SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended January 31, 1997
Commission File Number 1-9115
COMPUTRAC, INC.
(Name of small business issuer in its charter)
Texas 75-1540265
(State or other jurisdiction of I.R.S. employer identification no.)
incorporation or organization)
222 Municipal Drive, Richardson, Texas 75080
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (972) 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
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 ( )
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will
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-KSB or any amendment to this Form 10-KSB [ ]
The issuer's revenues for the fiscal year ended January 31, 1997 were
$4,648,378.
As of April 23, 1997, the aggregate market value of the voting stock
held by non-affiliates of the issuer was $5,256,303.
As of April 23, 1997, the number of shares outstanding of the issuer's
common stock was 6,279,355.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the issuer's Proxy Statement for the issuer's 1997 Annual
Meeting of Shareholders are incorporated by reference in Part III of
this Form 10-KSB Report.
Transitional Small Business Disclosure Format (check one)
Yes ( ) No (X)
<PAGE>
PART I
Item 1. Description of 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 products assist its customers
in such applications as timekeeping, tracking disbursements, billing,
accounting, management and financial reporting, conflict of interest
and other law firm management applications. The Company markets its
systems throughout the United States and Canada.
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. The majority of customer systems currently in place
utilize Hewlett-Packard equipment, which the Company is authorized to
resell to end-users. Prices for these systems have ranged from
$60,000 for a small firm to $650,000 or more for an integrated system
for accounting and practice support applications for a large law
firm. All of these systems have been sold in conjunction with
services including a separately priced annual maintenance agreement,
customized conversion services, customer training, customer support,
product enhancements and software maintenance services. Annual
maintenance agreements and ongoing support services relative to these
system, provide the Company with a continuing source of revenue
during the term of the agreement.
The Company recently introduced a new time and billing
system designed for small law firms called DimensionO. This product
is a client/server software system created exclusively with Microsoft
development tools operating on micro-computers with 32-bit Windows95
or Windows NT operating environments.
Software
Software which enables law firms to more efficiently
perform and evaluate administrative and business functions
constitutes the Company's principal product. The core product
designed for the mid-size to large law firm market is called the Law
Firm Management System (LFMS). This product runs on mini-computers
in either the HP3000 Series or the HP9000 Series, while some
peripheral products run on IBM-compatible micro-computers. Full
interoperability support is provided for all popular network
operating systems, including Novell NetwareO, Banyan VinesO, and
Microsoft NTO, 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/iXO (native HP), MS/DOSO and
MS/Windows.
The core of the LFMS software includes the ability to
capture time and disbursements incurred on behalf of clients,
billing, trust accounting, accounts payable, accounts receivable,
general ledger, drill-down inquiry, profitability analysis, and
management and financial reporting. Practice management software
consists of modules such as conflict of interest software developed
by the Company and products developed by third-party software vendors
to accomplish functions including marketing, file management, and
overall better management of the client's receivables effort.
The new Dimension product provides the ability for small
firms, including sole practitioners, to manage their business using
professional business products. The product was created exclusively
with Microsoft development tools such as MSAccess, SQL-Server, C++,
OLE and ODBC. Use of these products allows the Company to integrate
with the Microsoft Office products to accomplish tasks such as
uploading budgets from Excel, alerting professionals within the firm
when a value has reached a specified percentage of the budget, and
generating client invoices using Microsoft Word with the ability to
deliver the invoice to the client via the Internet. Dimension is the
Company's first Windows-based law firm management system designed for
use with personal computers, thus expanding the potential market for
the Company's products.
<PAGE>
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-
transferrable by the customer and restricts use of the software to
the customer's internal purposes at one or more designated computer
sites.
Intellectual Property Rights
The Company regards all of its software products as
proprietary. The Company's software products are generally licensed
to end-users on a _right to use_ basis pursuant to a perpetual non-
transferable license that restricts the use of the software to the
customer's operations. The Company relies on a combination of
copyright, trademark, and trade secret laws, as well as non-
disclosure agreements, to establish and maintain its proprietary
rights. Computer software generally cannot be patented and existing
copyright laws afford only limited protection. Also, there can be no
assurance that the Company's competitors will not independently
develop software that is equivalent to the Company's. Further, no
assurance can be given that the Company will have the financial
resources to engage in litigation against parties who may infringe
its intellectual property rights. While the Company realizes that
its competitive position may be affected by its ability to legally
protect its software, the Company believes the impact of this
protection is less significant to its commercial success than factors
such as the level of experience of the Company's personnel, name
recognition, and increased investment in research and development of
new products.
Hardware
The LFMS software is designed for use in conjunction with
various network operating systems operating with either the HP3000 or
HP9000 UNIX-based computer systems which the customer typically
purchases from the Company.
The Dimension single user software version operates on
personal computers. The Dimension client/server software version was
designed to be installed in a Microsoft or Novell network
environment.
Marketing
The Company markets its products through presentations at
state, regional and national conferences of lawyers, firm
administrators and information system managers. The Company also
advertises in regional and national publications and engages in
direct marketing campaigns focused on the legal market. During
fiscal 1997 the Company expended approximately $278,000 in its
Dimension marketing and advertising efforts.
The Dimension products offer a significantly expanded
potential market to the Company. With the LFMS product, market focus
historically concentrated on mid-size to large law firms. In its
first release, the Dimension product is designed to meet the needs of
small law firms, including sole practitioners. Subsequent releases
will accommodate the needs of larger law firms.
