UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee Required]
For the fiscal year ended SEPTEMBER 30, 1996
Commission File Number: 0-20244
DATA RESEARCH ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
MISSOURI 43-1063230
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 432-1100
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
- -- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant is $38,451,070 as of November 30, 1996.
At November 30, 1996 there were 5,521,420 shares of the registrant's common
stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Report by reference:
PART III: The definitive proxy statement of the registrant (to be filed
pursuant to Regulation 14A) for the registrant's 1997 Annual Meeting of
Shareholders, which involves the election of a director, is incorporated
by reference into Items 10, 11, 12 and 13 of this Report.
Exhibit Index is on Page 41 of this Report.
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INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I.
Item 1. Business.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 4A. Executive Officers of the Registrant.
PART II.
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.
Item 6. Selected Financial Data.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Item 13. Certain Relationships and Related Transactions.
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
SIGNATURES
Exhibit Index
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Except for the historical information and statements contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A"), the matters and items contained in this document,
including MD&A, contain forward looking statements that involve uncertainties
and risks, some of which are discussed below, including under the caption
"Cautionary Statements - Additional Important Factors to be Considered."
PART I.
ITEM 1. BUSINESS.
GENERAL
Data Research Associates, Inc., a Missouri corporation, and its subsidiaries
(collectively, the "Company" or "DRA") is a leading systems integrator for
libraries and other information providers, offering its own proprietary
information services software; third party software and hardware; Internet,
World Wide Web and other networking services; and other related support
services. The Company provides a selection of automation systems: the Data
Research System, the INLEX/3000 System, and the MultiLIS System. Each of these
is a comprehensive, fully integrated package of modular software applications
and is designed to allow customers to add applications without modifying their
existing databases, hardware or software. The Company also provides a wide
variety of services designed to support the automation of the library. The
Company's software packages are adaptable for use in academic, public, school
and special libraries ranging from single libraries to large, multi-branch
systems and consortia. The Company's library customer base at November 30,
1996, is more than 650 systems serving over 2,100 individual libraries in
the United States, Canada, Europe, South America, and the Pacific Rim.
The Company provides internet services to corporations and institutions
outside of its traditional library market.
Recognizing a trend toward increased sharing of information resources among
libraries, the Company has designed and implemented electronic networking
services that allow libraries to share information resources and reduce their
costs of acquiring and maintaining such resources. DRA has also established
itself as a leader in the development of transparent networking. Products
and services associated with DRA Net, the Company's dedicated, high-speed
telecommunications network, facilitate what management believes is an
evolution toward the "library without walls"-- a library whose information
resources are not limited by its physical boundaries.
THE LIBRARY AUTOMATION MARKETPLACE AND CUSTOMERS
Libraries began to use computers in the late 1960s and early 1970s primarily
as a tool to automate manual circulation processes. Automation gradually spread
throughout the library to include other tasks, such as cataloging, acquisitions
and the replacement of card catalogs with the automated public access catalogs.
DRA was founded in 1975 and entered the library automation marketplace with the
design philosophy of integrating these diverse functions to use a single biblio-
graphic database based on a national standard for machine readable cataloging
("MARC"). With other automation systems of that time, there was often a
substantial duplication of effort required to maintain different databases
for each of the discrete functions performed in the library. In addition, the
lack of standardization in the format of its bibliographic database often
forced a library to re-enter its entire catalog if it changed automation
systems.
The library automation field has undergone dramatic changes since the Company
commenced operations. The emphasis in the marketplace has moved from exclusive,
proprietary applications designed to meet narrowly defined functions to fully
integrated, modular systems that automate all library functions and provide
access to information resources beyond the physical confines of the library.
Far from simple database management systems, library automation systems are
extremely complex. Because of the complexity of these systems, the Company's
sales efforts in each segment of the marketplace have tended to focus on the
largest libraries and migrate downward.
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U.S. AND CANADIAN MARKETS. The library marketplace in the United States and
Canada is segmented by general industry practice into four broad types:
academic, public, school and special libraries. Combinations of segments exist
in library networks and consortia, which consist of two or more independent
libraries, not necessarily of the same size or even the same type, that
purchase a single automation system to achieve economies of scale and/or
resource-sharing.
Academic, or higher education, libraries include community or junior college,
four-year college and university, and research libraries. School libraries
include those located in schools with students in kindergarten through high
school. Special libraries include corporate libraries and other private,
non-academic research institutions.
In addition to providing the Data Research System, the INLEX/3000 System and
the MultiLIS System to academic, public, school and special libraries, the
Company also provides an automated system for an extremely specialized type
of library, the library for the blind and physically handicapped, which is not
easily categorized in any of the four standard industry segments. DRA's LBPH
product is used by libraries that account for more than half of the total
circulation by this type of library in the United States.
INTERNATIONAL MARKETS. DRA has an executive position dedicated to managing
its international business and has offices in Australia, Canada, France and
Singapore. These offices serve 41 customers in Australia and the Pacific Rim,
135 customers in Canada, 30 customers in France, one customer in Chile and
three customers in the Caribbean. See Note H to the Consolidated Financial
Statements for geographic segment data.
CURRENT CUSTOMERS. The Company's systems are installed at over 650 sites,
which serve over 2100 academic, public, school and special libraries in the
United States, Canada, Puerto Rico, Australia, New Zealand, Hong Kong,
Indonesia, Singapore, France, Belgium, Chile and Malaysia. During fiscal 1996,
DRA added 35 sites to its customer base. DRA is not dependent upon a single
customer, or a few customers, the loss of any one or more of which would have
a material adverse effect on its business.
PRODUCTS
The Company's automation systems are comprehensive, fully integrated packages
of modular software applications designed for libraries of all sizes, ranging
from single libraries to large, multi-branch library systems and consortia.
The packages run on a variety of hardware platforms and operating systems and
are marketed according to the specific needs of the customers. The packages are
also designed to allow libraries to share the hardware and data while allowing
an individual library to implement its own policies. Through the use of DRA
Net, the Company provides libraries direct access to remote library catalogs
and third-party databases, such as commercially prepared magazine indexes.
The Company's turnkey, or full-service, systems are priced on the basis of
several separate components: central site hardware (including operating
systems software), applications software, peripheral equipment, conversion,
documentation and training, and other services. The price of initial turnkey
system installations has ranged from less than $10,000 to more than $5 million.
Software product license fees are based on the type of modules licensed, the
number of users permitted and the size of hardware on which the software is
operating. The price of software-only contracts has ranged from less than
$10,000 to approximately $800,000. The Company also charges a monthly software
maintenance fee typically equal to 1% of the software license fee for its
products. Virtually all of DRA's customers purchase software maintenance
services.
SOFTWARE PRODUCTS
CATALOGING AND AUTHORITY CONTROL. The entry and management of the database
for information about library materials (books, films, cassettes, etc.) is
handled by the bibliographic database management software. The information
about each book or other material is stored in full MARC format, which is a
national and international standard. The bibliographic database management
software allows librarians to create, edit, read and write bibliographic
information in machine-readable form. The DRA software allows libraries to
connect to national databases that share cataloging information, which
reduces the cost of cataloging for any participating library. The biblio-
graphic database management software also facilitates authority control.
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This feature directs the individuals searching the database to the correct
term to be used when locating materials.
CIRCULATION. The Circulation module handles all of the library's circulation
activities, including registering borrowers, checking books in and out,
renewing books and placing requests for specific titles. An innovative feature
of the Company's circulation software is the extensive, flexible, locally
defined policy file that allows the library automatically to implement its
own policies for library loan periods, fines, library card use and requests
for library materials. In a multi-library system or consortium, each library
can establish its own set of policies and still share the same computer.
The Circulation module is integrated and thus can accommodate the differences
of each library within the framework of a standardized program using industry-
standard formats.
PUBLIC ACCESS. DRA offers a wide range of products to facilitate the
searching of the local library catalog and remote databases. Industry practice
generally labels any product that takes the place of manual card catalogs
as an On-line Public Access Catalog. For searching a library's local catalog,
the Company offers various user interface options designed to accommodate
differing levels of user sophistication. Among the Company's public access
products is the Information Gateway module, which offers access to materials
and information available outside the physical confines of the library. These
features include full-text delivery for journals; access to numerous databases
via either DRA Net or direct loading on the local computer; creation of and
access to a database that contains detailed listings of local events, social
services and other programs; creation of and access to an index of newspapers
and serials that are not indexed in commercially prepared citation indexes;
and creation of and access to databases of photographs, illustrations and
diagrams using "imaging" technology for display on the computer screen. In
fiscal 1994, the Company introduced a public access and research
workstation product called DRA Find, the first product in an evolutionary path
toward a distributed processing extension of the Company's client/server
architecture. DRA Find is a Microsoft Windows-based PC software product that
allows simultaneous searching of multiple databases, as well as retrieval of
data in textual or multimedia formats. In fiscal 1996, the Company introduced
DRA Web, a retrieval device based on the World Wide Web, and DRA Kids, a
children's workstation product.
ACQUISITIONS. The Acquisitions module is designed to handle the purchase
of library materials. It aids librarians in creating lists of books they wish
to order, creating the actual orders that are sent to book publishers or book
suppliers and maintaining a full audit trail of the funds used by the library
to purchase the materials. Statistics of interest to the library regarding
publisher or supplier performance are maintained and can be reported using
the software's report system.
SERIALS. The Serials module is a comprehensive module for management of
magazine and journal collections. The module contains a check-in function,
records the receipt of all magazine issues and maintains a list of items
that have an exception status. It also records receipt of special issues.
Statistics of interest to the library regarding performance are maintained
and can be reported using the software's report system.
REPORTS. Libraries, because of their funding structures, are required to
produce numerous reports about their collections, usage and borrowers. The
DRA software offers extensive standard reporting capabilities and, as an
option, report writer modules for specialized reporting needs. The report
writer modules are based on third-party software products that are modified
by the Company to meet unique requirements of the library environment.
JOURNAL CITATION. The Journal Citation module allows users of the Public
Access module to search for magazine articles and then determine if the
library subscribes to the magazine or journal in which the articles are
published. If so, the module then alerts the patron as to where the magazine
or journal is located within the library. It is also possible for the user to
place a photocopy request on-line.
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MEDIA BOOKING. Libraries frequently use a separate management system for
handling 16 millimeter films, audio-visual equipment and video-cassettes.
Libraries also require the ability to place holds on material for a specific
number of days, allow for inspection time before they are again ready for
circulation and allow for shipment of materials between library facilities,
when necessary. The Media Booking module performs these functions and also
monitors the collection of fees for materials that pass through the booking
process. Media Booking is a sub-module of Circulation but must be purchased
separately. In addition, the Company offers an alternative for media booking
by use of a third-party software package interfaced with the DRA software.
LIBRARY FOR THE BLIND AND PHYSICALY HANDICAPPED--LBPH. The LBPH system,
which can stand alone from the DRA software, provides automated materials
selection and circulation according to preferences provided by home-bound
blind and physically handicapped patrons.
