-----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, KCI/YalNCej4tkA/Szn2hbOSNPLGlQGxg/8L5sBXIvkIf7Jow+LxfjQVf0Gn0ePI PfWV0IIYInwxpo9E0+rsPQ== 0000950128-99-000667.txt : 19990414 0000950128-99-000667.hdr.sgml : 19990414 ACCESSION NUMBER: 0000950128-99-000667 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990228 FILED AS OF DATE: 19990413 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: 99592541 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 February 28, 1999 ------------------------ [ ] 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) heck 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 28, 1999) ----------------------------------- 2 PART I - FINANCIAL STATEMENTS ITEM I A. COMPUTER RESEARCH, INC. BALANCE SHEET February 28, 1999 (Unaudited) and August 31, 1998 (Audited) ASSETS
FEBRUARY 28, AUGUST 31, 1999 1998 ------------ ----------- CURRENT ASSETS Cash and Cash Equivalents $ 689,795 $ 766,823 Short-Term Investments 1,816,533 1,996,700 Accounts Receivable - Trade (net of allowance for doubtful accounts of $37,500 and $30,000) 1,160,642 721,239 Inventories at the Lower of Cost (first-in, first-out) or market 54,979 43,891 Prepaid Expenses 101,533 79,955 ---------- ---------- Total Current Assets 3,823,482 3,608,608 ---------- ---------- EQUIPMENT and LEASEHOLD IMPROVEMENTS - At Cost Data Processing Equipment 1,723,206 1,672,213 Data Processing Equipment Under Capital Leases 446,471 256,471 Leasehold Improvements 159,009 154,551 Office Equipment 556,101 535,887 ---------- ---------- 2,884,787 2,619,122 Less Accumulated Depreciation and Amortization 2,140,602 2,064,718 ---------- ---------- 744,185 554,404 ---------- ---------- OTHER ASSETS 66,321 39,905 ---------- ---------- $4,633,988 $4,202,917 ========== ==========
The accompanying notes are an integral part of these financial statements. 2 3 A. COMPUTER RESEARCH, INC. BALANCE SHEET - CONT'D. February 28, 1999 (Unaudited) and August 31, 1998 (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY
FEBRUARY 28, AUGUST 31, 1999 1998 ------------ ---------- LIABILITIES CURRENT LIABILITIES Line of Credit Payable $ 100,000 $ -0- Current Portion of Long-Term Obligations 87,881 37,765 Accounts Payable 215,556 149,382 Accrued Payroll 33,939 76,281 Accrued Income Taxes 33,000 13,000 Accrued Vacation 288,231 281,058 Customer Deposits 90,400 97,650 Other Liabilities 98 330 ---------- ---------- Total Current Liabilities 849,105 655,466 LONG-TERM OBLIGATIONS 199,080 97,061 ---------- ---------- Total Liabilities 1,048,185 752,527 ---------- ---------- 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 2,838,231 2,702,818 ---------- ---------- Total Stockholders' Equity 3,585,803 3,450,390 ---------- ---------- $4,633,988 $4,202,917 ========== ==========
The accompanying notes are an integral part of these financial statements. 3 4 B. COMPUTER RESEARCH, INC. CAPITALIZATION AND STOCKHOLDERS' EQUITY February 28, 1999 (Unaudited)
DEBT AMOUNT -------- Short-Term Line of Credit $100,000 Long-Term Debt (Including $87,881 due within one year) 286,961 -------- Total Debt $386,961 ========
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 135,413 ---------- 2,838,231 ---------- Total Stockholders' Equity $3,585,803 ==========
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 28, 1999 and 1998 (Unaudited)
1999 1998 ---------- ---------- REVENUES Sales of Services $3,631,103 $3,392,419 Sales of Equipment, Software and Supplies 27,500 10,293 Other Income 58,738 76,036 ---------- ---------- 3,717,341 3,478,748 ---------- ---------- COSTS AND EXPENSES Operating Expenses 2,163,141 1,968,691 Selling and Administrative Expenses 1,261,967 1,065,528 Depreciation and Amortization 79,428 80,049 Cost of Equipment, Software and Supplies Sold 21,111 7,593 Interest Expense 12,149 7,486 ---------- ---------- 3,537,796 3,129,347 ---------- ---------- INCOME BEFORE INCOME TAXES 179,545 349,401 LESS: PROVISION FOR INCOME TAXES 44,132 126,000 ---------- ---------- NET INCOME $ 135,413 $ 223,401 ========== ========== Average Number of Shares Outstanding 4,037,255 4,037,255 ---------- ---------- EARNINGS PER COMMON SHARE $ .03 $ .06 ========== ========== (Basic and Diluted) DIVIDENDS PER COMMON SHARE $ -- $ -- ========== ==========
