<PAGE> 1
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, 1999
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 [X]
The issuer's revenues for the fiscal year ended January 31, 1999 were
$4,911,609.
As of April 26, 1999, the aggregate market value of the voting stock held by
non-affiliates of the issuer was $4,587,584.
As of April 26, 1999, the number of shares outstanding of the issuer's common
stock was 6,401,774.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the issuer's Proxy Statement for the issuer's 1999 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]
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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 for medium size law firms (21 to 50
timekeepers) and large size law firms (51 plus timekeepers). 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 law firm (up to 20 timekeepers) to $650,000 or
more for an integrated system for accounting and practice support applications
for a large law firm. All of the systems marketed by the Company are 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 systems provide the
Company with a continuing source of revenue during the term of the agreement.
LAW FIRM MANAGEMENT SYSTEM
Software which enables law firms to more efficiently perform and
evaluate administrative and business functions constitutes the Company's
principal products. These products are called the Law Firm Management System
("LFMS"). The Company's earlier generation products, designed for medium to
large law firms, run 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 Netware(R), Banyan Vines(TM), and Microsoft NT, thus
enabling a law firm to upgrade its computer hardware without having to replace
its operating system software. The Company's software applications run in
several different operating system environments, including UNIX, MPE/iX(R)
(native HP), MS-DOS(R), Windows(R) 95 and Windows NT. The Company's emerging
product line is a next generation time and billing system designed for small and
medium size law firms CompuTrac LFMS for Windows. This product, which was
introduced in January 1998, is a client/server software system created
exclusively with Microsoft(R) development tools operating on micro-computers
with 32-bit Windows(R) 95 or Windows NT(R) operating environments.
The core of the Company's 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 included within the LFMS software system 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
business environment.
Additionally, the CompuTrac LFMS for Windows products provide the
ability for small and medium size law firms to manage their business using
professional business products. These products were created exclusively with
Microsoft development tools such as MSAccess, SQL-Server, C++, OLE and ODBC. Use
of these products allow law firms to integrate with 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 as Microsoft Word files to forward to the client
via the Internet.
INTELLECTUAL PROPERTY RIGHTS
The Company regards all of its software products as proprietary. The
Company does not sell or transfer title to its software. 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 at one or more designated computer sites. 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
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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 the successful development and marketing of new products.
HARDWARE
The earlier generation 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 CompuTrac LFMS for Windows client/server software version was
designed to be installed on personal computers connected through a Microsoft or
Novell network environment.
MARKETING
The Company markets its products through presentations at state,
regional and national conferences of lawyers, law firm administrators and
information system managers. The Company also advertises in regional and
national publications and engages in telemarketing and direct mail campaigns
focused on the legal market. During fiscal 1999 and 1998, the Company expended
approximately $41,000 and $366,000 in its marketing and advertising efforts to
promote its products.
The CompuTrac LFMS for Windows products offer a significantly expanded
potential market to the Company. With the LFMS earlier generation products,
market focus historically concentrated on medium and large size law firms. In
their current release, the CompuTrac LFMS for Windows products are designed to
meet the needs of small and medium size law firms. Subsequent releases will
again accommodate the requirements of larger law firms.
MAINTENANCE, INSTALLATION AND TRAINING
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 by Company
personnel.
The CompuTrac LFMS for Windows software products are installed by
Company representatives on personal computers located at the law firm client
site. Customer training on the products is conducted either on-site at the law
firm office or at the Company's training center located at the Company's
corporate offices in Richardson, Texas. All training is conducted by trained
Company personnel. Additionally, law firm personnel utilize computer-based
training tutorials developed by the Company for selected software modules within
the CompuTrac LFMS for Windows suite of products.
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. 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 its competitors.
EMPLOYEES
As of March 31, 1999, the Company employed 57 full-time employees and 2
part-time employees of which 36 employees provided technical support and product
development services, 9 were engaged in sales and marketing and 14 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.
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RESEARCH AND DEVELOPMENT
During each of the two years ended January 31, 1999 and 1998, the
Company expended approximately $1.2 million on software research, development
and production costs. Net software research, development and production
expenses, after capitalization of certain software development costs, amounted
to $673,000 for the fiscal year ended January 31, 1999, and $451,000 for the
fiscal year ended January 31, 1998. The Company anticipates its expenditures for
research, development and production in fiscal 2000 will approximate current
levels.
