U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1998
Commission file number: 0-20824
COMPUTER OUTSOURCING SERVICES, INC.
(Exact name of small business issuer as specified in its charter)
New York 13-3252333
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 West 31st Street New York, New York 10001
-------------------------------------------------
(Address of principal executive offices)
(212) 564-3730
---------------------------
(Issuer's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
There were 4,162,415 shares of the registrant's Common Stock, $0.01 par value,
outstanding as of June 5, 1998.
Transitional Small Business Disclosure Form (check one); Yes [ ] No [X]
Page 1 of 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April October
30, 1998 31, 1997
------------- -------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents, including
short-term, interest bearing invest-
ments of $10,690,916 and $782,583 ......... $ 10,700,095 $ 972,459
Trade accounts receivable, net of allowance
for doubtful accounts of $290,814 and
$111,577 .................................. 4,715,342 3,990,630
Net assets of discontinued operations (Note 2) - 6,071,333
Prepaid expenses and other current assets ... 1,304,805 1,223,759
---------- ----------
16,720,242 12,258,181
---------- ----------
PROPERTY and EQUIPMENT, net ................... 2,847,490 2,578,071
---------- ----------
OTHER ASSETS:
Deferred software costs, net ................ 1,608,288 1,545,935
Intangibles, net ............................ 2,591,249 2,715,993
Due from related parties, net ............... 105,269 176,295
Notes receivable (Note 2) ................... 780,000 30,000
Security deposits and other non-current
assets .................................... 529,609 493,797
---------- ----------
5,614,415 4,962,020
---------- ----------
TOTAL ASSETS .................................. $ 25,182,147 $ 19,798,272
========== ==========
See Notes to Consolidated Interim Financial Statements
Page 2 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
April October
30, 1998 31, 1997
------------- -------------
(Unaudited)
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................ $ 1,260,084 $ 1,246,516
Current portion of long-term debt ........... 450,027 2,297,546
Current portion of capitalized lease
obligations ............................... 23,220 23,034
Accrued expenses and taxes .................. 4,355,457 1,779,672
Customer deposits and other current
liabilities ............................... 209,526 231,699
---------- ----------
6,298,314 5,578,467
---------- ----------
LONG-TERM LIABILITIES:
Long-term debt .............................. 27,150 252,577
Capitalized lease obligations ............... 8,012 19,414
Deferred income taxes ....................... 583,234 645,910
Unearned portion of covenant not to compete . 1,240,000 -
Deferred lease credits ...................... 758,976 762,841
---------- ----------
2,617,372 1,680,742
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 1,000,000
shares authorized, none issued ............ - -
Common stock, $0.01 par value; 7,000,000
shares authorized; shares issued and out-
standing, 4,048,438 and 3,826,104.......... 40,484 38,261
Additional paid-in capital .................. 10,779,054 9,595,789
Retained earnings ........................... 5,446,923 2,905,013
---------- ----------
16,266,461 12,539,063
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .... $ 25,182,147 $ 19,798,272
========== ==========
See Notes to Consolidated Interim Financial Statements
Page 3 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
April 30, April 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
REVENUES ........... $ 15,173,675 $ 11,796,766 $ 7,957,080 $ 5,896,871
---------- ---------- ---------- ----------
COSTS and EXPENSES:
Data processing
costs .......... 9,830,805 8,515,782 5,209,810 4,238,681
Selling and promo-
tion costs ..... 634,186 632,906 334,281 313,385
General and
administrative
expenses ....... 3,147,278 2,190,097 1,634,891 1,044,637
Interest expense,
net of interest
income ......... (240,862) 124,365 (149,286) 58,691
----------- ---------- ----------- ----------
13,371,407 11,463,150 7,029,696 5,655,394
----------- ---------- ----------- ----------
Income from continu-
ing operations
before income tax
provision ........ 1,802,268 333,616 927,384 241,477
Provision for income
taxes ............ 800,770 133,600 416,424 93,300
---------- ---------- ---------- ----------
Income from continu-
ing operations ... 1,001,498 200,016 510,960 148,177
Income/(loss) from
discontinued
operations, net of
income taxes (Note 2) (60,509) 129,585 - 34,937
Gain on sale of the
Payroll Division,
net of income
taxes (Note 2) ... 1,600,921 - - -
---------- ---------- ---------- ----------
NET INCOME ......... $ 2,541,910 $ 329,601 $ 510,960 $ 183,114
========== ========== ========== ==========
Continued on Next Page
Page 4 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended Three Months Ended
April 30, April 30,
