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, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-20244
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DATA RESEARCH ASSOCIATES, INC.
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(Exact name of registrant as specified in its charter)
MISSOURI 43-1063230
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132
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(Address of principal executive offices) (Zip Code)
(314) 432-1100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 15, 1999, there were 5,363,175 shares of the registrant's common
stock outstanding.
<PAGE>
INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
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Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - December 31, 1998
and September 30, 1998
Consolidated statements of income - Three months ended December 31,
1998 and 1997
Consolidated statements of cash flows - Three months ended December 31,
1998 and 1997
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
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SIGNATURES
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
1998 September 30,
(Unaudited) 1998
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $4,747 $8,710
Short-term investments 13,537 8,493
Accounts receivable less allowance for doubtful
accounts of $101:
Billed 6,935 8,092
Unbilled 1,464 2,445
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8,399 10,537
Income taxes receivable 477 278
Inventories 134 136
Prepaid expenses 857 542
Deferred income taxes 269 263
Other current assets 190 202
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TOTAL CURRENT ASSETS 28,610 29,15
PROPERTY AND EQUIPMENT
Land and improvements 504 504
Buildings and improvements 2,719 2,719
Data processing equipment 6,913 6,525
Furniture, fixtures, and other 4,210 3,724
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14,346 13,472
Less accumulated depreciation 7,215 6,752
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7,131 6,720
NOTE RECEIVABLE 34 43
DEFERRED SOFTWARE COSTS (net of accumulated
amortization of $2,086 at December 31, 1998
and $1,711 at September 30, 1998) 4,521 4,365
INTANGIBLE ASSETS (net of accumulated
amortization of $2,601 at December 31, 1998
and $4,221 at September 30, 1998) 253 443
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$40,549 $40,730
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<PAGE>
(In thousands, except per share data)
December 31,
1998 September 30,
(Unaudited) 1998
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,476 $ 1,030
Employee compensation 371 375
Deferred revenue 4,322 4,511
Customer deposits 697 695
Other accrued liabilities 328 595
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TOTAL CURRENT LIABILITIES 6,717 6,928
DEFERRED INCOME TAXES 2,006 2,019
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share--
1,000 shares authorized, no shares issued - -
Common stock, par value $.01 per share--10,000
shares authorized, 5,557 shares issued at
December 31, 1998, and September 30, 1998 56 56
Additional paid-in capital 5,660 5,763
Accumulated other comprehensive income (231) (239)
Retained earnings 29,013 28,887
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34,498 34,467
Less cost of treasury stock, 193 shares
at December 31, 1998, 179 shares
at September 30, 1998 (3,149) (2,962)
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TOTAL SHAREHOLDERS' EQUITY 31,349 31,505
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$40,549 $40,730
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See notes to unaudited consolidated financial statements.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
Three months ended
December 31,
1998 1997
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REVENUES
Hardware $ 474 $ 1,150
Software 1,214 1,634
Service and other 4,699 4,669
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6,387 7,453
EXPENSES
Cost of revenues
Hardware 338 828
Software 376 308
Service and other 1,295 1,369
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2,009 2,505
Salaries and employee benefits 2,442 2,485
General and administrative expenses 1,548 1,486
Depreciation and amortization 467 381
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6,466 6,857
INCOME FROM OPERATIONS (79) 596
OTHER INCOME 264 236
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Income before income taxes 185 832
PROVISION FOR INCOME TAXES 60 340
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NET INCOME $ 125 $ 492
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Basic earnings per share $.02 $.09
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Diluted earnings per share $.02 $.08
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See notes to unaudited consolidated financial statements.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
December 31,
1998 1997
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OPERATING ACTIVITIES
Net income $ 125 $ 492
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 885 692
Provision for deferred income taxes (22) (54)
(Gain)loss on disposal of property and equipment 5 -
Changes in operating assets
and liabilities:
Accounts receivable 2,150 579
Inventories 2 3
Prepaid expenses and
other current assets (302) (18)
Accounts payable and
other current liabilities (225) (888)
Note receivable 10 9
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 2,628 815
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INVESTING ACTIVITIES
Purchase of property and equipment (876) (596)
Deferred software cost (386) (250)
Purchase of short-term investments (9,961) -
Proceeds from short-term investment 4,918 -
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NET CASH USED BY INVESTING ACTIVITIES (6,305) (846)
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FINANCING ACTIVITIES
Proceeds from options exercised 141 150
Purchase of treasury shares (430) (186)
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NET CASH USED BY
FINANCING ACTIVITIES (289) (36)
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EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS 3 (32)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,963) (99)
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CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 8,710 19,734
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $4,747 $19,635
======== ========
See notes to unaudited consolidated financial statements.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 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, 1998, contained in the
Company's annual report for the year ended September 30, 1998. 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, 1998, are not necessarily
indicative of the results that may be expected for the year ending September 30,
1999.
