______________________________________________________________________
______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
FORM 10-QSB
[X] Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended July 31, 1998
OR
[ ] Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission file number 1-9115
COMPUTRAC, INC.
(Exact name of small business issuer as specified in its charter)
TEXAS 75-1540265
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
222 Municipal Drive
Richardson, Texas 75080
(Address of principal executive offices)
Telephone No. (972) 234-4241
________________
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 _____
As of August 29, 1998 there were 6,229,438 shares of the registrant's
$.01 par value common stock outstanding.
Transitional Small Business Disclosure Format (Check One): Yes ___
No X
______________________________________________________________________
______________________________________________________________________
<PAGE>
CompuTrac, Inc.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets (unaudited) -
July 31, 1998 and January 31, 1998 3-4
Consolidated Statements of Operations
(unaudited) - Three-month and six-month
periods ended July 31, 1998 and 1997 5
Consolidated Statements of Cash Flows
(unaudited) - Six-month period ended
July 31, 1998 and 1997 6-7
Notes to Consolidated Financial Statements
(unaudited) 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-11
Item 3. Exhibit I - Annual Report to Shareholders
for the fiscal year ended January 31, 1998
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
12
Item 6(a) Exhibits 12
Item 6(b) Reports on Form 8-K 12
Signatures 13
______
Note: Items 1 through 3 and Item 5 of Part II are omitted because
they are not applicable.
<PAGE>
<TABLE>
CompuTrac, Inc.
CONSOLIDATED BALANCE SHEETS (unaudited)
ASSETS
<CAPTION>
July 31, January 31,
1998 1998
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 202,421 $ 558,818
Short-term investments 2,880,986 3,226,330
Accounts receivable, net of allowance for
doubtful accounts of $110,000 and $100,000,
respectively 582,384 513,744
Other current assets 331,968 335,485
----------- ----------
Total current assets 3,997,759 4,634,377
Property, furniture and equipment, net of
accumulated depreciation of $8,214,747 and
$8,059,618, respectively 1,370,173 1,476,824
Land held for sale 254,122 254,122
Capitalized software, net of accumulated
amortization of $2,967,615 and $2,782,083,
respectively 1,913,278 1,833,938
Other assets 484,089 470,799
----------- ----------
Total assets $8,019,421 $ 8,670,060
=========== ===========
See accompanying Notes to Financial Statements (unaudited) and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
<PAGE>
<TABLE>
CompuTrac, Inc.
CONSOIDATED BALANCE SHEETS (unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
July 31, January 31,
1998 1998
------------ -----------
<S> <C> <C>
Current liabilities:
Accounts payable $ 103,058 $ 183,330
Accrued expenses 219,562 218,331
Accrued contract completion costs - 10,000
Deferred systems revenues 184,479 99,006
Current portion of mortgage payable 88,085 84,015
------------ -----------
Total current liabilities 595,184 594,682
Long-term portion of mortgage payable 70,461 115,546
------------ -----------
Total liabilities 665,645 710,228
------------ -----------
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 69,887 69,887
Additional paid-in capital 9,603,212 9,718,527
Retained earnings (accumulated deficit) (102,479) 460,507
------------ -----------
9,570,620 10,248,921
Less: treasury shares, at cost, 759,268 and
711,008 shares, respectively (2,216,844) (2,289,089)
------------ -----------
Total shareholders' equity 7,353,776 7,959,832
------------ -----------
Total liabilities and shareholders' equity $8,019,421 $8,670,060
============ ===========
See accompanying Notes to Financial Statements (unaudited) and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
<PAGE>
<TABLE>
CompuTrac, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<CAPTION>
Three-month period Six-month period
ended July 31, ended July 31,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<C> <C> <C> <C>
Revenues:
System sales $ 166,290 $ 570,604 $ 307,213 $ 713,614
Services and support 969,471 1,027,247 1,896,095 1,997,581
---------- ---------- ---------- ---------
1,135,761 1,597,851 2,203,308 2,711,195
---------- ---------- ---------- ---------
Costs and expenses:
Cost of system sales 72,830 447,908 151,367 525,654
Cost of services and support 76,830 80,160 150,022 151,335
Amortization of capitalized
software 92,766 144,012 185,532 288,856
Operating expenses 343,287 313,974 628,107 584,914
Selling, general and
administrative expenses 787,386 710,026 1,511,386 1,429,918
Software research and
development costs 107,643 88,963 221,558 175,872
--------- --------- --------- ---------
1,480,742 1,785,043 2,847,972 3,156,549
--------- --------- --------- ---------
Loss (344,981) (187,192) (644,664) (445,354)
Interest income, net 38,194 59,351 81,678 125,946
--------- --------- --------- ---------
Net loss $(306,787) $(127,841) $(562,986) $(319,408)
========== ========== ========== ==========
Loss per share - basic and
diluted $ (0.04) $ (0.02) $ (0.09) $ (0.05)
========== ========== ========== ==========
Weighted average number of
common shares - basic and
diluted 6,226,121 6,299,288 6,280,880 6,286,732
