-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VGW9ot8Eg0rF+E8dZ52PpoOSiXz9vdzAI7cBZPV+fn8aQ4le60j916VI2wNaHO8k WLKB73e1qSHloQqInfpl6A== 0000950128-99-000016.txt : 19990115 0000950128-99-000016.hdr.sgml : 19990115 ACCESSION NUMBER: 0000950128-99-000016 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981130 FILED AS OF DATE: 19990114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMPUTER RESEARCH INC CENTRAL INDEX KEY: 0000201511 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 251201499 STATE OF INCORPORATION: PA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-05954 FILM NUMBER: 99506043 BUSINESS ADDRESS: STREET 1: 400 SOUTHPOINTE BLVD STREET 2: STE 300 CITY: CANONSBURG STATE: PA ZIP: 15317-8539 BUSINESS PHONE: 4122624430 MAIL ADDRESS: STREET 1: SOUTHPOINT PLZ I STREET 2: 400 SOUTHPOINTE BLVD STE 300 CITY: CANONSBURGH STATE: PA ZIP: 15317-8539 10QSB 1 COMPUTER RESEARCH, INC. 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 November 30, 1998 [ ] 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 November 30, 1998) ----------------------------------- 2 PART I - FINANCIAL STATEMENTS ITEM I A. COMPUTER RESEARCH, INC. BALANCE SHEET November 30, 1998 (Unaudited) and August 31, 1998 (Audited) ASSETS
NOVEMBER 30, AUGUST 31, 1998 1998 ------------ ----------- CURRENT ASSETS Cash and Cash Equivalents $ 197,316 $ 766,823 Short-Term Investments 2,193,575 1,996,700 Accounts Receivable - Trade (net of allowance for doubtful accounts of $30,000) 1,117,702 721,239 Inventories at the Lower of Cost (first-in, first-out) or market 32,864 43,891 Prepaid Expenses 110,271 79,955 ---------- ---------- Total Current Assets 3,651,728 3,608,608 ---------- ---------- EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost Data Processing Equipment 1,722,406 1,672,213 Data Processing Equipment Under Capital Leases 256,471 256,471 Leasehold Improvements 158,107 154,551 Office Equipment 543,292 535,887 ---------- ---------- 2,680,276 2,619,122 Less Accumulated Depreciation and Amortization 2,102,135 2,064,718 ---------- ---------- 578,141 554,404 ---------- ---------- OTHER ASSETS 52,072 39,905 ---------- ---------- $4,281,941 $4,202,917 ========== ==========
The accompanying notes are an integral part of these financial statements. 2 3 A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D. November 30, 1998 (Unaudited) and August 31, 1998 (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY
NOVEMBER 30, AUGUST 31, 1998 1998 ---------- ---------- LIABILITIES CURRENT LIABILITIES Current Portion of Long-Term Obligations $ 60,440 $ 37,765 Accounts Payable 218,191 149,382 Accrued Payroll 129,536 76,281 Accrued Income Taxes 13,500 13,000 Accrued Vacation 258,230 281,058 Customer Deposits 90,400 97,650 Other Liabilities 98 330 ---------- ---------- Total Current Liabilities 770,395 655,466 LONG-TERM OBLIGATIONS 60,111 97,061 ---------- ---------- Total Liabilities 830,506 752,527 ---------- ---------- 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 2,703,863 2,702,818 ---------- ---------- Total Stockholders' Equity 3,451,435 3,450,390 $4,281,941 $4,202,917 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 4 B. COMPUTER RESEARCH, INC. CAPITALIZATION AND STOCKHOLDERS' EQUITY November 30, 1998 (Unaudited)
DEBT AMOUNT ---- ------ Short-Term Loans, Notes $ -0- Long-Term Debt (Including $60,440 due within one year) 120,551 ----------- Total Debt $ 120,551 ==========
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 2,702,818 Net Income for Period 1,045 ---------- 2,703,863 Total Stockholders' Equity $3,451,435
The accompanying notes are an integral part of these financial statements. 4 5 C. COMPUTER RESEARCH, INC. STATEMENT OF INCOME For the Three Months Ended November 30, 1998 and 1997 (Unaudited)
1998 1997 ---- ---- REVENUES Sales of Services $1,643,708 $1,867,359 Sales of Equipment, Software and Supplies 27,500 -0- Rental Income From Operating Leases -0- 90 Other Income 30,946 41,315 ---------- ---------- 1,702,154 1,908,764 ---------- ---------- COSTS AND EXPENSES Operating Expenses 1,034,359 1,029,277 Selling and Administrative Expenses 604,858 495,281 Depreciation and Amortization 37,729 38,532 Cost of Equipment, Software and Supplies Sold 21,111 -0- Interest Expense 2,552 3,853 ---------- ---------- 1,700,609 1,566,943 ---------- ---------- INCOME BEFORE INCOME TAXES 1,545 341,821 LESS: PROVISION FOR INCOME TAXES 500 122,000 ---------- ---------- NET INCOME $ 1,045 $ 219,821 ========== ========== Average Number of Shares Outstanding 4,037,255 4,037,255 EARNINGS PER COMMON SHARE $ .00 $ .05 ========== ========== (Basic and Diluted) DIVIDENDS PER COMMON SHARE $ -- $ -- ========== ==========