A reseller channel is being developed by the Company to
sell, install and train users on the Dimension products. As of March
31, 1997, thirty-four (34) resellers were certified to represent the
Company in locales across the United States and one (1) reseller was
certified in Canada. The Company plans to continue its efforts to
recruit and certify a greater number of resellers in fiscal 1998.
Installation and Maintenance
The Company and Hewlett-Packard coordinate the installation
of hardware for the LFMS product 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. Following hardware installation, Company personnel then
assist the customer with the installation of the LFMS software.
<PAGE>
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.
The Dimension product will be provided to customers on CD-
ROM, together with written installation instructions. Because
Dimension is designed to operate on personal computers, Company
personnel generally are not required to be present at customers' sites
to assist with the installation.
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, 1997, the operations of the Company's
Panamar Systems division were not material to the Company's business
as a whole.
Employees
As of March 31, 1997, the Company employed 56 full-time
employees and 5 part-time employees. During fiscal 1997, 27 employees
provided technical support and product development services, 18 were
engaged in sales and marketing and 16 were employed in finance,
accounting and administration. No employees are represented by a
union or covered by a collective bargaining agreement. The Company
believes that its relationship with its employees is good.
Research and Development
During the year ended January 31, 1997, the Company expended
approximately $1.2 million on software research, development and
production costs compared with approximately $934,000 for the fiscal
year ended January 31, 1996. Net software research, development and
production expenses, after capitalization of certain software
development costs, amounted to $407,000 for the fiscal year ended
January 31, 1997 versus $196,000 for the fiscal year ended January 31,
1996. The Company anticipates its expenditures for research,
development and production in fiscal 1998 will approximate current
levels.
Private Securities Litigation Reform Act of 1995 Safe Harbor
Cautionary Language
This Form 10-KSB contains _forward-looking_ statements, as
defined in Section 21E of the Securities Exchange Act of 1934, as
amended, that are based on current expectations, estimates and
projections. Statements that are not historical facts, including
statements about the Company's beliefs and expectations, are forward-
looking statements. These statements contain potential risks and
uncertainties and, therefore, actual results may differ materially.
There are numerous factors, which are not within the Company's
control, that may cause actual results to differ from those
contemplated by such forward-looking statements, including but not
limited to the rapid rate of change in computer hardware and software
technology and the potential obsolescence of the Company's existing
LFMS products; the development of
<PAGE>
superior products by competitors; increased competition from existing
and new competitors; the lack of acceptance of the Company's new or
existing products by customers; dependence on Hewlett-Packard for the
availability of hardware to support the LFMS software; the reliance on
independent resellers, and the inability to engage a sufficient number
of qualified resellers for the Dimension product; and adverse changes
in economic conditions in the legal profession or the economy
generally. The Company undertakes no obligation to update publicly
any forward-looking statements whether as a result of new information,
future events or otherwise.
Item 2. Description of Property
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 $276,000 mortgage note payable at January 31, 1997. 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 operates 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 owns and operates 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,
1997.
<PAGE>
PART II
Item 5. Market for Common Stock and Related Stockholder Matters
The Company's Common Stock is traded on the American Stock
Exchange 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, 1997, 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 sales prices as reported by the American
Stock Exchange.
Market Price
High Low
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
Second Quarter 3 3/4 1 5/8
Third Quarter 2 7/8 1 7/8
Fourth Quarter 2 5/8 1 5/8
1997 Calendar Year:
First Quarter 2 1/2 1 1/8
The closing sales price per share of the Common Stock on the American
Stock Exchange on April 23, 1997 was $1 1/4.
<PAGE>
Item 6. 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,
1997 1996
<S> <C> <C>
Operating revenues:
System sales 11 % 14 %
Services and support 89 86
100 100
Costs and expenses:
Cost of system sales 8 9
Cost of services and support 6 6
Amortization of capitalized software 7 5
Operating expenses 29 25
Selling, general and administrative expenses 60 43
Software research and development costs 9 4
119 92
Operating (loss) income (19) 8
Interest income, net 5 5
(Loss) income before taxes (14) 13
Income taxes
Net (loss) income (14) % 13 %
</TABLE>
<PAGE>
Year Ended January 31, 1997 compared to Year Ended January 31, 1996
Total revenues from operations declined $611,000, or 12%, from
$5.3 million in fiscal 1996 to $4.6 million in fiscal 1997. System
sales revenues declined $213,000, or 29%, from $727,000 in fiscal
1996 to $515,000 in fiscal 1997. Substantially all of the Company's
system sales revenues in fiscal 1997 and fiscal 1996 were related to
client system upgrades and peripheral sales activities as opposed to
new system sales. 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
has contributed to the decline in system sales as competitors' host-
based, client server products became available in the legal industry
marketplace. With the Company's new Dimension time and billing
system, coupled with other add-on software products scheduled for
completion in mid-year 1997, the Company believes that system sales
revenues should improve in the later half of fiscal 1998. 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_ in Notes to Consolidated
Financial Statements.
Services and support revenues declined $398,000, or 9%, from
$4.5 million in fiscal 1996 to $4.1 million in fiscal 1997. This
decrease was primarily attributable to reduced training, support, and
conversion service revenue due to fewer new system sales and system
upgrade sales during the year.
