10-Q 1 c62447e10-q.txt FORM 10-Q 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 March 31, 2001 ------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ----------------------------------------------- Commission File Number: 0-20244 ------------------------------------------------------ DATA RESEARCH ASSOCIATES, INC. ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) MISSOURI 43-1063230 ------------------------------------------------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1276 NORTH WARSON RD. ST. LOUIS, MISSOURI 63132 ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip Code) (314) 432-1100 ------------------------------------------------------------------------------ (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 April 16, 2001, there were 4,517,278 shares of the registrant's common stock outstanding. 2 INDEX DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES PART I. FINANCIAL INFORMATION ------------------------------ Item 1. Financial Statements (Unaudited) Consolidated balance sheets -March 31, 2001 and September 30, 2000 Consolidated statements of income -Three months ended March 31, 2001 and 2000 -Six months ended March 31, 2001 and 2000 Consolidated statements of cash flows -Six months ended March 31, 2001 and 2000 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 4. Submission of Matters to a Vote of Security Holders Item 5. Other Information Item 6. Exhibits and Reports on Form 8-K SIGNATURES 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~~March 31, September 30, ~~2000~~2001 2000 (Unaudited) ------------ ------------ ASSETS CURRENT ASSETS: Cash and cash equivalents $ 69,~~258~~131 $ 8,547 Short-term investments 149,~~464~~583 11,603 Account receivable less allowances of $~~150~~198 at ~~December~~March 31, ~~2000~~2001 and $172 at September 30, 2000: Billed 34,~~670~~669 5,491 Unbilled ~~425~~613 544 ------- ------- 45,~~095~~282 6,035 ~~Income taxes receivable 258 -~~ Inventories ~~120~~110 70 Prepaid expenses 1,~~065~~164 794 Other current assets ~~236~~255 236 ------- ------- TOTAL CURRENT ASSETS 2625,~~496~~525 27,285 PROPERTY AND EQUIPMENT: Land and improvements 504 504 Building and improvements 2,697 2,697 Data processing equipment 6,~~132~~106 6,059 Furniture, fixtures, and other 3,~~890~~940 3,871 ------- ------- 13,~~223~~247 13,131 Less accumulated depreciation 8,~~447~~716 8,007 ------- ------- 4,~~776~~531 5,124 DEFERRED SOFTWARE COSTS (net of accumulated amortization of $3,~~020~~431 at ~~December~~March 31, ~~2000~~2001, and $2,572 at September 30, 2000) 5,~~578~~695 5,571 INTANGIBLE ASSETS (net of accumulated amortization of $2,~~662~~650 at ~~December~~March 31, ~~2000~~2001, and $2,634 at September 30, 2000) ~~307~~282 333 ------- ------- $3736,~~157~~033 $38,313 ======= =======

~~December~~March 31, September 30, ~~2000~~2001 2000 (Unaudited) ------------ ------------ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ ~~499~~640 $ 690 Employee compensation ~~447~~546 443 Deferred revenue 4,~~782~~265 5,552 Customer deposits 1,~~330~~053 1,114 Other accrued liabilities ~~418~~902 492 Income taxes payable -352 17 Deferred income taxes 113 113 ------- ------- 7,~~589~~871 8,421 DEFERRED INCOME TAXES 1,~~940~~772 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~~March 31, ~~2000~~2001 and September 30, 2000 56 56 Additional paid-in capital 5,~~453~~415 5,490 Accumulated other comprehensive loss (~~173~~301) (196) Retained earnings 31,~~698~~350 31,903 ------- ------- 3736,~~034~~520 37,253 Less cost of treasury stock, ~~907~~1,029 shares at ~~December~~March 31, ~~2000~~2001, and 883 shares at September 30, 2000 (910,~~406~~130) (9,301) ------- ------- TOTAL SHAREHOLDERS' EQUITY 2726,~~628~~390 27,952 ------- ------- $3736,~~157~~033 $38,313 ======= =======

See notes to unaudited consolidated financial statements. 5 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (In thousands, except share data)