-------------------------- --------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
EARNINGS PER COMMON
SHARE (Note 3):
Basic earnings per
common share:
Income from continuing
operations ......... $ 0.26 $ 0.05 $ 0.13 $ 0.03
Income/(loss) from
discontinued
operations ......... (0.02) 0.03 - 0.01
Gain on Sale of the
Payroll Division ... 0.41 - - -
----------- ---------- ---------- ----------
Net income ........... $ 0.65 $ 0.08 $ 0.13 $ 0.04
=========== ========== ========== ==========
Weighted average
number of common
shares
outstanding ........ 3,888,159 3,758,937 3,956,190 3,778,219
========== ========== ========== ==========
Diluted earnings per
common share:
Income from continuing
operations ......... $ 0.23 $ 0.05 $ 0.12 $ 0.03
Income/(loss) from
discontinued
operations ......... (0.01) 0.03 - 0.01
Gain on Sale of the
Payroll Division ... 0.36 - - -
----------- ---------- ---------- ----------
Net income ........... $ 0.58 $ 0.08 $ 0.12 $ 0.04
=========== ========== ========== ==========
Weighted average
number of
common shares and
other dilutive
securities
outstanding ........ 4,379,701 3,895,610 4,222,087 3,937,936
========== ========== ========== ==========
See Notes to Consolidated Interim Financial Statements
Page 5 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended April 30,
------------------------------
1998 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations ............. $ 1,001,498 $ 200,016
Adjustments to reconcile income from continuing
operations to cash (used in)/provided by
operating activities:
Depreciation and amortization ............... 718,648 710,250
Increase/(reduction) in deferred income taxes (57,175) 41,372
Decrease/(increase) in:
Trade accounts receivable ................. (724,712) (267,323)
Prepaid expenses and other current assets . (81,048) (181,880)
Security deposits and other noncurrent
assets .................................. (67,054) 26,415
Increase/(decrease) in:
Accounts payable .......................... 13,568 246,284
Accrued expenses and taxes ................ (1,060,770) 88,239
Customer deposits and other current
liabilities ............................. (22,173) (42,278)
Deferred lease credits ...................... (36,175) -
---------- ----------
Net cash (used in)/provided by operating
activities .............................. (315,393) 821,095
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment .......... (690,777) (225,588)
Disposal of equipment ....................... 14,960 2,074
Proceeds from the sale of the Payroll
Division .................................. 10,710,000 -
Proceeds from a covenant not to compete ..... 1,440,000 -
Settlement of contingencies relating to
acquisitions .............................. - (82,858)
Increase in deferred software costs ......... (386,307) (205,842)
----------- ----------
Net cash provided by/(used in) investing
activities .............................. $ 11,087,876 $ (512,214)
----------- ----------
Continued on Next Page
See Notes to Consolidated Interim Financial Statements
Page 6 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - Continued)
Six Months Ended April 30,
------------------------------
1998 1997
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ................. $ (2,072,944) $ (618,685)
Proceeds from the exercise of options and
warrants .................................. 1,185,489 -
Repayments of amounts by related
parties, net .............................. 71,026 15,843
Repayments of capital leases ................ (11,214) (73,973)
----------- ----------
Net cash used in financing activities ..... (827,643) (676,815)
----------- ----------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Income/(loss) from discontinued operations .. (60,509) 129,585
Adjustments to reconcile income/(loss) from
discontinued operations to cash (used in)/
provided by discontinued operations:
Depreciation and amortization ............. 151,118 412,928
Increase in net assets of discontinued
operations .............................. (307,813) (423,475)
----------- -----------
Net cash (used in)/provided by discontinued
operations .............................. $ (217,204) $ 119,038
----------- -----------
Net increase/(decrease) in cash and cash
equivalents ............................. 9,727,636 (248,896)
Cash and cash equivalents at the beginning
of the period ........................... 972,459 857,204
----------- -----------
Cash and cash equivalents at the end of the
period .................................. $ 10,700,095 $ 608,308
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .................................. $ 87,929 $ 154,126
=========== ===========
Income taxes .............................. $ 894,803 $ 51,215
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Note received in connection with the sale
of the Payroll Division (Note 2) .......... $ 750,000 $ -
========== ===========
For the six months ended April 30, 1997, $19,594 (net of tax benefits) was
accreted through a charge to retained earnings in connection with a stock
option.