NETWORKING
Libraries have begun to recognize that printed works are only a small
subset of the information resources demanded by their patrons. More and
more information is becoming available in electronic formats. At the same
time, traditional sources of library funding have diminished and the cost of
printed works have increased. The Company has therefore focused much of its
development efforts on networking products because it believes that such
products allow libraries to provide access to information without having to
bear the full expense of buying, maintaining and storing such information.
Management believes that the Company has established a leadership position
in the design and implementation of electronic networks as a means for
libraries to share resources. DRA originally introduced its telecommunications
network, DRA Net, in 1980 to provide large libraries an alternative resource
for MARC-formatted catalog records. In the past few years, additional features
have been added to DRA Net to provide network participants with access to a
wide variety of information resources and support services, including third-
party magazine indexes, databases containing the full text of magazine and
journal articles, access to catalogs and other resources of other network
members, and the ability to lend materials to and borrow materials from other
members of the network.
DRA Net is one of thousands of networks that are commonly and collectively
referred to as (the Internet.) Today all library subscriptions include, at no
additional charge, the option of using DRA Net to establish the library's
presence on the Internet. The Company has completed plans to connect its
network with DS-3 (extremely high-speed and high-bandwidth) links to multiple
Internet access points. In addition, DRA is a member of the MIT World Wide Web
Consortium (W3C), which was formed to develop standards for the evolution of
the World Wide Web, and the Commercial Internet eXchange, a major industrial
trade association. The World Wide Web has become the primary means of accessing
the Internet. The Company has begun to market Internet access to corporations
and institutions outside of its traditional library marketplace.
As of November 30, 1996, over 200 library customers, including some of the
Company's largest multi-branch systems and consortia, were using DRA Net.
With the availability of additional services, decreases in networking hardware
costs and advances in networking technologies, management believes that the
utilization of DRA Net should increase among the network members and that
DRA Net should become more attractive to the Company's customers that are
not network members.
Although many DRA customers have access to other electronic networks,
management believes that DRA Net's competitive strengths relative to such
networks include better performance, reliability, availability and access
to more frequently updated databases, and transparency.
TRANSPARENT NETWORKING. Management believes that the transparency of its
networking technology is a key product characteristic that differentiates
the Company from its competitors in the library automation industry.
Transparency in a network means that a library user can search the library's
local catalog and then search a magazine index or other remote database that
is not physically located in the library with identical search procedures
resulting in displays of information that are also identical in style.
Without transparency, a library user searching different resources would
have to be familiar with the searching techniques unique to each resource.
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Transparency is achieved through use of the Company's proprietary Information
Gateway software or its DRA Find, DRA Web, and DRA Kids products. These
products enable a library user to access and search multiple databases that
are either part of the library's own system or accessible over DRA Net.
OPEN SYSTEMS. There has been considerable emphasis in the computer industry
in general and in the library automation industry specifically on the trend
toward "open systems" computing. Management pursues a philosophy that bases
the development of open systems on the interoperability of differing software
systems. Interoperability allows software systems using diverse hardware
platforms and operating systems to interact directly with each other and thus
is very closely related to transparency. Management believes that national
and international standards, particularly the Z39.50 standard, are the only
basis for achieving open systems in library automation.
STANDARDS. DRA is a recognized industry leader in the development,
implementation and promotion of national and international standards as a
means for achieving network-accessible information. The Company was an early
proponent of standardization of library databases using the MARC standard
and was one of the first vendors to market a system that focused on a single
MARC database. A standardized database is critical to the ability of different
libraries' automation systems to connect to each other and exchange information.
More recently, the Company has taken an active role in the development,
implementation and promotion of the NISO Z39.50 standard. Z39.50 provides for
transparent exchange of data between systems that use entirely different
hardware, software and operating systems. The Company incorporates this
standard throughout its software product line and continues its leadership
role in bringing this standard to market.
As part of its standards activities, the Company devotes staff and financial
support to national and international standards organizations. DRA President
and Chief Executive Officer Michael J. Mellinger is the immediate past Chairman
of the Board of Directors of the National Information Standards Organization
("NISO"), the official U.S. standards organization for libraries and other
information services.
CUSTOMER SERVICES
Complementing the Company's software products is a broad selection of
customer services. DRA is committed to providing full service to its customers
by offering the following:
INSTALLATION AND CONVERSION. An initial installation usually consists of
a core configuration of the cataloging and circulation modules, plus any
option modules desired by the customer at the time of purchase. The Company's
installation personnel include experienced librarians and computer specialists
who assist the library in general preparation for and installation of the
hardware and software (for turnkey sales) or the software only (for software
- -only licenses). DRA has converted a number of different types of library
automation systems developed by its national competitors, as well as local
software developers. The Company's installation personnel minimize the amount
of downtime or disruption of daily activities during a system conversion by
providing advanced training, off-site data conversion and an efficient backup
circulation system.
DOCUMENTATION AND TRAINING. All of the Company's software modules are
complemented with full documentation and on-site training. The Company also
distributes to its customers updated, current documentation with each new
release of software. The Company has a comprehensive training program designed
and taught by librarians experienced in automation. Each library's training
program is tailored according to the software and hardware purchased. All
courses are taught in a structured environment using training guides, sample
exercises and hands-on experience.
MAINTENANCE. The Company offers its own maintenance services for its software
modules. Software maintenance includes ongoing software enhancements, as well
as 24-hour, year-round access to the Company's support staff. DRA also sells
maintenance services on certain hardware pursuant to its agreements with
hardware vendors.
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AUTHORITY CONTROL PROCESSING SERVICES. Many libraries want their biblio-
graphic database "authorized" as part of their installation. Authorization
involves the verification of subject headings and names contained in a
library's bibliographic files against the Library of Congress files. The
Company has its own proprietary authority processing services and pioneered
the provision of networked authority control processing services and ongoing
authority verification via DRA Net, resulting in cost savings when compared to
traditional authorization techniques.
CUSTOM SOFTWARE. In addition to its software modules designed to automate
fundamental library functions, DRA also provides to its customers certain
application software that is customized to meet their special needs or
supplement the Company's core modules.
MARKETING AND SALES
The Company's application software is licensed either as part of a turnkey
system or a software-only contract. Public institutions and small colleges
have generally preferred the Company's full-service option. Software-only
licenses are commonly provided to customers with existing relationships with
hardware vendors.
The Company markets its products and services by a variety of methods,
including employing a direct sales force, publishing newsletters, participating
in trade shows and library users' conferences, making presentations at
professional meetings, advertising in trade magazines and assuming leadership
positions in a number of professional organizations. Through its participation
in cooperative marketing agreements with various hardware vendors, the Company
receives sales assistance and promotional assistance from these companies.
DRA sells and licenses products and services through a direct sales force.
Account managers are assigned to specific geographic territories throughout
the world. A sales support staff provides such support as preparation of
quotations and software demonstrations.
The sales process for a library automation system is typically lengthy,
often lasting in excess of 18 months. Libraries procuring automation systems
use such methods as Requests For Information ("RFIs"), Requests For Proposals
("RFPs"), recommendations of consultants, site visits to existing customers,
evaluations at professional conferences and on-site demonstrations in their
selection processes. Libraries replacing an existing automation system often
undertake even more stringent evaluation procedures before purchase. In
addition to its sales and marketing staffs, the Company employs more than
ten people dedicated to responding to RFIs, RFPs and other forms of bids.
PRODUCT DEVELOPMENT
DRA identifies customer and marketplace product needs by staying current
with articles in the professional literature, by analyzing competitive
literature and products and through customer satisfaction surveys and direct
interaction with the users' groups of the Company's respective products.
The users' groups regularly poll their members regarding desired software
improvements and present the results to the Company's management.
DRA's product development staff is currently involved in a number of product
enhancements and new product developments. In fiscal 1996, DRA released
new versions of software products with electronic document interchange
capabilities, multi-lingual capabilities, and bindery capabilities. The Company
also released DRA Web, a web server product, and updates to DRA Find and
DRA Kids in fiscal 1996. The Company is also involved in the development of
software for use on stand-alone research workstations and other database
access and database building products, which will take advantage of the
Company's transparent networking products. The Company is involved in
development of an inter-library loan product, and a new version of its
web server product. The Company is currently in the process of porting
its DRA Classic product to a Digital Equipment Corporation (Digital)UNIX
operating system. The Company also routinely establishes joint development
projects with leading libraries to support its product development efforts.
Sixty-six full-time employees are directly involved in product development.
Several members of senior management also devote time to product development
activities.
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RELATIONSHIP WITH HARDWARE VENDORS
The Data Research System has traditionally operated exclusively on Digital
computers and the Open VMS operating system. However, beginning in fiscal 1994,
management has taken steps to move toward support of multiple platforms and
operating systems. One of these steps is migration to next-generation
client/server technologies using, in addition to Digital's Open VMS, the UNIX
and Windows NT operating systems. Due to the purchase of the MultiLIS system,
the Company can also now offer a complete, fully functional system based on
the UNIX operating system. In conjunction with this multi-vendor strategy,
the Company has developed marketing, sales and product development
relationships with numerous hardware vendors.
Although it is moving away from strong dependence on Digital, DRA maintains
the close business relationship it has had with Digital since 1975. Under its
annually renewable agreement with Digital, the Company purchases certain
Digital hardware and systems software for purposes of resale or sub-license
to the Company's customers on a non-exclusive basis. Digital provides DRA with
specified volume discounts and certain warranties on the equipment and software
and indemnity against copyright or patent infringement claims relating to the
use of Digital products or documentation. The Company also maintains a wide
range of volume discount and reseller arrangements with vendors of support
and peripheral equipment and services.
ACQUISITIONS
The purchase of the INLEX/3000 library automation system and other assets
of Inlex, Inc., completed on October 4, 1993, added 104 new customers and
included establishment of a 13-person branch office in Monterey, California,
which provides support and other services to the INLEX/3000 users. The
INLEX/3000 system expanded the Company's selection of hardware platforms to
include Hewlett-Packard Corporation computers and extended the Company's market
breadth to include smaller public, academic, school and special libraries.
The purchase of the MultiLIS library automation system and other assets
from Sobeco Ernst & Young, a Quebec corporation, Avec Technical Services, Inc.,
an Ontario corporation, multiLIS Corporation, a Delaware corporation, and Avec
Technologies Group, Inc., an Ontario corporation, completed on October 14,
1994, added 202 new customers and included establishment of subsidiary offices
in Montreal, Canada, and Paris, France. The MultiLIS system expanded the
Company's selection of hardware platforms to all hardware platforms supported
by the UNIX operating system and extended the Company's market breadth to
include smaller public, academic, school and special libraries.
COMPETITION
While its competition is highly fragmented, DRA recognizes eight direct
library competitors, representing a mix of closely held private companies
and divisions of Fortune 100 companies. Certain of the Company's competitors
have greater financial, technical, marketing and sales resources than DRA.