The results for the periods ended November 30, 1998 and 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, 1998 and 1997. The accompanying notes are an integral part of these financial statements. 5 6 D. COMPUTER RESEARCH, INC. STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
1998 1997 ---- ---- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net Income $ 1,045 $ 219,821 ----------- --------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and Amortization 37,729 38,532 Change in Assets and Liabilities: Accounts Receivable (396,463) (54,411) Inventories 11,027 (10,856) Prepaid Expenses (30,316) (17,122) Accounts Payable, Accrued Expenses and Other Current Liabilities 99,504 263,594 Customer Deposits (7,250) 22,411 Accrued Lease Obligation -0- (2,959) ----------- --------- Total Adjustments (285,769) 239,189 ----------- --------- Net Cash Provided by (Used By) Operating Activities (284,724) 459,010 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Equipment and Leasehold Improvements (61,154) (118,122) Short-Term Investment Maturities 1,225,000 256,000 Additions to Other Assets (12,479) (19,244) Additions to Short-Term Investments (1,421,875) (22,806) ----------- --------- Net Cash Provided by (Used In) Investing (270,508) 95,828 ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on Capital Lease Obligations (14,275) (16,439) ----------- --------- Net Cash (Used In) Financing Activities (14,275) (16,439) ----------- --------- Net Increase (Decrease) in Cash (569,507) 538,399 Cash and Cash Equivalents at August 31, 1998 and 1997 766,823 336,259 ----------- --------- Cash and Cash Equivalents at November 30, 1998 and 1997 $ 197,316 $ 874,658 =========== ========= CASH PAID DURING THE PERIOD Interest $ 2,552 $ 3,853 =========== ========= Income Taxes $ -0- $ -0- =========== =========
The accompanying notes are an integral part of these financial statement. 6 7 COMPUTER RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS THREE MONTHS ENDED NOVEMBER 30, 1998 NOTE A - COMPANY'S ANNUAL REPORT UNDER FORM 10-KSB The accompanying financial information should be read in conjunction with the Company's 1998 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. 7 8 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. In addition, 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. In March of 1996, the Company and Wachovia Operational Services Corporation (WOSC) entered into an agreement to jointly participate in a project to convert the Company's production software to operate on an IBM AS/400 configuration. In consideration for providing funds and participating in the joint conversion project, WOSC has secured a perpetual software license agreement from the Company for servicing its affiliate, Wachovia Investments, Incorporated (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. At the start of the second quarter of the 1998 fiscal year, WOSC began utilizing its software license agreement to offer processing services to WII. As a result, WII, a former major client of the Company, which accounted for approximately 23% of the Company's first quarter 1998 service revenues, terminated utilization of the Company's basic data processing services, but continues to utilize software maintenance and other services (which are primarily communications interfaces) offered by the Company. During the second half of the 1998 fiscal year, the Company obtained service contracts with three brokerage firms and a banking institution. During the first quarter of the 1999 year, the banking institution, as well as one of the brokerage firms, were utilizing the Company's services. The two additional brokerage firms will begin utilizing the service during the second quarter of the current year. In addition, a large banking institution will