Cost of system sales as a percentage of system sales revenues
was 69% in fiscal 1997 compared to 62% in the prior year. Increased
cost of systems sales are attributable to lower discounts received on
hardware purchases from distributor channels. Cost of services and
support as a percentage of services and support revenue remained
constant at 7% for both fiscal years. Cost of services and support
is primarily comprised of programming and support staff costs
directly associated with the performance of the service and certain
third party costs associated with maintenance revenues included in
service and support revenues. Amortization of capitalized software
increased 10%, from $288,000 in fiscal 1996 to $318,000 in fiscal
1997. This increase was due to the Company's re-evaluation of the
economic life of certain capitalized software products, resulting in
an additional charge to amortization expense in fiscal 1997.
Operating expenses increased a nominal 4%, from $1.3 million in
fiscal 1996 to $1.4 million in fiscal 1997 due to increases in
miscellaneous Dimension-related costs. Selling, general and
administrative expenses increased $519,000, or 23%, from $2.3 million
in fiscal 1996 to $2.8 million in fiscal 1997. Significant factors
contributing to the increase in selling, general and administrative
expenses were: (1) an increase in marketing and advertising expenses
of $208,000 associated with the Company's new Dimension time and
billing software product, (2) an increase in professional fees of
$168,000 of which $128,000 was associated with legal expenses
incurred by the Company to protect its intellectual property rights
and (3) an increase of $143,000 in other general costs of which
$69,000 related to increases in bad debt expenses.
Software research and development expenses increased $211,000,
or 108%, from $196,000 in fiscal 1996 to $407,000 in fiscal 1997.
This increase primarily relates to research and development costs
associated with software products not qualifying for capitalization
during the year. Amortization of Dimension product development costs
will commence in the first quarter of the Company's fiscal year 1998.
The Company will continue to capitalize those costs associated with
continued enhancements and improvements to the Dimension software
product line.
Net interest income decreased 15%, from $261,000 in fiscal 1996
to $221,000 in fiscal 1997. In fiscal 1996, interest income was
comprised of approximately $303,000 in interest income, relating
primarily to investment interest income, offset by approximately
$42,000 in mortgage interest expense on the Company's corporate
facility. In fiscal 1997, interest income comprised approximately
$278,000 of interest income, relating primarily to investment
interest income, offset by approximately $44,000 of interest expense
of which $32,000 was related to mortgage interest expense.
Net (loss) income declined 201% from net income of $664,000 in
fiscal 1996 to a net loss of $668,000 in fiscal 1997. As previously
discussed, this loss is attributable to reduced revenues associated
with fewer sales of hardware, software, services and support, coupled
with increases in Dimension-related expenses.
<PAGE>
Recent Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No.
128, _Earnings per Share_ (FAS 128) was issued. FAS 128 specifies the
computation, presentation and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential
common stock. FAS 128 simplifies the standards for computing EPS
previously found in Accounting Principles Board Opinion No. 15,
_Earnings per Share_ (APB 15) and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and dilutive EPS on the face of the statement of
operations for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the dilutive
EPS computation. FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. FAS 128 requires
restatement of all prior-period EPS data presented. The Company plans
to adopt FAS 128 in its financial statements as of and for the year
ended January 31, 1998. Based on current circumstances, the adoption
of this pronouncement would not have had a material effect on the
January 31, 1997 and 1996 EPS amounts reported. Pro forma basic EPS
and pro forma dilutive EPS computed assuming FAS 128 had been adopted
are equivalent to the historical amounts reported for primary EPS and
dilutive EPS, respectively.
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
primarily been derived from service and support revenues, fluctuations
in LFMS system sales revenues have historically resulted from 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
The Company's financial position remains strong with cash, cash
equivalents and short-term investments of $4.8 million, or 48% of
total assets at January 31, 1997, compared to $5.5 million, or 50% of
total assets at January 31, 1996. The Company's primary source of
liquidity has been cash flow from operating activities with
additional liquidity provided by periodic sales of Company stock
through various employee benefit plans. Net cash provided by
operating activities decreased $1.4 million from $1.9 million at
January 31, 1996 to $532,000 at January 31, 1997 due to reduced
operating revenues resulting from fewer sales of the Company's LFMS
products and services, coupled with increased costs associated with
the Company's initial launch of its Dimension time and billing
software product. Liquidity was further reduced by capital
expenditures totaling $1.3 million for the year ended January 31,
1997, compared to $966,000 in the prior fiscal year. Of the $1.3
million expended in fiscal 1997, $800,000 related to capitalized
software development activities, $300,000 related to equipment and
software acquired for use in the Company's support and development
efforts and the remaining $200,000 for improvements to the Company's
corporate facility. Cash flows from financing activities of $120,000
during the year were related to cash receipts from employee stock
purchases associated with the Company's employee stock purchase
plans.
The Company has not made any material commitments for capital
expenditures, however, the Company anticipates substantial
expenditures will be made during fiscal year 1998 in the areas of
development, sales, marketing and support of its Dimension software
products.
<PAGE>
At January 31, 1997 and 1996, the Company has established a 100%
valuation allowance to fully offset the net deferred tax asset
balances of $970,000 and $731,000, respectively. Factors considered
in management's assessment that significant uncertainties exist
regarding the realization of these assets include (1) a 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 pressures 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:
1997 $ 5,217,305 8.3 to 1
1996 $6,094,071 6.6 to 1
Current assets consist primarily of cash, short-term investments,
accounts receivable and unbilled revenues from system sales and
services.