See Notes to Consolidated Interim Financial Statements
Page 7 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED APRIL 30, 1998
(Unaudited)
Common Par Paid in Retained
Shares Value Capital Earnings Total
-----------------------------------------------------------
Balances,
October 31, 1997. 3,826,102 $ 38,261 $ 9,595,789 $2,905,013 $12,539,063
Exercises of stock
options ......... 80,371 804 356,816 357,620
Exercises of
warrants ........ 141,965 1,419 826,449 827,868
Net income ........ 2,541,910 2,541,910
-----------------------------------------------------------
Balances,
April 30, 1998 .. 4,048,438 $ 40,484 $10,779,054 $5,446,923 $16,266,461
===========================================================
See Notes to Consolidated Interim Financial Statements
Page 8 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
---------------------
The Consolidated Balance Sheet as of April 30, 1998, and the Consolidated
Statements of Income and the Consolidated Statements of Cash Flows for the six
month periods ended April 30, 1998 and 1997, have been prepared by the Company
without audit. In the opinion of management, all adjustments (consisting of
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations, and cash flows for the periods indicated have
been made.
The results of operations for the periods ended April 30, 1998 and 1997 are
not necessarily indicative of the operating results for the full fiscal
years. Certain reclassifications have been made to the prior periods to
conform to the current presentation.
Certain disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted. These consolidated interim financial statements should be read
in conjunction with the Company's Annual Report on Form 10-KSB for the fiscal
year ended October 31, 1997.
The consolidated financial statements include the accounts of Computer
Outsourcing Services, Inc. and its wholly-owned subsidiaries (collectively,
the "Company"). All significant intercompany balances and transactions have
been eliminated.
2. SALE OF THE PAYROLL DIVISION
----------------------------
On December 19, 1997, the Company consummated the sale (the "Sale") of all the
outstanding capital stock of Daton Pay USA, Inc., NEDS, Inc., Pay USA of New
Jersey, Inc. and Key-ACA, Inc., each a wholly-owned subsidiary of the Company,
and together comprising the Payroll Division ("Pay USA"), to Zurich Payroll
Solutions, Ltd. (the "Buyer"). At closing, the Company received $12,900,000,
of which $12,150,000 was in cash and $750,000 was in the form of a note from
the Buyer. The note is due on July 15, 1999 and requires quarterly payments
of interest at 8.5% per annum. The amount received at closing included
$1,440,000 for a three-year covenant not to compete and $500,000 in
connection with a services agreement.
The terms of the Sale also provide for an additional payment by the Buyer of
up to $1,500,000, which amount is contingent on the revenue of Pay USA for the
three months following the Sale, and is also subject to adjustment based on a
final determination of the net amounts of assets and liabilities transferred
at December 19, 1997.
Page 9 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
2. SALE OF THE PAYROLL DIVISION (cont'd)
-------------------------------------
The Company has recognized a pretax gain of approximately $3,099,000 after
recording various costs of the transaction amounting to approximately
$2,133,000. These costs include, among other things, the assumption of
certain contractual obligations related to the Company's original
acquisitions of the companies comprising Pay USA, and payments and accruals
relating to certain employment agreements. Income related to the $1,440,000
covenant not to compete will be recognized over the three-year term. Any
contingent payment received from the Buyer will be recognized as income in
the period received.