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
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 products; the development of 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;
and adverse changes in economic conditions in the legal profession or the
economy generally. The Company has recently begun selling and installing its new
CompuTrac LFMS for Windows software products and there can be no assurance that
the CompuTrac LFMS for Windows products will be successful in competing with
competitors' software products in the law firm management software market. The
Company undertakes no obligation to update publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
YEAR 2000 ISSUES
The Company is aware of the issues related to the programming code in
existing computer systems as the year 2000 approaches. The issue is whether new
or existing computer systems will correctly recognize date sensitive information
when the year rolls over to 2000. Obviously, systems that do not correctly
recognize this information could create data errors or even cause a system to
fail. The Company relies on its internal systems in operating and monitoring all
aspects of its business. The Company also relies on the external systems of its
vendors, customers and other organizations with which it does business.
Management has taken action to ensure both the internal readiness of its
computer systems and the compliance of computer products and software sold by it
to customers for handling dates beginning in the year 2000. The Company has not,
and does not anticipate that, it will incur significant expense or be required
to invest heavily in computer systems improvements to be year 2000 compliant. To
date, no material issue has been identified as a result of the Company's efforts
to identify year 2000 issues. However, despite the Company's efforts thus far to
address year 2000 compliance, the Company cannot guarantee that all internal or
external systems will be compliant, or that its business will not be materially
adversely affected by any such non-compliance.
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. At January 31, 1999, these facilities were subject to a mortgage
note payable with a remaining balance of approximately $115,000. The Company
believes its current facility is of adequate size for the conduct its business.
The Company also owns 10.97 acres of undeveloped land located in Frisco, Texas,
which it has listed for sale.
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 827S and one HP
9000 Series 837S. The Company also owns and operates various other peripheral
equipment, including printers, micro-computers, UNIX workstations, scanners and
other equipment.
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ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings. 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, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY 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, 1999, there were approximately 275 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.
<TABLE>
<CAPTION>
Market Price
--------------------
High Low
------- -------
<S> <C> <C>
1998 Fiscal Year:
First Quarter 2 1/4 1 1/8
Second Quarter 1 15/16 1 1/16
Third Quarter 1 5/16 1
Fourth Quarter 1 3/16 11/16
1999 Fiscal Year:
First Quarter 1 1/16 3/4
Second Quarter 1 3/4
Third Quarter 13/16 3/8
Fourth Quarter 1 1/16 7/16
</TABLE>
The closing sales price per share of the Common Stock on the American
Stock Exchange on April 26, 1999 was $1 1/16.
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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>
<CAPTION>
Year Ended January 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Systems sales 19% 20%
Services and support 81 80
----- -----
100 100
Costs and expenses:
Cost of system sales 8 13
Cost of services and support 6 6
Amortization of capitalized software 7 11
Operating expenses 22 23
Selling, general and administrative expenses 59 64
Software research and development costs 14 9
----- -----
116 126
Loss (16) (26)
Interest income, net 3 5
----- -----
Net loss (13)% (21)%
===== =====
</TABLE>
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YEAR ENDED JANUARY 31, 1999 COMPARED TO YEAR ENDED JANUARY 31, 1998
Total revenues rose slightly from $4.8 million in fiscal 1998 to $4.9
million in fiscal 1999, an increase of $95,000, or 2% over the prior fiscal
year. System sales revenues decreased $30,000, or 3% from $959,000 in fiscal
1998 to $929,000 in fiscal 1999. The overall decrease in system sales revenue
was a result of a significantly greater number of client upgrade and peripheral
hardware and software sales activities in fiscal 1998 than in the current fiscal
year. However, the majority of this shortfall was made up by new sales of the
Company's LFMS for Windows product during the fourth quarter of the fiscal year.
Services and support revenues increased 3%, or $125,000 from $3.9
million in fiscal 1998 to just under $4 million in fiscal 1999. Services and
support revenues are comprised of software and hardware maintenance fees,
programming support charges and various other service revenue fees such as
training, installation and conversion revenues. The increase in services and
support revenues in fiscal 1999 is attributable to increased services associated
with new systems sales such as data conversion, training and installation .
Cost of system sales as a percentage of system sales revenues was 41%
in fiscal 1999 compared to 64% in the prior fiscal year. This significant
decrease is associated with a greater mix of LFMS for Windows systems sales in
the current year which do not have any material hardware component. Cost of
services and support as a percentage of services and support revenue decreased
slightly, from 8% in fiscal 1998 to 7% in fiscal 1999. Cost of services and
support is primarily comprised of programming and support staff costs directly
associated with the performance of the requested service and certain third party
costs associated with maintenance fees included in services and support
revenues.