Note 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, 1998, and September 30, 1998.
Note 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.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
Note 4. Earnings per share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three Months
Ended
December 31,
-----------------
1998 1997
-----------------
Numerator for basic earnings
per share and diluted earnings
per share:
Net Income $ 125 $ 492
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Denominator:
Basic earnings per share-
Weighted-average shares 5,368 5,541
Effect of dilutive securities:
Stock options 14 26
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Denominator for diluted earnings
per share--adjusted weighted-
average shares and assumed
conversions 5,382 5,567
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Basic earnings per share $.02 $.09
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Diluted earnings per share $.02 $.08
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Note 5. Revenue Recognition
As of October 1, 1998, the Company adopted AICPA SOP 97-2, "Software Revenue
Recognition," which was effective for transactions of the Company on or after
that date. Prior years were not restated.
The Company derives revenue from software licenses, hardware sales, maintenance
and other services. Maintenance includes telephone support, software patches and
rights to upgrades on a when-and-if-available-basis. Other services include
installation, training, consulting, data conversion, networking and system
support. In software agreements that include rights to multiple software
products, maintenance, and/or other services, the Company allocates the total
agreement fee among each deliverable based on the relative fair value of each of
the deliverables determined by vendor-specific objective evidence.
Software and Hardware
The Company recognizes the revenue allocable to software licenses upon delivery
of the software product to the end user, unless the fee is not fixed or
determinable or collectibility is not probable. For agreements involving the
sale of hardware and the licensing of software, revenue for the processor
hardware and the software is recognized only upon delivery of both the software
and the processor hardware which is required to render the software operable.
Additional hardware, other than the processor, is recognized when the product is
shipped. Software license revenue may include customization or modification of
the Company's software to meet specific customer needs. Revenue for
customization is recognized using contract accounting which generally results in
using a completed contract basis.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
DECEMBER 31, 1998
Maintenance
The Company recognizes revenue for maintenance on a straight-line basis over the
period the maintenance is provided.
Other Services
Agreements that include other services are evaluated to determine whether those
services are essential to the functionality of other elements of the agreement.
If a service is considered essential, revenue recognition on the elements whose
functionality depends on the service is deferred until the service is performed.
In multiple element agreements that include software installation, the Company
generally considers software installation to be an essential service. The
Company generally considers other services included in an agreement not to be
essential to the functionality of other elements of the agreement and revenue is
recognized upon completion of the service. Such other services include training,
consulting, data conversion, network installation and network and system
support.
Note 6. Comprehensive Income
As of October 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income." Statement 130 requires that all components of
comprehensive income, including net income, be reported in the financial
statements in the period in which they are recognized. Comprehensive income is
defined as the change in equity during a period from transactions and other
events and circumstances from non-owner sources. The adoption of this Statement
had no impact on the Company's net income or shareholders' equity. Statement 130
requires foreign currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity, to be included in other
comprehensive income. The presentation of prior year financial statements
reflects reclassification of data to conform to the requirements of Statement
130.
The components of comprehensive income, net of related tax, for the three-month
period ended December 31, 1998 and 1997 are as follows:
Three Months Ended
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Dec 31, 1998 Dec 31, 1997
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Net income $125 $492
Foreign currency translation adjustment 8 (25)
--------------------------
Comprehensive income $133 $467
==========================
The components of accumulated other comprehensive income, net of related tax, at
December 31, 1998 and September 30, 1998, are as follows:
Dec 31, 1998 Sept 30, 1998
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Foreign currency translation adjustment $(231) $(239)
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Accumulated other comprehensive income $(231) $(239)
=============================
Note 7. Segment Information
Effective with the fiscal year ending September 30, 1999, and for interim
reporting for fiscal years beginning after October 1, 1999, the Company has
adopted SFAS No. 131, Segment Information. SFAS No. 131 amends the requirements
for public enterprises to report financial and descriptive information about its
reportable operating segments. Operating segments, as defined in SFAS No. 131,
are components of an enterprise for which separate financial information is
available and is evaluated regularly by the Company in deciding how to allocate
resources and in assessing performance. The financial information is required to
be reported on the basis that it is used internally for evaluating the segment
performance. Management believes the Company operates in one business and
operating segment and that the adoption of this standard will not have a
material impact on the Company's financial statements.
