UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
-------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-----------------------------------------------
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 Identification No.)
of incorporation or organization)
1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(314) 432-1100
- --------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-- --
APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 15, 1997 there were 5,524,120 shares of the registrant's common
stock outstanding.
1
INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
- ------------------------------
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -December 31, 1996
and September 30, 1996
Consolidated statements of income -Three months ended December 31,
1996 and 1995
Consolidated statements of cash flows -Three months ended December 31,
1996 and 1995
Notes to the unaudited consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
- --------------------------
SIGNATURES
2
Part 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, September 30,
1996 1996
(Unaudited)
----------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,036 $ 4,855
Short-term investments 10,724 6,968
Accounts receivable less allowance for doubtful
accounts of $269:
Billed 6,924 10,803
Unbilled 3,674 3,878
------ ------
10,598 14,681
Inventories 138 178
Prepaid expenses 786 679
Deferred income taxes 213 166
Other current assets 154 153
------ ------
TOTAL CURRENT ASSETS 26,649 27,680
PROPERTY AND EQUIPMENT
Land and improvements 504 504
Building and improvements 2,426 2,219
Data processing equipment 4,737 4,407
Furniture, fixtures, and other 3,193 2,982
------ ------
10,860 10,112
Less accumulated depreciation 4,782 4,517
------ ------
6,078 5,595
NOTE RECEIVABLE 180 296
DEFERRED SOFTWARE COSTS (net of accumulated
amortization of $1,122 at December 31, 1996
and $1,057 at September 30, 1996) 657 522
INTANGIBLE ASSETS (net of accumulated
amortization of $2,961 at December 31, 1996
and $2,744 at September 30, 1996) 2,401 2,568
------ ------
$35,965 $36,661
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,666 $ 1,705
Employee compensation 407 694
Deferred revenue 3,318 3,787
Customer deposits 960 1,164
Other accrued liabilities 550 777
Income taxes payable 494 615
------ ------
TOTAL CURRENT LIABILITIES 7,395 8,742
DEFERRED INCOME TAXES 524 473
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, 5,789,220 shares issued at
December 31, 1996, 5,777,520 shares issued at
September 30, 1996 58 58
Additional paid-in capital 5,779 5,700
Foreign currency translation adjustment 32 53
Retained earnings 22,452 21,910
------ ------
28,321 27,721
Less cost of 265,100 shares of treasury stock 275 275
------ ------
TOTAL SHAREHOLDERS' EQUITY 28,046 27,446
------ ------
$35,965 $36,661
====== ======
See notes to unaudited consolidated financial statements.
3
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
Three months ended
December 31,
1996 1995
------ ------
REVENUES
Hardware $ 1,396 $ 1,441
Software 1,302 1,629
Service and other 4,430 3,656
------ ------
7,128 6,726
EXPENSES
Cost of revenues
Hardware 976 974
Software 249 260
Service and other 861 776
------ ------
2,086 2,010
Salaries and employee benefits 2,562 2,507
General and administrative expenses 1,488 1,376
Depreciation and amortization 294 264
------ ------
6,430 6,157
INCOME FROM OPERATIONS 698 569
OTHER INCOME 202 166
------ ------
Income before income taxes 900 735
PROVISION FOR INCOME TAXES 359 315
------ ------
NET INCOME $ 541 $ 420
====== ======
Earnings per share $ 0.10 $ 0.08
====== ======
Weighted average number
of common shares 5,519,917 5,471,100
========= =========
See notes to unaudited consolidated financial statements.
4
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
December 31,
1996 1995
------- -------
OPERATING ACTIVITIES
Net income $ 541 $ 420
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 546 520
Provision for deferred income taxes 3 -
Changes in operating assets
and liabilities:
Accounts receivable 4,677 2,168
Inventories 40 (2,090)
Prepaid expenses and
other current assets (108) 16
Accounts payable and
other current liabilities (1,956) 116
Note receivable 116 22
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 3,859 1,172
------- -------
INVESTING ACTIVITIES
Purchase of property and equipment (752) (653)
Purchase of short-term investments (15,345) (3,067)
Proceeds from sales of short-term investments 11,589 2,049
Purchased software (48) -
Deferred software cost (200) (75)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (4,756) (1,746)
------- -------
FINANCING ACTIVITIES
Proceeds from options exercised 79 -
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 79 -
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS (1) (2)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (819) (576)
------- -------
Cash and cash equivalents at
beginning of period 4,855 9,036
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 4,036 $ 8,460
======= =======
See notes to the unaudited consolidated financial statements.