Amortization of capitalized software decreased $160,000, or 30%, from
$531,000 in fiscal 1998 to $371,000 in fiscal 1999. This decrease is associated
with capitalized software development costs during fiscal 1999 not yet subject
to amortization.
Operating expenses decreased $35,000, or 3% from just over $1.1 million
in fiscal 1998 to just under $1.1 million in fiscal 1999. This overall decrease
relates primarily to a decrease in depreciation expense associated with
equipment that was fully depreciated during the prior fiscal year.
Selling, general and administrative expenses decreased $190,000, or 6%,
from $3.1 million in fiscal 1998 to $2.9 million in fiscal 1999. This decrease
was primarily attributable to a decrease in administrative staff and marketing
and advertising expenses during the year.
Software research and development expenses increased $221,000, or 49%
from $451,000 in fiscal 1998 to $673,000 in fiscal 1999. This increase primarily
relates to research and development costs associated with software products not
qualifying for capitalization during the year. The Company will continue to
capitalize those costs associated with continued enhancements and improvements
to the CompuTrac LFMS for Windows software products line.
Net interest income decreased 34%, from $227,000 in fiscal 1998 to
$151,000 in fiscal 1999 due to lower interest rates and fewer funds available
for investment purposes between periods. In fiscal 1998, net interest income was
comprised of approximately $240,000 of interest income, relating primarily to
investment interest income, offset by approximately $23,000 of mortgage interest
expense. In fiscal 1999, net interest income was comprised of approximately
$168,000 of interest income, relating primarily to investment interest income,
offset by approximately $17,000 of non-operating expense of which $15,000 was
mortgage interest expense.
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 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
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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
Cash used in operating activities was $62,000 during fiscal 1999
compared with $11,000 provided by operating activities during fiscal 1998.
Although the Company reduced its net loss for the year, these cash gains were
offset by a net decrease in non-cash expenses and a decrease in cash
attributable to other working capital accounts. Cash provided by investing
activities during fiscal 1999 was $552,000 compared to $139,000 provided during
fiscal 1998. The improvement in cash provided by investing activities was
primarily due to a $388,000 decrease in expenditures for property, furniture and
equipment and capitalized software from the prior fiscal year. Cash used in
financing activities during fiscal 1999 was $47,000 compared with $40,000 used
during fiscal 1998. The increase in cash used in financing activities was
primarily due to an increase in principal payments associated with the Company's
mortgage note payable.
The Company has not made any material commitments for capital
expenditures, however, the Company anticipates continued expenditures will be
made during fiscal 2000 in the areas of development, sales, marketing and
support of its CompuTrac LFMS for Windows software products. Until the Company
is able to generate consistent positive cash flow from operations, these
expenditures will be funded in part by cash flow from investment activities of
the Company.
At January 31, 1999 and 1998, the Company has established a 100%
valuation allowance to fully offset the net deferred tax asset balances of
$1,595,000 and $1,361,000, respectively. Factors considered in management's
assessment that significant uncertainties exist regarding the realization of
these assets include (1) uncertainty regarding the future success and timing of
sales of the Company's new Windows-based products, (2) financial and economic
pressures in the Company's primary customer market (i.e. legal industry) and (3)
historical operating losses over the last several years.
Working capital and the ratio of current assets to current liabilities are
as follows:
<TABLE>
<CAPTION>
Working Current
Capital ratio
---------- --------
<S> <C> <C>
At January 31:
1999 $3,392,738 5.7 to 1
1998 $4,039,695 7.8 to 1
</TABLE>
Current assets consist primarily of cash, short-term investments, accounts
receivable and unbilled revenues from system sales and services.
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Item 7. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,000,959 $ 558,818
Short-term investments 2,092,828 3,226,330
Accounts receivable, net of allowance for doubtful accounts
of $131,000 and $100,000, respectively 672,873 513,744
Other current assets 344,350 335,485
------------ ------------
Total current assets 4,111,010 4,634,377
Property, furniture and equipment, net of accumulated
depreciation of $8,328,136 and $8,059,618, respectively 1,288,679 1,476,824
Land held for resale 254,122 254,122
Capitalized software, net of accumulated
amortization of $3,153,147 and $2,782,083 respectively 1,963,937 1,833,938
Other assets 491,444 470,799
------------ ------------
Total assets $ 8,109,192 $ 8,670,060
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 216,840 $ 183,330
Accrued expenses 100,869 218,331
Accrued contract completion costs 10,000
Deferred systems revenues 308,210 99,006
Short-term portion of mortgage note payable 92,353 84,015
------------ ------------
Total current liabilities 718,272 594,682
Long-term portion of mortgage note payable 23,193 115,546
------------ ------------
Total liabilities 741,465 710,228
------------ ------------
Commitments and contingencies (Note 9)
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 8,782,504 9,718,527
Retained earnings (168,178) 460,507
------------ ------------
8,684,213 10,248,921
Less: treasury shares, at cost, 521,509 and 711,008 shares, respectively (1,316,486) (2,289,089)
------------ ------------
Total shareholders' equity 7,367,727 7,959,832
------------ ------------
Total liabilities and shareholders' equity $ 8,109,192 $ 8,670,060
============ ============
</TABLE>
See accompanying notes to financial statements.