There can be no assurance that its present competitors or companies that
choose to enter the marketplace in the future will not exert significant
competitive pressures on the Company.
Management believes that the principal competitive factors in the library
automation industry include networking, integration, product functionality,
system performance, vendor and product reputation, financial stability,
customer service and support and timeliness of product enhancements and
upgrades. DRA believes it competes effectively with respect to all of the
above factors despite the possibility that it may be at a competitive
disadvantage against certain competitors with greater financial and marketing
resources. Management also believes the Company holds key competitive
advantages in its networking capabilities through DRA Net, from the standpoint
of both software functionality and customer recognition.
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The Company recognizes over 1000 competitors in supplying Internet access
services to non-library customers. The competition is highly fragmented with
a range from closely held private companies to Fortune 100 companies. Certain
of the Company's competitors have greater financial, technical, marketing and
sales resources than the Company. There can be no assurance that its present
competitors or companies that choose to enter the market place in the future
will not exert significant competitive pressures on DRA. Management believes
that the Company's years of experience in networking have resulted in core
competency that will allow DRA to compete effectively in this area.
BACKLOG
The Company's normal backlog consists of signed contracts or purchase orders
for products and services on which the Company expects to realize revenue upon
shipment of products and performance of services. Backlog fluctuates
significantly due to installation scheduling, new product development, customer
delays in facilities preparation and other factors both within and outside the
Company's control. Because of these factors, and because DRA typically ships
its products within a short period after orders are received, management
believes that backlog does not provide a meaningful indication of future
performance.
PROPRIETARY RIGHTS AND LICENSES
DRA regards its products as proprietary trade secrets and confidential
information. The Company relies upon its license agreements with customers,
its own security systems, confidentiality procedures and employee
confidentiality agreements to maintain the trade secrecy of its products.
The Company's proprietary software rights are also protected under copyright
law. There can be no assurance that these means of protection will be
effective against unauthorized reproduction.
DRA believes that, due to the rapid pace of innovation within the computer
industry, factors such as (i) technological and creative skill of personnel,
(ii) knowledge and experience of management, (iii) name recognition,
(iv) maintenance and support of software products and (v) the ability to
develop, enhance, market and acquire software products and services are more
important for establishing and maintaining a leading position within
the industry than are patent, copyright and other legal protections for its
technology. Management believes that the Company has all necessary rights to
market its products, although there can be no assurance that third parties will
not assert infringement claims in the future.
EMPLOYEES
As of November 30, 1996, DRA had 206 employees, including 33 in marketing
and sales, 58 in computer operations services and training and 66 in product
development. None of the Company's employees is represented by a labor union.
Management believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company's headquarters and principal administrative, product development
and sales and marketing operations are located in St. Louis, Missouri, where
the Company owns approximately 35,360 square feet of office and warehouse space.
DRA also leases 5,800 square feet in Monterey, California, under a lease that
expires July 31, 1997; 1,056 square feet of office space in Melbourne,
Australia, under a month to month lease; 522 square feet of office space in
Singapore under a lease that expires on April 16, 1997; 10,079 square feet of
office space in Montreal, Canada, under a lease that expires January 31, 2001;
and approximately 2,000 square feet of office space in Paris, France, under a
lease that expires March 31, 2005.
Management believes that the Company's facilities are adequate for its
current needs and that suitable additional space will be available as required.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any material litigation nor, to its knowledge,
is any of its property subject to any such litigation. The Company is not
aware of any material litigation threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
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<PAGE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.*
The executive officers of the Company are:
Name Age Position
---- --- --------
Michael J. Mellinger 47 Chairman, President and Chief
Executive Officer
Katharine W. Biggs 53 Vice President, Chief Financial
Officer and Treasurer
Carl R. Grant 42 Vice President
Thomas M. Rafferty 51 Vice President
Joseph M. Bonwich 37 Vice President
Set forth below are descriptions of the backgrounds of the executive officers
of DRA.
Mr. Mellinger has served as President, Chief Executive Officer and director
of DRA since 1975 and served as Treasurer of the Company from April 1992 to
February 1995. Mr. Mellinger was elected Chairman of the Board in April 1992.
Ms. Biggs was elected Chief Financial Officer and Treasurer of the Company
in February 1995. She has served as Vice President of the Company since May
1991 and served as Controller of the Company from April 1989 to February 1995.
Mr. Grant has served as Vice President of the Company since April 1989.
His areas of responsibility have included International Business since July
1993 and Marketing/Sales from April 1989 to July 1993. Mr. Grant holds a
master's degree in library science.
Mr. Rafferty was appointed Vice President of the Company in February 1995
with the responsibility for the Company's product development. He joined DRA
in 1994 as Manager of Product Development. From 1991 to 1993 he was Vice
President of Mechanical Business Unit of Auto-trol Technology Corporation
where he was responsible for bringing new products to market. From 1989 to
1991 he was Vice President, Research & Development, of Prime/Computervision
where he was responsible for product definition and development for the
Medusa/Calma Business Unit.
Mr. Bonwich was appointed Vice President of the Company in February 1996
with the responsibility for the Company's marketing, corporate communications
and investor relations. He joined DRA as president of the wholly owned
subsidiary formed to handle the Company's advertising and public relations.
From 1994 to 1996 he was Director of Corporate Communications for DRA. From
1992 to 1994 he was Director of Marketing.
Each of the executive officers serves at the discretion of the Board of
Directors, except Mr. Mellinger who is a party to an employment agreement
with the Company, which agreement expires September 30, 1997, with an
automatic five-year renewal, unless terminated by Mr. Mellinger or the
Company upon the occurrence of certain events.
__________
*This information is included in Part I as a separate item in accordance with
Instruction 3 to Item 401 (b) of Regulation S-K adopted under the Securities
Exchange Act of 1934.
Page 12
<PAGE>
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
MARKET INFORMATION
The Common Stock is quoted on the NASDAQ National Market System, under the
trading symbol DRAI.
The high and low sales prices, as adjusted three-for-two stock
split, effected in the form of a stock dividend, paid August 19, 1996, to
holders of record on August 5, 1996 for the Common Stock during each of the
quarters of fiscal 1995 and fiscal 1996 were as follows:
Year Ended September 30, 1995:
Quarter High Low
First $ 7.33 $ 5.67
Second 7.00 5.67
Third 9.17 6.83
Fourth 9.91 8.17
Year Ended September 30, 1996:
Quarter High Low
First $13.83 $ 9.33
Second 15.33 11.83
Third 16.17 13.17
Fourth 14.67 12.67
HOLDERS
As of November 30, 1996, there were 188 shareholders of record of the Common
Stock. Management believes that there are between 1,200 to 1,500 beneficial
shareholders.
DIVIDENDS
On November 21, 1996, the Board of Directors declared the Company's first
annual dividend of $.10 per share of common stock outstanding, payable January
10, 1997, to holders of record at the close of market on December 6, 1996. The
Board of Directors anticipates paying an annual cash dividend, but may
reconsider or revise this policy from time to time based upon conditions then
existing, including the Company's earnings, performance, financial condition
and capital requirements, as well as other factors the Board of Directors may
deem relevant.
Page 13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data appearing below have been derived from the
Company's audited consolidated financial statements. The selected financial
data should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto appearing elsewhere in this filing.
Income Statement Data
(In thousands, except per share data)
Year Ended September 30,
------------------------------------------
1996 1995(1) 1994 1993 1992
---- ------ ---- ---- ----
Revenues:
Hardware $ 11,724 $10,905 $ 8,005 $10,650 $ 7,935
Software 9,949 8,513 7,255 6,105 6,296
Service and other 16,909 15,449 10,056 6,960 5,928
Total revenues 38,582 34,867 25,316 23,715 20,159
Expenses:
Cost of revenues 13,657 12,651 9,017 9,918 7,418
Salaries and employee benefits 10,379 9,356 6,128 4,927 4,570
General and
Administrative expenses 6,788 6,344 5,090 4,337 3,770
Depreciation and amortization 1,147 993 766 507 492
Total operating expenses 31,971 29,344 21,001 19,689 16,250
Income from operations 6,611 5,523 4,315 4,026 3,909
Other income (expense), net 590 347 211 51 (117)
Income before income taxes 7,201 5,870 4,526 4,077 3,792
Provision for income taxes 2,747 2,236 1,585 1,623 1,552
Net income $4,454 $ 3,634 $ 2,941 $ 2,454 $ 2,240
Earnings per common and common
equivalent share (2) $ .81 $ .66 $ .54 $ .45 $ .50
Weighted average number of
common and common
equivalent shares (2) 5,482 5,494 5,487 5,495 4,464
Balance Sheet Data
(In thousands):
September 30,
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Working capital $18,938 $14,562 $12,925 $11,554 $10,979
Total assets 36,661 32,887 27,376 20,782 18,806
Long-term obligations - - 32 58 258
Shareholders' equity 27,446 22,813 19,107 16,155 13,701
(1) The year ended September 30, 1995 reflects the acquisition of the MultiLIS
System in October 1994. See Note N of the Notes to Consolidated Financial
Statements--Acquisitions.
(2) All share and per-share information,except for treasury shares, have
been retroactively restated to reflect the stock split of the Common
Stock approved by the Board of Directors effective April 17, 1992, and
the three-for-two stock split effected in the form of a stock dividend
approved by the Board of Directors effective July 18, 1996. Additionally,
common share equivalents represent amounts relating to issued and
outstanding options to purchase Common Stock. See Note A of the Notes to
Consolidated Financial Statements--Earnings Per Common and Common Equivalent
Share.
Page 14
<PAGE>
ITEM 7. 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 over the term of the maintenance contracts. 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.
Except for the historical information and statements contained in
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("MD&A"), the matters and items contained in this document,
including MD&A, contain forward looking statements that involve uncertainties
and risks, some of which are discussed below, including under the caption
"Cautionary Statements - Additional Important Factors to be Considered."
RESULTS OF OPERATIONS
FISCAL YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1995
Hardware revenues increased $.8 million, or 8%, to $11.7 million in fiscal
1996 from $10.9 million in fiscal 1995. This increase is primarily due to two
large full-service contracts that generated $4.6 million in hardware revenues
in fiscal 1996. The gross margin percentage on hardware was 28% for fiscal 1996
and 27% for fiscal 1995. Management expects that customers' increasing ability
to buy high-performance systems at lower prices may negatively impact the
growth of hardware revenues in the future. Management also expects hardware
margins may be negatively impacted as a result of Digital Equipment
Corporation's decision to sell to DRA through distributors, instead
of directly to the Company.
Software license revenues increased $1.4 million, or 17%, to $9.9 million
in fiscal 1996 from $8.5 million in fiscal 1995. The increase is primarily a
result of two large full-service contracts that generated $1.3 million in
software license revenues in fiscal 1996. The gross margin percentage on
software was 88% for fiscal 1996 and 85% for fiscal 1995. The increase is due
primarily to an increase in software license revenues in fiscal 1996 from
fiscal 1995, coupled with consistent amortization expense charged to costs
of revenues in fiscal 1996 and fiscal 1995.