Three months ended ~~December~~Six months ended March 31, March 31, 2001 2000 ~~1999~~2001 2000 --------- --------- -------- -------- REVENUES Hardware $ ~~123~~617 $ ~~508~~435 $ 740 $ 943 Software ~~440~~1,471 ~~746~~1,330 1,911 2,076 Service and other 5,~~106~~149 5,~~199~~205 10,255 10,404 ------- ------- 5------- ------- 7,~~669~~237 6,~~453~~970 12,906 13,423 EXPENSES Cost of Revenues Hardware 86455 ~~345~~381 541 726 Software ~~395~~486 ~~258~~264 881 522 Service and other 1,~~412~~206 1,~~418~~417 2,617 2,834 ------- ------- 1------- ------- 2,~~893~~147 2,~~021~~062 4,039 4,082 Salaries and employee benefits 2,~~790~~923 2,~~708~~974 5,712 5,682 General and administrative ~~Expenses~~expenses 1,~~187~~428 1,~~252~~340 2,615 2,593 Depreciation and amortization ~~429~~359 ~~490~~428 789 918 ------- ------- ------- ------- 6,~~299~~857 6,~~471~~804 13,155 13,275 INCOME (LOSS) FROM OPERATIONS ~~(630)~~380 166 (18249) 148 OTHER INCOME ~~329~~332 ~~320~~286 660 606 ------- ------- ------- ------- INCOME (LOSS) BEFORE INCOME TAXES ~~(301)~~712 ~~302~~452 411 754 PROVISION FOR INCOME TAXES ~~(96)~~503 96143 407 239 -------- ------- ------- ------- NET INCOME (LOSS) $ ~~(205)~~209 $ ~~206~~309 $ 4 $ 515 ======== ======= ======= ======= Basic and Diluted earnings per share $ (.~~04)~~05 $ .0407 $ - $ .11 ======== ======= ======= ======= Dividends per share $ -.12 $ -.12 $ .12 $ .12 ======== ======= ======= =======

See notes to unaudited consolidated financial statements. 6 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)

~~Three~~Six months ended ~~December~~March 31, 2001 2000 ~~1999~~ ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ ~~(205)~~4 $ ~~206~~515 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization ~~903~~1,699 ~~835~~1,607 Deferred taxes (174) - Changes in operating assets and liabilities: Accounts receivable 1603 2,~~968~~089 ~~671~~ Inventories (4841) (2039) Prepaid expenses and other current assets (~~528~~392) (~~539~~511) Accounts payable and other current liabilities (~~855~~455) 80(805) Note receivable -- 3 -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 1,~~235~~244 12,~~236~~859 INVESTING ACTIVITIES Purchase of property and equipment (77202) (~~169~~375) Deferred software costs (~~456~~986) (~~439~~907) Purchase of short-term investments (1424,~~464~~047) -- Proceeds from sale of short-term investments 1126,~~603~~067 -- -------- -------- NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES 832 (31,~~394~~282) ~~(608)~~ FINANCING ACTIVITIES Proceeds from options exercised 2454 3164 Purchase of treasury shares (~~166~~957) (~~934~~2,141) Dividends paid (557) (581) -------- -------- NET CASH USED BY FINANCING ACTIVITIES (~~142~~1,460) (~~903~~2,658) Effect of exchange rate changes on cash and cash equivalents 12(32) 2(37) -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 584 (21,~~289~~118) ~~(273)~~ Cash and cash equivalents at beginning of year 8,547 17,022 -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 69,~~258~~131 $ 1615,~~749~~904 ======== ========

See notes to unaudited consolidated financial statements. 7 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 (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 six months ended March 31, 2001, 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 March 31, 2001 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 Six Months Ended ~~December~~Ended March 31, March 31, 2001 2000 ~~1999~~2001 2000 ---- ---- ---- ---- Numerator: Numerator for basic and diluted earnings per share - net income (loss) $ ~~(205)~~209 $ ~~206~~309 $ 4 $ 515 ======= ======= ======= ======= Denominator: Denominator for basic earnings per share-weighted average shares 4,~~671~~585 4,~~868~~751 4,629 4,810 Effect of dilutive securities: Stock options 27 - 17 1 ------- 3------- ------- ------- Denominator for diluted earnings per share-adjusted weighted average shares and assumed conversions 4,~~671~~612 4,~~871~~751 4,646 4,811 ======= ======= ======= ======= Basic earnings (loss) per share $ (.~~04)~~05 $ .0407 $ - $ .11 ======= ======= ======= ======= Diluted earnings (loss) per share $ (.~~04)~~05 $ .0407 $ - $ .11 ======= ======= ======= =======

8 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 and six month periods ended March 31, 2001 and 2000 are as follows:

Three Months Six Months Ended ~~December~~Ended March 31, ~~--------------~~March 31, 2001 2000 ~~1999~~2001 2000 ---- ---- ---- ---- Net ~~income~~Income ~~(loss)~~$ 209 $~~(205)~~ 309 $~~206~~ 4 $ 515 Foreign currency translation adjustment 23(128) 21(36) (105) (15) ------ ------ ------ ------ Comprehensive income $ 81 $ 273 $ (~~182~~101) $~~227~~ 500 ====== ====== ====== ======