Of the cash received at the closing, $1,713,509 was used to repay a term
loan and the outstanding balance on a line of credit.
During the eight-week period ended December 19, 1997 and the six and three
month periods ended April 30, 1997, revenues relating to the discontinued
operations of Pay USA approximated $1,117,000, $4,602,000, and $2,193,000,
respectively, and pretax operating results approximated a loss of $137,000,
income of $216,000, and income of $135,000, respectively.
3. BASIC AND DILUTED EARNINGS PER COMMON SHARE
-------------------------------------------
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128 "Earnings per Share" ("SFAS 128"), which establishes new
standards for computing and presenting earnings per share and applies to
entities with publicly held common stock or potential common stock such as
employee stock options. SFAS 128 replaces the presentation of primary
earnings per share with a presentation of basic earnings per share and also
requires, among other things, a dual presentation of basic
and diluted earnings per share for all entities with complex capital
structures. Basic earnings per share excludes dilution and is computed by
dividing the components of net income by the weighted-average number of
shares outstanding for each period presented. Diluted earnings per share is
computed by dividing the components of net income by the weighted-average
number of shares outstanding plus dilutive potential common shares which would
result from the exercise of stock options and warrants. The prior period has
been restated to reflect the requirements of SFAS 128.
Page 10 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
3. BASIC AND DILUTED EARNINGS PER COMMON SHARE (cont'd)
----------------------------------------------------
The following is a reconciliation of the weighted-average shares used in the
computations of basic and dilutive earnings per share.
Six Months ended April Three Months ended April
------------------------ --------------------------
30, 1998 30, 1997 30, 1998 30, 1997
----------- ---------- ------------ -----------
Weighed-average common
shares outstanding
used for basic earnings
per share .............. 3,888,159 3,758,937 3,956,190 3,778,219
Weighted-average number
of shares from imputed
exercises of dilutive
options and warrants,
computed by the treasury-
stock method ........... 491,542 136,673 265,897 159,717
--------- --------- --------- ---------
Weighted-average common
shares outstanding used
for dilutive earnings
per share .............. 4,379,701 3,895,610 4,222,087 3,937,936
========= ========= ========= =========
Total number of options
and warrants excluded
from the calculation
of diluted earnings
per share because they
are anti-dilutive ...... 111,100 537,600 111,100 537,600
========= ========= ========= ==========
Page 11 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (Continued)
4. STOCK OPTIONS
-------------
The Company applies the provisions of APB Opinion 25 and related
Interpretations in accounting for its stock options. Accordingly, no
compensation cost has been recognized for stock options granted. The
excess, if any, of the fair market value of shares on the measurement date
over the exercise price is charged to operations each year as the options
become exercisable. Had compensation cost for options granted since
November 1, 1995 been determined using the Black-Scholes option-pricing
model described in Statement of Financial Accounting Standards No.123
("SFAS 123") (which permits, but does not require, companies to recognize as
expense over the vesting period the fair value of all stock-based awards,
measured as of the date of grant), the Company would have recorded aggregate
compensation expense of approximately $1,509,000. The remaining annual
amortization over the options' remaining vesting periods is as follows:
Fiscal Years Ended
October 31,
------------------
1998 $ 150,866
1999 301,731
2000 301,731
2001 246,312
2002 186,148
2003 38,141
----------
$1,224,929
==========
The assumptions used in the option-pricing model include a risk-free interest
rate of 6.5%, expected lives of between six months and five years, and expected
volatility of 48.6%. The pro forma impact of following the provisions of SFAS
123 on the Company's reported net income and net income per share would be
as follows:
Six Months Ended Six Months Ended
April 30, 1998 April 30, 1997
---------------- ----------------
Net income - as reported $ 2,541,910 $ 329,601
=========== ===========
- pro forma $ 2,429,185 $ 278,605
=========== ===========
Basic earnings per share - as reported $ 0.65 $ 0.08
=========== ===========
- pro forma $ 0.62 $ 0.07
=========== ===========
Diluted earnings per share - as reported $ 0.58 $ 0.08
=========== ===========
- pro forma $ 0.55 $ 0.07
=========== ===========
Net income per common share has been calculated using the weighted average
number of shares of common stock outstanding during the period.