Service and other revenues increased $1.5 million, or 9%, to $16.9 million
in fiscal 1996 from $15.4 million in fiscal 1995. This increase is primarily
due to the larger installed base of licensed software products that annually
generate maintenance revenues. Maintenance revenues increased $1.4 million in
fiscal 1996. 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 decreased to 77% in fiscal 1996 from
78% in fiscal 1995. The decrease was primarily due to the increased cost of
operating DRA Net in fiscal 1996.
Cost of revenues increased $1.0 million, or 8%, to $13.7 million in fiscal
1996 from $12.7 million in fiscal 1995. This increase is primarily a result of
the increase in hardware revenues in fiscal 1996 over fiscal 1995 and to
increased costs related to operating DRA Net in fiscal 1996.
Salaries and employee benefits increased $1.0 million, or 11%, to $10.4
million in fiscal 1996 from $9.4 million in fiscal 1995. This increase is
primarily attributable to annual salary increases and performance bonuses
paid in fiscal 1996.
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<PAGE>
General and administrative expenses increased $.5 million, or 7%, to $6.8
million in fiscal 1996 from $6.3 million in fiscal 1995. This increase is
primarily attributable to increased sales activity in fiscal 1996.
Income from operations increased $1.1 million, or 20%, to $6.6 million in
fiscal 1996 from $5.5 million in fiscal 1995. The Company experienced an
increase in revenues from all three sources: (i) computer hardware sales;
(ii) software licenses; and (iii) sales of service and other revenue in fiscal
1996 compared to 1995.
Other income (expense) increased $242,000 to $590,000 in fiscal 1996 from
$348,000 in fiscal 1995 due to a higher yield on investments and higher
investment levels.
The Company's consolidated effective tax rate was 38.1% in fiscal 1996 and
1995.
FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED TO FISCAL YEAR ENDED
SEPTEMBER 30, 1994
Hardware revenues increased $2.9 million, or 36%, to $10.9 million in fiscal
1995 from $8.0 million in fiscal 1994. This increase is primarily due to three
large full-service contracts that generated $3.5 million in hardware revenues
in fiscal 1995. The gross margin percentage on hardware was 27% for fiscal 1995
and 28% for fiscal 1994. Management expects that customers' increasing ability
to buy high-performance systems at lower prices may negatively impact hardware
revenues in the future.
Software license revenues increased $1.2 million, or 17%, to $8.5 million in
fiscal 1995 from $7.3 million in fiscal 1994. The increase is primarily a
result of an increase in sales to existing customers and sales of the MultiLIS
System software acquired by the Company in October 1994. The gross margin
percentage on software was 85% for fiscal 1995 and 89% for fiscal 1994.
The decrease is due primarily to an increase in amortization expense charged to
costs of revenues in fiscal 1995 as compared to 1994. Amortization expense has
increased as a result of costs associated with the purchase of the MultiLIS
System in fiscal 1995.
Service and other revenues increased $5.3 million, or 54%, to $15.4 million
in fiscal 1995 from $10.1 million in fiscal 1994. This increase is primarily
due to the acquisition of the MultiLIS System, a larger installed base of
licensed software products that annually generates maintenance revenues and
to a lesser extent to sales of services, such as DRA Net. Service and other
revenues related to the MultiLIS System generated $2.2 million in fiscal 1995.
Maintenance revenues increased $1.4 million in fiscal 1995. DRA Net revenues
increased $.9 million in fiscal 1995 as compared to fiscal 1994, primarily as
a result of a larger base of network customers. Management expects that
maintenance revenues will continue to increase as the base of licensed software
products increases, and that DRA Net revenues will continue to increase as more
customers become part of the network and as demand for network bandwidth
increases among current customers. The gross margin percentage on service
and other revenues increased to 78% in fiscal 1995 from 76% in fiscal 1994.
The increase was primarily due to the increased maintenance revenues which
have a higher margin than other service revenues.
Cost of revenues increased $3.7 million, or 40%, to $12.7 million in fiscal
1995 over $9.0 million in fiscal 1994. This increase is primarily a result of
the increase in hardware revenues in fiscal 1995 over fiscal 1994 and to
amortization expense related to the MultiLIS System purchased in fiscal 1995.
Salaries and employee benefits increased $3.3 million, or 53%, to $9.4
million in fiscal 1995 from $6.1 million in fiscal 1994. This increase is
primarily attributable to the addition of 62 new employees during fiscal 1995
and to annual salary increases. Sixty-one of these employees provide services
for the MultiLIS System.
General and administrative expenses increased $1.2 million, or 25%, to $6.3
million in fiscal 1995 from $5.1 million in fiscal 1994. This increase is
primarily attributable to the $1.0 million in additional expense associated
with operating newly acquired subsidiaries in Montreal, Canada, and Paris,
France, which relate to the MultiLIS System.
Page 16
<PAGE>
Income from operations increased $1.2 million, or 28%, to $5.5 million in
fiscal 1995 from $4.3 million in fiscal 1994. The Company experienced an
increase in revenues from all three sources; (i) computer hardware sales;
(ii) software licenses; and (iii) sales of service and other revenue in fiscal
1995 compared to 1994. These increases were largely offset by higher operating
expenses, primarily attributable to operations supporting the MultiLIS System.
Other income (expense) increased $137,000 to $348,000 in fiscal 1995 from
$211,000 in fiscal 1994 due to a higher yield on investments, higher investment
levels, and more active cash management.
The Company's consolidated effective tax rate was 38.1% in fiscal 1995 and
35.0% in fiscal 1994. This increase is primarily attributable to the
utilization of foreign subsidiaries' loss carryforwards in fiscal 1994 for
which no previous benefit had been recognized.
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 September 30, 1996, the Company's
working capital was $18.9 million and its ratio of current assets to current
liabilities was 3.2 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. The increase in working capital was primarily attributable to the
continued profitability of the Company.
Net cash provided by operating activities was $2.2 million for fiscal 1996,
compared to $4.9 million for fiscal 1995. The decrease in net cash provided by
operations was primarily due to a $2.8 million increase in the accounts
receivable balance during fiscal 1996, compared to a $1.4 million increase
in the accounts receivable balance during fiscal 1995. The increase in accounts
receivable relates to the timing of payments received by customers. The
decrease in net cash provided by operations was also due to a $1.5 million
decrease in accounts payable and other current liabilities during fiscal 1996,
compared to a $.4 million increase during fiscal 1995. The primary items
affecting the Company's accounts payable and other current liabilities at
September 30, 1996, compared to September 30, 1995, were the timing of
payments to vendors, tax payments, and the timing of customer deposits
related to contracts.
Net cash used in investing activities was $6.6 million for fiscal 1996,
compared to $6.3 million for fiscal 1995. The Company's significant investing
activities in fiscal 1996 included $.5 million for the purchase of an office
building in St. Louis, $1.0 million in data processing equipment, and $3.9
million in high-grade short-term bonds. The Company's significant investing
activities in fiscal 1995 included $1.9 million for the MultiLIS System,
$1.2 million in data processing equipment, and $3.0 million in high-grade
short-term bonds.
Net cash provided in financing activities was $.2 million for fiscal 1996,
compared to net cash used in financing activities of $.06 million for fiscal
1995. The Company's financing activities in fiscal 1996 related to the
exercise of stock options by directors and employees of the Company. The
Company's financing activities in fiscal 1995 related exclusively to the
repayment of long-term obligations.
During fiscal 1996, 1995 and 1994, the Company incurred capital
expenditures of $1.8 million, $1.2 million and $.7 million, respectively.
No material commitments with respect to capital expenditures have been
made for fiscal 1997.
In March 1996, the Company renewed its $6.0 million line of credit, which
will mature in January 1997 and is subject to annual renewal. The line of
credit bears interest at the federal funds rate plus 200 basis points payable
monthly on outstanding balances and is secured by the Company's accounts
receivable, inventory and equipment. As of September 30, 1996, the applicable
interest rate was 8.09% per annum. There have been no borrowings against the
Company's line of credit since May 1991.
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<PAGE>
Management believes that with the current cash position of $4.9 million,
short-term investments of $7.0 million, accounts receivable of $14.7 million,
continued cash flow from operations, availability of a $6.0 million line of
credit, and total current liabilities of $8.7 million, the Company will be
able to meet both its liquidity needs and capital expenditure needs for the
next twelve months. Management believes that with total long-term liabilities
of less than $.5 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.
CAUTIONARY STATEMENTS--ADDITIONAL IMPORTANT FACTORS TO BE CONSIDERED
The Company's future results could differ materially from those discussed
in this document. Factors that could cause a contribution to such differences,
include, but are not limited to, the following:
RAPID TECHNOLOGICAL CHANGE. The software industry is characterized by rapid
change and uncertainty due to new and emerging technologies.
The pace of change has
recently accelerated due to the Internet, online services, networking and new
programming languages. There can be no assurance that DRA will be successful in
developing or acquiring product enhancements and new products necessary to keep
pace with the changing technologies.
CUSTOMER ACCEPTANCE. While the Company performs extensive usability and beta
testing of its new products, user acceptance and corporate penetration rates
ultimately dictate the success of development and marketing efforts.
CONTRACTS WITH GOVERNMENTAL ENTITIES. A substantial portion of the Company's
business is conducted with governmental entities. Both the award and execution
of its governmental contracts are subject to numerous conditions, including the
availability and appropriation of sufficient funding.
PRODUCT SHIP SCHEDULES. Because a substantial portion of the Company's revenues
for each quarter is attributable to a limited number of orders and tends to be
realized toward the end of each quarter, even short delays in new-product
releases or delays in the customers procurement processes can cause results
to fluctuate substantially.
COMPETITION. The library automation industry is highly competitive. A number of
companies offer products that target the library automation market. DRA competes
with software vendors whose products operate on Digital hardware platform and
software vendors whose products operate on different platforms. Certain of the
Company's competitors have substantially greater financial, technical, marketing
and sales resources than DRA.
DEPENDENCE ON AND RELATIONSHIP WITH DIGITAL. Although DRA is moving away from a
strong dependence on Digital computers, a substantial portion of the Company's
revenues are still derived from Digital hardware and licensing of the Company's
software, which was originally designed to operate on Digital computers.
DEPENDENCE ON KEY PERSONNEL. DRA's continued success depends in large part on
certain key personnel, including Michael J. Mellinger, its founder, President
and Chief Executive Officer. The loss of the services of Mr. Mellinger and the
inability of the Company to attract and retain a suitable replacement could have
a material adverse effect on the Company.
PRINCIPAL SHAREHOLDERS. Michael J. Mellinger and F. Gilbert Bickel III combined
own in excess of 45 percent of the Common Stock outstanding. As a result, Mr.
Mellinger and Mr. Bickel may be able to effectively control the outcome of
certain matters requiring a shareholder vote.
POSSIBLE ACQUISITIONS. The Company may make acquisitions in the future.