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CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Revenues:
Systems sales $ 928,550 $ 958,714
Services and support 3,983,059 3,857,629
----------- -----------
4,911,609 4,816,343
Costs and expenses:
Cost of system sales 382,968 609,243
Cost of services and support 288,662 294,313
Amortization of capitalized software 371,064 531,148
Operating expenses 1,076,189 1,110,777
Selling, general and administrative expenses 2,899,667 3,089,484
Software research and development costs 672,751 451,358
----------- -----------
5,691,301 6,086,323
Loss from operations (779,692) (1,269,980)
Interest income, net 151,007 227,232
----------- -----------
Net loss $ (628,685) $(1,042,748)
=========== ===========
Loss per share - basic and diluted $ (0.10) $ (0.17)
=========== ===========
Weighted average number of common shares -
basic and diluted 6,320,311 6,302,531
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional
Common Stock Paid In Retained Treasury Total
Shares Amount Capital Earnings Shares Amount Equity
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1, 1997 6,988,706 $ 69,887 $ 9,846,543 $ 1,503,255 722,631 $(2,453,670) $ 8,966,015
Purchase of treasury stock 50,100 (44,969) (44,969)
Treasury stock reissued (128,016) (61,723) 209,550 81,534
Net loss (1,042,748) (1,042,748)
--------------------------------------------------------------------------------------------------
Balance at January 31, 1998 6,988,706 69,887 9,718,527 460,507 711,008 (2,289,089) 7,959,832
Purchase of treasury stock 158,332 (147,036) (147,036)
Treasury stock reissued (936,023) (347,831) 1,119,639 183,616
Net loss (628,685) (628,685)
--------------------------------------------------------------------------------------------------
Balance at January 31, 1999 6,988,706 $ 69,887 $ 8,782,504 $ (168,178) 521,509 $(1,316,486) $ 7,367,727
==================================================================================================
</TABLE>
See accompanying notes to financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (628,685) $(1,042,748)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation of property, furniture and equipment 268,518 392,053
Amortization of capitalized software costs 371,064 531,148
Changes in operating assets and liabilities:
Accounts receivable (159,129) 208,939
Unbilled revenue (56,683) 109,233
Other current assets 47,818 (17,923)
Other assets (20,645) (40,901)
Accounts payable and accrued expenses (93,952) (137,512)
Deferred systems revenues 209,204 8,262
----------- -----------
Net cash (used in) provided by operating activities (62,490) 10,551
----------- -----------
Cash flows from investing activities:
Additions to property, furniture and equipment (80,373) (241,651)
Additions to capitalized software (501,063) (728,061)
Sale of certificates of deposit 186,000 666,000
Sale of U.S. Treasury Bills 947,502 442,539
----------- -----------
Net cash provided by investing activities 552,066 138,827
Cash flows from financing activities:
Issuance of treasury shares 183,616 81,534
Principal payments of mortgage note payable (84,015) (76,429)
Purchase of treasury shares (147,036) (44,969)
----------- -----------
Net cash used in financing activities (47,435) (39,864)
----------- -----------
Net increase in cash and cash equivalents 442,141 109,514
Cash and cash equivalents at beginning of year 558,818 449,304
----------- -----------
Cash and cash equivalents at end of year $ 1,000,959 $ 558,818
=========== ===========
Supplemental disclosures of cash flow information:
Interest paid $ 15,674 $ 23,061
</TABLE>
See accompanying notes to financial statements.
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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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. All significant intercompany transactions and
accounts have been eliminated.
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 the American Institute of
Certified Public Accountants issued Statement of Position No. 97-2 "Software
Revenue Recognition" (SOP 97-2), each element of the Company's software license
contracts is separately identified and accounted for based on the relative fair
values of that element. Accordingly, the Company recognizes software license
revenue upon delivery and installation of the software and confirmation of
customer acceptance per the terms 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.
