1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB /X/ QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended February 29, 2000 ----------------- / / TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE EXCHANGE ACT For the transition period from __________ to __________ Commission File No. ____________0-5954_________________ COMPUTER RESEARCH, INC. ---------------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Pennsylvania 25-1201499 - ------------------------------------- ---------------- (State or other jurisdiction of I.R.S. Employer incorporation or organization) Identification No. Southpointe Plaza I, Suite 300, 400 Southpointe Boulevard, Canonsburg, PA 15317 - -------------------------------------------------------------------------------- (Address of principal executive offices) (724) 745-0600 - -------------------------------------------------------------------------------- (Issuer's telephone number) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (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 ______ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes ___ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 4,037,255 (As of February 29, 2000) - --------------------------------------------------------------- 2 PART I - FINANCIAL STATEMENTS ITEM I A. COMPUTER RESEARCH, INC. BALANCE SHEET ------------------------------------- February 29, 2000 (Unaudited) and August 31, 1999 (Audited) ASSETS ------ FEBRUARY 29, AUGUST 31, 2000 1999 ---- ---- CURRENT ASSETS Cash and Cash Equivalents $ 511,709 $ 449,698 Short-Term Investments 2,782,151 2,439,882 Accounts Receivable - Trade (net of allowance for doubtful accounts of $37,500) 1,074,334 1,058,999 Inventories at the Lower of Cost (first-in, first-out) or market 4,675 7,152 Prepaid Expenses 121,679 52,689 Deferred Tax Asset 25,000 25,000 ----------- ----------- Total Current Assets 4,519,548 4,033,420 ----------- ----------- EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost Data Processing Equipment 819,117 1,765,116 Data Processing Equipment Under Capital Leases 388,779 446,471 Leasehold Improvements 218,724 185,008 Office Equipment 598,181 580,574 ----------- ----------- 2,024,801 2,977,169 Less Accumulated Depreciation and Amortization (1,241,931) (2,249,900) ----------- ----------- 782,870 727,269 ----------- ----------- OTHER ASSETS 23,172 43,998 ----------- ----------- $ 5,325,590 $ 4,804,687 =========== =========== The accompanying notes are an integral part of these financial statements. 2 3 A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D. ----------------------------------------------- February 29, 2000 (Unaudited) and August 31, 1999 (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ FEBRUARY 29, AUGUST 31, 2000 1999 ---- ---- LIABILITIES - ----------- CURRENT LIABILITIES Current Portion of Long-Term Obligations $ 77,241 $ 81,072 Accounts Payable 111,281 125,117 Accrued Payroll and Related Costs 163,788 129,607 Accrued Income Taxes 141,941 42,000 Accrued Vacation 260,593 260,593 Customer Deposits 76,700 93,701 Other Liabilities 466 290 ---------- ---------- Total Current Liabilities 832,01 732,380 LONG-TERM OBLIGATIONS 121,839 161,266 ---------- ---------- Total Liabilities 953,849 893,646 ---------- ---------- STOCKHOLDERS' EQUITY Common Stock - No Par Value; $.0008 Stated Value; 10,000,000 Shares Authorized; 4,037,255 Shares Issued and Outstanding 3,230 3,230 Additional Paid-In Capital 744,342 744,342 Retained Earnings 3,624,169 3,163,469 ---------- ---------- Total Stockholders' Equity 3,911,041 ---------- $5,325,590 $4,804,687 ========== ========== The accompanying notes are an integral part of these financial statements. 3 4 B. COMPUTER RESEARCH, INC. CAPITALIZATION AND STOCKHOLDERS' EQUITY --------------------------------------------------------------- February 29, 2000 (Unaudited) DEBT AMOUNT ---- ------ Short-Term Line of Credit $ -0- Long-Term Debt (Including $77,241 due within one year) 199,080 --------- Total Debt $ 199,080 ========= STOCKHOLDERS' EQUITY - -------------------- SHARES ISSUED AMOUNT ------------- ------ Common Stock 4,037,255 $ 3,230 Capital in Excess of Par Value 744,342 Retained Earnings - Balance at Beginning of Current Fiscal Year 3,163,469 Net Income for Period 460,700 ---------- 3,624,169 Total Stockholders' Equity $4,371,741 ========== The accompanying notes are an integral part of these financial statements. 4 5 C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME ------------------------------------------- For the Six Months Ended February 29, 2000 and 1999 (Unaudited) --------------------------------------------------------------- 2000 1999 ---- ---- REVENUES - -------- Sales of Services $4,190,915 $3,631,103 Sales of Equipment, Software and Supplies 45,000 27,500 Other Income 75,820 58,738 ---------- ---------- 4,311,735 3,717,341 ---------- ---------- COSTS AND EXPENSES - ------------------ Operating Expenses 2,100,442 2,163,141 Selling and Administrative Expenses 1,284,635 1,261,967 Depreciation and Amortization 132,679 79,428 Cost of Equipment, Software and Supplies Sold 39,477 21,111 Interest Expense 9,728 12,149 ---------- ---------- 3,566,961 3,537,796 ---------- ---------- INCOME BEFORE INCOME TAXES 744,774 179,545 LESS: PROVISION FOR INCOME TAXES 284,074 44,132 ---------- ---------- NET INCOME $ 460,700 $ 135,413 ========== ========== Average Number of Shares Outstanding 4,037,255 4,037,255 ---------- EARNINGS PER COMMON SHARE $ .11 $ .03 ========== ========== (Basic and Diluted) DIVIDENDS PER COMMON SHARE $ -- $ -- ========== ========== The results for the periods ended February 29, 2000 and 1999 are unaudited and are not necessarily indicative of the results to be expected for the year. All known adjustments necessary for a fair presentation of the financial information of the Company have been reflected for the six months ended February 29, 2000 and 1999. The accompanying notes are an integral part of these financial statements. 