Acquisitions involve numerous risks, including difficulties in the assimilation
of the operations and products of the acquired companies, the diversion of
management's attention from other business concerns, risks of entering markets
in which the Company has no or little direct experience, and potential loss of
key employees of the acquired companies.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Auditors 20
Consolidated Balance Sheets as of September 30,
1996 and 1995 21
Consolidated Statements of Income for the years ended
September 30, 1996, 1995, and 1994 23
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1996, 1995, and 1994 24
Consolidated Statements of Cash Flows for the years
ended September 30, 1996, 1995, and 1994 25
Notes to Consolidated Financial Statements 26
Page 19
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
Data Research Associates, Inc.
We have audited the accompanying consolidated balance sheets of Data Research
Associates, Inc. and subsidiaries as of September 30, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended September 30, 1996. Our audits
also included the financial statement schedule listed in the Index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits. We did not audit the
financial statements of DRA Information Inc., a wholly owned subsidiary, which
statements reflect total assets of $2,151,560 and $2,701,161 and total
revenues of $4,588,023 and $4,630,283 as of and for the years ended
September 30, 1996 and 1995, respectively. We also did not audit the financial
statements of MultiLIS Europe, S.A., a wholly owned subsidiary, which
statements reflect total assets of $734,365 and total revenues of $464,967 as
of and for the year ended September 30, 1995. Those financial statements were
audited by other auditors whose reports have been furnished to us, and our
opinion, insofar as it relates to data included for DRA Information Inc. as of
and for the years ended September 30, 1996 and 1995, and for MultiLIS Europe,
S.A. as of and for the year ended September 30, 1995, is based solely on the
reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
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 that our audits and the reports
of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and, for 1996 and 1995, the reports of
other auditors, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Data Research
Associates, Inc. and subsidiaries at September 30, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1996, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
St. Louis, Missouri
November 4, 1996
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30
------------------------------
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,855,322 $ 9,035,911
Short-term investments 6,968,080 3,023,471
Accounts receivable less allowance for
doubtful accounts of $269,000 in 1996
and $138,000 in 1995:
Billed 10,803,051 9,262,017
Unbilled 3,877,495 1,980,225
----------- -----------
14,680,546 11,242,242
Inventories 178,037 136,382
Prepaid expenses 679,498 591,494
Deferred income taxes 165,591 160,591
Other current assets 153,189 180,188
----------- -----------
TOTAL CURRENT ASSETS 27,680,263 24,370,279
PROPERTY AND EQUIPMENT:
Land and improvements 504,000 294,000
Building and improvements 2,218,491 1,767,942
Data processing equipment 4,407,286 3,400,667
Furniture, fixtures, and other 2,981,818 2,846,536
----------- -----------
10,111,595 8,309,145
Less accumulated depreciation 4,516,768 3,591,600
----------- -----------
5,594,827 4,717,545
DEFERRED SOFTWARE COSTS
(net of accumulated amortization
of $1,056,628 in 1996
and $862,787 in 1995) 522,095 337,433
NOTES RECEIVABLE 296,083 260,404
INTANGIBLE ASSETS
(net of accumulated amortization
of $2,743,629 in 1996
and $1,691,824 in 1995) 2,568,048 3,201,764
----------- -----------
$36,661,316 $32,887,425
=========== ===========
Page 21
September 30
-------------------------------
1996 1995
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,705,042 $ 2,123,439
Employee compensation 694,228 622,059
Deferred revenue 3,786,969 3,406,501
Customer deposits 1,164,150 2,195,133
Other accrued liabilities 776,374 435,550
Income taxes payable 615,361 1,026,092
----------- -----------
TOTAL CURRENT LIABILITIES 8,742,124 9,808,774
DEFERRED INCOME TAXES 473,398 265,747
COMMITMENTS AND CONTINGENCIES--
(Notes D and L)
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, 5,777,520
shares issued in 1996 and
5,736,169 in 1995 57,775 57,361
Additional paid-in capital 5,699,887 5,491,799
Foreign currency translation adjustment 52,855 82,365
Retained earnings 21,910,277 17,456,379
----------- -----------
27,720,794 23,087,904
Less cost of 265,100 shares of treasury stock 275,000 275,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 27,445,794 22,812,904
----------- -----------
$36,661,316 $32,887,425
=========== ===========
See notes to consolidated financial statements.
Page 22
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended September 30
------------------------------------------
1996 1995 1994
------------ ------------ ------------
REVENUES
Hardware $ 11,724,085 $ 10,905,020 $ 8,004,660
Software 9,949,129 8,513,115 7,255,314
Service and other 16,908,446 15,449,012 10,055,561
------------ ------------ ------------
38,581,660 34,867,147 25,315,535
EXPENSES
Cost of Revenues
Hardware 8,499,609 7,953,584 5,790,294
Software 1,213,448 1,250,310 774,182
Service and other 3,943,593 3,447,014 2,452,778
------------ ------------ ------------
13,656,650 12,650,908 9,017,254
Salaries and employee benefits 10,378,880 9,356,260 6,127,360
General and administrative
expenses
(expenses include related
party transactions of
$109,243, $75,219 and
$124,155 for the years
ended September 30, 1996,
1995 and 1994) 6,788,120 6,344,277 5,090,209
Depreciation and amortization
(excluding amounts related
to amortization of
software costs) 1,147,439 993,091 765,796
------------ ------------ ------------
31,971,089 29,344,536 21,000,619
------------ ------------ ------------
INCOME FROM OPERATIONS 6,610,571 5,522,611 4,314,916
OTHER INCOME (EXPENSE)
Interest 502,544 348,337 213,634
Other 87,754 (407) (2,748)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES 7,200,869 5,870,541 4,525,802
PROVISION FOR INCOME TAXES 2,746,971 2,236,115 1,585,000
------------ ------------ ------------
NET INCOME $ 4,453,898 $ 3,634,426 $ 2,940,802
============ ============ ============
Earnings per common and common
equivalent share $ .81 $ .66 $ .54
========= ========= =========
Weighted average number of common
and common equivalent shares 5,482,222 5,494,050 5,487,449
=========== ========== ===========
See notes to consolidated financial statements.
Page 23
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Additional Foreign
Common Stock Paid-In Currency Retained Treasury Stock
Shares Amount Capital Translation Earnings Shares Cost
--------- ------- ---------- --------- -------- ------- -------
Balance at
September 30,
1993 3,912,500 $39,125 $5,510,035 $ - $10,881,151 265,100 $275,000
Three-
For-Two
Stock
Split
declared
August 5,
1996 1,823,669 18,236 (18,236) - - - -
Net income - - - - 2,940,802 - -
Foreign
currency
translation
adjustment - - - 10,571 - - -
--------- ------ --------- -------- ---------- ------- -------
Balance at
September 30,
1994 5,736,169 57,361 5,491,799 10,571 13,821,953 265,100 275,000
Net income - - - - 3,634,426 - -
Foreign
currency
translation
adjustment - - - 71,794 - - -
---------- ------ --------- -------- ---------- ------- -------
Balance at
September 30,
1995 5,736,169 57,361 5,491,799 82,365 17,456,379 265,100 275,000
Options
Exercised 41,351 414 208,088 - - - -
Net Income - - - - 4,453,898 - -
Foreign
currency
translation
adjustment - - - (29,510) - - -
--------- ------- ---------- -------- ---------- ------- -------
Balance at
September 30,
1996 5,777,520 $57,775 $5,699,887 $52,855 $21,910,277 265,100 $275,000
========= ======= ========== ======= =========== ======= ========
See notes to consolidated financial statements.
Page 24
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended September 30
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
OPERATING ACTIVITIES
Net income $ 4,453,898 $ 3,634,426 $ 2,940,802
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 2,222,273 2,124,236 1,315,672
Provision for deferred
income taxes 202,473 (35,550) 18,000
(Gain) loss on disposal of
property and equipment (1,726) 16,127 -
Changes in operating assets
and liabilities:
Accounts receivable (2,844,714) (1,355,578) (1,504,111)
Note receivable (35,679) 106,163 (143,530)
Inventories (42,331) 42,339 101,543
Prepaid expenses and
other current assets (224,476) (42,453) (72,201)
Accounts payable and
other current liabilities (1,496,362) 447,530 2,772,474
----------- ----------- -----------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 2,233,356 4,937,240 5,428,649
INVESTING ACTIVITIES
Purchase of property
and equipment (1,843,623) (1,185,616) (715,829)
Purchases of short-term
investments (14,927,465) (4,532,929) -
Proceeds from sales of
short-term investments 10,982,856 1,509,458 -
Deferred software costs (381,551) (231,564) (198,134)
Proceeds from disposal
of property and equipment 9,068 47,318 -
Purchase of assets of Inlex Inc. - - (1,043,646)
Purchase of assets of MultiLIS - (1,951,200) -
Purchase of software (442,500) - (267,858)
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (6,603,215) (6,344,533) (2,225,467)
FINANCING ACTIVITIES
Proceeds from options exercised 208,502 - -
Principal payments on notes
payable and long-term debt - (58,400) (24,796)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 208,502 (58,400) (24,796)
Effect of exchange rate changes
on cash and cash equivalents (19,232) 85,196 106,165
----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (4,180,589) (1,380,497) 3,284,551
Cash and cash equivalents
at beginning of year 9,035,911 10,416,408 7,131,857
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 4,855,322 $ 9,035,911 $10,416,408
=========== =========== ===========
See notes to consolidated financial statements.
Page 25
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
NOTE A--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business: Data Research Associates, Inc. and subsidiaries (the Company)
develops, markets and supports application software and turnkey systems for
libraries. The Company also provides product support, implementation,
consulting, education, custom programming and systems integration services
to its customers.
Principles of Consolidation: The consolidated financial statements include
the accounts of Data Research Associates, Inc. and its wholly owned
subsidiaries in Australia, Canada, France and Singapore. All intercompany
accounts and transactions have been eliminated.
The Company's wholly owned subsidiary in France, MultiLIS Europe, S. A.
(MultiLIS), has been consolidated based upon a fiscal period ending
June 30 which the subsidiary utilizes in order to satisfy certain
statutory requirements. Operations of MultiLIS for the three months ended
September 30, 1996 and 1995, were not significant.
Cash Equivalents: All highly liquid investments with a maturity of three
months or less when purchased are considered to be cash equivalents.
Short-term Investments: Management determines the appropriate classification
of investments at the time of purchase and reevaluates such designation as of
each balance sheet date. The Company's short-term investments represent debt
securities which are classified as held-to-maturity since the Company has the
positive intent and ability to hold securities to maturity. Held-to-maturity
securities are stated at amortized cost, adjusted for amortization of premiums
and accretion of discounts to maturity. Such amortization is included in
interest income. Interest on securities classified as held-to-maturity is
also included in interest income.
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.
Property and Equipment: Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method over the
estimated useful lives of the assets.