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" (SFAS 86). Under
SFAS 86, the costs incurred to establish the technological feasibility of a
computer software product are charged to expense as incurred. After
technological feasibility is established, costs of producing the computer
software product are capitalized until the
-13-
<PAGE> 14
product is available for general release to customers. 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.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
approximately $41,000 and $366,000 in advertising costs in fiscal 1999 and 1998,
respectively.
-14-
<PAGE> 15
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 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.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per common share is based on the weighted-average
number of common shares outstanding. Diluted earnings (loss) per share is
computed based on the weighted-average number of common shares outstanding plus
the number of additional common shares that would have been outstanding if all
dilutive potential common shares had been issued. For the years ended January
31, 1999 and 1998, all potential common shares were anti-dilutive.
FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, consisting of
cash and cash equivalents, short-term investments, accounts receivable, accounts
payable and debt, approximate their carrying values.
RECLASSIFICATION
Certain prior year financial statement information has been
reclassified to conform to the current year presentation.
NOTE 2 - PROPERTY, FURNITURE AND EQUIPMENT
Property, furniture and equipment costs are summarized as follows:
<TABLE>
<CAPTION>
January 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Equipment $ 7,101,376 $ 7,031,969
Building 1,426,935 1,420,735
Furniture, fixtures and leasehold improvements 788,504 783,738
----------- -----------
9,316,815 9,236,442
Less accumulated depreciation (8,328,136) (8,059,618)
----------- -----------
988,679 1,176,824
Land 300,000 300,000
----------- -----------
$ 1,288,679 $ 1,476,824
=========== ===========
</TABLE>
-15-
<PAGE> 16
NOTE 3 - CAPITALIZED SOFTWARE
Capitalized software costs are summarized as follows:
<TABLE>
<CAPTION>
January 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Capitalized software costs $ 5,117,084 $ 4,616,021
Less accumulated amortization (3,153,147) (2,782,083)
----------- -----------
$ 1,963,937 $ 1,833,938
=========== ===========
</TABLE>
NOTE 4 - INCOME TAXES
The effective income tax rates differed from the statutory federal
income tax rates for the following reasons:
<TABLE>
<CAPTION>
January 31,
----------------
1999 1998
---- ----
<S> <C> <C>
Federal income tax benefit at statutory rate (34)% (34)%
Change in valuation allowance 37 37
Other (3) (3)
--- ---
0% 0%
=== ===
</TABLE>
The components of the deferred tax accounts consist of the following:
<TABLE>
<CAPTION>
January 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 1,778,000 $ 1,463,000
Accounts receivable 50,000 38,000
Deferred revenue 14,000 14,000
Fixed assets 365,000 405,000
Other 80,000 83,000
----------- -----------
Total deferred tax assets 2,287,000 2,003,000
Deferred tax liabilities:
Capitalized software costs
(660,000) (611,000)
Other (32,000) (31,000)
----------- -----------
Total deferred tax liabilities
(692,000) (642,000)
----------- -----------
Net deferred tax asset before valuation allowance 1,595,000 1,361,000
Less valuation allowance 1,595,000 1,361,000
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At January 31, 1999 and 1998, the Company had net operating loss
carryforwards of approximately $4,600,000 and $3,800,000, respectively, which
begin to expire in 2010.
-16-
<PAGE> 17
NOTE 5 - MORTGAGE NOTE PAYABLE
Mortgage note payable consists of a new, ten year, 9.5% fixed rate
mortgage secured by the Company's corporate headquarters. The amount of
principal maturities for the years subsequent to January 31, 1998, are:
<TABLE>
<CAPTION>
Principal
Fiscal Year Maturities
----------- ----------
<S> <C>
2000 $92,353
2001 $23,193
</TABLE>
NOTE 6 - 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 amended the 1991
Employee Stock Purchase Plan to increase by 500,000 the number of shares
reserved for future employee stock purchase activities. At January 31, 1999,
1,070,238 shares of the Company's Common Stock had been sold pursuant to these
plans.
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. 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. During fiscal 1998, the Board of Directors adopted and the
shareholders approved an amendment to the Option Plan to increase by 300,000 the
number of shares reserved for future stock option grants. At January 31, 1999,
there were 100,713 shares available for future grant.
