1
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, 2000
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-20244
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DATA RESEARCH ASSOCIATES, INC.
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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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
At January 15, 2001, there were 4,640,300 shares of the registrant's common
stock outstanding.
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INDEX
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets -December 31, 2000
and September 30, 2000
Consolidated statements of income -Three months ended December 31,
2000 and 1999
Consolidated statements of cash flows -Three months ended December 31,
2000 and 1999
Notes to the unaudited consolidated financial statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Qualitative and Quantitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31, September 30,
2000 2000
(Unaudited)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,258 $ 8,547
Short-term investments 14,464 11,603
Account receivable less allowances of $150
at December 31, 2000 and $172 at
September 30, 2000:
Billed 3,670 5,491
Unbilled 425 544
------- -------
4,095 6,035
Income taxes receivable 258 -
Inventories 120 70
Prepaid expenses 1,065 794
Other current assets 236 236
------- -------
TOTAL CURRENT ASSETS 26,496 27,285
PROPERTY AND EQUIPMENT:
Land and improvements 504 504
Building and improvements 2,697 2,697
Data processing equipment 6,132 6,059
Furniture, fixtures, and other 3,890 3,871
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13,223 13,131
Less accumulated depreciation 8,447 8,007
------- -------
4,776 5,124
DEFERRED SOFTWARE COSTS
(net of accumulated amortization
of $3,020 at December 31, 2000, and $2,572
at September 30, 2000) 5,578 5,571
INTANGIBLE ASSETS
(net of accumulated amortization
of $2,662 at December 31, 2000, and $2,634
at September 30, 2000) 307 333
------- -------
$37,157 $38,313
======= =======
4
December 31, September 30,
2000 2000
(Unaudited)
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 499 $ 690
Employee compensation 447 443
Deferred revenue 4,782 5,552
Customer deposits 1,330 1,114
Other accrued liabilities 418 492
Income taxes payable - 17
Deferred income taxes 113 113
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7,589 8,421
DEFERRED INCOME TAXES 1,940 1,940
COMMITMENTS AND CONTINGENCIES
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, 2000
and September 30, 2000 56 56
Additional paid-in capital 5,453 5,490
Accumulated other comprehensive loss (173) (196)
Retained earnings 31,698 31,903
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37,034 37,253
Less cost of treasury stock, 907 shares
at December 31, 2000, and 883 shares
at September 30, 2000 (9,406) (9,301)
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TOTAL SHAREHOLDERS' EQUITY 27,628 27,952
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$37,157 $38,313
======= =======
See notes to unaudited consolidated financial statements.
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except share data)
Three months ended
December 31,
2000 1999
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REVENUES
Hardware $ 123 $ 508
Software 440 746
Service and other 5,106 5,199
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5,669 6,453
EXPENSES
Cost of Revenues
Hardware 86 345
Software 395 258
Service and other 1,412 1,418
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1,893 2,021
Salaries and employee benefits 2,790 2,708
General and administrative
Expenses 1,187 1,252
Depreciation and amortization 429 490
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6,299 6,471
INCOME (LOSS) FROM OPERATIONS (630) (18)
OTHER INCOME 329 320
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INCOME (LOSS) BEFORE INCOME TAXES (301) 302
PROVISION FOR INCOME TAXES (96) 96
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NET INCOME (LOSS) $ (205) $ 206
======= =======
Basic and Diluted earnings per share $ (.04) $ .04
======= =======
Dividends per share $ - $ -
======= =======
See notes to unaudited consolidated financial statements.
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Three months ended
December 31,
2000 1999
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OPERATING ACTIVITIES
Net income (loss) $ (205) $ 206
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 903 835
Changes in operating assets
and liabilities:
Accounts receivable 1,968 671
Inventories (48) (20)
Prepaid expenses and
other current assets (528) (539)
Accounts payable and
other current liabilities (855) 80
Note receivable -- 3
-------- --------
NET CASH PROVIDED
BY OPERATING ACTIVITIES 1,235 1,236
INVESTING ACTIVITIES
Purchase of property
and equipment (77) (169)
Deferred software costs (456) (439)
Purchase of short-term
investments (14,464) --
Proceeds from sale of
short-term investments 11,603 --
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NET CASH USED BY
INVESTING ACTIVITIES (3,394) (608)
FINANCING ACTIVITIES
Proceeds from options exercised 24 31
Purchase of treasury shares (166) (934)
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NET CASH USED BY
FINANCING ACTIVITIES (142) (903)
Effect of exchange rate changes
on cash and cash equivalents 12 2
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NET DECREASE IN
CASH AND CASH EQUIVALENTS (2,289) (273)
Cash and cash equivalents
at beginning of year 8,547 17,022
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CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 6,258 $ 16,749
======== ========
See notes to unaudited consolidated financial statements.