<PAGE>
<TABLE>
Item 7. Financial Statements
CONSOLIDATED BALANCE SHEETS
<CAPTION>
Year Ended January 31,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $449,304 $807,965
Short-term
investments 4,334,869 4,648,774
Accounts receivable, net of
allowance of $180,000and $170,000
at January 31, 1997 and 1996,
respectively 722,683 1,161,224
Unbilled revenue 122,584 338,774
Other current
assets 304,211 224,022
Total current
assets 5,933,651 7,180,759
Property, furniture and equipment,
net of accumulated depreciation 1,881,348 2,152,718
Capitalized software, net of
accumulated amortization 1,637,025 1,150,575
Other assets 429,898 391,256
Total assets $9,881,922 $10,875,308
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $191,349 $448,965
Accrued expenses 247,424 264,002
Accrued contract completion
costs 110,400 214,100
Deferred systems revenues 90,744 89,915
Short-term portion of mortgage
note payable 76,429 69,706
Total current liabilities 716,346 1,086,688
Long-term portion of mortgage note
payable 199,561 274,031
Total liabilities 915,907 1,360,719
Commitments and contingencies (Note 10)
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,
6,988,706 shares issued,
respectively 69,887 69,887
Additional paid-in capital 9,846,543 9,928,011
Retained earnings 1,503,255 2,171,460
11,419,685 12,169,358
Less: treasury stock, 722,631 and
842,106 shares, respectively (2,453,670) (2,654,769)
Total shareholders' equity 8,966,015 9,514,589
Total liabilities and
shareholders' equity $9,881,922 $10,875,308
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended January 31,
1997 1996
<S> <C> <C>
Operating revenues:
System sales $ 514,830 $ 727,463
Services and support 4,133,548 4,531,668
4,648,378 5,259,131
Costs and expenses:
Cost of system sales 355,730 448,756
Cost of services and support 297,121 329,947
Amortization of capitalized software 318,079 288,000
Operating expenses 1,354,423 1,307,651
Selling, general and administrative expenses 2,804,975 2,285,600
Software research and development costs 406,998 195,700
5,537,326 4,855,654
Operating (loss) income (888,948) 403,477
Interest income, net 220,743 260,640
(Loss) income before taxes (668,205) 664,117
Income taxes
Net (loss) income $ (668,205) $ 664,117
Net (loss) income per common share $ (.11) $ .11
Weighted average shares outstanding 6,237,291 6,210,164
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Additional Share-
Common Stock paid-in Retained Treasury holders'
Shares Amount capital earnings stock equity
<S> <C> <C> <C> <C> <C> <C>
Balance
at
January
31, 1995 6,910,692 69,107 9,947,369 1,507,343 (2,852,518) 8,671,301
Issuance
of
common
stock 53,573 536 (54,074) 204,518 150,980
Stock
options
exer-
cised 24,441 244 34,716 34,960
Purchase
of
treasury
stock (6,769) (6,769)
Net
income 664,117 664,117
Balance
at
January
31, 1996 6,988,706 69,887 9,928,011 2,171,460 (2,654,769) 9,514,589
Treasury
stock
reissued (81,468) 201,099 119,631
Net
loss (668,205) (668,205)
Balance
at
January
31, 1997 6,988,706 $69,887 $9,846,543 $1,503,255 $(2,453,670) $8,966,015
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended January 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (668,205)$ 664,117
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Depreciation of property, furniture and
equipment 723,610 582,143
Amortization of capitalized software
costs 318,079 288,000
Changes in assets and liabilities:
Accounts receivable 438,541 (708)
Unbilled revenue 216,190 627,328
Other current assets (80,189) 258,586
Other assets (38,642) (53,136)
Accounts payable and accrued expenses (377,894) (440,510)
Deferred systems revenues 829 (41,083)
Net cash provided by operating
activities 532,319 1,884,737
Cash flows from investing activities:
Additions to property, furniture and
equipment (460,606) (228,350)
Additions to capitalized software (804,528) (737,881)
Net sale (purchase) of certificates of
deposit 125,000 (581,000)
Net sale (purchase) of U.S. Treasury
Bills 188,905 (1,186,744)
Other 8,365 41,711
Net cash used in investing activities (942,864) (2,692,264)
Cash flows from financing activities:
Issuance of treasury stock 119,631 185,940
Payments of mortgage note payable (67,747) (63,412)
Purchase of treasury shares (6,769)
Net cash provided by (used in) financing
activities 51,884 115,759
Net decrease in cash (358,661) (691,768)
Cash and cash equivalents at beginning of
period 807,965 1,499,733
Cash and cash equivalents at end of period $ 449,304 $ 807,965
Supplemental disclosures of cash flow information:
Interest paid $ 43,970$ 42,000
Income taxes paid
<FN>
See accompanying notes to consolidated financial statements.
</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:
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 No. 91-1, _Software Revenue Recognition_ (SOP 91-1), 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.
Cash Equivalents
The Company considers investments with original maturity dates of
90 days or less to be cash equivalents.
<PAGE>
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
fiscal 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
seven 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
The Company presents income taxes pursuant to Statement of
Financial Accounting Standards No. 109, _Accounting for Income Taxes,_
(FAS 109). FAS 109 uses an asset and liability approach to account
for income taxes. In the event differences between the financial
reporting basis and the tax basis of the Company's assets and
liabilities result in deferred tax assets, an evaluation of the
probability of being able to realize the future benefits indicated by
such assets is required. A valuation allowance is provided for a
portion or all of the deferred tax assets when there is sufficient
uncertainty regarding the Company's ability to recognize the benefits
of the assets in future years.