STOCK REPURCHASE PROGRAM
In December 1997, the Board of Directors authorized a stock repurchase
program whereby the Company may purchase, from time-to-time, up to 600,000
shares of its outstanding Common Stock in the open marketplace over a ten year
period. As of January 31, 1999, the Company had purchased 208,432 shares of its
outstanding Common Stock pursuant to the terms of the program.
-17-
<PAGE> 18
STOCK-BASED COMPENSATION
The Company measures 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.
Statement of Financial Accounting Standards No. 123 (FAS 123),
"Accounting for Stock-Based Compensation," requires disclosure of pro forma net
loss and pro forma net loss per common share as if the fair value-based method
had been applied in measuring compensation cost of stock-based awards granted
beginning in fiscal 1997. Management believes that 1999 and 1998 pro forma
amounts are not representative of the effects of stock-based awards on future
pro forma net loss and pro forma net 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 and net loss per share amounts for the
fiscal year ended January 31, 1999 and 1998, respectively, are set forth below:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Reported
Net (loss) $ (628,685) $ (1,042,748)
Net (loss) per share $ (0.10) $ (0.17)
Pro forma (unaudited)
Net (loss) $ (725,521) $ (1,098,902)
Net (loss) $ (0.11) $ (0.17)
</TABLE>
During fiscal 1999 and 1998, 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:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Risk free interest rate 5.5% 5.7%
Expected life 5 years 6 years
Expected volatility 52% 55%
Expected dividend yield 0% 0%
</TABLE>
-18-
<PAGE> 19
Stock option activity for 1999 and 1998 is set forth below:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
Weighted Average Weighted Average
Options Exercise Price Options Exercise Price
------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 615,116 $ 1.68 679,346 $ 1.74
Granted 840,291 .62 18,785 1.11
Exercised (258,791) .46 --
Canceled (519,120) 1.47 (83,015) 2.37
-------- --------
Outstanding at end of year 677,496 .99 615,116 1.68
======== ========
Exercisable at end of year 372,922 1.10 535,498 1.63
======== ========
Weighted average fair value of
options granted during the year $ 0.22 $ 0.61
</TABLE>
Stock options outstanding at January 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------- --------------------------
Weighted
Range of Average Remaining Weighted Average Weighted Average
Exercise Price Options Contractual Life Exercise Price Options Exercise Price
- ---------------- ------- ----------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$ 0.38 to $ 0.76 351,167 6.8 years $ 0.29 181,818 $ 0.55
$ 0.77 to $ 1.54 230,329 5.3 years $ 0.96 113,437 $ 1.02
$ 1.55 to $ 3.50 96,000 4.1 years $ 2.64 77,667 $ 2.51
------- -------
677,496 372,922
======= =======
</TABLE>
NOTE 7 - 401(k) RETIREMENT PLAN
Under the terms of the Company's 401(k) Retirement 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.
-19-
<PAGE> 20
NOTE 8 - 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 9 - TRADEMARKS
CompuTrac, Dimension and other names of CompuTrac products referenced
herein are trademarks or registered trademarks of CompuTrac, Inc. All other
product and brand names mentioned herein are the trademarks or registered
trademarks of their respective owners.
-20-
<PAGE> 21
REPORT OF GRANT THORNTON LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND SHAREHOLDERS
COMPUTRAC, INC.
We have audited the accompanying consolidated balance sheets of CompuTrac, Inc.
and subsidiary as of January 31, 1999 and 1998 and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CompuTrac, Inc.
and subsidiary as of January 31, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for the years then ended, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Dallas, Texas
April 9, 1999
-21-
<PAGE> 22
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 5, 1998, the Company dismissed the accounting firm of Price
Waterhouse LLP, Dallas, Texas, who had acted as certifying accountants for the
Company for the years ending January 31, 1984 through January 31, 1997. None of
the prior certifying accountants' reports on the Company's financial statements
for the Prior two years contained an adverse opinion or disclaimer of opinion,
or were qualified or modified as to uncertainty, audit scope or accounting
principle. In connection with its audits for the two prior fiscal years and
through January 5, 1998, there had been no disagreements with Price Waterhouse
LLP, on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Price Waterhouse LLP, would have caused Price Waterhouse
LLP, to make reference to the subject matter of such disagreements in their
reports on the financial statements for such years.
Effective January 5, 1998, the Company engaged the accounting firm of
Grant Thornton LLP, Dallas, Texas, to act as certifying accountants for the year
ended January 31, 1998. The change of principal accountants was approved by the
Company's Board of Directors on December 29, 1997.