========== ========== ========== ==========
See accompanying Notes to Financial Statements (unaudited) and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
</TABLE>
<PAGE>
<TABLE>
CompuTrac, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six-month period
ended July 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(562,986) $ (319,408)
Adjustments to reconcile net loss to net
cash (used in)provided by operating
activities:
Depreciation of property, furniture and
equipment 156,026 222,293
Amortization of capitalized software costs 185,532 288,856
Changes in operating assets and liabilities:
Accounts receivable (68,640) 128,739
Other current assets 3,517 21,941
Other assets (13,290) (21,396)
Accounts payable and accrued expenses (89,041) (89,908)
Deferred systems revenues 85,473 (4,050)
----------- -----------
Net cash (used in) provided by operating
activities $(303,409) $ 227,067
----------- -----------
See accompanying Notes to Financial Statements (unaudited) and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
</TABLE>
<PAGE>
<TABLE>
CompuTrac, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(unaudited)
<CAPTION>
Six-month period
ended July 31,
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from investing activities:
Additions to property, furniture and equipment $(53,070) $(205,653)
Additions to capitalized software (264,872) (400,000)
Sale of certificates of deposit 2,000 282,000
Sale of U.S. Treasury Bills 343,344 325,772
Other 3,695 -
---------- ----------
Net cash provided by investing activities 31,097 2,119
---------- ----------
Cash flows from financing activities:
Issuance of treasury shares 37,060 57,754
Principal payments of mortgage note payable (41,015) (37,311)
Purchase of treasury shares (80,130) -
---------- ----------
Net cash (used in) provided by financing
activities (84,085) 20,443
---------- ----------
Net (decrease) increase in cash (356,397) 249,629
========= =========
Cash and cash equivalents at beginning of
period 558,818 449,304
---------- ----------
Cash and cash equivalents at end of period $202,421 $ 698,933
========= =========
Supplemental disclosures of cash flow
information:
Interest paid $ 8,934 $ 12,431
Income taxes paid - -
See accompanying Notes to Financial Statements (unaudited) and
Management's Discussion and Analysis of Financial Condition and Results
of Operation.
</TABLE>
<PAGE>
CompuTrac, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The unaudited consolidated financial information furnished herein
reflects all adjustments which in the opinion of management are
necessary to fairly state the Company's financial position, the
changes in its financial position and the results of its
operations for the periods presented. This report on Form 10-QSB
should be read in conjunction with the Company's consolidated
financial statements and notes thereto included on pages 15
through 23 of the Company's Annual Report on Form 10-KSB for the
fiscal year ended January 31, 1998. The Company presumes that
users of the interim financial information herein have read or
have access to the audited financial statements for the preceding
fiscal year and that the adequacy of additional disclosure needed
for a fair presentation may be determined in that context.
Accordingly, footnote disclosure which would substantially
duplicate the disclosure contained in the Company's Annual Report
on Form 10-KSB for the fiscal year ended January 31, 1998 has
been omitted. The results of operations for the three and six-
month periods ended July 31, 1998 are not necessarily indicative
of results for the entire year ending January 31, 1999.
<PAGE>
CompuTrac, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Consolidated Operations
Total revenues from operations decreased $462,090, or 29%, from
$1,597,851 for the quarter ended July 31, 1997 to $1,135,761 for the
current quarter ended July 31, 1998. For the six month period ended
July 31,1998, operating revenues decreased $507,887, or 19% from
$2,711,195 at July 31, 1997 to $2,203,308 at July 31, 1998. System
sales revenues decreased $404,314, or 71% from $570,604 for the
quarter ended July 31, 1997 to $166,290 for the current quarter ended
July 31, 1998. For the six months ended July 31, 1998, system sales
decreased $406,401, or 57%, from $713,614 at July 31, 1997 to $307,213
at July 31, 1998. In January 1998, the Company announced the release
of its CompuTrac LFMS for Windows software products. During the six
months ended July 31, 1998, the Company has sold approximately $69,700
in CompuTrac LFMS for Windows software systems. The Company believes
that an estimated six month sales cycle has contributed to the delay
in system sales for the first half of its current fiscal year.
Services and support revenues decreased $57,776, or 6%, from
$1,027,247 for the quarter ended July 31, 1997, to $969,471 for the
current quarter ended July 31, 1998. For the six month period,
services and support revenues decreased $101,486, or 5%, from
$1,997,581 at July 31, 1997 to $1,896,095 at July 31, 1998. The
decrease in services and support revenues relates primarily to reduced
maintenance revenues associated with maintenance contract
cancellations and overall reduced services and support revenues due to
diminished new sales activities for the first half of the current
fiscal year as compared to the comparable prior six month period.
