UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 November 30, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
From the transition period to
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Commission File Number 0-15587
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC.
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(Exact Name of Registrant as Specified in its Charter)
Delaware 52-0991911
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(State or Other Jurisdiction of Incorporation I.R.S. Employer ID Number
or Organization)
11019 McCormick Road, Hunt Valley, Maryland 21031
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (410) 584-7000
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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:
The number of shares of the Registrant's Common Stock, $.01 par value,
outstanding on January 7, 2000, was 6,144,453.
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Page 1 of 15
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
INDEX
PART I...- FINANCIAL INFORMATION 3
Item 1 Financial Statements 3
Consolidated Balance Sheets - Assets 4
Consolidated Balance Sheets - Liabilities and 5
Stockholders' Equity 5
Consolidated Statements of Income 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION 13
Item 6 Exhibits and Reports on Form 8-K 13
(a) Exhibits
27 Financial Data Schedule 15
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The consolidated financial statements included herein for EA Engineering,
Science, and Technology, Inc. and its subsidiaries (the "Company") have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In management's opinion, the interim
financial data presented includes all adjustments (which include only normal
recurring adjustments) considered necessary for a fair presentation. Certain
information and footnote disclosures, normally included in the consolidated
financial statements prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations. Operating results and cash flows for the interim period are not
necessarily indicative of the results that may be expected for the full fiscal
year. Accordingly, these consolidated financial statements should be read in
conjunction with the Company's August 31, 1999 consolidated financial statements
and notes thereto included in the Company's 1999 Annual Report on Form 10-K.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
November 30, August 31,
1999 1999
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CURRENT ASSETS:
Cash and cash equivalents $ 1,869,700 $ 1,939,500
Accounts receivable, net 8,528,900 8,629,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 9,026,800 6,645,000
Prepaid expenses and other 1,261,800 1,234,500
Net assets from discontinued operations 46,500 50,600
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Total Current Assets 20,733,700 18,498,600
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PROPERTY AND EQUIPMENT, at cost:
Furniture, fixtures and equipment 9,085,500 8,920,600
Leasehold improvements 1,031,700 1,031,700
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Total property and equipment, at cost 10,117,200 9,952,300
Less-Accumulated depreciation and amortization (9,174,900) (9,102,900)
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Net Property and Equipment 942,300 849,400
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OTHER ASSETS 4,336,900 4,495,200
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Total Assets $26,012,900 $23,843,200
=========== ===========
The accompanying notes are an integral part of these balance sheets.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
November 30, August 31,
1999 1999
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CURRENT LIABILITIES:
Accounts payable $ 4,557,600 $ 3,555,300
Accrued expenses 1,329,300 1,666,200
Accrued salaries, wages and benefits 2,625,100 2,228,400
Current portion of long-term debt -- 87,500
Billings in excess of costs and estimated
Earnings on uncompleted contracts 1,389,600 407,800
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Total Current Liabilities 9,901,600 7,945,200
LONG-TERM DEBT, net of current portion 3,339,000 3,302,700
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Total Liabilities 13,240,600 11,247,900
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STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; voting;
10,000,000 shares authorized; 6,348,700
and 6,335,000 shares issued; 6,283,200
and 6,335,000 outstanding 63,500 63,300
Preferred stock, $.01 par value; 8,000,000
shares authorized; none issued -- --
Capital in excess of par value 11,119,500 11,108,400
Treasury stock, at cost; 65,500 and 0 shares (62,600)
Retained earnings 1,651,900 1,423,600
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Total Stockholders' Equity 12,772,300 12,595,300
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Total Liabilities and Stockholders' Equity $26,012,900 $23,843,200
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The accompanying notes are an integral part of these balance sheets.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
November 30,
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1999 1998
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Total revenue $14,808,600 $11,740,000
Less - Subcontractor costs (4,581,500) (2,128,700)
Less - Other direct project costs (1,525,000) (1,521,500)
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Net revenue 8,702,100 8,089,800
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Operating costs and expenses:
Direct salaries and other operating 6,635,200 6,057,100
Sales, general and administrative 1,639,000 1,989,300