Accounting for Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, _Accounting
for Stock-Based Compensation_ (FAS 123), encourages, but does not
require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has elected to
continue to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
_Accounting for Stock Issued to Employees_ (APB 25), and related
Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair market value of the
Company's stock at the date of the grant over the amount the employee
must pay to acquire the stock.
Reclassification
Certain prior year financial statement information has been
reclassified to conform to the current year presentation.
<PAGE>
Recent Accounting Pronouncements
In February 1997, Statement of Financial Accounting Standards No.
128, _Earnings per Share_ (FAS 128) was issued. FAS 128 specifies the
computation, presentation and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential
common stock. FAS 128 simplifies the standards for computing EPS
previously found in Accounting Principles Board Opinion No. 15,
_Earnings per Share_ (APB 15) and makes them comparable to
international EPS standards. It replaces the presentation of primary
EPS with a presentation of basic EPS. It also requires dual
presentation of basic and dilutive EPS on the face of the statement of
operations for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the dilutive
EPS computation. FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted. FAS 128 requires
restatement of all prior-period EPS data presented. The Company plans
to adopt FAS 128 in its financial statements as of and for the year
ended January 31, 1998. Based on current circumstances, the adoption
of this pronouncement would not have had a material effect on the
January 31, 1997 and 1996 EPS amounts reported. Pro forma basic EPS
and pro forma dilutive EPS computed assuming FAS 128 had been adopted
are equivalent to the historical amounts reported for primary EPS and
dilutive EPS, respectively.
Note 2 - Accrued Expenses
Included in accrued expenses at January 31, 1997 are legal fees
totaling $50,000 and sales taxes totaling $60,000.
<TABLE>
Note 3 - Property, Furniture and Equipment
Property, furniture and equipment costs are summarized as
follows:
<CAPTION>
January 31,
1997 1996
<S> <C> <C>
Equipment $ 6,882,189 $ 6,704,956
Building 1,410,297 1,208,179
Land 554,122 554,122
Furniture, fixtures and leasehold 758,925 721,143
improvements
9,605,533 9,188,400
Less accumulated
depreciation (7,724,185) (7,035,682)
$ 1,881,348 $ 2,152,718
</TABLE>
<PAGE>
Note 4 - Capitalized Software
Capitalized software costs are summarized as follows:
<TABLE>
January 31,
1997 1996
<S> <C> <C>
Capitalized software costs $ 3,887,960 $ 3,083,431
Less accumulated amortization (2,250,935) (1,932,856)
$ 1,637,025 $ 1,150,575
</TABLE>
Note 5 - Income Taxes
The effective income tax rates differed from the statutory federal
tax income rates for the following reasons:
<TABLE>
January 31,
1997 1996
<S> <C> <C>
Statutory rate (34)% 34%
(Reduction) addition resulting from:
Permanent differences 2 1
MediaMagic net operating loss 0 (37)
carryover
Change in valuation allowance 36 0
Other (4) 2
Effective rate 0% 0%
</TABLE>
<PAGE>
<TABLE>
Deferred tax (assets) liabilities comprised the following:
January 31,
1997 1996
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ (952,000) $ (672,000)
Allowance for doubtful accounts (68,000) (65,000)
Deferred revenue (22,000) (9,000)
Building and land writedown (791,000) (791,000)
Accrued liabilities (42,000) (63,000)
State taxes and other (58,000) (57,000)
Total deferred tax assets (1,933,000) (1,657,000)
Deferred tax liabilities:
Tax over book depreciation 535,000 521,000
Net capitalized software costs 387,000 362,000
Other 41,000 43,000
Total deferred tax liabilities 963,000 926,000
Less valuation allowance 970,000 731,000
Net deferred tax assets $ 0 $ 0
</TABLE>
At January 31, 1997 and 1996, the Company had net operating loss
carryforwards of approximately $2,506,000 and $1,767,000,
respectively, which begin to expire 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.
<PAGE>
Note 6 - 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 amount of principal maturities
for the years subsequent to January 31, 1997, are:
Principal
Fiscal Year Maturities
1998 $76,429
1999 $84,015
2000 $92,353
2001 $23,193
Note 7 - 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 $560,000, 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 8 - Shareholders' Equity
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, respectively, of its Common Stock
for purchase by its employees pursuant to the terms of these plans.
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, 1997, 919,475 shares of the Company's Common Stock had been sold
pursuant to these plans.
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, 1997, there were no
shares available for future grant.
<PAGE>
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, 1997,
there were no 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 canceled.
Stock-Based Compensation
Effective in 1997, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123
(FAS 123), _Accounting for Stock-Based Compensation._ As permitted
under FAS 123, the Company will continue to measure stock-based
compensation cost using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, _Accounting for Stock
Issued to Employees_ (APB 25), and related Interpretations.
Accordingly, compensation cost for stock options is measured as the
excess, if any, of the quoted market price of the Company's capital
stock at the grant date over the amount the employee must pay for the
stock.