There were no written or oral consultations between the Company and
Grant Thornton LLP or Price Waterhouse LLP regarding the application of
accounting principles to a specific completed or contemplated transaction, or to
the type of audit opinion that might be rendered in connection with the
Company's decision to change accounting firms.
PART III
The information required by Part III is omitted from this Report and
will be included in the registrant's 1999 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 1999 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 1999 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 1999 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 1999 Annual Meeting.
-22-
<PAGE> 23
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Report:
<TABLE>
<CAPTION>
1. Financial Statements: Page
----
<S> <C>
Report of Grant Thornton LLP, Independent Certified Public
Accountants 21
Consolidated Balance Sheets at January 31, 1999 and 1998 9
Consolidated Statements of Operations for the two years
ended January 31, 1999 10
Consolidated Statements of Changes in Shareholders' Equity
for the two years ended January 31, 1999 11
Consolidated Statements of Cash Flows for the two years
ended January 31, 1999 12
Notes to Consolidated Financial Statements 13-20
</TABLE>
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 and Indemnity Agreement between the
Registrant and Harry W. Margolis dated January 1, 1998 and
February 4, 1998, respectively (filed herewith)
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.
23.1 - Consent of Grant Thornton LLP, Independent Certified
Public Accountants
27 - Financial Data Schedule
-23-
<PAGE> 24
99 - Annual Report on Form 11-K for the CompuTrac, Inc.
Employee Stock Purchase Plan
- ------------
* Incorporated by reference to the same numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 and Amendment Nos. 1
and 2 thereto, File No. 2-84218, which became effective July 19, 1983.
** Incorporated by reference to the same numbered exhibit filed with the
Registrant's Registration Statement on Form S-1 and Amendment No. 1
thereto, File No. 33-4582, which became effective April 24, 1986.
*** Incorporated by reference to the same numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1988, Commission File No. 1-9115.
**** Incorporated by reference to the 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 the same numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998, 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 and 10.9
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 during the
year for which this report filed.
-24-
<PAGE> 25
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 27, 1999
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Harry W. Margolis Chairman of the Board of
- --------------------------- Directors and Chief Executive Officer April 27, 1999
Harry W. Margolis
/s/ D. Bruce Walter President
- --------------------------- (Principal Operating Officer) April 27, 1999
D. Bruce Walter
/s/ Steven M. Crane Chief Financial Officer
- --------------------------- (Principal Financial and Accounting Officer) April 27, 1999
Steven M. Crane
/s/ Dana E. Margolis Secretary, Treasurer
- --------------------------- and Director April 27, 1999
Dana E. Margolis
/s/ Kenneth R. Nicholas Director April 27, 1999
- ---------------------------
Kenneth R. Nicholas
/s/ Gerald D. Harris Director April 27, 1999
- ---------------------------
Gerald D. Harris
</TABLE>
-25-
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
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 and Indemnity Agreement between the
Registrant and Harry W. Margolis dated January 1, 1998 and
February 4, 1998, respectively (filed herewith)
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.
23.1 - Consent of Grant Thornton LLP, Independent Certified
Public Accountants
27 - Financial Data Schedule
99 - Annual Report on Form 11-K for the CompuTrac, Inc.
Employee Stock Purchase Plan
</TABLE>
- ------------
* 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 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 the same numbered exhibit filed with the
Registrant's Annual Report on Form 10-K for the fiscal year ended
January 31, 1998, Commission File No. 1-9115.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF GRANT THORNTON LLP, INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated April 9, 1999, accompanying the consolidated
financial statements included in the Annual Report of CompuTrac, Inc. on Form
10-KSB for the year ended January 31, 1999. We hereby consent to the
incorporation by reference of said report in the Registration Statements of
CompuTrac, Inc. on Form S-8 (File Nos. 33-40732; 33-40734; 33-02906; 33-07319;
33-61577).
GRANT THORNTON LLP
Dallas, Texas
May 14, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 1,000,959
<SECURITIES> 2,092,828
<RECEIVABLES> 803,873
<ALLOWANCES> 131,000
<INVENTORY> 0
<CURRENT-ASSETS> 4,111,010
<PP&E> 14,988,021
<DEPRECIATION> 11,481,283
<TOTAL-ASSETS> 8,109,192
<CURRENT-LIABILITIES> 718,272
<BONDS> 23,193
0
0
<COMMON> 69,887
<OTHER-SE> 7,297,840
<TOTAL-LIABILITY-AND-EQUITY> 8,109,192
<SALES> 928,550
<TOTAL-REVENUES> 4,911,609
<CGS> 382,968
<TOTAL-COSTS> 671,630
<OTHER-EXPENSES> 5,019,671
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,338
<INCOME-PRETAX> (628,685)
<INCOME-TAX> 0
<INCOME-CONTINUING> (628,685)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (628,685)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
<PAGE> 1
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, 1998
COMPUTRAC, INC. EMPLOYEE STOCK PURCHASE PLAN
1991 COMPUTRAC, INC. EMPLOYEE STOCK PURCHASE PLAN
(Full title of the plan)
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> 2
Item 1. Changes in the Plans
There were no material changes in the provisions of the plans during
the year ended December 31, 1998.