5 6 C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME ------------------------------------------- For the Fiscal Second Quarter Ended February 29, 2000 and 1999 -------------------------------------------------------------- 2000 1999 ---- ---- REVENUES - -------- Sales of Services $2,045,357 $1,987,396 Sales of Equipment, Software and Supplies 42,000 -0- Other Income 41,032 27,792 ---------- ---------- 2,128,389 2,015,188 ---------- ---------- COSTS AND EXPENSES - ------------------ Operating Expenses 1,020,638 1,128,781 Selling and Administrative Expenses 661,098 657,110 Depreciation and Amortization 71,189 41,699 Cost of Equipment, Software and Supplies Sold 37,0 -0- Interest Expense 4,561 9,598 ---------- ---------- 1,794,486 1,837,188 ---------- ---------- INCOME BEFORE INCOME TAXES 333,903 178,000 LESS: PROVISION FOR INCOME TAXES 128,074 43,632 ---------- ---------- NET INCOME $ 205,829 $ 134,368 ========== ========== Average Number of Shares Outstanding 4,037,255 4,037,255 ---------- ---------- EARNINGS PER COMMON SHARE $ .05 $ .03 ========== ========== (Basic and Diluted) DIVIDENDS PER COMMON SHARE $ -- $ -- ========== ========== The results for the periods ended February 29, 2000 and 1999 are unaudited and are not necessarily indicative of the results to be expected for the year. All known adjustments necessary for a fair presentation of the financial information of the Company have been reflected for the three months ended February 29, 2000 and 1999. The accompanying notes are an integral part of these financial statements. 6 7 D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS ----------------------------------------------- FOR THE SIX MONTHS ENDED FEBRUARY 29, 2000 AND 1999 (UNAUDITED) --------------------------------------------------------------- 2000 1999 ---- ---- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net Income $ 460,700 $ 135,413 ----------- ----------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and Amortization 132,679 79,428 Provision for Losses on Accounts Receivable -0- 7,500 Change in Assets and Liabilities: Accounts Receivable (15,335) (446,903) Inventories 2,477 (11,088) Prepaid Expenses (68,990) (21,578) Accounts Payable, Accrued Expenses and Other Current Liabilities 120,462 50,773 Customer Deposits (17,001) (7,250) Other Assets 8,901 -0- ----------- ----------- Total Adjustments 163,193 (349,118) ----------- ----------- Net Cash Provided by (Used by) Operating Activities 623,893 (213,705) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Equipment and Leasehold Improvements (176,355) (75,665) Short-Term Investment Maturities 2,550,000 1,875,000 Additions to Other Assets -0- (29,960) Additions to Short-Term Investments (2,892,269) (1,694,833) ----------- ----------- Net Cash Provided by (Used by)Investing Activities (518,624) 74,542 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on Capital Lease Obligations (43,258) (37,865) Proceeds from Line of Credit -0- 200,000 Payment on Line of Credit -0- (100,000) ----------- ----------- Net Cash Provided by (Used by) Financing Activities (43,258) 62,135 ----------- ----------- Net Increase (Decrease) in Cash 62,011 (77,028) Cash and Cash Equivalents at August 31, 1999 and 1998 449,698 766,823 ----------- ----------- Cash and Cash Equivalents at February 29, 2000 and 1999 $ 511,709 $ 689,795 =========== =========== CASH PAID DURING THE PERIOD Interest $ 9,728 $ 12,149 =========== =========== Income Taxes $ 184,133 $ 9,000 =========== =========== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES - ------------------------------------------------------------------- In December 1998, the Company entered into a long term capital lease for additional computer equipment at a cost of $190,000. The accompanying notes are an integral part of these financial statements. 7 8 COMPUTER RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED FEBRUARY 29, 2000 NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB The accompanying financial information should be read in conjunction with the Company's 1999 Annual Report on Form 10-KSB. NOTE B - ADJUSTMENTS In the opinion of management, all adjustments that were made, which are necessary to a fair statement of the results for the interim periods, were of a normal and recurring nature. 