UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-20244
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DATA RESEARCH ASSOCIATES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MISSOURI 43-1063230
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132
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(Address of principal executive offices) (Zip Code)
(314) 432-1100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
At July 15, 1996, there were 3,657,400 shares of the registrant's common stock
outstanding.
<PAGE>
INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -June 30, 1996
and September 30, 1995
Consolidated statements of income -Three months ended June 30, 1996
and 1995
-Nine months ended June 30, 1996
and 1995
Consolidated statements of cash flows -Nine months ended June 30,
1996 and 1995
Notes to the unaudited consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- --------------------------
SIGNATURES
2
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30, September 30,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,706 $ 9,036
Short-term investments 4,620 3,023
Accounts receivable less allowance for doubtful
accounts of $198:
Billed 9,318 9,262
Unbilled 6,219 1,980
------ ------
15,537 11,242
Inventories 379 136
Prepaid expenses 873 592
Deferred income taxes 35 161
Other current assets 140 180
------ ------
TOTAL CURRENT ASSETS 25,290 24,370
PROPERTY AND EQUIPMENT
Land and improvements 504 294
Building and improvements 2,163 1,768
Data processing equipment 4,165 3,401
Furniture, fixtures, and other 2,972 2,846
------ ------
9,804 8,309
Less accumulated depreciation 4,251 3,591
------ ------
5,553 4,718
NOTE RECEIVABLE 173 260
DEFERRED SOFTWARE COSTS (net of accumulated
amortization of $975 at June 30, 1996
and $863 at September 30, 1995) 471 337
INTANGIBLE ASSETS (net of accumulated
amortization of $2,516 at June 30, 1996
and $1,692 at September 30, 1995) 2,696 3,202
------ ------
$34,183 $32,887
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,138 $ 2,123
Employee compensation 505 622
Deferred revenue 2,913 3,407
Customer deposits 2,220 2,195
Other accrued liabilities 490 436
Income taxes payable - 1,026
------ ------
TOTAL CURRENT LIABILITIES 8,266 9,809
DEFERRED INCOME TAXES 321 265
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share--
1,000,000 shares authorized, no shares issued
Common stock, par value $.01 per share--10,000,000
shares authorized, 3,922,500 shares issued at
June 30, 1996, 3,912,500 shares issued at
September 30, 1995 39 39
Additional paid-in capital 5,580 5,510
Foreign currency translation adjustment 58 83
Retained earnings 20,194 17,456
------ ------
25,871 23,088
Less cost of 265,100 shares of treasury stock 275 275
------ ------
TOTAL SHAREHOLDERS' EQUITY 25,596 22,813
------ ------
$34,183 $32,887
====== ======
See notes to unaudited consolidated financial statements.
3
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
Three months ended Nine months ended
June 30, June 30,
1996 1995 1996 1995
REVENUES
Hardware $ 1,765 $ 3,994 $ 9,025 $ 8,480
Software 2,382 1,923 6,227 6,101
Service and other 4,764 4,354 12,559 11,637
------ ------ ------ ------
8,911 10,271 27,811 26,218
EXPENSES
Cost of revenues
Hardware 1,007 2,940 6,739 6,297
Software 202 148 780 1,036
Service and other 1,106 995 2,982 2,507
------ ------ ------ ------
2,315 4,083 10,501 9,840
Salaries and employee benefits 2,736 2,525 7,781 7,506
General and administrative expenses 1,777 1,847 4,756 4,835
Depreciation and amortization 284 281 821 796
------ ------ ------ ------
7,112 8,736 23,859 22,977
INCOME FROM OPERATIONS 1,799 1,535 3,952 3,241
OTHER INCOME 100 58 451 281
------ ------ ------ ------
Income before income taxes 1,899 1,593 4,403 3,522
PROVISION FOR INCOME TAXES 725 599 1,665 1,423
------ ------ ------ ------
NET INCOME $ 1,174 $ 994 $ 2,738 $ 2,099
====== ====== ====== ======
Earnings per share $ 0.32 $ 0.27 $ 0.75 $ 0.57
====== ====== ====== ======
Weighted average number
of common shares 3,654,130 3,659,128 3,649,635 3,659,128
========= ========= ========= =========
See notes to unaudited consolidated financial statements.