5
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. Basis of Presentation
The unaudited consolidated financial statements of Data Research Associates,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements and, therefore, should
be read in conjunction with the Company's consolidated financial statements and
the notes thereto for the year ended September 30, 1996, contained in the
Company's annual report for the year ended September 30, 1996. In the opinion
of management, all adjustments (consisting only of normal recurring items)
considered necessary for a fair presentation have been included. The results
of operations for the three months ended December 31, 1996, are not
necessarily indicative of the results that may be expected for the year ending
September 30, 1997.
2. Inventories
Inventories consist primarily of computer equipment and supplies which are
stated at the lower of cost (first-in, first-out method) or market and the
unamortized cost of computer software purchased for resale. The Company had
only finished goods in inventory at December 31, 1996, and September 30,
1996.
3. Income Taxes
The provision for income taxes is computed using the liability method. The
difference between the effective income tax rate and the U.S. federal income
tax rate is a result of state taxes and subsidiaries' losses for which there
is no current tax benefit.
4. 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. The financial statements, including share, per
share and price per share data, have been retroactively adjusted to reflect
the stock split, except for the treasury shares.
6
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenues are derived from three sources: (i) computer
hardware sales; (ii) software licenses; and (iii) sales of services,
including training, conversion, networking, database access, system support
and product maintenance. Revenue is recognized on hardware sales and software
licenses upon shipment of the product. Revenue from hardware and software
maintenance contracts is recognized monthly over the term of the maintenance
contract. 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 are reported on the balance sheet as deferred
software costs and amortized over the estimated useful life of the product.
The amortization of capitalized software is allocated as a direct cost of
licensing DRA software. The Company typically experiences greater gross
margin on software licenses than on sales of hardware or services. The
Company's profitability depends in part on the mix of its revenue components
and not necessarily on total revenues.
The Company's revenues and earnings can fluctuate from quarter to quarter
depending upon, among other things, such factors as the complexity of
customers' procurement processes, new product and service introductions by
the Company and other vendors, delays in customer purchases due to timing
of library professional conferences and trade shows, installation scheduling
and customer delays in facilities preparation. In addition, a substantial
portion of the Company's revenues for each quarter is attributable to a
limited number of orders and tends to be realized towards the end of each
quarter. Thus, even short delays or deferrals of sales near the end of a
quarter can cause quarterly results to fluctuate substantially. In the future,
the Company's revenues will be increasingly dependent on sales of its next-
generation system which is currently being developed. The timing of the
completion of this system, which is based on object-oriented client/server
design, may be affected by multiple factors, including rapid technological
change, dependence on third-party suppliers and the relative scarcity of
qualified technical staff.
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. 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, those presented in the Company's
Form 10K for the year ended September 30, 1996.
Results of Operations
Three Months Ended December 31, 1996 compared to Three Months Ended
December 31, 1995
Hardware revenues remained constant at $1.4 million for the three months
ended December 31, 1996, and December 31, 1995. The gross margin percentage
on hardware was 30% in the three months ended December 31, 1996, and 32% in
the three months ended December 31, 1995. The decrease is due primarily to
one large sale with a low gross margin in the three months ended December 31,
1996.
Software license revenues decreased $.3 million, or 20%, to $1.3 million in
the three months ended December 31, 1996, from $1.6 million in the three months
ended December 31, 1996. The decrease is primarily due to a reduction of third
party software sold during the three months ended December 31, 1996. The gross
margin percentages on software decreased to 81% in the three months ended
December 31, 1996, from 84% the three months ended December 31, 1995. The
decrease is primarily due to increased amortization expense charged to software
cost of revenues in the three months ended December 31, 1996.
7
Service and other revenues increased $.7 million, or 21%, to $4.4 million in
the three months ended December 31, 1996, from $3.7 million in the three months
ended December 31, 1995. Management expects that maintenance revenues will
continue to increase as the base of licensed software products increases.