The components of accumulated other comprehensive loss, net of related tax, at March 31, 2001 and September 30, 2000, are as follows:

~~Dec~~Mar 31, ~~2000~~2001 Sept 30, 2000 ------------ -------------~~----~~ Foreign currency translation adjustment $ (~~173~~301) $ (196) ------- -------~~---------------~~ Accumulated other comprehensive income $ (~~173~~301) $ (196) ======= =======~~===============~~

Note 5. Income Taxes In the second quarter ended March 31, 2001, the Company recorded a charge of $262,000 for a pending tax matter related to an ongoing Internal Revenue Service examination. 9 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 in general release in the first quarter of fiscal 2002. 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 March 31, 2001 compared to Three Months Ended March 31, 2000 Hardware revenues increased $.2 million, or 42%, to $.6 million in the three months ended March 31, 2001, compared to $.4 million for the three months ended March 31, 2000. The primary reason for the increase is the revenue from one large hardware shipment for an existing customer migration to Taos in the three months ended March 31, 2001. The gross margin percentage on hardware was 26% in the three months ended March 31, 2001 and 12% in the three months ended March 31, 2000. A one time purchase of hardware equipment with no revenue stream extending from it, in the three months ended March 31, 2000, is the primary cause for the increase in margin. Software revenues increased $.2 million, or 11%, to $1.5 million in the three months ended March 31, 2001, compared to $1.3 million in the three months ended March 31, 2000. Software revenue generated from a large migration contract contributed to the increase in the three months ended March 31, 2001. The gross margin percentage on software was 67% in the three months ended March 31, 2001, and 80% in the three months ended March 31, 2000. The decrease in margin is primarily attributed to the increase in the amortization of software development costs in the three months ended March 31, 2001. Service and other revenues decreased $.1 million, or 1%, to $5.1 million in the three months ended March 31, 2001, compared to $5.2 million in the three months ended March 31, 2000. The primary reason for the decrease is the reduction in revenue from its internet services in the three months ended March 31, 2001. The gross margin percentage on service and other revenues was 77% in the three months ended March 31, 2001, and 73% in the three months ended March 31, 2000. Salaries and employee benefits decreased $.1 million, or 2%, to $2.9 million in the three months ended March 31, 2001, from $3.0 million in the three months ended March 31, 2000. Annual salary increases have been offset by several positions that remain unfilled in the three months ended March 31, 2001. General and administrative expenses increased $.1 million, or 7%, to $1.4 million in the three months ended March 31, 2001, from $1.3 million in the three months ended March 31, 2000. This increase is primarily attributable to an increase in professional services coupled with an increase in expense relating to the Company's annual user conference. Income from operations increased $.2 million, to $.4 million in the three months ended March 31, 2001, from $.2 million in the three months ended March 31, 2000. The primary contributor to the increase is the growth in revenue in the three months ended March 31, 2001 as compared to the three months ended March 31, 2000. The Company recorded a onetime charge for pending tax matters related to an Internal Revenue Service examination. Without the effect of this $.3 million charge, the Company's consolidated effective tax rate was 34% for the three month period ended March 31, 2001, compared to 32% for the three month period ended March 31, 2000. With the effect of the $.3 million charge, the Company's consolidated effective tax rate was 71% for the three month period ended March 31, 2001. 11 Results of Operations Six Months Ended March 31, 2001 compared to Six Months Ended March 31, 2000 Hardware revenues decreased $.2 million, or 22%, to $.7 million in the six months ended March 31, 2001, from $.9 million in the six months ended March 31, 2000. In the six months ended March 31, 2001, the Company had one large and several small migration sites resulting in hardware revenue. In the six months ended March 31, 2000, the Company had hardware revenue related to the server installation of the Company's web based public access product, coupled with the installation of one Taos server and a large network upgrade. The gross margin percentage on hardware was 27% in the six months ended March 31, 2001 and 23% in the six months ended March 31, 2000. A one time purchase of hardware equipment in the six months ended March 31, 2000, with no revenue stream extending from it is the primary cause of the margin increase in the six months ended March 31, 2001. Software license revenues decreased $.2 million, or 8%, to $1.9 million in the six months ended March 31, 2001, from $2.1 million in the six months ended March 31, 2000. The decrease is due primarily to the lack of new contract revenue in the six months ended March 31, 2001. The Company had two new Taos installations, with revenue of $.2 million, in the six months ended March 31, 2000. The gross margin percentage on software was 54% in the six months ended March 31, 2001, and 75% in the six months ended March 31, 2000. The decrease in margin is primarily