Revenue Recognition: Revenue from sales of turnkey systems sold under
contractual arrangements is recognized upon shipment of the hardware and
software to the customer. Revenue from hardware and software maintenance
contracts is recognized monthly. Revenue from custom software sales is
recognized when the product is shipped. Revenue from installation and
conversion, documentation and training, and authority control processing
services is recognized as the services are performed.
Warranty: The Company is a reseller of hardware, and passes through to its
customers the standard warranties provided by the hardware manufacturers.
The Company warrants its applications software products to perform in
accordance with the written user documentation and the agreements negotiated
with the customer. Since the Company does not customize its applications
software, warranty costs are insignificant and are expensed as incurred.
Page 26
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE A--BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Unbilled Accounts Receivable: Unbilled accounts receivable consist of products
that have been delivered to customers but are not yet billable under the terms
and conditions of the Company's contract with the customer. The manner and
timing of billings are based on the contract and on the Company's credit
policies and are not a function of acceptance by the customer. There are no
significant vendor obligations subsequent to delivery of the Company's systems.
Customer Deposits: Customer deposits typically consist of a 10-15% down
payment required under sales contracts and are due on signing the contract.
Software Development: The Company has a comprehensive line of software
products and maintains a programming group to service, update and enhance
those products. Research and development costs associated with products
outside of its existing line were expensed as incurred and amounted to
$1,900,000, $1,600,000, and $475,000 for the years ended September 30, 1996,
1995, and 1994, respectively. Development costs of $381,552 in 1996, $231,564
in 1995 and $198,134 in 1994 associated with significant enhancements to its
existing software products incurred subsequent to attaining technological
feasibility were capitalized. Amortization is computed on an individual product
basis and is the greater of: (a) the ratio of current gross revenues for a
product to the total current and anticipated future gross revenues for that
product or (b) the straight-line method over the estimated economic useful life
of the product. Currently, the Company is using an estimated economic useful
life of two-years for all capitalized software costs. Amortization expense for
the years ended September 30, 1996, 1995 and 1994 was $193,840, $229,645 and
$206,932, respectively.
Income Taxes: The provision for income taxes is computed using the liability
method. The primary difference between financial statement and taxable income
results from the use of different methods of computing depreciation,
capitalized software development costs, prepaid expenses and customer deposits.
Stock-Based Compensation: The Company accounts for stock options in accordance
with APB Opinion No.25, Accounting for Stock Issued to Employees. Since the
Company grants stock options at an exercise price not less than the fair value
of the shares at the date of grant, no compensation expense is recognized.
Earnings Per Common and Common Equivalent Share: Earnings per common and
common equivalent share are computed using the weighted average number of
common and common equivalent shares outstanding during each year. Common
stock equivalents consist of outstanding stock options.
Translation of Foreign Currency: Each foreign subsidiary's asset and liability
accounts, which are originally recorded in the appropriate local currencies,
are translated for consolidated financial reporting purposes, into U.S. dollar
equivalents at year-end exchange rates. Revenue and expense accounts are
translated at an average of exchange rates in effect during the year.
Intangible Assets: Intangible assets consist of purchased software, customer
lists, and a covenant not to compete. Amortization is computed using the
straight-line method over the estimated useful lives of the respective assets.
Currently, the Company is using an estimated economic useful life of two to
five years for all intangible assets.
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.
Page 27
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE B- SHORT-TERM INVESTMENTS
The following is a summary of held-to-maturity securities:
Year ended September 30, 1996
---------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- --------- ---------- ----------
Mortgage-backed securities $6,470,098 $ - $ - $6,470,098
U.S. corporate debt securities 497,982 - - 497,982
---------- --------- ---------- ----------
$6,968,080 $ - $ - $6,968,080
========== ========= ========== ==========
Year Ended September 30, 1995
---------------------------------------------
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
---------- --------- ---------- ----------
Obligations of states and
political subdivisions $1,536,373 $ - $ - $1,536,373
Mortgage-backed securities 988,140 - - 988,140
U.S. corporate debt securities 498,958 - - 498,958
---------- --------- ---------- ----------
$3,023,471 $ - $ - $3,023,471
========== ========= ========== ==========
NOTE C-NOTE PAYABLE
The Company has a $6,000,000 line of credit with a local bank which allows the
Company to borrow periodically, primarily to finance hardware purchases and
meet short-term borrowing needs. Interest is payable monthly at the federal
funds rate plus 200 basis points and the line is collateralized by accounts
receivable, inventory and equipment. The terms of the loan agreement require,
among other things, that the Company maintain certain working capital and net
worth amounts and meet certain financial ratios. There were no outstanding
borrowings during 1996 and 1995.
Interest expense incurred and paid for the years ended September 30,
1995 and 1994 was $2,887 and $14,863, respectively.
NOTE D-LEASES AND COMMITMENTS
The Company leases equipment and office space under various operating leases.
Future minimum lease payments at September 30, 1996 were as follows:
1997 $ 198,509
1998 112,999
1999 113,009
2000 98,112
2001 50,352
Thereafter 129,115
----------
$ 702,096
==========
Rental expense on operating leases for the years ended September 30, 1996,
1995 and 1994 was $245,000, $340,000 and $152,925, respectively. Rental
expense included amounts paid to a company that is owned by the President
of the Company totaling $19,680 for each of the years ended September 30,
1996, 1995 and 1994.
The Company has two minimum monthly purchase commitments for telecommunication
services. The commitments require minimum expenditures for the years ended
September 30, 1997, 1998, and 1999 of $820,000, $600,000, and $450,000,
respectively.
Page 28
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE E--BENEFIT PLANS
The Company sponsors a defined contribution 401(k) plan covering full-time
employees in the United States who have at least one month of service and are
21 years of age or older. An employee can defer up to 15% of covered
compensation under the plan. The plan provides for a maximum annual Company
match of $1,500 plus discretionary Company profit sharing contributions.
In April 1994, the Company included the Company's common stock as an investment
election under the plan, and at that time reserved 100,000 shares of common
stock for future issuance under the plan. The Company also sponsors a group
retirement plan covering Canadian employees who have at least six months of
service. Under the group retirement plan, the Company annually matches
employee contributions up to $1,500 per participant. Contributions made by
the Company to these plans for the years ended September 30, 1996, 1995 and
1994 were $199,622, $179,678 and $114,268, respectively.
The Company sponsors a stock purchase plan covering directors, officers and
substantially all employees. Under the plan, each participant can contribute
up to 10% of his or her salary per relevant pay period or, in the case of a
non-employee director, the greater of 10% of such director's monthly fees or
$50 per month, to purchase Company common stock. The Company will match up to
15% of participants' contributions. The plan can be terminated at any time by
the Board of Directors. The Company reserved 100,000 shares of common stock
for future issuance under the plan. The Company made contributions of $13,089,
$8,802 and $7,396 for the years ended September 30, 1996, 1995 and 1994,
respectively.
NOTE F--SIGNIFICANT CUSTOMERS
A substantial portion of the Company's business is conducted with governmental
entities; however, the Company is not economically dependent on any customer
on an ongoing basis. The largest customers and the percentage of revenue
derived from these customers are presented below. The customers included in
the presentation are not the same entities from year to year.
Number of Percent of
Customers Total Revenue
1996 3 18.2
1995 5 20.4
1994 4 12.1
Page 29
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G--INCOME TAXES
The components of income before income taxes were as follows:
Year ended September 30
--------------------------------------
1996 1995 1994
----------- ---------- ----------
Domestic $7,290,500 $5,415,450 $4,213,872
Foreign (89,631) 455,091 311,930
----------- ---------- ----------
$7,200,869 $5,870,541 $4,525,802
=========== ========== ==========
The components of income tax expense were as follows:
Year ended September 30
-------------------------------------
1996 1995 1994
---------- ---------- ----------
Current:
Federal $2,162,000 $1,750,000 $1,341,000
Foreign 44,498 333,665 -
State 338,000 188,000 226,000
---------- ---------- ----------
2,544,498 2,271,665 1,567,000
Deferred expense (credit) 202,473 (35,550) 18,000
---------- ---------- ----------
$2,746,971 $2,236,115 $1,585,000
========== ========== ==========
The difference between the effective income tax rate and the U.S. federal
income tax rate is explained as follows:
Year ended September 30
-------------------------------------
1996 1995 1994
---------- ----------- -----------
Tax expense at U.S.
statutory tax rate $2,450,000 $1,996,000 $ 1,539,000
State taxes,
net of federal benefit 284,000 124,000 102,000
Effect of foreign subsidiaries 77,000 179,000 (117,000)
Research and development credits (65,000) (76,000) -
Other items 971 13,115 61,000
---------- ----------- -----------
$2,746,971 $2,236,115 $1,585,000
========== =========== ===========
Page 30
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE G--INCOME TAXES (Continued)
The tax effects of temporary differences which give rise to deferred income
tax assets and liabilities are summarized as follows:
September 30
-------------------------
1996 1995
---------- ----------
Current deferred income taxes:
Loss carryforwards $742,000 $665,000
Allowance for doubtful accounts 31,000 30,000
Vacation accrual 57,000 54,000
Customer deposits 195,000 141,000
Prepaids (142,000) (121,000)
Intercompany interest 163,000 112,000
Other 24,591 56,591
---------- ----------
1,070,591 937,591
Less valuation allowance related to loss
carryforwards and intercompany interest (905,000) (777,000)
---------- ----------
$ 165,591 $ 160,591
========== ==========
Non-current deferred income taxes:
Deferred software $(198,000) $(122,000)
Property and equipment (286,000) (207,000)
Intangibles 16,000 66,000
Other (5,398) (2,747)
---------- ----------
$(473,398) $(265,747)
========== ==========
Income tax payments for the years ended September 30, 1996, 1995 and 1994
were $3,100,000, $2,100,000 and $1,144,000, respectively.
The Company has a federal loss carryforward of $765,000 at September 30, 1996,
that expires in the years 2004 through 2009. This loss carryforward resulted
from the Companys 1994 acquisition of Multicore, a U.S. subsidiary of MultiLIS
(See Note N). The use of the loss carryforward by the Company is limited to an
annual amount determined under the Internal Revenue Code. In addition, the
Company's French, Australian and Singapore subsidiaries have loss carryforwards
at September 30, 1996 of approximately $950,000, $350,000 and $107,000,
respectively. The loss carryforwards for the French subsidiary expire in 1999
and 2000. The loss carryforwards in Australia and Singapore have no expiration
date. For financial statement purposes, a valuation allowance has been
established to offset the deferred tax asset related to loss carryforwards.
Undistributed earnings of certain subsidiaries outside the United States are
considered to be permanently reinvested. Accordingly, no provision for United
States income taxes was made for undistributed earnings of such subsidiaries
which aggregated $605,024 as of September 30, 1996.
Page 31
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H--GEOGRAPHIC SEGMENT DATA
Substantially all of the Company's assets, sales and operating results are
employed in or derived from the sale of application software and turnkey
systems to libraries.