Page 12 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
On December 19, 1997, the Company sold four subsidiaries comprising the
Payroll Division. In the accompanying financial statements, all revenues and
expenses of the Payroll Division have been classified as discontinued
operations. Unless otherwise noted, the following discussion relates only to
the results from continuing operations.
RESULTS OF OPERATIONS, SIX MONTH PERIODS ENDED APRIL 30, 1998 AND 1997
During the six month period ended April 30, 1998, revenues from continuing
operations were $15,174,000, an increase of 29% over the six month period
ended April 30, 1997. This increase is the result of several new Information
Services contracts, as well as approximately $912,000 in income from the
covenant not compete and service contracts with the Buyer of the Payroll
Division.
Data processing costs increased $1,315,000 to $9,831,000 (65% of revenues)
during the current period compared to $8,516,000 (72% of revenues) in the
prior year's period. The seven percent improvement in margin is derived from
economies of scale and improved margins on a contract-by-contract basis.
Selling and promotion costs increased slightly, to $634,000, but decreased 1%
as a percentage of revenues. General and administrative expenses increased
$957,000 to $3,147,000 in the current period, an increase of 2% as a
percentage of revenues, primarily due to increased rent and utility costs
connected with the Company's new computer center in New Jersey.
The Company recorded net interest income of $241,000 in the current period,
as compared to a net interest expense of $124,000 in the prior period. The
Company repaid substantially all of its bank debt on December 19, 1997, and
has invested the cash obtained from the proceeds of the sale of the Payroll
Division.
The Company recorded income from continuing operations of $1,001,000 ($0.26
and $0.23 per share for basic and diluted shares, respectively) for the period
ended April 30, 1998, a fivefold increase compared to the profit of $200,000
($0.05 per share, basic and diluted) for the period ended April 30, 1997.
Results from discontinued operations declined from net income of $130,000 for
the period ended April 31, 1997 to a loss of $61,000 for the period ended
December 19, 1997, primarily as a result of excluding revenues after the date
of the Sale.
Page 13 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS, QUARTERS ENDED APRIL 30, 1998 AND 1997
During the three month period ended April 30, 1998, revenues from continuing
operations were $7,957,000, an increase of 35% over the three month period
ended April 30, 1997. This increase is the result of several new Information
Services contracts, as well as approximately $499,000 in income from the
covenant not to compete and service contracts with the Buyer of the Payroll
Division.
Data processing costs increased $971,000 to $5,210,000 (66% of revenues)
during the current quarter compared to $4,239,000 (72% of revenues) in the
prior year's quarter. The improvement as a percentage of revenues is derived
from economies of scale and improved margins on a contract-by-contract basis.
Selling and promotion costs increased $21,000 to $334,000, decreasing 1% as a
percentage of revenues. General and administrative expenses increased $590,000
to $1,635,000 in the current period, an increase of 3% as a percentage of
revenues, primarily due to increased rent and utility costs connected with the
Company's new computer center in New Jersey.
The Company recorded net interest income of $149,000 in the current period, as
compared to a net interest expense of $59,000 in the prior period. The Company
repaid substantially all of its bank debt on December 19, 1997, and has
invested the cash obtained from the proceeds of the sale of the Payroll
Division.
The Company recorded income from continuing operations of $511,000 ($0.13 and
$0.12 per share for basic and diluted shares, respectively) for the quarter
ended April 30, 1998, a 244% increase compared to the profit of $148,000
($0.03 per share - basic and diluted) for the quarter ended April 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended April 30, 1998, the Company used approximately
$315,000 in continuing operations. This amount is net of depreciation and
amortization of $719,000 and includes, among other things, a $1,061,000
increase in accrued expenses and taxes, primarily as a result of the sale of
the Payroll Division.
