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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 November 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
EXCHANGE ACT
For the transition period from to
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Commission File No. 0-5954
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COMPUTER RESEARCH, INC.
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(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
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(Address of principal executive offices)
(412) 745-0600
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(Issuer's telephone number)
Cherrington Corporate Center, Building 200, Coraopolis, PA 15108 (Effective
12/15/97)
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(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
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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 November 30, 1997)
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PART I - FINANCIAL STATEMENTS
ITEM I
A. COMPUTER RESEARCH, INC. BALANCE SHEET
NOVEMBER 30, 1997 (UNAUDITED) AND AUGUST 31, 1997 (AUDITED)
ASSETS
NOVEMBER 30, AUGUST 31,
1997 1997
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CURRENT ASSETS
Cash and Cash Equivalents $ 874,658 $ 336,259
Short-Term Investments 2,145,055 2,378,249
Accounts Receivable - Trade
(net of allowance for doubtful accounts
of $30,000 at 11/30/97 and 8/31/97) 910,634 856,223
Inventories
(first-in, first-out) or market 51,626 40,770
Prepaid Expenses 83,835 66,713
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Total Current Assets 4,065,808 3,678,214
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EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost
Data Processing Equipment 4,446,273 4,439,883
Data Processing Equipment Under Capital Leases 319,163 319,163
Leasehold Improvements 378,375 271,610
Office Equipment 581,971 577,004
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5,725,782 5,607,660
Less Accumulated Depreciation and Amortization 5,221,525 5,182,993
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504,257 424,667
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OTHER ASSETS 19,244 -0-
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$4,589,309 $4,102,881
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The accompanying notes are an integral part of these financial statements.
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A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D.
NOVEMBER 30, 1997 (UNAUDITED) AND AUGUST 31, 1997 (AUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, AUGUST 31,
1997 1997
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LIABILITIES
CURRENT LIABILITIES
Current Portion of Long-Term Obligations $ 43,150 $ 12,017
Accounts Payable 111,502 84,216
Accrued Payroll 346,406 237,068
Accrued Income Taxes 124,000 -0-
Accrued Vacation 335,364 328,613
Customer Deposits 119,211 96,800
Accrued Rent 1,222 4,888
Accrued Lease Obligation 988 37,765
Other Liabilities -0- 115
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Total Current Liabilities 1,081,843 801,482
LONG-TERM OBLIGATIONS 99,077 108,882
ACCRUED LEASE OBLIGATION -0- 3,949
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Total Liabilities 1,180,920 914,313
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COMMITMENTS -0- -0-
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STOCKHOLDERS' EQUITY
Common Stock - No Par Value; $.0008 Stated Value;
10,000,000 Shares Authorized; 4,037,255 Shares
Issued and Outstanding Each Year 3,230 3,230
Additional Paid-In Capital 744,342 744,342
Retained Earnings 2,660,817 2,440,996
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Total Stockholders' Equity 3,408,389 3,188,568
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$ 4,589,309 $4,102,881
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The accompanying notes are an integral part of these financial statements.
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B. COMPUTER RESEARCH, INC. CAPITALIZATION AND STOCKHOLDERS' EQUITY
NOVEMBER 30, 1997 (UNAUDITED)
DEBT AMOUNT
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Short-Term Loans, Notes $ -0-
Long-Term Debt (Including $43,150 due within one year) 142,227
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Total Debt $ 142,227
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STOCKHOLDERS' EQUITY
SHARES ISSUED AMOUNT
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Preferred Stock -0- $ -0-
Common Stock 4,037,255 3,230
Capital in Excess of Par Value 744,342
Retained Earnings -
Balance at Beginning of Current Fiscal Year 2,440,996
Net Income for Period 219,821
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2,660,817
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Total Stockholders' Equity $3,408,389
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The accompanying notes are an integral part of these financial statements.
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C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
1997 1996
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REVENUES
Sales of Services $1,867,359 $1,741,452
Sales of Equipment, Software and Supplies -0- 25,181
Rental Income From Operating Leases 90 5,310
Other Income 41,315 34,204
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1,908,764 1,806,147
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COSTS AND EXPENSES
Operating Expenses 1,029,277 1,047,380
Selling and Administrative Expenses 495,281 450,772
Depreciation and Amortization 38,532 47,909
Cost of Equipment, Software and Supplies Sold -0- 17,643
Interest Expense 3,853 2,451
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1,566,943 1,566,155
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INCOME BEFORE INCOME TAXES 341,821 239,992
LESS: PROVISION FOR INCOME TAXES 122,000 92,000
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NET INCOME $ 219,821 $ 147,992
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Average Number of Shares Outstanding 4,037,255 4,037,255
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EARNINGS PER COMMON SHARE $ .05 $ .04
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DIVIDENDS PER COMMON SHARE $ -- $ --
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The results for the period ended November 30, 1997, 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 November 30, 1997 and
1996.
The accompanying notes are an integral part of these financial statements.