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Total operating expenses 8,274,200 8,046,400
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Income from operations 427,900 43,400
Interest expense, net (73,100) (48,900)
Interest income, net 26,300 15,600
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Income before income taxes 381,100 11,100
Provision for income taxes 152,800 4,400
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Net income from continuing operations $ 228,300 $ 6,700
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Income from operations of discontinued segment
(net of tax) -- 28,000
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Net income $ 228,300 $ 34,700
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Earnings per share - basic
Continued operations $0.04 $0.00
Discontinued operations -- 0.00
Net income $0.04 $0.01
Earnings per share - diluted
Continued operations $0.04 $0.00
Discontinued operations -- 0.00
Net income $0.04 $0.01
Weighted average shares outstanding 6,322,400 6,292,300
Effect of dilutive stock options -- 300
Diluted weighted average shares outstanding 6,322,400 6,292,600
The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
November 30,
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1999 1998
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CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income $ 228,300 $ 34,700
Noncash expenses included in net income -
Depreciation and amortization 86,100 253,500
Changes in operating assets and liabilities -
Decrease in accounts receivable, net 100,100 1,095,000
(Increase) in costs and estimated earnings in
excess of billings on uncompleted contracts (2,381,800) (2,001,900)
(Increase) decrease in prepaid expenses and
other assets 131,000 (220,600)
Increase (decrease) in accounts payable and
accrued expenses 1,062,100 473,300
Increase (decrease) in billings in excess of
of costs and estimated earnings on
uncompleted contracts 981,800 (124,600)
Decrease in net assets of discontinued
operations 4,100 (1,500)
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Net cash provided from (used in) operating
activities 211,700 (492,100)
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CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchase of equipment, net (179,000) (194,400)
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Net cash flows (used in) provided from
investing activities (179,000) (194,400)
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CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net borrowings from revolving line of credit 36,300 892,300
Proceeds from issuance of common stock 11,300 15,500
Reduction of long-term debt and short-term
borrowings (87,500) (144,200)
Purchase of treasury stock (62,600) --
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Net cash flows provided from and used in
financing activities (102,500) 763,600
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (69,800) 77,100
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CASH AND CASH EQUIVALENTS, beginning of period 1,939,500 1,782,600
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CASH AND CASH EQUIVALENTS, end of period $ 1,869,700 $ 1,859,700
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The accompanying notes are an integral part of these statements.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation -
The accompanying consolidated financial statements present the accounts of EA
Engineering, Science, and Technology, Inc. (EA); its wholly-owned subsidiaries,
EA International, Inc. and EA Financial, Inc. (EA Financial); and the
wholly-owned subsidiaries of EA Financial, EA Global, Inc. and EA de Mexico,
S.A. de C.V. The entities are collectively referred to herein as the "Company."
All significant intercompany transactions have been eliminated in consolidation.
Reclassifications -
Certain prior year balances have been reclassified to conform to current year
presentation.
Note 2. DISPOSAL OF ANALYTICAL SERVICES SEGMENT
On April 30, 1999, the Company completed the cash sale of the EA Laboratories
division to Severn Trent Laboratories, Inc. The assets of the analytical
sampling segment sold consisted primarily of an inventory of supplies, the
balance of costs and estimated earnings in excess of billings on uncompleted
contracts as of the transaction date, and property, plant and equipment. The
cash transaction resulted in a net pretax gain of $58,800.
Since the Analytical Services segment was discontinued on April 30, 1999, there
are no comparative results to discuss. However, operating results of the
Analytical Services segment for the three months ended November 30, 1998 have
been restated and are shown separately in the accompanying income statements
under Discontinued Operations.
Gross revenue of the Analytical Services segment for the three months ended
November 30, 1998 was $1,808,000. These amounts are not included in the
accompanying income statement's total revenue from continuing operations, but
are reflected within discontinued operations.
Note 3. EMPLOYEE STOCK PURCHASE PLAN:
The Company maintains an Employee Stock Purchase Plan to provide eligible
employees with the opportunity to purchase shares of the Company's Common Stock
through voluntary payroll deductions. Under the Purchase Plan, eligible
employees may purchase shares through monthly payroll deductions at 90% of
current market value at the time of purchase. The Company pays all
administrative expenses related to employee purchases. During the quarter ended
November 30, 1999, 13,686 shares were purchased under this Plan. A total of
56,650 shares remain authorized for distribution under the Purchase Plan as of
November 30, 1999.