The Company generated cash from investing activities of approximately
$11,088,000 during the period ended April 30, 1998, principally from the
proceeds from the sale of the Payroll Division and $1,440,000 for a related
covenant not to compete. This amount is net of purchases of fixed assets of
$691,000 and software cost deferrals of $386,000.
In financing activities for the period, the Company used cash of approximately
$828,000, including $2,084,000 to repay long term debt and capital leases,
offset by $1,185,000 generated from the exercises of stock warrants and
employee stock options.
Page 14 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
LIQUIDITY AND CAPITAL RESOURCES (cont'd)
As of April 30, 1998, the Company had cash and cash equivalents of $10,700,000
and working capital of $10,422,000. Its current ratio (i.e., the ratio of
current assets to current liabilities) was 2.65 to 1, and the ratio of total
liabilities to equity was 0.55 to 1.
In March 1997, the Company and a bank entered into an agreement for a
revolving line of credit whereby the Company could borrow up to $1,500,000.
Interest on borrowings would have been at either the Adjusted Eurodollar Rate
(as defined) plus 2.25%, or the bank's prime rate. The line of credit expired
on April 30, 1998.
Management believes that its cash on hand and its anticipated cash flow from
operations will be sufficient to fund the Company's operations for at least
the next twelve months. The Company continues to seek acquisition
opportunities that are consistent with the Company's long-term strategy.
Forward-looking statements in this report that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that forward-looking statements may be subject to certain risks
and uncertainties, including but not limited to, continued acceptance of the
Company's products and services in the marketplace, competitive factors, new
products, technological changes, the Company's dependence on third-party
suppliers, intellectual property rights and other risks detailed from time to
time in the Company's periodic report filings with the Securities and Exchange
Commission. Accordingly, the actual results of the Company could differ
materially from such forward-looking statements.
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
Page 15 of 16
<PAGE>
COMPUTER OUTSOURCING SERVICES, INC. AND SUBSIDIARIES
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
COMPUTER OUTSOURCING SERVICES, INC.
/s/
June 12, 1998 ------------------------------------
Zach Lonstein
Principal Executive Officer
/s/
June 12, 1998 ------------------------------------
Laurence L. Carpenter
Acting Principal Accounting Officer
Page 16 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S QUARTERLY REPORT ON FORM 10-QSB FOR THE PERIOD ENDED APRIL 30, 1998,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> APR-30-1998
<CASH> 10,700,095
<SECURITIES> 0
<RECEIVABLES> 5,006,156
<ALLOWANCES> 290,814
<INVENTORY> 0
<CURRENT-ASSETS> 16,720,242
<PP&E> 7,477,840
<DEPRECIATION> 4,630,350
<TOTAL-ASSETS> 25,182,147
<CURRENT-LIABILITIES> 6,298,314
<BONDS> 508,409<F1>
0
0
<COMMON> 40,484
<OTHER-SE> 16,225,977
<TOTAL-LIABILITY-AND-EQUITY> 25,182,147
<SALES> 0
<TOTAL-REVENUES> 15,173,675
<CGS> 0
<TOTAL-COSTS> 9,830,805
<OTHER-EXPENSES> 3,781,464
<LOSS-PROVISION> 179,340
<INTEREST-EXPENSE> 70,410
<INCOME-PRETAX> 1,802,268
<INCOME-TAX> 800,770
<INCOME-CONTINUING> 1,001,498
<DISCONTINUED> (60,509)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,241,910<F2>
<EPS-PRIMARY> 0.65<F3>
<EPS-DILUTED> 0.58
<FN>
<F1>INCLUDES CURRENT PORTION OF $473,247
<F2>INCLUDES AFTER-TAX GAIN ON SALE OF THE PAYROLL DIVISION OF $1,600,921
<F3>ACTUALLY 'BASIC' EPS
</FN>
</TABLE>