attributed to the increase in the amortization of software development costs in the six months ended March 31, 2001. Service and other revenues decreased $.1 million, or 1%, to $10.3 million in the six months ended March 31, 2001, compared to $10.4 million in the six months ended March 31, 2000. An increase in maintenance, the major component of service and other revenue, was offset by a decline in business internet revenue. The gross margin percentage on service and other revenues was 74% in the six months ended March 31, 2001, and 73% in the six months ended March 31, 2000. Salaries and employee benefits remained consistent at $5.7 million in the six months ended March 31, 2001 and the six months ended March 31, 2000. Annual salary increases have been offset by several positions that remain unfilled in the six months ended March 31, 2001. General and administrative expenses remained consistent at $2.6 million in the six months ended March 31, 2001 and the six months ended March 31, 2000. Income from operations decreased $.4 million to a loss of $.3 million in the six months ended March 31, 2001, compared to a profit of $.1 million in the six months ended March 31, 2000. The primary contributor to the decline is the reduction of revenue in the six months ended March 31, 2001 as compared to the six months ended March 31, 2000. The Company recorded a onetime charge for pending tax matters related to an Internal Revenue Service examination. Without the effect of this $.3 million charge, the Company's consolidated effective tax rate was 35% for the six month period ended March 31, 2001, compared to 32% for the six month period ended March 31, 2000. With the effect of the $.3 million charge, the Company's consolidated effective tax rate was 99% for the six month period ended March 31, 2001. 12 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 March 31, 2001, the Company's working capital was $17.7 million and its ratio of current assets to current liabilities was 3.2 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 six months ended March 31, 2001, compared to $2.9 million in the six months ended March 31, 2000. A decrease in net income, coupled with a decrease in cash received from accounts receivable, in the six months ended March 31, 2001, is the primary reason for the decline. Net cash provided by investing activities was $.8 million for the six months ended March 31, 2001, compared to net cash used of $1.3 million for the six months ended March 31, 2000. The increase in net cash provided by investing activities is primarily due to the shift of focus to cash investments of 90 days or less, resulting in the reclassification of short-term investments to cash equivalents. Net cash used by financing activities was $1.5 million for the six months ended March 31, 2001, compared to $2.7 million for the nine months ended March 31, 2000. Purchases of treasury stock in the amount of $1.0 million for the six months ended March 31, 2001, compared to $2.1 million for the six months ended March 31, 2000 accounted for the decrease in cash used. The Company has a $6.0 million line of credit which expires in January 2002 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 $9.1 million, short-term investments of $9.6 million, accounts receivable of $5.3 million, continued cash flow from operations, availability of a $6.0 million line of credit, and total current liabilities of $7.9 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 $1.8 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. 13 DATA RESEARCH ASSOCIATES, INC. AND SUBSIDIARIES PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. (a) The Annual Meeting of Shareholders of the Company (the "Annual Meeting") was held on February 14, 2001. Of the 4,676,390 shares entitled to vote at the Annual Meeting, 4,195,301 shares were present at such meeting in person or by proxy. (b) Not applicable. (c) At the Annual Meeting, the shareholders of the Company, elected Michael J. Mellinger as a Class A Director of the Company, to hold office until his successor has been duly elected and qualified, by a vote of 4,185,665 for and 9,636 withheld. At the Annual Meeting, the shareholders of the Company, elected F. Gilbert Bickel as a Class A Director of the Company, to hold office until his successor has been duly elected and qualified, by a vote of 4,187,115 for and 8,186 withheld. At the Annual Meeting, the shareholders of the Company, voted for the approval of the Company's 2001 Stock Option Plan by a vote of 3,352,340 for and 842,961 withheld. 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, early in fiscal 2002. 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. 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 Exhibit 10.1 Data Research Associates, Inc. 2001 Stock Option Plan, as approved on February 14, 2001 (b) Reports on Form 8-K A report on Form 8-K (the date of report being January 8, 2001) was filed on January 9, 2001. The items reported were Item 5 Other Events and Item 7 Financial Statements and Exhibits. 14 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. May 15, 2001 /s/Michael J. Mellinger -------------- ------------------------------ Date Michael J. Mellinger Chairman, President, and Chief Executive Officer (Principal Executive Officer) May 15, 2001 /s/Katharine W. Biggs -------------- ------------------------------ Date Katharine W. Biggs Vice President, and Chief Financial Officer (Principal Accounting Officer)

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