in the ordinary course of its business.
Although the Company cannot predict the outcomes of these legal
proceedings, the Company's management does not believe these actions will
have a material adverse effect on the Company's financial position,
results of operations or liquidity. However, if unfavorably resolved,
these proceedings could have a material adverse effect on the Company's
financial position, results of operations and liquidity.
Note 13 - Trademarks
CompuTrac, Dimension, and other names of CompuTrac products
referenced herein are trademarks or registered trademarks of CompuTrac,
Inc. All other product and company names mentioned herein are the
trademarks of their respective owners.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
CompuTrac, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, cash flows and changes in
shareholders' equity present fairly, in all material respects, the
financial position of CompuTrac, Inc. and its subsidiary at January 31,
1996 and 1995, and the results of their operations and their cash flows
for each of the three years in the period ended January 31, 1996, in
conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
April 7, 1996
<PAGE>
Item 9. Disagreements on Accounting and Financial Disclosure
The Company has reported no disagreements with or change of its
independent accountants during the 24 months prior to January 31, 1996.
PART III
The information required by Part III is omitted from this
Report and will be included in the registrant's 1996 definitive proxy
statement pursuant to Regulation 14A (the "Proxy Statement") which is
expected to be filed not later than 120 days after the end of the fiscal
year covered by this Report, and the information included therein is
incorporated herein by reference.
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by
reference to the Company's Proxy Statement.
Item 11. Executive Compensation
The information requ ired by this Item is incorporated by
reference to the Company's Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by
reference to the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by
reference to the Company's Proxy Statement.
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) The following documents are filed as a part of this Report:
1. Financial Statements: Page
Report of Independent Accountants 26
Consolidated Balance Sheets at
January 31, 1996 and 1995 13
Consolidated Statements of Operations
for the three years ended January 31, 1996 14
Consolidated Statements of Cash Flows for the
three years ended January 31, 1996 15
Consolidated Statements of Changes in
Shareholders' Equity for the three years
ended January 31, 1996 16
Notes to Consolidated Financial Statements 17-25
<PAGE>
2. Financial Statement Schedule: The following financial
statement schedule of CompuTrac, Inc. is filed as a part of
this Report:
Page
For the three years ended January 31, 1996:
Schedule II - Valuation and Qualifying
Accounts 32
No other financial statement schedules of CompuTrac, Inc. are
required to be filed as a part of this Report.
3. Exhibits:
3.1* - Restated Articles of Incorporation of Registrant
3.2** - Bylaws of the Registrant
3.3*** - Articles of Amendment to Articles of
Incorporation of the Registrant dated December
1, 1987
4.1 - Articles of Incorporation and Bylaws of the
Registrant constituting Instruments Defining the
Rights of Common Stockholders (incorporated by
reference to Exhibits 3.1, 3.2, and 3.3 hereto)
10.1****** - Employment Agreement between the Registrant and
Harry W. Margolis dated December 1, 1992
10.2* - Incentive Stock Option Plan of the Registrant
10.3********- CompuTrac, Inc. 1991 Employee Stock Purchase
Plan, as amended
10.4* - Cash Bonus Plan of the Registrant
10.5* - Form of Indemnification Agreement between the
Registrant and Texas E. Schramm, dated as of
July 11, 1983
10.6** - Contract of Sale, dated February 28, 1986,
between Harry W. Margolis and the Registrant
10.7*** - Form of Indemnification Agreement between the
Registrant and its Directors as ratified by the
Registrant's Shareholders in their Annual
Meeting of November 19, 1987
10.8******* - Employment Agreement between the Registrant and
George P. McGraw dated February 1, 1992
10.9****** - Form of Employment Agreement between the
Registrant and its Executive Officers.
11.1 - Statement re: Computation of Per Share Earnings
23.1 - Consent of Independent Accountants
<PAGE>
28 - Annual Report on Form 11-K for the CompuTrac,
Inc. Employee Stock Purchase Plan
28.1**** - Amendment dated July 8, 1989 to CompuTrac, Inc.
Employee Stock Purchase Plan
____________
* Incorporated by reference to the same numbered exhibit filed
with the Registrant's Registration Statement on Form S-1 and
Amendment Nos. 1 and 2 thereto, File No. 2-84218, which became
effective July 19, 1983.
** Incorporated by reference to the same numbered exhibit filed
with the Registrant's Registration Statement on Form S-1 and
Amendment No. 1 thereto, File No. 33-4582, which became
effective April 24, 1986.
*** Incorporated by reference to the same numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1988, Commission File No. 1-9115.
**** Incorporated by reference to the same numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1990, Commission File No. 1-9115.
***** Incorporated by reference to the same numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1992, Commission File No. 1-9115.
****** Incorporated by reference to the same numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1993, Commission File No. 1-9115.
******* Incorporated by reference to the same numbered exhibit filed
with the Registrant's Annual Report on Form 10-K for the fiscal
year ended January 31, 1994, Commission File No. 1-9115.