Note 8. New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted for years beginning after June 15, 1999. Because of the Company's
minimal use of derivatives, management does not anticipate that the adoption of
the new Statement will have a significant effect on earnings or the financial
position of the Company.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenue recognition policy is discussed in Note 5 to the unaudited
consolidated financial statements. The components of the cost for development of
software primarily include salaries and employee benefits and are expensed as
incurred until such costs qualify as deferred software costs which are 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 and services
than on sales of hardware. 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, Taos,
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.
The company recognized the first revenue from Taos in the fourth quarter of
fiscal 1998 and currently has a backlog of revenue related to nine contracts for
the Taos system. Recognition of revenue from this backlog is subject to
completion of all required modules mandated by each contract, along with the
logistical considerations that accompany the initial release of a new product.
See Exhibit 99.1 "Cautionary Statements - Additional Important Factors To Be
Considered", in the Company's Form 10-K for the year ended September 30, 1998.
Year 2000 Readiness Disclosure
The arrival of the year 2000 poses certain technological challenges resulting
from a reliance of some computer technologies on two digits rather than four
digits to represent the calendar year (e.g., "98" for "1998"). It is generally
believed that computer technologies programmed in this manner, if not corrected,
may produce inaccurate or unpredictable results or system failures in connection
with the transition from 1999 to 2000, when dates will begin to have a lower
two-digit number than dates in the prior century. This problem, the so-called
"Year 2000 Problem" or "Y2K Problem," could have an adverse effect on the
Company's financial condition, results of operations, business or business
prospects because, in order to function properly, the Company's products must
interface with a multitude of software and hardware products manufactured by
unrelated third parties. The Company has been working diligently to prevent or
mitigate disruptions relating to the year 2000.
As of December 31, 1998, the Company has reviewed all of its proprietary
software products and believes that all of such software products are currently
capable of accurately processing date data related to the change from 1999 to
2000, if used with third party products that are also capable of accurately
processing such data.
The Company has formed an oversight committee and has developed a plan to
coordinate identification, evaluation and implementation of any necessary
changes to the computer systems, applications and business processes used by the
Company in the operation of its business. As of December 31, 1998, the oversight
committee had identified the Company's systems that could potentially be
impacted by the Y2K Problem. The Company is currently in the process of
prioritizing the identified systems and undertaking three primary steps to
validate systems readiness. The three steps are (1) obtaining a vendor readiness
statement (2) internal testing, and (3) third-party validation through an
authorized organization that has already tested the systems. The Company plans
to obtain a vendor readiness statement for all identified systems and to perform
internal testing on those identified as critical to its operations that have not
already been validated through a third-party authorized organization. The
Company expects to have finished prioritizing systems by March 31, 1999. By June
30, 1999, the Company will have completed necessary testing of critical systems
and will have compiled a list of identified problems and recommended solutions.
Beginning in July 1999, the Company will begin applying solutions, verifying
that such solutions make the system(s) avoid the Y2K Problem, and developing a
contingency plan for any critical system that remains susceptible to the Y2K
Problem. The Company plans to be complete with all Y2K readiness and contingency
planning well before December 31, 1999.
<PAGE>
The Company anticipates that its Y2K action plan discussed above will be carried
out solely by existing employees without significantly impacting their other
duties. Accordingly, the Company has not incurred any material incremental costs
and has not identified any incremental future costs associated with the Y2K
Problem.
No assurances can be given that the Company will be able to completely identify
or address all issues related to the Year 2000 Problem that affect the Company,
or that third parties with whom the Company does business will not experience
system failures as a result of the Year 2000 Problem, nor can the Company fully
predict the consequences of any such failure.
There is no single customer or product vendor which, in the Company's
assessment, is or may be likely to present any significant exposure due to the
Year 2000 Problem. However, management anticipates that there may be some
negative impact on the timely receipt of accounts receivable due to the failure
of certain customers to prepare adequately for the Year 2000 Problem. In a
worst-case scenario, these accounts receivable related difficulties might
require the Company to draw down its own credit line or to reduce the amount of
available cash on hand.
The Company also could face some risk from the possible failure of one or more
of its third party vendors to continue to provide uninterrupted service through
the changeover to the year 2000. Because the Company outsources the delivery of
hardware to its customers, such a failure could affect the installation of the
Company's products at customer locations. While an evaluation of the Year 2000
preparedness of its third party vendors has been part of the Company's Y2K
action plan, the Company's ability to evaluate is limited to some extent by the
willingness of vendors to supply information and the ability of vendors to
verify the Y2K preparedness of their own systems or their sub-providers.