Financial information, summarized by geographic area, is as follows:
Year ended September 30, 1996
United Australia/
States Canada Asia Europe Eliminations Consolidated
----------- ---------- -------- -------- ------------ -----------
Net Sales:
Unaffiliated
customers $34,144,970 $2,727,441 $720,356 $988,893 $ - $38,581,660
Interarea
transfers 854,284 1,860,582 267,440 - (2,982,306) -
----------- ---------- -------- -------- ------------ -----------
Total $34,999,254 $4,588,023 $987,796 $988,893 $(2,982,306) $38,581,660
=========== ========== ======== ======== ============ ===========
Income (loss)
from
Operations $6,714,088 $127,781($216,901) ($14,397)$ - $6,610,571
=========== ========== ======== ======== ============ ===========
Identifiable
assets $32,964,601 $1,999,102 $1,157,842 $539,771$ - $36,661,316
=========== ========== ======== ======== ============ ===========
Year ended September 30, 1995
United Australia/
States Canada Asia Europe Eliminations Consolidated
----------- ---------- -------- -------- ------------ -----------
Net Sales:
Unaffiliated
Customers $30,205,392 $3,280,971 $915,817 $464,967 $ - $34,867,147
Interarea
transfers 495,720 1,355,559 - - (1,851,279) -
----------- ---------- -------- -------- ------------ -----------
Total $30,701,112 $4,636,530 $915,817 $464,967 $(1,851,279) $34,867,147
=========== ========== ======== ======== ============ ===========
Income (loss)
from
Operations $4,859,709 $1,072,967 $ 97,017 $(507,082) $ - $5,522,611
=========== ========== ======== ========= ========= ===========
Identifiable
assets $27,000,066 $2,850,176$2,302,818 $734,365 $ - $32,887,425
=========== ========== ======== ========= ========= ===========
Page 32
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE H--GEOGRAPHIC SEGMENT DATA (Continued)
Year ended September 30, 1994
United Australia/
States Canada Asia Europe Eliminations Consolidated
----------- ---------- -------- -------- ------------ -----------
Net Sales:
Unaffiliated
Customers $22,972,267 $800,444 $1,542,824 $ - $ - $25,315,535
Interarea
transfers 314,207 - - - (314,207) -
----------- ---------- -------- -------- ------------ -----------
Total $23,286,474 $800,444 $1,542,824 $ - $(314,207) $25,315,535
=========== ========== ========= ======== ========== ===========
Income
from
Operations $3,411,741 $598,574 $304,601 $ - $ - $4,314,916
=========== ========== ======== ========= ========= ===========
Identifiable
assets $24,728,218 $373,079 $2,275,015 $ - $ - $27,376,312
=========== ========== ========= ========= ========= ===========
Export sales to Canada from the United States were $1,562,648, $1,361,806, and
$800,444 for the years ended September 30, 1996, 1995, and 1994, respectively.
Export sales to Singapore from the United States were $1,013,434 in fiscal 1996.
The transfers between geographic areas are priced consistent with pricing to
non-affiliated entities.
Most services of the Company are provided on an integrated worldwide basis.
Because of the integration of U.S. and non-U.S. services, it is not practical
to separate precisely the U.S. oriented services from services resulting from
operations outside the United States and performed for customers outside the
United States. Accordingly, the separation set forth in the above table is
based upon internal allocations, which involve certain management judgments.
Page 33
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE I--RELATED PARTY TRANSACTIONS
The Company incurred consulting and legal expenses to entities related to
shareholders and directors of the Company for the years ended September 30,
1996, 1995, and 1994 of $89,563, $55,539, and $104,475, respectively.
In addition, legal fees paid to related parties of $38,984 in 1995 and
$95,323 in 1994 were capitalized in connect with acquisitions made
by the Company.
NOTE J--COMMON STOCK SPLIT
On July 18, 1996, the Board of Directors declared a three-for-two stock
split, effected in the form of a stock dividend, paid August 19, 1996, to
holders of record on August 5, 1996. With the exception of treasury shares,
the financial statements, including stock option, share, per share, and price
per share data, have been retroactively adjusted to reflect the stock split.
NOTE K--STOCK OPTION PLANS
The Company maintains two stock option plans which provide for the issuance of
stock to certain key employees and directors of the Company. The option price
under the plans is equivalent to the fair market value of the common stock at
the date of grant. In 1996, an additional 225,000 shares were authorized by
the shareholders under the plans. Options granted in 1996 and 1995 will be
fully-vested in 1998 and 1997, respectively.
The following table summarizes the status of the various plans.
Year ended September 30: 1996 1995
Shares Price Per Share Shares Price Per Share
Authorized to be granted 450,000 225,000
Available to be granted 313,875 112,500
Options granted 30,750 $9.33 27,300 $6.50
Options exercised 41,351 4.67 to 6.83 - -
Options canceled 7,125 6.50 to 9.33 2,400 6.50
Options outstanding 94,774 4.67 to 9.33 112,500 4.67 to 8.50
Options exercisable 66,950 4.67 to 9.33 75,000 4.67 to 8.50
Page 34
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE L--EMPLOYMENT AGREEMENT
The Company has an employment agreement with the President of the Company
which expires September 30, 1997. The agreement, which contains provisions
for an automatic five-year renewal, requires total minimum annual payments in
the form of base compensation of $277,956 and an annual bonus, both of which
are at the discretion of the Board of Directors and subject to termination
provisions as defined by the agreement.
NOTE M--QUARTERLY FINANCIAL DATA (UNAUDITED)
The results of operations by quarter for 1996 and 1995 were as follows (in
thousands, except per share data):
Quarter ended
--------------------------------------------------
September 30, June 30, March 31, December 31,
1996 1996 1996 1995
------- ------ ------- ------
Revenues $10,771 $8,911 $12,174 $6,726
Income from operations 2,659 1,799 1,584 569
Net income 1,716 1,174 1,144 420
Earnings per common and
common share equivalent .31 .21 .21 .08
Quarter ended
-------------------------------------------------
September 30, June 30, March 31, December 31,
1995 1995 1995 1994
------ ------- ------ ------
Revenues $8,649 $10,271 $8,953 $6,994
Income from operations 2,282 1,535 1,483 223
Net income 1,535 994 934 171
Earnings per common and
common share equivalent .28 .18 .17 .03
NOTE N--ACQUISITIONS
The Company purchased the library automation system and related assets of
Inlex, Inc. in October 1993. The acquisition was accounted for under the
purchase method of accounting and the consolidated financial statements
include the results of Inlex, Inc. from the date of acquisition. These assets
were purchased for a cash price of approximately $1,000,000 and the Company
also assumed $533,000 in liabilities, primarily related to prepaid maintenance.
In October 1994, the Company completed the purchase of the MultiLIS library
automation system and certain related assets for a cash price of approximately
$2,000,000 and the assumption of approximately $2,000,000 in liabilities.
The acquisition was accounted for under the purchase method of accounting
and the consolidated financial statements include the results of the MultiLIS
automation system from the date of acquisition.
The following unaudited pro forma information shows the results of the
Company's operations as though the purchase of MultiLIS had been made at the
beginning of fiscal year 1994--revenues of $30.5 million, net income of
$2.8 million and earnings per share of $.50. The unaudited pro forma results
are not necessarily indicative of the actual results of operations that would
have occurred had the purchase actually been made at the beginning of fiscal
year 1994. Pro forma results for 1995 would be approximately the same as 1995
actual results, since the acquisition was made near the beginning of fiscal
year 1995.
Page 35
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
Page 36
<PAGE>
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the caption "INFORMATION ABOUT THE NOMINEE
AND DIRECTORS CONTINUING IN OFFICE" in the Company's definitive proxy statement
to be filed pursuant to Regulation 14A for the Company's 1997 annual meeting of
shareholders, which involves the election of directors, is incorporated
herein by this reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the caption "EXECUTIVE COMPENSATION" in the
Company's definitive proxy statement to be filed pursuant to Regulation 14A for
the Company's 1997 annual meeting of shareholders, which involves the election
of directors, is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained under the captions "VOTING SECURITIES, VOTING
RIGHTS AND PRINCIPAL SECURITY HOLDERS" and "SECURITY OWNERSHIP OF MANAGEMENT"
in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the Company's 1997 annual meeting of shareholders,
which involves the election of directors, is incorporated herein by
this reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the caption "TRANSACTIONS WITH ISSUER AND
OTHERS" in the Company's definitive proxy statement to be filed pursuant to
Regulation 14A for the Company's 1997 annual meeting of shareholders, which
involves the election of directors, is incorporated herein by this reference.
Page 37
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a.) 1. Financial Statements Page
The following consolidated financial statements of Data Research
Associates, Inc. and its subsidiaries are included in Item 8.
Report of Independent Auditors 20
Consolidated Balance Sheets as of September 30,
1996 and 1995 21
Consolidated Statements of Income for the years ended
September 30, 1996, 1995 and 1994 23
Consolidated Statements of Shareholders' Equity for the
years ended September 30, 1996, 1995 and 1994 24
Consolidated Statements of Cash Flows for the years ended
September 30, 1996, 1995 and 1994 25
Notes to Consolidated Financial Statements 26
(a.) 2. Financial Statement Schedule
The following consolidated financial statement schedule is included in this
report in accordance with Item 8 and paragraph (d) of Item 14:
Page
Schedule II - Valuation and Qualifying Accounts 39
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
(a) 3. See Exhibit Index
The following is a list of each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) of this Report:
Employment Agreement dated April 15, 1992, by and between the Registrant
and Michael J. Mellinger
Data Research Associates, Inc. 401(k) Profit Sharing Plan
Data Research Associates, Inc. 1992 Stock Option Plan
Data Research Associates, Inc. Stock Purchase Plan
Data Research Associates, Inc. Director Stock Option Plan
(b) Reports on 8-K
No reports on Form 8-K were filed during the fourth quarter of the
Registrant's fiscal year ended September 30, 1996.
Page 38
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
Years ended September 30, 1996, 1995 and 1994
Col. A Col. B Col. C Col. D Col. E
- ------------------------ ---------- -------------------- ---------- ---------
Additions
-------------------
Charged Charged Balance
Balance at to Costs to Other at
Beginning and Accounts- Deductions- End of
Description of Period Expenses Describe Describe Period
- ------------------------ ---------- --------- --------- ---------- ---------
1996
- ----
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $138,000 $131,000 $ - $ - $ 269,000
Accumulated amortization
of deferred software
costs 862,787 193,841 - - 1,056,628
Accumulated amortization
of purchased software
costs 1,691,824 1,051,805 - - 2,743,629
Valuation Allowance for
deferred tax assets 777,000 128,000 - - 905,000
1995
- ----
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $ 81,000 $ 57,000 $ - $ - $ 138,000
Accumulated amortization
of deferred
software costs 633,142 229,645 - - 862,787
Accumulated amortization
of purchased
software costs 449,355 1,242,469 - - 1,691,824
Valuation Allowance for
deferred tax assets 164,575 253,425 401,500(1) 42,500(2) 777,000
1994
- ----
Reserves and allowances
deducted from asset accounts:
Allowance for doubtful
accounts $ 81,000 $ - $ - $ - $ 81,000
Accumulated amortization
of deferred
software costs 426,210 206,932 - - 633,142
Accumulated amortization
of purchased
software costs 13,204 436,151 - - 449,355
Valuation Allowance for
deferred tax assets 244,489 37,086 - 117,000(2) 164,575
_______________
(1) Valuation allowance for foreign loss carryforwards at acquisition date.