4
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Nine months ended June 30,
1996 1995
OPERATING ACTIVITIES
Net income $ 2,738 $ 2,099
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 1,592 1,467
Provision for deferred income taxes 180 28
Gain on disposal of property and equipment - 5
Changes in operating assets
and liabilities:
Accounts receivable (4,449) (6,590)
Inventories (243) 32
Prepaid expenses and
other current assets (254) 47
Accounts payable and
other current liabilities (1,380) 1,740
Note receivable 88 104
------- -------
NET CASH USED BY OPERATING ACTIVITIES (1,728) (1,068)
------- -------
INVESTING ACTIVITIES
Purchase of property and equipment (1,505) (1,028)
Purchase of short-term investments (8,525) -
Proceeds from disposal of equipment - 47
Proceeds from sales of short-term investments 6,929 -
Purchase of MultiLIS - (1,951)
Purchased software (249) -
Deferred software cost (298) -
------- -------
NET CASH USED BY INVESTING ACTIVITIES (3,648) (2,932)
------- -------
FINANCING ACTIVITIES
Proceeds from stock issued 70 -
Principal payments on notes payable and
long-term debt - (56)
------- -------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 70 (56)
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (24) 41
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (5,330) (4,015)
------- -------
Cash and cash equivalents at
beginning of period 9,036 10,416
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 3,706 $ 6,401
======= =======
See notes to the unaudited consolidated financial statements.
5
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
1. Basis of Presentation
The unaudited consolidated financial statements of Data Research Associates,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and, therefore, should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto for the year ended September 30, 1995, contained in the
Company's annual report for the year ended September 30, 1995. In the opinion
of management, all adjustments (consisting only of normal recurring items)
considered necessary for a fair presentation have been included. The results
of operations for the nine months ended June 30, 1996, are not necessarily
indicative of the results that may be expected for the year ending
September 30, 1996.
2. Inventories
Inventories consist primarily of computer equipment and supplies which are
stated at the lower of cost (first-in, first-out method) or market and the
unamortized cost of computer software purchased for resale. The Company had
only finished goods in inventory at June 30, 1996.
3. Income Taxes
The provision for income taxes is computed using the liability method. The
difference between the effective income tax rate and the U.S. federal income
tax rate is a result of state taxes and subsidiaries' losses for which there
is no current tax benefit.
6
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenues are derived from three sources: (i) computer
hardware sales; (ii) software licenses; and (iii) sales of services,
including training, conversion, networking, database access, system support
and product maintenance. Revenue is recognized on hardware sales and software
licenses upon shipment of the product. Revenue from hardware and software
maintenance contracts is recognized monthly when the amounts become billable
under the contract terms. Other service revenues are recognized upon
completion of the services. The components of the cost for development of
software primarily include salaries and employee benefits and are expensed
as incurred. All costs qualifying for deferral under Financial Accounting
Standards Board Statement No. 86 ("FASB 86") are reported on the balance
sheet as deferred software costs and amortized over the estimated useful
life of the product in accordance with FASB 86. The amortization of
capitalized software is allocated as a direct cost of licensing DRA
software. The Company typically experiences greater gross margin on
software licenses than on sales of hardware or services. The Company's
profitability depends in part on the mix of its revenue components and not
necessarily on total revenues.
The Company's revenues and earnings can fluctuate from quarter to quarter
depending upon, among other things, such factors as the complexity of
customers' procurement processes, new product and service introductions by
the Company and other vendors, delays in customer purchases due to timing
of library professional conferences and trade shows, installation scheduling
and customer delays in facilities preparation. In addition, a substantial
portion of the Company's revenues for each quarter is attributable to a
limited number of orders and tends to be realized towards the end of each
quarter. Thus, even short delays or deferrals of sales near the end of a
quarter can cause quarterly results to fluctuate substantially.