8 9 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS 1. RESULTS OF OPERATIONS The Company's principal source of revenues is derived from providing computerized accounting and support services to securities firms, banks and other financial institutions. Service revenues are directly affected by stock and bond trading market volume which indirectly impacts the number of transactions processed for the clients and by the overall condition of the financial services industry. The clients serviced could become involved in mergers and/or acquisitions or may choose to convert their business from self-clearing to a fully disclosed basis which could eliminate the need for the accounting services provided by the Company. The Company could be positively or negatively impacted by a merger involving one of its clients or by a consolidation trend in the financial services industry involving services or products. As the result of being acquired by a third party, a client that accounted for 12.2% of the firm's revenues for the first six months of fiscal year 2000 terminated the Company's services at the close of the second quarter of the current year. Accordingly, the Company anticipates third and fourth quarter overall performance to be less than first and second quarter performance, due primarily to an anticipated decline in revenues resulting from the loss of this client's business. Due to the volatile nature of the industry served, the results of operations, as reported for the period represented, are not necessarily indicative of results to be expected for the coming year or any specific period. REVENUES The total revenues for the first six months of the current year increased approximately 16% over the comparable period of the previous year to a total of $4,311,735. This is attributable to an additional client added during the first six months of the current year as well as to an increase in revenues from some existing clients that have expanded their business since the comparable period of the previous year. The total revenues for the second quarter of the current year were $2,128,389 or an increase of approximately 6% over the comparable period of the previous year as explained above. 9 10 COSTS AND EXPENSES The costs and expenses for the first six months of the current year were $3,566,961 or approximately equal to the previous fiscal year. The costs and expenses for the fiscal second quarter of the current year decreased approximately 2% as compared to the comparable period of the previous year, some of which was attributable to a reduction in the number of employees on the payroll during the period which has subsequently been restored to the previous level. NET INCOME The net income for the first six months of the current year was $460,700 or $.11 per share as compared to $135,413 or $.03 per share for the comparable period of the previous year. This increase is primarily due to the increase in revenues generated during the current year as well as to the Company's ability to maintain operating costs. The net income for the fiscal second quarter of the current year was $205,829 or $.05 per share as compared to $134,368 or $.03 per share for the comparable period of the previous year. 2. CAPITAL RESOURCES AND LIQUIDITY During the fiscal second quarter of the current year, the Company disposed of outdated computer equipment that had been previously fully depreciated. The Company had approximately $3.3 million in cash, cash equivalents and short- term investments at the end of the first six months of the 2000 fiscal year. In addition, the Company maintains an approximate $750,000 line of credit, if needed. This, along with funds generated by operations, should adequately support the operating needs of the Company in the near term. 3. "SAFE HARBOR" STATEMENT UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Statements regarding the Company's expectations as to its future operations and financial condition and certain other information presented in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Since these statements involve risks and uncertainties and are subject to change at anytime, the Company's actual results could differ materially from expected results. The Company's forward-looking statements are 10 11 based upon operating budgets and many detailed assumptions. While the Company believes that its assumptions are reasonable, it cautions that there are inherent difficulties in predicting certain important factors which could directly affect the business. Some factors, which could cause actual results to differ from expectations, include a general downturn in the economy or the stock markets and related transaction activity, gain or loss of significant clients, unforeseen new competition, changes in government policy or regulation, or costs and other effects related to unanticipated legal proceedings. 11 12 PART II - OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of stockholders of the Company was held on January 25, 2000. The following persons were elected to serve as the Company's Board of Directors until the next annual meeting of stockholders: James L. Schultz David J. Vagnoni Lynn M. Bushman Kenneth C. Ebbitt K. David Klotz SIGNATURES COMPUTER RESEARCH, INC. ------------------------------ (Registrant) Date April 14, 2000 /s/ James L. Schultz - ------------------- --------------------------------------- James L. Schultz, President & Treasurer 12