FAS 123 requires disclosure of pro forma net income (loss) and
pro forma net income (loss) per common share as if the fair value-
based method had been applied in measuring compensation cost of
stock-based awards granted in fiscal 1997 and 1996. Management
believes that 1997 and 1996 pro forma amounts are not representative
of the effects of stock-based awards on future pro forma net income
(loss) and pro forma net income (loss) per share because those pro
forma amounts exclude the pro forma compensation expense related to
unvested stock options granted before fiscal 1996.
Reported and pro forma net (loss) income and net (loss) income
per share amounts for the fiscal year ended January 31, 1997 and
1996, respectively, are set forth below:
1997 1996
Reported
Net (loss) income $(668,205) $664,117
Net (loss) income per share $ (0.11) $ 0.11
Pro forma (unaudited)
Net (loss) income $(739,149) $557,915
Net (loss) income $ (0.12) $ 0.09
<PAGE>
During fiscal 1997 and 1996, the fair values of the options
granted were estimated on the date of their grant using the Black-
Scholes option-pricing model based on the following weighted average
assumptions:
1997 1996
Risk free interest rate 6% 6%
Expected life 5 years 5 years
Expected volatility 60% 60%
Expected dividend yield 0% 0%
<TABLE>
Stock option activity for 1997 and 1996 is set forth below:
1997 1996
Weighted Weighted
Average Average
Options Exercise Options Exercise
Price Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 609,346 $ 1.65 488,467 $ 2.05
Granted 70,000 2.90 338,000 1.51
Canceled (192,680) 2.25
Exercised (24,441) 1.46
Outstanding at end of
year 679,346 1.78 609,346 1.65
Exercisable at end of 491,540 1.74 351,700 1.79
year
Weighted average fair
value of options
granted during the
year whose exercise
price equaled
grant price $ 1.65 $0.85
Weighted average fair
value of options
granted during the
year whose exercise
price exceeded
grant price $ 0.65
</TABLE>
<PAGE>
<TABLE>
Stock options outstanding at January 31, 1997:
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Contractual Exercise Exercise
Exercise Price Options Life Price Options Price
<C> <C> <C> <C> <C> <C> <C>
$ 0.69 to$ 1.52 384,211 4.1 years $ 1.30 279,030 $ 1.00
$ 1.53 to$ 2.50 250,135 2.8 years 2.22 212,510 2.10
$ 2.51 to$ 3.50 45,000 6.3 years 3.40
</TABLE>
Note 9 - 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 10 - Commitments and Contingencies
The Company is subject to certain 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 11 - 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, 1997 and 1996, and the results of their operations and their cash
flows for each of the two years in the period ended January 31, 1997,
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
March 25, 1997
<PAGE>
Item 8. Changes In and Disagreements with Accountants 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,
1997 or any subsequent period.
PART III
The information required by Part III is omitted from this
Report and will be included in the registrant's 1997 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 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
The information required by this Item is incorporated by
reference to the information under the heading _Management_ in the
Company's Proxy Statement for its 1997 Annual Meeting.
Item 10. Executive Compensation
The information required by this Item is incorporated by
reference to the information under the heading _Executive
Compensation_ in the Company's Proxy Statement for its 1997 Annual
Meeting.
Item 11. Security Ownership of Certain Beneficial Owners and
Management
The information required by this Item is incorporated by
reference to the information under the heading _Security Ownership_ in
the Company's Proxy Statement for its 1997 Annual Meeting.
Item 12. Certain Relationships and Related Transactions
The information required by this Item is incorporated by
reference to the information under the heading _Executive
Compensation-Employment Agreements_ in the Company's Proxy Statement
for its 1997 Annual Meeting.
PART IV
Item 13. Exhibits 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 24
Consolidated Balance Sheets at
January 31, 1997 and 1996 11
Consolidated Statements of Operations
for the two years ended January 31, 1997 12
Consolidated Statements of Changes in
Shareholders' Equity for the two years
ended January 31, 1997 13
Consolidated Statements of Cash Flows for
the two years ended January 31, 1997 14
Notes to Consolidated Financial Statements 15-23
<PAGE>
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.
10.10*******- Amendment dated July 8, 1989 to CompuTrac,
Inc. Employee Stock Purchase Plan
11.1 - Statement re: Computation of Per Share
Earnings
23.1 - Consent of Independent Accountants
27 - Financial Data Schedule
99 - Annual Report on Form 11-K for the CompuTrac,
Inc. Employee Stock Purchase Plan
<PAGE>
____________
* 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, 1993, 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.
****** 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 exhibit number 28.1 filed
with the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1990, Commission File No. 1-
9115.
Management Contracts and Compensatory Plans
The documents filed as Exhibits 10.1, 10.2, 10.3, 10.4, 10.8,
10.9 and (10.10) constitute management contracts or compensatory plans
or arrangements within the meaning of SEC rules.
(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, 1997.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the registrant 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, 1997
In accordance with the Exchange Act, 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 April 23, 1997
Harry W. Margolis Directors and
Chief Executive Officer
/S/ George P. McGraw President April 23, 1997
George P. McGraw (Principal Operating Officer)
/S/ Cheri L. White Vice President - Finance April 23, 1997
Cheri L. White and Chief Financial Officer
(Principal Financial and
Accounting Officer)
/S/ Dana E. Margolis Secretary, Treasurer April 23, 1997
Dana E. Margolis and Director
/S/ Cesar L. Alvarez Director April 23, 1997
Cesar L. Alvarez
/S/ Kenneth R. Nicholas Director April 23, 1997
Kenneth R. Nicholas
/S/ Gerald D. Harris Director April 23, 1997
Gerald D. Harris
<PAGE>
<TABLE>
EXHIBIT 11.1
COMPUTRAC, INC.