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000
(In thousands, except per share data)
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, 2000, contained in the
Company's annual report for the year ended September 30, 2000. 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, 2000, are not necessarily
indicative of the results that may be expected for the year ending September 30,
2001.
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. The Company
had only finished goods in inventory at December 31, 2000 and September 30,
2000.
Note 3. Earnings per share
The following table sets forth the computation of basic and diluted earnings per
share:
Three Months
Ended
December 31,
2000 1999
---- ----
Numerator:
Numerator for basic and diluted
earnings per share - net income (loss) $ (205) $ 206
====== ======
Denominator:
Denominator for basic earnings
per share-weighted average shares 4,671 4,868
Effect of dilutive securities:
Stock options -- 3
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Denominator for diluted earnings
per share-adjusted weighted average
shares and assumed conversions 4,671 4,871
====== ======
Basic earnings (loss) per share $ (.04) $ .04
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Diluted earnings (loss) per share $ (.04) $ .04
====== ======
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 4. Comprehensive Income
The components of comprehensive income (loss), net of related tax, for the three
month period ended December 31, 2000 and 1999 are as follows:
Three Months
Ended
December 31,
--------------
2000 1999
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Net income (loss) $(205) $206
Foreign currency translation adjustment 23 21
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Comprehensive income $(182) $227
==============
The components of accumulated other comprehensive loss, net of related tax, at
December 31, 2000 and September 30, 2000, are as follows:
Dec 31, 2000 Sept 30, 2000
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Foreign currency translation adjustment $(173) $(196)
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Accumulated other comprehensive income $(173) $(196)
=============================
Note 5. Recent Accounting Pronouncements
Effective October 1, 2000, the Company adopted the Financial Accounting
Standards Board Statement No. 133 "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS No. 133"), as amended by SFAS No. 137 and SFAS No.
138. Adoption of SFAS No. 133 did not impact the Company's financial statements.
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company's revenue recognition policy is discussed in Note A to the 2000
consolidated financial statements in the Company's Form 10-K for the year ended
September 30, 2000. 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. The Company's revenues are and will be
increasingly dependent on sales of its next-generation system, Taos, which is
based on object-oriented client/server design. Certain modules of Taos went into
general release during the fourth quarter of fiscal 1999 and are currently in
use at customer sites. During fiscal 2000, one additional module was released
and an additional module is expected to be released late in fiscal 2001. The
timing of the completion of this additional module may be affected by multiple
factors, including rapid technological change, dependence on third-party
suppliers and the relative scarcity of qualified technical staff. For additional
factors that should be read in conjunction with this disclosure, 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, 2000.
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, 2000.
10
Results of Operations
Three Months Ended December 31, 2000 compared to Three Months Ended December 31,
1999
Hardware revenues decreased $.4 million, or 76%, to $.1 million in the three
months ended December 31, 2000, compared to $.5 million for the three months
ended December 31, 1999. The primary reason for the decrease is the lack of
major hardware shipments in the three months ended December 31, 2000. In the
three months ended December 31, 1999 there was one large shipment to an existing
customer and one large installation at a new site. The gross margin percentage
on hardware was 30% in the three months ended December 31, 2000 and 32% in the
three months ended December 31, 1999. The decrease in margin is primarily due to
the mix in types of hardware sold.
Software revenues decreased $.3 million, or 41%, to $.4 million in the three
months ended December 31, 2000, compared to $.7 million in the three months
ended December 31, 1999. The Company had $.2 million in new contract revenue in
the three month periods ended December 31, 1999, with no similar new contract
revenue in the three months ended December 31, 2000. The gross margin percentage
on software was 10% in the three months ended December 31, 2000, and 65% in the
three months ended December 31, 1999. The decrease in margin is primarily
attributable to the reduced revenue in the three months ended December 31, 2000,
which was less able to support the amortization of the software development
costs.
Service and other revenues decreased $.1 million, or 2%, to $5.1 million in
the three months ended December 31, 2000, compared to $5.2 million in the three
months ended December 31, 1999. The primary reason for the decrease is the
reduction in service revenue associated with the implementation of new software
contract revenue in the three months ended December 31, 2000. The gross margin
percentage on service and other revenues was 72% in the three months ended
December 31, 2000, and 73% in the three months ended December 31, 1999.