Results of Operations
Three Months Ended June 30, 1996 compared to Three Months Ended June 30, 1995
Hardware revenues decreased $2.2 million, or 56%, to $1.8 million in the
three months ended June 30, 1996, from $4.0 million in the three months ended
June 30, 1995. The decrease is primarily due to the shipment of two large
full-service contracts that generated $1.7 million in revenue in the three
months ended June 30, 1995. The gross margin percentage on hardware was 43%
in the three months ended June 30, 1996, and 26% in the three months ended
June 30, 1995. The increase is due primarily to a larger percentage of
hardware sales being derived from PC's in the three months ended June 30,
1995, than in the three months ended June 30, 1996. PC's have historically
had a lower gross margin than other components of integrated hardware systems.
Software license revenues increased $.5 million, or 24%, to $2.4 million in
the three months ended June 30, 1996, from $1.9 million in the three months
ended June 30, 1995. The increase is primarily due to the shipment of one
large contract in the three months ended June 30, 1996. The gross margin
percentages on software decreased to 92% in the three months ended
June 30, 1996, from 93% the three months ended June 30, 1995.
Service and other revenues increased $.4 million, or 9%, to $4.8 million in
the three months ended June 30, 1996, from $4.4 million in the three months
ended June 30, 1995. Management expects that maintenance revenues will
continue to increase as the base of licensed software products increases.
The gross margin percentage on service and other revenues was 77% for both
the three months ended March 31, 1996, and the three months ended March 31,
1995.
7
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Salaries and employee benefits increased $.2 million, or 8%, to $2.7 million
in the three months ended June 30, 1996, from $2.5 million in the three
months ended June 30, 1995. This increase is primarily attributable to annual
salary increases.
General and administrative expenses remained consistent at $1.8 million in
the three months ended June 30, 1996, and the three months ended June 30,
1995.
Income from operations increased $.3 million, or 17%, to $1.8 million in the
three months ended June 30, 1996, from $1.5 million in the three months ended
June 30, 1995.
The Company's consolidated effective tax rate was 38% for the three month
period ended March 31, 1996, and the three month period ended March 31, 1995.
Nine Months Ended June 30, 1996 compared to Nine Months Ended June 30, 1995
Hardware revenues increased $.5 million, or 6%, to $9.0 million in the
nine months ended June 30, 1996, from $8.5 million in the nine months ended
June 30, 1995. The gross margin percentage on hardware was 25% in the nine
months ended June 30, 1996, and 26% in the nine months ended June 30, 1995.
Software license revenues increased $.1 million, or 2%, to $6.2 million
in the nine months ended June 30, 1996, from $6.1 million in the nine months
ended June 30, 1995. The gross margin percentage on software increased to
87% in the nine months ended June 30, 1996, from 84% in the nine months ended
June 30, 1995. The increase is due primarily to a greater percentage of the
software sales being derived from internally developed software in the nine
months ended June 30, 1996, than in the nine months ended June 30, 1995.
The Company's internally developed software has historically had, and
continues to have, a higher gross margin than software purchased for resale.
Service and other revenues increased $1.0 million, or 8%, to $12.6 million
in the nine months ended June 30, 1996, from $11.6 million in the nine months
ended June 30, 1995. Management expects that maintenance revenues will
continue to increase as the base of licensed software products increases.
The gross margin percentage on service and other revenues was 76% in the nine
months ended June 30, 1996, and 79% in the nine months ended June 30, 1995.
The decrease was primarily due to the increase of DRA Net (formerly "Open
DRANET") revenues in the nine months ended June 30, 1996, which have a lower
margin than other service revenues.
Salaries and employee benefits increased $.3 million, or 4%, to $7.8 million
in the nine months ended June 30, 1996, from $7,5 million in the nine months
ended June 30, 1995. This increase is primarily attributable to annual salary
increases.
General and administrative expenses remained consistent at $4.8 million in
the nine months ended June 30, 1996, and the nine months ended June 30, 1995.
Income from operations increased $.8 million, or 22%, to $4.0 million in
the nine months ended June 30, 1996, from $3.2 million in the nine months
ended June 30, 1995.