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<CAPTION>
Year Ended January 31,
1997 1996
<S> <C> <C>
NET (LOSS) INCOME
Net (loss) income $ (668,205) $ 664,117
PRIMARY
Weighted average number of shares
outstanding 6,206,841 6,071,436
Issuance of common stock 30,450 68,608
Common stock equivalents 70,120
6,237,291 6,210,164
Earnings Per Share:
Net (loss) income $ (0.11) $ 0.11
FULLY DILUTED
Weighted average number of shares
outstanding 6,206,841 6,071,436
Issuance of common stock 30,450 68,608
Common stock equivalents 135,342
6,237,291 6,275,386
Earnings Per Share:
Net (loss) income $ (0.11) $ 0.11
</TABLE>
<PAGE>
CompuTrac, Inc.
Exhibit 23.1 - Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 (Nos. 33-40732; 33-40734; 33-
02906; 33-07319; 33-61577) of CompuTrac, Inc. of our report dated
March 25, 1997 appearing on page 24 of this annual report on Form
10-KSB.
PRICE WATERHOUSE LLP
Dallas, Texas
April 25, 1997
<PAGE>
<TABLE>
COMPUTRAC, INC.
FINANCIAL DATA SCHEDULE
<CAPTION>
Year Ended
January 31, 1997
<S> <C>
Fiscal Year End 01/31/97
Period End 01/31/97
Period Type YEAR
Cash $ 449,304
Securities $ 4,334,869
Receivables $ 902,683
Allowances $ 180,000
Inventory 0
Current Assets $ 5,933,651
PP&E $ 13,493,493
Depreciation $ 9,975,120
Total Assets $ 9,881,922
Current Liabilities $ 716,346
Bonds $ 199,561
Preferred - Mandatory 0
Preferred 0
Common $ 69,887
Other SE $ 8,896,128
Total Liabilities and Equity $ 9,881,922
Sales $ 514,830
Total Revenue $ 4,648,378
CGS $ 355,730
Total Costs $ 652,851
Other Expenses $ 4,884,475
Loss Provision 0
Interest Expense $ 43,970
Income - pretax $ (668,205)
Income - tax 0
Income - continuing $ (668,205)
Discontinued 0
Extraordinary 0
Changes 0
Net Income $ (668,205)
EPS - Primary $ (0.11)
EPS Diluted $ (0.11)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-END> JAN-31-1997
<CASH> 449,304
<SECURITIES> 4,334,869
<RECEIVABLES> 902,683
<ALLOWANCES> 180,000
<INVENTORY> 0
<CURRENT-ASSETS> 5,933,651
<PP&E> 13,493,493
<DEPRECIATION> 9,975,120
<TOTAL-ASSETS> 9,881,922
<CURRENT-LIABILITIES> 716,346
<BONDS> 199,561
0
0
<COMMON> 69,887
<OTHER-SE> 8,896,128
<TOTAL-LIABILITY-AND-EQUITY> 9,881,922
<SALES> 514,830
<TOTAL-REVENUES> 4,648,378
<CGS> 355,730
<TOTAL-COSTS> 652,851
<OTHER-EXPENSES> 4,884,475
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,970
<INCOME-PRETAX> (668,205)
<INCOME-TAX> 0
<INCOME-CONTINUING> (668,205)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (668,205)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
Exhibit 99
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 11-K
Annual Report Pursuant to Section 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
COMPUTRAC, INC. EMPLOYEE STOCK PURCHASE PLAN
1991 COMPUTRAC, INC. EMPLOYEE STOCK PURCHASE PLAN
(Full title of the plans)
COMPUTRAC, INC.
(Name of issuer of the securities held pursuant to the plans)
COMPUTRAC, INC., 222 MUNICIPAL DRIVE, RICHARDSON, TEXAS 75080
(Address of principal executive office)
<PAGE>
Item 1. Changes in the Plans
There were no material changes in the provisions of the
plans during the year ended December 31, 1996.
Item 2. Changes in Investment Policies
There were no changes in the investment policies of the
plans during the year ended December 31, 1996.
Item 3. Contributions Under the Plans
The Company's contributions are not discretionary and are a
specified percentage of the employee's contributions.
Item 4. Participating Employees
There were 19 participating employees as of December 31,
1996.
Item 5. Administration of the Plans
(a) The plans are administered by a committee designated by
the Board of Directors and composed of the following
members:
Name and Address Position Position with Issuer
Harry W. Margolis Member Chairman of the Board
222 Municipal Drive and Director
Richardson, TX 75080
Cheri L. White Member Vice President of Finance
222 Municipal Drive
Richardson, TX 75080
(b) No member of the committee received any compensation
from the plans during the year ended December 31,
1996.
<PAGE>
Item 6. Custodian of Investments
(a) Alliance Trust Company is the custodian of investments.
The address of Alliance is, 4835 LBJ Freeway, Suite
632, Dallas, Texas 75244.
(b) The plans paid no compensation to the custodian for
service in any capacity for the year ended December 31,
1996.
Item 7. Reports to Participating Employees
During the year ended December 31, 1996, the plans provided
participants with a quarterly statement of activity, as well
as an annual report of the individual account activity.