The gross margin percentage on service and other revenues increased to 81%
for the three months ended December 31, 1996, from 79% for the three months
ended December 31, 1995. This increase is primarily due to an $.4 increase in
software maintenance in the three months ended December 31, 1996. Software
maintenance revenues have a higher margin then other service and other revenues.
Salaries and employee benefits increased $.1 million, or 2%, to $2.6 million
in the three months ended December 31, 1996, from $2.5 million in the three
months ended December 31, 1995. This increase is primarily attributable to
annual salary increases offset by capitalization of salaries and employee
benefits related to software development.
General and administrative expenses increased $.1 million, or 8%, to $1.5
million in the three months ended December 31, 1996, from $1.4 in the three
months ended December 31, 1996. The increase is primarily a result of increased
research and development costs during the three months ended December 31, 1996.
Income from operations increased $.1 million, or 23%, to $.7 million in the
three months ended December 31, 1996, from $.6 million in the three months ended
December 31, 1995.
The Company's consolidated effective tax rate was 40% for the three month
period ended December 31, 1996, and 43% for the three month period ended
December 31, 1995. The rates reflect the change in the level of the Company's
foreign subsidiaries' losses, for which the Company can not currently
recognize any tax benefit.
8
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 December 31, 1996, the Company's
working capital was $19.3 million and its ratio of current assets to current
liabilities was 3.6 to 1, as compared to working capital of $18.9 million
and a ratio of current assets to current liabilities of 3.2 to 1 at
September 30, 1996.
Net cash provided by operating activities was $3.9 million for the three
months ended December 31, 1996, compared to $1.2 million for the three months
ended December 31, 1995. The increase in net cash provided by operations was
primarily due to higher cash receipts on accounts receivable for the three
months ended December 31, 1996, compared to the three months ended December 31,
1995.
Net cash used by investing activities was $4.8 million for the three months
ended December 31, 1996, compared to $1.7 million for the three months ended
December 31, 1995. The increase in net cash used by investing activities is
primarily due to a net increase of approximately $3.8 million in short-term
investments.
Net cash provided by financing activities for the three months ended
December 31, 1996, was $.1 million due to the exercise of stock options during
the three months ended December 31, 1996. In January 1996, management extended
the Company's $6.0 million line of credit to January 1997. The line of credit
was extended with a reduced rate of interest. All other terms remain the same.
The line of credit now bears interest at federal funds rate plus 200 basis
points payable monthly on outstanding balances. There have been no borrowings
against the Company's line of credit since May 1991.
Management believes that, with the current cash position of $4.0 million,
short-term investments of $10.7 million, accounts receivable of $10.6 million,
continued cash flow from operations, availability of the $6.0 million line of
credit, and total current liabilities of $7.4 million, the Company will be
able to meet both its short-term liquidity needs and short-term capital
expenditure needs. The Company has made no material commitments with respect
to capital expenditures planned for fiscal 1997. Management believes that with
total long-term liabilities of approximately $.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.
9
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) No exhibits are required to be filed for the three months ended
December 31, 1996.
(b) No reports on Form 8-K were required to be filed during the three
months ended December 31, 1996.
10
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA RESEARCH ASSOCIATES, INC.
January 27, 1996 /s/ Michael J. Mellinger
- ----------------- ------------------------------
Date Michael J. Mellinger
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
January 27, 1996 /s/ Katharine W. Biggs
- ----------------- ------------------------------
Date Katharine W. Biggs
Vice President, and
Chief Financial Officer
(Principal Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from
the Form 10-Q for the quarter ended June 30, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 4,036
<SECURITIES> 10,724
<RECEIVABLES> 10,867
<ALLOWANCES> 269
<INVENTORY> 138
<CURRENT-ASSETS> 26,649
<PP&E> 10,860
<DEPRECIATION> 4,782
<TOTAL-ASSETS> 35,965
<CURRENT-LIABILITIES> 7,395
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 27,988
<TOTAL-LIABILITY-AND-EQUITY> 35,965
<SALES> 7,128
<TOTAL-REVENUES> 7,128
<CGS> 2,086
<TOTAL-COSTS> 6,430
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (202)
<INCOME-PRETAX> 900
<INCOME-TAX> 359
<INCOME-CONTINUING> 541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 541
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