However, the Company has received assurances from its significant vendors that
there will not be any such disruption; accordingly the Company does not
currently anticipate that any of its significant vendors will fail to provide
continuing service due to the Year 2000 Problem.
The Company, like similarly-situated enterprises, is subject to certain risks as
a result of possible industry-wide or area-wide failures triggered by the Year
2000 Problem. For example, the failure of certain utility providers (e.g.,
electricity, gas, telecommunications) to avoid disruption of service in
connection with the transition from 1999 to 2000 could adversely affect the
Company's results of operations, liquidity and financial condition. In
management's estimate, such a system-wide or area-wide failure presents a
significant risk to the Company in connection with the Year 2000 Problem because
the resulting disruption may be entirely beyond the ability of the Company to
cure, and the Company relies on such utilities for the delivery of its own
products, particularly telecommunications. The significance of any such
disruption would depend on its duration and systemic and geographic magnitude.
Of course, any such disruption would likely impact businesses other than just
the Company.
Forward Looking Statements
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 a substantial number of forward-looking statements, indicated by such
words as "expects," "believes," "estimates," "anticipates," "plans,"
"assessment," "should," "will," and similar words. These forward-looking
statements are based on the Company's and management's beliefs, assumptions,
expectations, estimates and projections any or all of which are subject to
future change, depending on unknown developments and facts. These
forward-looking statements should be read in conjunction with the disclosures in
Exhibit 99.1 "Cautionary Statements - Additional Important Factors to Be
Considered," in the Company's Form 10-K for the year ended September 30, 1998.
Results of Operations
Three Months Ended December 31, 1998 compared to Three Months Ended December 31,
1997
Hardware revenues decreased $.7 million, or 59%, to $.5 million for the three
months ended December 31, 1998, from $1.2 million for the three months ended
December 31, 1997. The decrease is primarily due to one hardware shipment that
generated $.4 million in the quarter ended December 31, 1997, and to customers'
ability to buy high-performance systems at lower prices. The Company had no new
contract shipments in the quarter ended December 31, 1998, as some customers are
deferring purchase decisions or system deliveries in anticipation of Taos. The
gross margin percentage on hardware was 29% in the three months ended December
31, 1998, and 28% in the three months ended December 31, 1997.
Software license revenues decreased $.4 million, or 26%, to $1.2 million in the
three months ended December 31, 1998, from $1.6 million in the three months
ended December 31, 1997. The decrease is primarily attributable to one new
software contract that generated $.6 million of revenue in the three months
ended December 31, 1997. The Company had no new contract shipments in the
quarter ended December 31, 1998, as some customers are deferring purchase
decisions or system deliveries in anticipation of Taos. The gross margin
percentage on software was 69% in the three months ended December 31,1998, and
<PAGE>
81% in the three months ended December 31, 1997. The decrease is primarily due
to the amortization of $.2 million of capitalized development costs related to
the Taos product in the quarter ended December 31, 1998.
Service and other revenues were $4.7 million in the three months ended December
31, 1998, remaining consistent with the three months ended December 31, 1997.
Management expects that software maintenance revenues, a major component of
service and other revenues, will continue to increase as the base of licensed
software products increases. The continued increase in software maintenance
revenue was offset by a decrease in revenues from the Company's other services,
many of which are associated with new system sales, in the three months ended
December 31, 1998. The gross margin percentage on service and other revenues was
72% in the three months ended December 31, 1998, and 71% in the three months
ended December 31, 1997.
Salaries and employee benefits decreased $.1 million, or 2%, to $2.4 million in
the three months ended December 31, 1998, from $2.5 million in the three months
ended December 31, 1997. This decrease is attributable to greater capitalization
of software development salaries in the quarter ended December 31, 1998.
General and administrative expenses increased $.1 million, or 4%, to $1.6
million in the three months ended December 31, 1998, from $1.5 million in the
three months ended December 31, 1997. This increase is attributable to increased
tradeshow activity in the quarter ended December 31, 1998, and to the increase
in the current year of the Company 401(k) match by $500 per employee.
Approximately 30% of the annual match is earned in the first quarter of the
fiscal year.
Income from operations decreased $.7 million, or 113%, to ($.1) million in the
three months ended December 31, 1998, from $.6 million in the three months ended
December 31, 1997. The decrease is primarily attributable to the decrease in
hardware and software sales in the three months ended December 31, 1998, from
December 31, 1997.