Cost of system sales as a percentage of system sales revenue
was 44 % for the quarter ended July 31, 1998 versus 78% for the
quarter ended July 31, 1997. The higher costs in the 1997 comparable
three month period were due to a significant number of upgrade sales,
which have a lower gross margin than the Company's software products.
In addition, the Company recognized approximately $51,000 in LFMS for
Windows software sales in the current three month period, having a
minimal cost attached to the software. Cost of services and support
as a percentage of services and support revenues remained at 8% for
both quarterly periods. Cost of services and support is primarily
comprised of personnel costs directly associated with the performance
of client services and certain third party costs associated with
maintenance revenue included in services and support revenue.
Amortization of capitalized software decreased $51,246, or 36%,
from $144,012 for the quarter ended July 31, 1997, to $92,766 for the
current quarter ended July 31, 1998. For the six month period,
amortization of capitalized software decreased $103,324 or 36%, from
$288,856 at July 31, 1997 to $185,532 for the current six month
period. The decrease in amortization expense was related to various
capitalized software products becoming fully amortized during fiscal
1998.
Operating expenses rose $29,313, or 9% from $313,974 for the
three month period ended July 31, 1997, to $343,287 for the current
three month period. For the six months ended July 31, 1998, operating
expenses increased $43,193, or 7% from $584,914 for the six months
ended July 31, 1997 to $628,107 for the six months ended July 31,
1998. Selling, general and administrative expenses increased $77,360,
or 11%, from $710,026 for the three month period ended July 31, 1997,
<PAGE>
to $787,386 for the current three month period. For the six month
period, selling, general and administrative expenses increased $81,468
or 6%, from $1,429,918 at July 31, 1997 to $1,511,386 for the current
six month period. The increase in selling, general and administrative
expenses in the current six month period was primarily due to a salary
accrual for severance compensation on a former employee, payable
through the end of calendar year 1998.
Software research and development costs rose $18,680, or 21%,
from $88,963 for the three month period ended July 31, 1997 to
$107,643 for the current three month period. For th e six months
ended July 31, 1998, software research and development costs
rose $ 45,686, or 26%, from $175,872 at July 31, 1997, to $221,558
for the current six month period. The increase in software research
and development costs during the first half of the current fiscal year
compared to the prior comparable fiscal period primarily relates to
research and development costs associated with software products not
qualifying for capitalization during the quarter. The Company will
capitalize those costs associated with continued enhancements and
improvements to the CompuTrac LFMS for Windows software product line.
Those software costs not qualifying for capitalization will be
expensed when incurred.
Net interest income decreased $21,157, or 36%, from $59,351 for the
three month period ended July 31, 1997, to $38,194 for the current
three month period. Interest income was primarily comprised of
interest earnings from investments in U.S. Treasury Bills, money
market and certificate of deposit accounts. The decrease in interest
earnings over the prior comparable quarter was primarily due to the
Company utilizing investment earnings to meet current working capital
requirements. Until the Company is able to improve its cash flow from
operations, invested funds will continue to be utilized to meet the
Company's short-term working capital obligations.
Recent Accounting Pronouncements
In 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. The provision of SFAS No. 130 established new rules for the
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. The new rules require
that all items that are recognized under accounting standards as
components of comprehensive income be reported in a financial statement
that is displayed with the same prominence as other financial
statements. The Company adopted SFAS No. 130 in fiscal 1999. The
adoption of SFAS No. 130 required no additional disclosure for the
Company and did not have a material effect on the Company's financial
position or results of operations.
In 1997, the FASB issued SFAS No. 131, Disclosures About Segments
of an Enterprise and Related Information. The provisions of SFAS No.
131 require public companies to use a management approach to determining
their operating segments. This management approach model defines
operating segments as revenue-producing components of the enterprise for
which separate financial information is produced internally and are
subject to evaluation by the chief operating decision maker in deciding
how to allocate resources to segments. SFAS No. 131 also expands the
financial and descriptive information disclosures relative to the
identified operating segments. The Company adopted SFAS NO. 131 in
fiscal 1999. The adoption of SFAS No. 131 required no additional
disclosure for the Company and did not have a material effect on the
Company's financial position or results of operations.