begin utilizing the services during the second quarter of the current year. With the new clients utilizing the system, as well as the additional firms under contract, the management of the Company believes that during its 1999 fiscal year, it can replace, on a monthly basis, the approximate 20% annual revenue loss attributed to WII. However, because of the relatively fixed cost 8 9 element of the Company's operations, to the extent that such revenues are not replaced, the percentage decrease in net income could exceed the percentage decrease in lost revenues. REVENUES The total revenues for the first three months of the 1999 fiscal year were $1,702,154 or a decrease of approximately 11% as compared to the previous year. The loss of revenues from a major client at the beginning of the second quarter of the previous year, as explained above, was the primary reason for this decrease. The total revenues for the first three months of the 1998 fiscal year increased approximately 6% over the comparable period of the previous year. COSTS AND EXPENSES The total costs and expenses for the first quarter of the 1999 fiscal year were $1,700,609 or an approximate 9% increase over the previous year. The primary reasons for this increase were due to increased selling and advertising expenses, as well as the cost associated with adding IBM AS/400 computer equipment. The total costs and expenses for the first three months of the 1998 year were relatively equal to the previous year. NET INCOME The net income for the first three months of the current year was $.00 or $1,045 as compared to $.05 or $219,821 for the previous year. The reason for the decrease was due to the loss of revenues of a major client as explained above. 2. CAPITAL RESOURCES AND LIQUIDITY The Company had approximately $2.4 million in cash, cash equivalents and short-term investments at the end of the first quarter of the 1999 fiscal year. In addition, approximately $650,000 of a $750,000 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. 9 10 3. SOFTWARE MODIFICATION FOR YEAR 2000 The software product line of the Company had been originally designed to reflect the year as two digits (i.e, 98 = 1998). This design would have created problems for processing at the turn of the century. However, as part of the conversion project to the IBM AS/400, each date field in the entire product line was modified to contain a four digit representation for the year. This new design format should enable the software to accurately handle transactions beginning in the year 2000. During the first half of the 1999 calendar year, the Company will be doing extensive securities industry mandated testing for predetermined critical calendar dates in the year 2000 and above in order to verify system processing accuracy. While it would be impossible to guarantee that there will be no problems with the system at the turn of the century, the management of the Company is confident that there will be little, if any, disruptions. In any event, the Company will employ contingency plans which require management, staff members and other resources to be available to react promptly should a problem occur. Additionally, the Company is continuing to monitor and evaluate its third party software and hardware suppliers, as well as firms with which it has a communications interface to determine that these suppliers will also be year 2000 compliant. The Company does not expect to incur any substantial cost in this system testing and vendor evaluation. 4. "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 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. 10 11 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. --------------------------------------- (Registrant) Date ------------------ --------------------------------------- James L. Schultz, President & Treasurer 11 EX-27 2 COMPUTER RESEARCH, INC.
5 0000201511 COMPUTER RESEARCH, INC. 1 U.S. DOLLARS 3-MOS AUG-31-1999 SEP-01-1998 NOV-30-1998 1 197,316 2,193,575 1,147,702 30,000 32,864 3,651,728 2,680,276 2,102,135 4,281,941 770,395 120,551 0 0 3,230 3,538,205 4,281,941 27,500 1,702,154 21,111 1,698,057 0 0 2,552 1,545 500 1,045 0 0 0 1,045 .00 .00
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