(2) Effect of foreign subsidiaries income on reserve for foreign loss
carryforward.
Page 39
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, in the County of
St. Louis, State of Missouri, on December 18, 1996.
DATA RESEARCH ASSOCIATES, INC.
By: /s/ Michael J. Mellinger
- -----------------------------------
Michael J. Mellinger, President
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Data Research Associates, Inc.,
hereby severally and individually constitute and appoint Michael J. Mellinger
the true and lawful attorney and agent of each of us, with full power of
substitution and resubstitution to execute in the name, place and stead of
each of us (individually and in any capacity stated below) this Form 10-K and
any and all amendments to and all instruments necessary or advisable in
connection therewith and to file the same with the Securities and Exchange
Commission, said attorney and agent to have power to act and to have full power
and authority to do and perform in the name and on behalf of each of the
undersigned every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person, and we hereby ratify and confirm our signatures
as they may be signed by our said attorney and agent to any and all such
reports, amendments and instruments.
Name Title Date
/s/ Michael J. Mellinger Director, President, 12/18/96
- ------------------------ ---------------------------- --------
Michael J. Mellinger and Chief Executive Officer
(Principal Executive Officer)
/s/ Katharine W. Biggs Vice-President and 12/18/96
- ------------------------ ---------------------------- --------
Katharine W. Biggs Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ F. Gilbert Bickel III Director 12/18/96
- ------------------------ ---------------------------- --------
F. Gilbert Bickel III
/s/ Carole Cotton Director 12/18/96
- ------------------------ ---------------------------- --------
Carole Cotton
/s/ Donald P. Gallop Director 12/18/96
- ------------------------ ---------------------------- --------
Donald P. Gallop
/s/ Howard L. Wood Director 12/18/96
- ------------------------ ---------------------------- --------
Howard L. Wood
Page 40
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
3.1 Restated Articles of Incorporation of the Registrant,
incorporated herein by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1,
Reg. No. 33-47350 (the "Form S-1"). N/A
3.2 Amended and Restated Bylaws of the Registrant, as amended,
incorporated herein by reference to Exhibit 3.2 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993 (the "1993 Form 10-K"). N/A
10.1 Employment Agreement dated April 15, 1992, by and between the
Registrant and Michael J. Mellinger, incorporated herein by
reference to Exhibit 10.1 to the Form S-1. N/A
10.2 Data Research Associates, Inc. 401(k) Profit Sharing Plan,
incorporated herein by reference to Exhibit 10.2 to
the Form S-1. N/A
10.3 Data Research Associates, Inc. 1992 Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-8,
Reg. No. 333-2372. N/A
10.4 Data Research Associates, Inc. Stock Purchase Plan, as amended,
incorporated herein by reference to Exhibit 10.4 to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992. N/A
10.5 Equipment Lease dated April 15, 1991, by and between the
Registrant and Davandy Management, Inc. incorporated
herein by reference to Exhibit 10.7 to the Form S-1. N/A
10.6 Data Research Associates, Inc. Director Stock Option Plan,
incorporated herein by reference to Exhibit 4 to the
Registrant's Registration Statement on Form S-8,
Reg. No. 33-61762. N/A
10.7 Aircraft Sales Agreement dated May 20, 1993, by and between
the Registrant and Davandy Management, Inc. incorporated
herein by reference to Exhibit 10.10 to the 1993 Form 10-K. N/A
10.8 Time Sharing Agreement dated September 10, 1995, by and between
the Registrant and Charter Communications, Inc. incorporated
herein by reference to Exhibit 10.8 to the 1995 Form 10-K. N/A
10.9 Data Research Associates, Inc. 401(k) Profit Sharing Plan
as amended October 1, 1994, incorporated herein by reference
to Exhibit 10.9 to the 1995 Form 10-K. N/A
10.10 Agreement dated July 9, 1993, by and between the Registrant
and Digital Equipment Corporation, incorporated herein by
reference to Exhibit 10.10 to the 1995 Form 10-K. N/A
11 Statement Re: Computation of Per Share Earnings. 43
Page 41
<PAGE>
EXHIBIT INDEX (Continued)
Exhibit
Number Description Page
21 Subsidiaries of the Registrant. 44
23 Consent of Ernst & Young LLP, independent auditors. 45
23.1 Consent of Price Waterhouse, independent auditors. 46
23.2 Consent of BDA/Deloitte Touche Tohmatsu,
independent auditors. 47
24 Power of Attorney (set forth on signature page). 40
27 Financial Data Schedule 51
99 Report of Price Waterhouse, independent auditors. 48
99.1 Report of Price Waterhouse, independent auditors. 49
99.3 Report of BDA/Deloitte Touche Tohmatsu,
independent auditors. 50
Page 42
<PAGE>
Exhibit 11
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Statement Re: Computation of Per Share Earnings
Year ended September 30
-------------------------------
1996 1995 1994
------ ------ ------
(In Thousands, Except Per Share Data)
Primary
- -------
Average shares outstanding 5,482 5,471 5,471
Net effect of dilutive stock options--based
on the treasury stock method using average
market price - 23 16
----- ----- -----
TOTAL 5,482 5,494 5,487
===== ===== =====
Net Income $4,454 $3,634 $2,941
===== ===== =====
Earnings per common and common
equivalent share $ .81 $ .66 $ .54
===== ===== =====
Fully Diluted
- -------------
Average shares outstanding 5,482 5,471 5,471
Net effect of dilutive stock options--based
on the treasury stock method using year-end
market price, if higher than average market
price - 41 16
----- ----- -----
TOTAL 5,482 5,512 5,487
===== ===== =====
Net Income $4,454 $3,634 $2,941
===== ===== =====
Earnings per common and common
equivalent share $ .81 $ .66 $ .54
===== ===== =====
Page 43
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
Wholly owned subsidiaries of Data Research Associates, Inc. are:
Data Research International (SEA) Pte. Ltd.
Data Research International (Australasia) Pty. Ltd.
DRA Information Inc. (Canada)
MultiLIS Europe S.A. (France) (except directors' qualifying shares)
Page 44
<PAGE
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No. 333-2372) pertaining to the Data Research Associates, Inc.
1992 Stock Option Plan, (Form S-8, No.33-51576) pertaining to Data
Research Associates, Inc. Stock Purchase Plan, (Form S-8, No.33-61762)
pertaining to the Data Research Associates, Inc. Director Stock Option Plan,
(Form S-8, No.33-77160) pertaining to the Data Research Associates, Inc.
1992 Option Plan and (Form S-8, No.33-77160) pertaining to the Data
Research Associates, Inc. 401(k) Profit Sharing Plan of our report dated
November 4, 1996, with respect to the consolidated financial statements
and schedule of Data Research Associates, Inc. and subsidiaries, included
in the Annual Report (Form 10-K) for the year ended September 30, 1996.
/s/ Ernst & Young LLP
St. Louis, Missouri
December 16, 1996
Page 45
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (Nos. 33-51576, 33-61762, 33-77160 and 333-2372) of
Data Research Associates, Inc. of our reports dated October 25, 1996 and
October 20, 1995 included in the Annual Report to Shareholders which is
incorporated in the Annual 10-k.
/s/ Price Waterhouse
Montreal, Quebec
December 16, 1996
Page 46
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, No.33-51576) pertaining to Data Research Associates, Inc. Stock
Purchase Plan, (Form S-8, No.33-61762) pertaining to the Data Research
Associates, Inc. Director Stock Option Plan, (Form S-8, No.333-2372)
pertaining to the Data Research Associates, Inc. 1992 Option Plan and (Form
S-8, No.33-77160) pertaining to the Data Research Associates, Inc. 401(k)
Profit Sharing Plan of our report dated October 2, 1995, with respect to
the statements of MULTILIS EUROPE, S.A. (a wholly owned subsidiary of DATA
RESEARCH ASSOCIATES, INC.) included in the Annual Report (Form 10-K)
of Data Research Associates, Inc. and subsidiaries.
/s/ Deloitte Touche Tohmatsu
Paris, France
December 16, 1996
Page 47
<PAGE>
Exhibit 99
Price Waterhouse
Montreal Quebec
October 25, 1996
AUDITORS' REPORT
To the Shareholder of
DRA Information Inc.
We have audited the balance sheet of DRA Information Inc. as of September 30,
1996 and the statements of income and retained earnings and cash flows for the
year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1996 and
the results of its operations and the changes in its cash flow for the year
then ended in accordance with generally accepted accounting principles.
/s/ PriceWaterhouse
Chartered Accountants
Page 48
<PAGE>
Exhibit 99.1
Price Waterhouse
Montreal Quebec
October 20, 1995
AUDITORS' REPORT
To the Shareholder of
DRA Information Inc.
We have audited the balance sheet of DRA Information Inc. as of September 30,
1995 and the statements of income and retained earnings and cash flows
expressed in Canadian dollars for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as of September 30, 1995 and
the results of its operations and the changes in its cash flow for the year
then ended in accordance with generally accepted accounting principles in
United States.
/s/ PriceWaterhouse
Chartered Accountants
Page 49
<PAGE>
Exhibit 99.2
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
MULTILIS EUROPE S.A.
We have audited the accompanying balance sheet of MULTILIS EUROPE S.A.(the
Company) (a wholly owned subsidiary of DATA RESEARCH ASSOCIATES, INC.) as
of June 30, 1995, and the related statements of income, shareholders' equity
and cash flows for the twelve month period 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. 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 that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of June
30, 1995 and the results of its operations and its cash flows for the
twelve month period then ended, in conformity with generally accepted
accounting principles in the United States of America.
October 2, 1995
/s/Deloitte Touche Tohmatsu
Paris, France
Page 50
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
the Form 10-K for the year ended September 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,855
<SECURITIES> 6,968
<RECEIVABLES> 14,950
<ALLOWANCES> 269
<INVENTORY> 178
<CURRENT-ASSETS> 27,680
<PP&E> 10,112
<DEPRECIATION> 4,517
<TOTAL-ASSETS> 36,661
<CURRENT-LIABILITIES> 8,742
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 27,388
<TOTAL-LIABILITY-AND-EQUITY> 36,661
<SALES> 38,582
<TOTAL-REVENUES> 38,582
<CGS> 13,657
<TOTAL-COSTS> 31,971
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (590)
<INCOME-PRETAX> 7,201
<INCOME-TAX> 2,747
<INCOME-CONTINUING> 4,454
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,454
<EPS-PRIMARY> .81
<EPS-DILUTED> .81
</TABLE>