The results for the periods ended February 28, 1999 and 1998 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 28, 1999 and 1998. 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 28, 1999 and 1998
1999 1998 ---------- ---------- REVENUES Sales of Services $1,987,396 $1,525,061 Sales of Equipment, Software and Supplies -0- 10,293 Other Income 27,792 34,631 ---------- ---------- 2,015,188 1,569,985 ---------- ---------- COSTS AND EXPENSES Operating Expenses 1,128,781 939,415 Selling and Administrative Expenses 657,110 570,247 Depreciation and Amortization 41,699 41,517 Cost of Equipment, Software and Supplies Sold -0- 7,593 Interest Expense 9,598 3,632 ---------- ---------- 1,837,188 1,562,404 ---------- ---------- INCOME BEFORE INCOME TAXES 178,000 7,581 LESS: PROVISION FOR INCOME TAXES 43,632 4,000 ---------- ---------- NET INCOME $ 134,368 $ 3,581 ========== ========== Average Number of Shares Outstanding 4,037,255 4,037,255 ---------- ---------- EARNINGS PER COMMON SHARE $ .03 $ .00 ========== ========== (Basic and Diluted) DIVIDENDS PER COMMON SHARE $ -- $ -- ========== ==========
The results for the period ended February 28, 1999 and 1998 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 28, 1999 and 1998. 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 28, 1999 AND 1998
1999 1998 ----------- ----------- RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Net Income $ 135,413 $ 223,401 ----------- ----------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Depreciation and Amortization 79,428 80,049 Provision for Losses on Accounts Receivable 7,500 -0- Change in Assets and Liabilities: Accounts Receivable (446,903) (174,835) Inventories (11,088) (14,417) Prepaid Expenses (21,578) (37,759) Accounts Payable, Accrued Expenses and Other Current Liabilities 50,773 (52,568) Customer Deposits (7,250) (8,900) Accrued Lease Obligation -0- (8,836) ----------- ----------- Total Adjustments (349,118) (217,266) ----------- ----------- Net Cash Provided by (Used By) Operating Activities (213,705) 6,135 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to Equipment and Leasehold Improvements (75,665) (137,809) Short-Term Investment Maturities 1,875,000 1,089,918 Additions to Other Assets (29,960) (45,410) Additions to Short-Term Investments (1,694,833) (700,000) ----------- ----------- Net Cash Provided by Investing Activities 74,542 206,699 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Payments on Capital Lease Obligations (37,865) (33,287) Proceeds from Line of Credit 200,000 -0- Payment on Line of Credit (100,000) -0- ----------- ----------- Net Cash Provided by (Used In) Financing Activities 62,135 (33,287) ----------- ----------- Net Increase (Decrease) in Cash (77,028) 179,547 Cash and Cash Equivalents at August 31, 1998 and 1997 766,823 336,259 ----------- ----------- Cash and Cash Equivalents at February 28, 1999 and 1998 $ 689,795 $ 515,806 =========== =========== CASH PAID DURING THE PERIOD Interest $ 12,149 $ 7,486 =========== =========== Income Taxes $ 9,000 $ 71,000 =========== ===========
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. Additionally, in December 1997, the Company entered into a long term capital lease for a new phone system at a cost of $37,061. The accompanying notes are an integral part of these financial statements. 7 8 COMPUTER RESEARCH, INC. NOTES TO FINANCIAL STATEMENTS SIX MONTHS ENDED FEBRUARY 28, 1999 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. 8 9 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 beginning of the second quarter of the 1998 fiscal year, WOSC utilized its license agreement to begin servicing WII which accounted for approximately 23% of the Company's first quarter 1998 service revenues. With the second quarter 1999 service revenues approximately equal to that of the first quarter of the previous year, the Company believes it has reached a point where it has replaced the lost revenues attributed to WII. REVENUES The total revenues for the first six months of the 1999 fiscal year were $3,717,341 or an increase of approximately 5% over the comparable period of the previous year. This increase is primarily attributable to an increased number of transactions processed for clients. 