Item 2. Changes in Investment Policies
There were no changes in the investment policies of the plans during
the year ended December 31, 1998.
Item 3. Contributions under the Plan
The Company's contributions are not discretionary and are a specified
percentage of the employe's contributions.
Item 4. Participating Employees
There were 11 participating employees as of December 31, 1998
Item 5. Administration of Plans
(a) The plans are administered by a committee designated by the
board of Directors and composed of the following members:
<TABLE>
<CAPTION>
Name and Address Position Position with Issuer
- ---------------- -------- --------------------
<S> <C> <C>
Harry W. Margolis Member Chairman of the Board
222 Municipal Drive and Director
Richardson, TX 75080
Shawn Anderson Member Controller
222 Municipal Drive
Richardson, TX 75080
</TABLE>
(b) No member of the committee received any compensation from the
plans during the year ended December 31, 1998
-2-
<PAGE> 3
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 1998.
Item 7. Reports to Participating Employees
During the year ended December 31, 1998, 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:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Statements of Net Assets Available for Plan
Benefits- December 31, 1998 and 1997 4
Statement of Changes in Net assets Available
for Plan Benefits for the three years ended
December 31, 1998 5
Notes to Financial Statements 6
</TABLE>
(b) Exhibits:
None
-3-
<PAGE> 4
COMPUTRAC, INC.
EMPLOYEE STOCK PURCHASE PLANS
Statement of Net Assets Available for Plan Benefits
(unaudited)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
Assets:
Cash $ 8 $ 2
Common stock of CompuTrac, Inc., 38,219 and 15,575
shares in 1998 and 1197, respectively, at market,
cost was $ 24,892 and $30,643, respectively 33,442 13,628
------- -------
Total assets 33,450 13,630
Liabilities:
Common stock purchases payable -- 6,865
------- -------
Total liabilities -- 6,865
------- -------
Net assets available for plan benefits $33,450 $ 6,765
======= =======
</TABLE>
-4-
<PAGE> 5
COMPUTRAC, INC.
EMPLOYEE STOCK PURCHASE PLANS
Statement of Changes in Net Assets Available for Plan Benefits
(unaudited)
<TABLE>
<CAPTION>
December 31,
----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net assets available for plan benefit, January 31 $ 6,765 $ 32,339 $ 172,599
Additions:
Employer cash contributions 15,766 21,191 30,238
Employee cash contributions 47,346 63,635 90,793
Other miscellaneous receipts 8 1 21
Unrealized appreciation (depreciation) of
common stock of CompuTrac, Inc. 10,390 (52,517) (20,733)
--------- --------- ---------
Total additions 73,510 32,310 100,319
Deductions:
Distributions to participants 46,825 57,873 236,238
Other distributions 2 11 4,341
Total deductions 46,825 57,884 240,579
--------- --------- ---------
Net assets available for plan benefits, December 31 $ 33,450 $ 6,765 $ 32,339
========= ========= =========
</TABLE>
-5-
<PAGE> 6
EMPLOYEE STOCK PURCHASE PLANS
NOTES TO FINANCIAL STATEMENT
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 $.875 per share at December 31, 1998 and 1997.
(C) The financial statements have been prepared on the accrual basis of
accounting.
NOTE 2 - THE PLAN:
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 300,00 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
Securities Act of 1974, nor are they intended to qualify for special tax under
Section 401 (a) of the Internal Revenue Code. The Company filed registration
Statement 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 the 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.
-6-
<PAGE> 7
The purchase price of the Common Stock purchased pursuant to the plans is
the lessor of the average of the closing sales prices during the preceding
calendar month for the average of the closing sales prices for the last five
trading days proceeding 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 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.
-7-
<PAGE> 8
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: /s/ Shawn Anderson
---------------------------
Shawn Anderson
Controller
Date: April 27, 1999
-8-