<PAGE>
Fluctuations in Interim Period Operating Results
Management 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 systems sales, revenues and net income. Recent
operating revenues of the Company have primarily been derived from
services 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, as well as the policy of the Company of recognizing
revenue upon delivery of the hardware, 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 have not occurred or
been 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 used in operating activities was $303,409 for the
six months ended July 31, 1998 compared to cash provided by operating
activities of $227,067 for the prior comparable six month period. The
increase in cash used in operating activities during the current six
month period compared to the prior comparable six month period was due
to a higher net loss in the current six month period, a net decrease
in non-cash items and a net decrease in working capital over the prior
comparable six month period. Net cash provided by investing
activities was $31,097 for the current six month period, versus $2,119
in the prior comparable six month period. The increase in cash
provided by investing activities was due to fewer additions to
property, furniture and equipment and capitalized software during the
current six month period as compared to the comparable prior six month
period. This increase was partially offset by a decrease in sales of
investments in certificates of deposit and U.S. Treasury Bills over
the prior six month period. Net cash used in financing activities was
$84,085 for the six month period ended July 31, 1998 compared to cash
provided by financing activities of $20,443 for the prior comparable
six month period. The increase in cash used in financing activities
over the prior comparable six month period was primarily due to the
Company's purchase of $80,130 in treasury shares in the current six
month period.
<PAGE>
PART II. OTHER INFORMATION
Items 1 through 3 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of CompuTrac, Inc. was held on
July 15, 1998. The record date for stockholders entitled to notice
of, and to vote at, the meeting was May 29, 1998. The purpose of the
meeting was to elect five directors for the ensuing year and to
transact such other business as might properly come before the meeting
or any adjournment thereof.
At the meeting, the following matters were submitted to and
approved by the shareholders:
(1) The stockholders elected the persons set forth in the table
below to serve as directors of the Company until the next Annual
Meeting of Stockholders and until their successors have been elected
and qualified:
Nominee Votes For Votes Withheld
Harry W. Margolis 5,164,928 6,550
Dana E. Margolis 5,156,613 14,865
Kenneth R. Nicholas 5,163,128 8,350
Gerald D. Harris 5,162,928 8,550
D. Bruce Walter 5,171,478 -0-
Item 5 is not applicable.
Item 6(a): Exhibits
Exhibit 11 (Page 14-15) - Computation of Earnings per Common and
Common Equivalent Share during the three-month and six-month periods
ended July 31, 1998 and 1997.
Item 6(b): Reports on Form 8-K
No reports on form 8-K have been filed during the quarter ended
July 31, 1998.
<PAGE>
CompuTrac, Inc.
SIGNATURES
Pursuant to the requirements 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.
Date: September 11, 1998
/s/ CompuTrac, Inc.
------------------
(Registrant)
/s/ Harry W. Margolis
------------------
Harry W. Margolis
Chief Executive Officer
(Principal Executive Officer)
/s/ D. Bruce Walter
------------------
D. Bruce Walter
President
(Principal Operating Officer)
/s/ Shawn E. Anderson
------------------
Shawn E. Anderson
Controller
(Principal Accounting Officer)
<PAGE>
CompuTrac, Inc.
FINANCIAL DATA SCHEDULE
<TABLE>
Year Ended
January 31, 1999
<S> <C>
Fiscal Year End 01/31/99
Period End 07/31/98
Period Type 3-MOS
Cash $ 202,421
Securities $ 2,880,986
Receivables $ 692,384
Allowances $ 110,000
Inventory 0
Current Assets $ 3,997,759
PP&E $14,719,935
Depreciation $11,182,362
Total Assets $ 8,019,421
Current Liabilities $ 595,184
Bonds $ 70,461
Preferred - Mandatory 0
Preferred 0
Common $ 69,887
Other SE $ 7,283,889
Total Liabilities and Equity $ 8,019,421
Sales $ 1,135,761
Total Revenue $ 1,135,761
CGS $ 149,660
Total Costs $ 149,660
Other Expenses $ 1,331,082
Loss Provision 0
Interest Expense $ 8,934
Income - pretax $ (306,787)
Income - tax 0
Income - continuing $ (306,787)
Discontinued 0
Extraordinary 0
Changes 0
Net Income $ (306,787)
EPS - Primary $ (0.04)
EPS Diluted $ (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JUL-31-1998
<CASH> 202,421
<SECURITIES> 2,880,986
<RECEIVABLES> 692,384
<ALLOWANCES> 110,000
<INVENTORY> 0
<CURRENT-ASSETS> 3,997,759
<PP&E> 14,719,935
<DEPRECIATION> 11,182,362
<TOTAL-ASSETS> 8,019,421
<CURRENT-LIABILITIES> 595,184
<BONDS> 70,461
0
0
<COMMON> 69,887
<OTHER-SE> 7,283,889
<TOTAL-LIABILITY-AND-EQUITY> 8,019,421
<SALES> 1,135,761
<TOTAL-REVENUES> 1,135,761
<CGS> 149,660
<TOTAL-COSTS> 149,660
<OTHER-EXPENSES> 1,331,082
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,934
<INCOME-PRETAX> (306,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (306,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (306,787)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