The Company's consolidated effective tax rate was 38% for the nine month
period ended June 30, 1996, and 40% for the nine month period ended
June 30, 1995. The rates reflect the change in the level of the Company's
foreign subsidiaries' losses, for which the Company can not currently
recognize any tax benefit.
8
<PAGE>
Liquidity and Capital Resources
The Company's cash needs are primarily for working capital and capital
expenditures and historically have been met by cash flows from operations,
bank borrowings, and equipment leases. At June 30, 1996, the Company's
working capital was $17.0 million and its ratio of current assets to current
liabilities was 3.0 to 1, as compared to working capital of $14.6 million
and a ratio of current assets to current liabilities of 2.5 to 1 at
September 30, 1995.
Net cash used by operating activities was $1.7 million for the nine months
ended June 30, 1996, compared to $1.1 million for the nine months ended June
30, 1995. The increase in net cash used by operations was primarily due to
higher tax payments for the nine months ended June 30, 1996, compared to the
nine months ended June 30, 1995. At June 30, 1996, unbilled accounts
receivable included approximately $3.5 million related to a contract which
the Company expects to be billed in the fourth quarter of 1996.
Net cash used by investing activities was $3.6 million for the nine months
ended June 30, 1996, compared to $2.9 million for the nine months ended June
30, 1995. The increase in net cash used by investing activities is primarily
due to an increase of approximately $1.6 million in short-term investments
and the acquisition of an office building in St. Louis for approximately
$.5 million in the nine months ended June 30, 1996, compared to the purchase
of the MultiLIS library automation system and related assets in October 1994
for approximately $2.0 million in the nine months ended June 30, 1995.
Net cash provided by financing activities for the nine months ended June 30,
1996, was $70,000, and net cash used by financing activities was $56,000 for
the nine months ended June 30, 1995. In January 1996, management extended the
Company's $6.0 million line of credit to January 1997. The line of credit was
extended with a reduced rate of interest. All other terms remain the same. The
line of credit now bears interest at federal funds rate plus 200 basis points
payable monthly on outstanding balances. There have been no borrowings against
the Company's line of credit since May 1991.
Management believes that, with the current cash position of $3.7 million,
short-term investments of $4.6 million, accounts receivable of $15.5 million,
continued cash flow from operations, availability of the $6.0 million line of
credit, and total current liabilities of $8.3 million, the Company will be
able to meet both its short-term liquidity needs and short-term capital
expenditure needs. The Company has made no material commitments with respect
to capital expenditures planned for fiscal 1996. Management believes that with
total long-term liabilities of approximately $.3 million and no other known
long-term commitments or demands, the Company will be able to satisfy its
known long-term liabilities and liquidity needs through the funding sources
identified above.
9
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) No exhibits are required to be filed for the three months ended
June 30, 1996.
(b) No reports on Form 8-K were required to be filed during the three
months ended June 30, 1996.
10
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
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.
DATA RESEARCH ASSOCIATES, INC.
July30, 1996 /s/Michael J. Mellinger
- ----------------- -----------------------------
Date Michael J. Mellinger
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
July 30, 1996 /s/Katharine W. Biggs
- ----------------- ------------------------------
Date Katharine W. Biggs
Vice President, and
Chief Financial Officer
(Principal Accounting Officer)
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
the Form 10-Q for the quarter ended June 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,706
<SECURITIES> 4,620
<RECEIVABLES> 15,735
<ALLOWANCES> 198
<INVENTORY> 379
<CURRENT-ASSETS> 25,290
<PP&E> 9,804
<DEPRECIATION> 4,251
<TOTAL-ASSETS> 34,183
<CURRENT-LIABILITIES> 8,266
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 25,557
<TOTAL-LIABILITY-AND-EQUITY> 34,183
<SALES> 27,811
<TOTAL-REVENUES> 27,811
<CGS> 10,501
<TOTAL-COSTS> 23,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (451)
<INCOME-PRETAX> 4,403
<INCOME-TAX> 1,665
<INCOME-CONTINUING> 2,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,738
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