The Company's consolidated effective tax rate was 32% for the three month period
ended December 31, 1998, and 41% for the three month period ended December 31,
1997. The decrease is a result of research and development credits being
utilized in 1998.
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, 1998, the Company's working
capital was $21.4 million and its ratio of current assets to current liabilities
was 4.2 to 1, as compared to working capital of $22.5 million and a ratio of
current assets to current liabilities of 4.2 to 1 at December 31, 1997.
Net cash provided by operating activities was $2.6 million for the three months
ended December 31, 1998, compared to $.8 million for the three months ended
December 31, 1997. The increase in net cash provided by operations was due
primarily to the receipt in the three months ended December 31, 1998, of over
$1.2 million from one customer.
Net cash used by investing activities was $6.3 million for the three months
ended December 31, 1998, compared to $.8 million for the three months ended
December 31, 1997. The increase in net cash used by investing activities is
primarily due to the fact that during the quarter ended December 31, 1998, the
company purchased $10 million of short-term instruments with maturities greater
than 90 days while purchases for the comparable period of fiscal 1998 were of
shorter maturities and were classified as cash equivalents.
Net cash used by financing activities was negligible for the three months ended
December 31, 1998, as well as for the three months ended December 31, 1997.
Management believes that, with the current cash position of $4.7 million,
short-term investments of $13.5 million, accounts receivable of $8.4 million,
continued cash flow from operations, availability of the $6.0 million line of
credit, and total current liabilities of $6.7 million, the Company will be able
to meet both its short-term liquidity needs and short-term capital expenditure
needs. In October 1998, the Company's Board of Directors authorized the
repurchase of the Company's common stock in an amount of up to $3 million, such
purchases to be made from time to time during the following twelve months. For
the three months ended December 31, 1998, the amount used to repurchase common
stock was $430,375. No material commitments with respect to capital expenditures
have been made for fiscal 1999. Management believes that with total long-term
liabilities of approximately $2.0 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.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not a party to any litigation except the following:
In October 1998, Sector 7 U.S.A., Inc. ("Sector 7"), filed suit against the
Company in the United States District Court for the Western District of Texas,
Austin Division (Civil Action No. A98CA 58-575JN) seeking a declaratory judgment
that Sector 7 did not breach a computer software development contract (the
"Contract") between the Company and Sector 7.
Shortly thereafter, the Company filed a lawsuit against Sector 7 in the United
States District Court for the Eastern District of Missouri, Eastern Division
(Cause No. 4:98 CV 01335ERW), claiming breach of the Contract and seeking
$750,000 for breach of warranty and other damages for fraud in the inducement
with respect to such Contract.
The Company believes the allegations of the lawsuit pending in Texas to be
without merit and the Company intends to vigorously defend this matter (and to
prosecute the corresponding action pending in the Eastern District of Missouri).
At this time, the Company cannot predict the probable outcome of these lawsuits
but does not anticipate any material adverse consequences to the Company as a
result of these lawsuits.
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, 1998.
(b) Reports on Form 8-K
A report on Form 8-K (the earliest event reported having a date of
September 30, 1997) was filed on December 3, 1998. The items reported
were Item 5 Other Events and Item 7 Financial Statements, Pro Forma
Financial Information and Exhibits.
<PAGE>
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATA RESEARCH ASSOCIATES, INC.
February 12, 1999 /s/ Michael J. Mellinger
- ----------------- -----------------------------------------
Date Michael J. Mellinger
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
February 12, 1999 /s/ Katharine W. Biggs
- ----------------- -----------------------------------------
Date Katharine W. Biggs
Vice President, and
Chief Financial Officer
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Form 10-Q
for the quarter ended December 31, 1998 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-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
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<RECEIVABLES> 8,500
<ALLOWANCES> 101
<INVENTORY> 134
<CURRENT-ASSETS> 28,610
<PP&E> 14,346
<DEPRECIATION> 7,215
<TOTAL-ASSETS> 40,549
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<BONDS> 0
0
0
<COMMON> 56
<OTHER-SE> 31,349
<TOTAL-LIABILITY-AND-EQUITY> 40,549
<SALES> 6,387
<TOTAL-REVENUES> 6,387
<CGS> 2,009
<TOTAL-COSTS> 6,466
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> (264)
<INCOME-PRETAX> 185
<INCOME-TAX> 60
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<NET-INCOME> 125
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
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