Item 8. Investment of Funds
No substantial part of the assets of the plans are invested
in securities other than the Registrant's.
Item 9. Financial Statements and Exhibits
(a) Financial Statements:
Page
Statements of Net Assets Available for Plan
Benefits - December 31, 1996 and 1995 4
Statement of Changes in Net Assets Available
for Plan Benefits for the three years ended
December 31, 1996 5
Notes to Financial Statements 6
(b) Exhibits:
None
<PAGE>
<TABLE>
COMPUTRAC, INC.
EMPLOYEE STOCK PURCHASE PLANS
Statement of Net Assets Available for Plan Benefits
(unaudited)
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Assets:
Cash $ 18 $ 11,999
Common stock of CompuTrac, Inc., 19,993 and 71,931
shares in 1996 and 1995, respectively, at
market, cost was $50,681 and $111,115,
respectively 42,485 179,828
Total assets 42,503 191,827
Liabilities:
Common stock purchases payable 10,164 19,228
Total liabilities 10,164 19,228
Net assets available for plan benefits $ 32,339 $ 172,599
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
COMPUTRAC, INC.
EMPLOYEE STOCK PURCHASE PLANS
Statement of Changes in Net Assets Available for Plan Benefits
(unaudited)
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Net assets available for plan
benefits, January 1 $ 172,599 $ 27,118 $ 141,291
Additions:
Employer cash contributions 30,238 37,038 31,545
Employee cash contributions 90,793 111,125 22,200
Other miscellaneous receipts 21 867 1,880
Unrealized (depreciation) appreciation
of common stock of CompuTrac, Inc. (20,733) 165,961 14,202
Total additions 100,319 314,991 69,827
Deductions:
Distributions to participants 236,238 169,510 181,628
Other distributions 4,341 0 2,372
Total deductions 240,579 169,510 184,000
Net assets available for plan
benefits, December 31 $ 32,339 $ 172,599 $ 27,118
<FN>
See accompanying notes to financial statements.
</TABLE>
<PAGE>
COMPUTRAC, INC.
EMPLOYEE STOCK PURCHASE PLANS
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) CompuTrac, Inc. (the "Company") established the Employee Stock
Purchase Plans to provide its employees with an employee benefit plan
whereby its employees can participate in the equity and growth of the
Company.
(B) The investment in common stock of the Company is stated at market
value based upon the closing sales prices as transacted on the
American Stock Exchange. Such closing price was $2.125 and $2.50 per
share at December 31, 1996 and 1995, respectively.
(C) The financial statements have been prepared on the accrual basis
of accounting.
NOTE 2 - THE PLANS:
The Company's Board of Directors adopted the CompuTrac, Inc.
Employee Stock Purchase Plan in December 1985 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 the plans, respectively.
Under the plans, eligible participating employees of the Company can
purchase Common Stock from the Company through salary withholding.
The plans are not subject to the provisions of the Employee Retirement
Income Security Act of 1974, nor are they intended to qualify for
special tax treatment under Section 401 (a) of the Internal Revenue
Code. The Company filed Registration Statements in January 1986, and
May 1991 and August 1995 covering stock that can be purchased under
the plans.
Each participating employee may elect to have an amount up to,
but not in excess of, 10% of his or her regular salary or wages
withheld for the purpose of purchasing the Company's Common Stock. On
each monthly stock purchase date, the Company contributes to each
participating employee's account an amount equal to 33 1/3% of the
aggregate contributions of such participant since the immediately
preceding stock purchase date, and funds then accumulated in the
participant's account, including the Company's contribution, are used
to purchase authorized but unissued shares of the Common Stock of the
Company. Any funds remaining in the participant's account after the
purchase of the maximum number of full shares of Common Stock are
retained in the participant's account and treated as part of the
accumulation for the next succeeding calendar month.
<PAGE>
The purchase price of the Common Stock purchased pursuant to the
plans is the lesser of the average of the closing sales prices during
the preceding calendar month or the average of the closing sales
prices for the last five trading days preceding the stock purchase
date. No fees, commissions, or other charges are paid by, or
otherwise charged to, the participants or their accounts in connection
with the purchase of Common Stock under the plans. All expenses of
administering the plans are paid by the Company.
All Common Stock of the Company purchased by the participating
employees pursuant to the plans may be voted by the employee or as
directed by the employee.
The Employee Stock Purchase Plans do not discriminate, in scope,
terms, or operation, in favor of officers or directors of the Company
and are available, subject to the eligibility rules of the plans, to
all employees of the Company on the same basis.
NOTE 3 - FEDERAL INCOME TAXES:
The Employee Stock Purchase Plans are not subject to federal
income taxes. Under current federal income tax law, the difference
between the fair market value of the shares acquired under the plans,
and the amount contributed by the employee is treated as ordinary
income to the employee for federal income tax purposes. Accordingly,
the Company withholds all applicable taxes from the participating
employee's salary. The fair market value of the shares is determined
as of the stock purchase date. The plans are not intended to qualify
for special tax treatment under Section 401 (a) of the Internal
Revenue Code.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the trustees have duly caused this annual report to be signed by
the undersigned, thereunto duly authorized.
COMPUTRAC, INC. EMPLOYEE STOCK PURCHASE PLAN
1991 COMPUTRAC, INC. EMPLOYEE STOCK PURCHASE PLAN
By: ______________________________
Cheri L. White
Vice President of Finance
Date: April 28, 1997