9 10 The total revenues for the second quarter of the current year were $2,015,188 or an increase of approximately 28% over the comparable period of the previous year. This increase is primarily attributable to an increased number of transactions processed for clients, as well as from new clients added during the second quarter of the current year. COSTS AND EXPENSES The total costs and expenses for the first six months of the current year were $3,537,796 or an increase of approximately 13% over the comparable period of the previous year. The primary contributors to the increase were expanded communications costs, data processing service costs, employee benefit costs, as well as increased payroll costs. The total costs and expenses for the second quarter of the current year were $1,837,184 or an increase of approximately 18% over the corresponding period of the previous year. In addition to the cost items mentioned above, there were costs associated with installing new clients on the Company's services. PROVISION FOR INCOME TAXES Tax expense is normally accrued at 36% of income before taxes for financial reporting purposes. In filing the year-end 1998 tax returns, the Company generated tax refunds of approximately $20,000 higher than had been previously estimated. This tax benefit is recorded as a reduction of current year tax expense. NET INCOME The net income for the first six months of the current year was $135,413 or $.03 per share as compared to $223,401 or $.06 per share for the comparable period of the previous year. The net income for the fiscal second quarter of the current year was $134,368 or $.03 per share as compared to $3,581 or $.00 per share for the comparable period of the previous year. These improved results were directly attributable to the increased revenues for the second quarter of the current year. 10 11 2. CAPITAL RESOURCES AND LIQUIDITY The Company had approximately $2.5 million in cash, cash equivalents and short- term investments at the end of the second quarter of the 1999 fiscal year. In addition, approximately $650,000 of a $750,000 line of credit was available at the end of the second quarter. This, along with funds generated by operations, should adequately support the operating needs of the Company in the near term. 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, 99 = 1999). This design would have created problems for processing at the turn of the century since the 00 representation for the year 2000 would have been interpreted by the software to be 1900. 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 is 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 the system testing and vendor evaluation. 4. CONVERSION OF OPERATIONS TO THE IBM AS/400 COMPUTER CONFIGURATION Shortly after the close of the second quarter of the 1999 fiscal year, the Company completed the project of converting its service business to operating on the IBM AS/400 platform. As of the date of this report, all of the Company's service business is now operational under the IBM platform. In conjunction with this modification, approximately $13,000 of monthly maintenance costs associated to the previous computer configuration will be eliminated starting in the month of April 1999. 11 12 5. "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. 12 13 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 26, 1999. 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 13, 1999 /s/ James L. Schultz -------------------------- --------------------------------------- James L. Schultz, President & Treasurer 13 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000201511 COMPUTER RESEARCH, INC. 1 U.S. DOLLARS 6-MOS AUG-31-1999 SEP-01-1998 FEB-28-1999 1 689,795 1,816,533 1,198,142 37,500 54,979 3,823,482 2,884,787 2,140,602 4,633,988 849,105 386,961 0 0 3,230 3,582,573 4,633,988 27,500 3,717,341 21,111 3,537,796 0 7,500 12,149 179,545 44,132 135,413 0 0 0 135,413 .03 .03
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