Salaries and employee benefits increased $.1 million, or 3%, to $2.8 million
in the three months ended December 31, 2000, from $2.7 million in the three
months ended December 31, 1999. Annual salary increases in the three months
ended December 31, 2000, were mitigated somewhat by the capitalization of
salaries and benefits associated with software development.
General and administrative expenses decreased $.1 million, or 5%, to $1.2
million in the three months ended December 31, 2000, from $1.3 million in the
three months ended December 31, 1999. This decline is primarily attributable to
a decrease in travel expenses, employee recruitment and general office supplies.
Income from operations decreased $.6 million, to $.6 million loss in the three
months ended December 31, 2000, from near break even in the three months ended
December 31, 1999. The primary contributor to the decline is the reduction of
revenue in the three months ended December 31, 2000 as compared to the three
months ended December 31, 1999.
The Company's consolidated effective tax rate was 32% for the three month
period ended December 31, 2000, and for the three month period ended December
31, 1999.
11
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, 2000, the Company's working
capital was $18.9 million and its ratio of current assets to current liabilities
was 3.5 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, 2000.
Net cash provided by operating activities was $1.2 million for the three
months ended December 31, 2000, remaining consistent with the three months ended
December 31, 1999. A decrease in net income in the three months ended December
31, 2000, is offset by an increase in cash provided by a decrease in accounts
receivable.
Net cash used by investing activities was $3.4 million for the three months
ended December 31, 2000, compared to net cash used of $.6 million for the three
months ended December 31, 1999. The decrease in net cash provided by investing
activities is primarily due to the shift of focus to cash investments of 90 days
or more, resulting in the reclassification of cash to short-term investments.
Net cash used by financing activities was $.1 million for the three months
ended December 31, 2000, compared to $.9 million for the nine months ended
December 31, 1999. Purchases of treasury stock in the amount of $.2 million for
the three months ended December 31, 2000, compared to $.9 million for the three
months ended December 31, 1999 accounted for the decrease in cash used.
The Company has a $6.0 million line of credit which expires in January 2001
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.
There have been no borrowings against the Company's line of credit since May
1991.
Management believes that, with the current cash position of $6.3 million,
short-term investments of $14.5 million, accounts receivable of $4.1 million,
continued cash flow from operations, availability of a $6.0 million line of
credit, and total current liabilities of $7.6 million, the Company will be able
to meet both its short-term liquidity needs and short-term capital expenditure
needs. Management believes that with total long-term liabilities of
approximately $1.9 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.
Item 3. Qualitative and Quantitative Disclosures About Market Risk
The Company's exposure to potential near-term losses in future earnings, fair
value or cash flows resulting from reasonably possible changes in market rates
or prices is not material.
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DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 5. Other Information.
The Company has released version 1.0 of some modules of its next generation
system, Taos, and expects to release version 1.0 of Acquisitions, the module
that will complete the suite of Taos products, late in fiscal 2001. During the
development of Taos, the Company has pursued contractual arrangements with
library systems desiring to purchase Taos once it is completed. Those contracts
include terms that are modified from time-to-time by agreement between the
parties, including terms with respect to the anticipated installation dates for
the various modules of the Taos system, but libraries are not obligated to agree
to such amendments. The Company has experienced some delays with certain
contractual installation schedules, which has resulted in the modification of
certain of these schedules and the termination of certain contracts. During the
first quarter of fiscal 2001 the Company received written notice from one
customer which has implemented Taos that it considered the Company to be in
significant breach of its agreement with the customer and requesting a partial
refund of funds paid to the Company. The Company reached an amicable settlement
with the customer. Subsequent to the end of the of the first quarter of fiscal
2001 a large academic customer which had previously notified DRA that it
considered the Company to be in material breach of its agreement with the
customer, notified the Company in writing that it is withdrawing its claim of
material breach. While the Company believes that it will be able to
substantially comply with the Taos installation schedules currently in place
with its customers, a variety of factors could add additional delays in these
projects. Such factors include the difficulties associated with incorporating
rapid technological change into the Taos system, the Company's dependence on
third-party suppliers, and the relative scarcity of qualified technical staff.
For additional risk factors that should be read in conjunction with this
disclosure, 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, 2000.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
There are no exhibits required.
(b) Reports on Form 8-K
No reports on Form 8-K were required to be filed during the three
months ended December 31, 2000.
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PART II. OTHER INFORMATION
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 25, 2001 /s/Michael J. Mellinger
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Date Michael J. Mellinger
Chairman, President, and
Chief Executive Officer
(Principal Executive Officer)
January 25, 2001 /s/Katharine W. Biggs
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Date Katharine W. Biggs
Vice President, and
Chief Financial Officer
(Principal Accounting Officer)