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D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
1997 1996
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RECONCILIATION OF NET INCOME TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
Net Income $ 219,821 $ 147,992
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ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and Amortization 38,532 47,909
Change in Assets and Liabilities:
Accounts Receivable (54,411) (90,851)
Inventories (10,856) (5,619)
Prepaid Expenses (17,122) (1,530)
Accounts Payable, Accrued Expenses and Other Current Liabilities 263,594 (151,358)
Customer Deposits 22,411 27,104
Accrued Lease Obligation (2,959) (3,489)
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Total Adjustments 239,189 (177,834)
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Net Cash Provided by (Used In) Operating Activities 459,010 (29,842)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Equipment and Leasehold Improvements (118,122) (27,512)
Short-Term Investment Maturities 256,000 361,000
Additions to Other Assets (19,244) -0-
Additions to Short-Term Investments (22,806) (619,854)
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Net Cash Provided by (Used In) Investing 95,828 (286,366)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on Capital Lease Obligations (16,439) (18,292)
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Net Cash (Used In) Financing Activities (16,439) (18,292)
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Net Increase (Decrease) in Cash 538,399 (334,500)
Cash and Cash Equivalents at August 31, 1997 and 1996 336,259 1,486,924
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Cash and Cash Equivalents at November 30, 1997 and 1996 $ 874,658 $ 1,152,424
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CASH PAID DURING THE PERIOD 11/30/97 11/30/96
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Interest $ 3,853 $ 2,451
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Income Taxes $ -0- $ 256,950
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Supplemental Schedule of Noncash Investing and Financing Activities
There were no noncash investing and financing activities for the three months
ended November 30, 1997 and 1996.
The accompanying notes are an integral part of these financial statement.
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COMPUTER RESEARCH, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED NOVEMBER 30, 1997
NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB
The accompanying financial information should be read in conjunction
with the Company's 1997 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.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
1. RESULTS OF OPERATIONS
The Company's principal source of revenue 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. The
clients serviced could be involved in mergers and acquisitions or may
choose to convert their business from self-clearing to a fully
disclosed basis which would 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. Also, due
to the volatile nature of the industry served, the results of
operations 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 three months of the 1998
fiscal year were $1,908,764 or an increase of approximately 6%
over the comparable period of the previous year. This increase
is primarily attributable to an approximate 6% increase in the
number of transactions processed for the clients of the
services offered by the Company.
The total revenues for the first three months of the 1997
fiscal year increased approximately 1% over the comparable
period of the previous year.
In March of 1996, the Company and Wachovia Operational
Services Corporation (WOSC) entered into an agreement to
convert the Company's production software to operate on an IBM
AS/400 configuration. WOSC is an affiliate of Wachovia
Investments, Inc. (WII), a major service client of the Company
that accounted for approximately 20% of the service revenues
in fiscal year 1997. In consideration for providing funds for
the joint conversion project, WOSC has secured a perpetual
software license agreement from the Company for servicing its
affiliate, WII. The Company has retained sole ownership of the
converted software and will continue to offer its services to
its clients on a service bureau basis from the IBM AS/400
platform. In addition, the Company intends to license the
software to firms desiring to utilize the system on an
in-house basis on the IBM AS/400.
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At the start of the second quarter of the Company's 1998
fiscal year, WOSC began utilizing its software license
agreement to offer processing services to WII. As a result,
WII will no longer utilize the Company's data processing
services. The Company anticipates that maintenance and certain
other services provided to WII will increase, but cannot
presently estimate the revenues that will result from such
services. The Company is currently in discussion with several
prospective new clients and believes it can replace a
substantial portion, if not all, of the revenues previously
attributed to WII during its 1998 and 1999 fiscal year. In
addition, by converting to the IBM AS/400, the Company will
eliminate approximately $420,000 of annual maintenance and
lease expenses associated with the previously used computer
equipment. However, because of the relatively fixed cost
element of the Company's operations, to the extent that such
revenues are not replaced, the percentage decrease in net
income will exceed the percentage decrease in lost revenues.
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 based upon operating budgets and many
other detailed business 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.
COSTS AND EXPENSES
The total costs and expenses for the first quarter of the
current year were $1,566,943 which is relatively equal to the
total costs and expenses for the previous year.
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The total costs and expenses for the first three months of the
previous year increased approximately 9% primarily as the
result of some added computer equipment and installation and
training expenses absorbed by the Company during the first
quarter of the previous year.
NET INCOME
The net income for the first quarter of the current year was
$219,821 or $.05 per share as compared to $147,992 or $.04 per
share for the comparable period of the previous year. The
increase in net income is attributable to the increase in
revenues during the period.
2. CAPITAL RESOURCES AND LIQUIDITY
The Company had approximately $3.0 million in cash, cash equivalents
and short-term investments at the end of the first quarter of the 1998
fiscal year. In addition, a $750,000 unused line of credit is
available. This, along with funds generated by operations, should
adequately support the operating needs of the Company in the near term.
During the third quarter of the 1997 fiscal year, the Company entered
into a lease for approximately $160,000 of computer equipment which
will expire in April of 2001. In addition, the Company plans to enter
into a lease agreement for additional IBM AS/400 computer equipment
during the second half of the 1998 fiscal year.
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PART II - OTHER INFORMATION
Not applicable.
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 RESEARCH, INC.
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(Registrant)
Date January 9, 1998 /s/ James L. Schultz
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James L. Schultz, President & Treasurer
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