******** Incorporated by reference to the Registrant's Registration
Statement on Form S-8, File No. 33-61577, filed with the
Commission on August 4, 1995, Commission File No. 1-9115.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the
Company during the fiscal fourth quarter ended January 31,
1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
COMPUTRAC, INC.
By: /S/ Harry W. Margolis
Harry W. Margolis
Chairman of the Board of Directors and Chief Executive Officer
Date: April 23, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature Title Date
/S/ Harry W. Margolis Chairman of the Board of
Harry W. Margolis Directors and Chief
Executive Officer April 23, 1996
/S/ George P. McGraw President and General Manager -
George P. McGraw Legal Systems Division April 23, 1996
/S/ Cheri L. White Vice President - Finance and
Cheri L. White Chief Financial Officer April 23, 1996
/S/ Dana E. Margolis Secretary, Treasurer
Dana E. Margolis and Director April 23, 1996
/S/ Cesar L. Alvarez Director April 23, 1996
Cesar L. Alvarez
/S/ Kenneth R. Nicholas Director April 23, 1996
Kenneth R. Nicholas
/S/ Gerald D. Harris Director April 23, 1996
Gerald D. Harris
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of CompuTrac, Inc.
Our audits of the consolidated financial statements referred to in our
report dated April 7, 1996 appearing on page 26 of this Annual Report on
Form 10-K also included an audit of the Financial Statement Schedule
listed in Item 14(a) of this Form 10-K. In our opinion, this Financial
Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
April 7, 1996
<PAGE>
<TABLE>
COMPUTRAC, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended January 31, 1996, 1995 and 1994
<CAPTION>
Balance at Additions Deductions Balance
beginning charged from at end
of year to expense reserves (1) of year
<S> <C> <C> <C> <C>
1996:
Allowance for
accounts and notes
receivable $ 286,000 $ 277,000 $ 393,000 $ 170,000
1995:
Allowance for
accounts and notes
receivable $ 363,000 $ 77,000 $ 154,000 $ 286,000
1994:
Allowance for
accounts and notes
receivable $ 175,000 $ 729,000 $ 541,000 $ 363,000
(1) Uncollectible accounts written-off, net of recoveries.
</TABLE>
<TABLE>
EXHIBIT 11.1
COMPUTRAC, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<CAPTION>
Year Ended January 31,
1996 1995 1994
<S> <C> <C> <C>
NET INCOME
Income from continuing
operations $ 664,117 $ 703,088 $ (4,653,656)
Income from discontinued
operations (495,579) (712,143)
Net income $ 664,117 $ 207,509 $ (5,365,799)
PRIMARY
Weighted average number of
shares outstanding 6,071,436 6,017,934 5,933,463
Issuance of common stock 68,608 27,938 49,453
Common stock equivalents 70,120 5,620 2,254
6,210,164 6,051,492 5,985,170
Earnings Per Share:
Net income from continuing
operations $ 0.11 $ 0.12 $ (0.78)
Income from discontinued
operations (0.08) (0.12)
Net income $ 0.11 $ 0.03 $ (0.90)
FULLY DILUTED
Weighted average number of
shares outstanding 6,071,436 6,017,934 5,933,463
Issuance of common stock 68,608 27,938 49,453
Common stock equivalents 135,342 25,854 2,254
6,275,386 6,071,726 5,985,170
Earnings Per Share:
Net income from continuing
operations $ 0.11 $ 0.11 $ (0.78)
Income from discontinued
operations (0.08) (0.12)
Net income $ 0.11 $ 0.03 $ (0.90)
</TABLE>
CompuTrac, Inc.
Exhibit 23.1 - Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statement on Forms S-8 (Nos. 33-40732; 33-40734; 33-
02906; 33-07319; 33-61577) of CompuTrac, Inc. of our report dated
April 7,1996 appearing on page 26 of this annual report on Form 10-K.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 31 of this Form
10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
April 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> JAN-31-1996
<CASH> 807,965
<SECURITIES> 4,648,774
<RECEIVABLES> 1,331,224
<ALLOWANCES> 170,000
<INVENTORY> 0
<CURRENT-ASSETS> 7,180,759
<PP&E> 12,271,831
<DEPRECIATION> 8,968,538
<TOTAL-ASSETS> 10,875,308
<CURRENT-LIABILITIES> 1,086,688
<BONDS> 274,031
0
0
<COMMON> 70,489
<OTHER-SE> 9,444,100
<TOTAL-LIABILITY-AND-EQUITY> 10,875,308
<SALES> 5,259,131
<TOTAL-REVENUES> 5,259,131
<CGS> 778,703
<TOTAL-COSTS> 778,703
<OTHER-EXPENSES> 4,076,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 664,117
<INCOME-TAX> 0
<INCOME-CONTINUING> 664,117
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 664,117
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