Note 4. STOCK PURCHASE:
On November 2, 1999, the Company announced that its Board of Directors
authorized management to purchase up to 500,000 shares of its common stock.
During the quarter ended November 30, 1999, the Company purchased 65,500 shares
of common stock under this plan. The Company has purchased these shares, at
cost, as Treasury Stock in the consolidated balance sheet. For the period
December 1, 1999 through January 7, 2000, the Company has purchased 167,900
additional shares at an average price of $1.14 per share. There is no assurance
as to the actual number of shares that will be purchased under the program and,
in fact, the program can be suspended by the Board at any time.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations
General
The Company's results of operations are significantly affected by the timing of
the award of contracts, the timing of performance of contracts, and the extent
to which the Company's employees are performing billable tasks as opposed to
engaging in preparing contract proposals and other required non-billable
activities. Results of operations may also be affected to the extent that the
Company chooses not to reduce its professional staff during a period of reduced
demand for its services. Due to these factors, quarterly results of operations
are not necessarily indicative of the results of operations for longer periods.
The Company, in the course of providing its services, routinely subcontracts
such services as drilling, certain laboratory analyses, and other specialized
services. In addition, the use of teaming partners for the performance of
services similar to those of the Company, is included in subcontracts. In
accordance with industry practice and contract terms that generally provide for
the recovery of overhead costs, these costs are passed directly through to
clients and are included in total revenue. Because subcontractor costs and
direct charges can change significantly from project to project, the change in
total revenue is not necessarily a true indication of business trends.
Accordingly, the Company considers net revenue, which is total revenue less
subcontractor and other direct project costs, as its primary measure of revenue.
RESULTS OF OPERATIONS
Three Months Ended November 30, 1999 (Consolidated)
Net revenue for the three months ended November 30, 1999 was $8,702,100, an
increase of 7.6%, compared to $8,089,800 for the same period in the prior fiscal
year. This increase in net revenue is directly attributable to higher new
contract volume, primarily in the Federal sector, as well as labor utilization
and headcount during the quarter versus the same quarter last year.
Direct salaries and other operating costs increased 9.5% to $6,635,200 or 76.2%
of net revenue from $6,057,100 or 74.9% for the three-month period ended
November 30, 1998. This increase is primarily due to higher direct labor
salaries resulting from increased revenue.
Sales, general and administrative costs decreased by 17.6% to $1,639,000, or
18.8% of net revenue, from $1,989,300 or 24.6% of net revenue, for the
three-month period ended November 30, 1998. The decrease is due to lower sales
and marketing related costs from quarter to quarter. This reduction is a direct
result of the fiscal 1999 second quarter restructuring which included a
reduction in personnel and decentrali-zation of EA's marketing and business
development program.
The provision for income taxes was $152,800 for the three months ended November
30, 1999 compared to a provision for income taxes of $4,400 in the first quarter
of fiscal 1999. This represents an effective tax rate of 40% in both quarters.
The Company recorded net income from operations of its discontinued Analytical
Services segment of $28,000 in the first quarter of fiscal 1999.
As a result of the above factors, the Company incurred net income of $228,300,
or 2.6% of net revenue, for the three months ended November 30, 1999 compared to
$34,700, or 0.4%, in the first quarter of fiscal 1999.
Liquidity and Capital Resources
Cash and cash equivalents decreased by $69,800 for the three months ended
November 30, 1999. The decrease was primarily due to net cash provided from
operations of $211,700 and cash provided by the issuance of common stock of
$11,300, offset by purchase of equipment of $179,000, purchase of treasury stock
of $62,600, and net repayment of borrowings of $51,200.
The Company's capital expenditures, consisting primarily of purchases of
equipment, were approximately $179,000 and $194,400 for the three months ended
November 30, 1999 and 1998, respectively. The Company anticipates the level of
capital expenditures for each of the remaining quarters of fiscal year 2000 to
remain fairly consistent with the level in the three months ended November 30,
1999 and to be financed by cash generated from operations.
At November 30, 1999, the Company had outstanding long-term debt of $3,339,000.
This represents a net increase of $36,300 from the $3,302,700 balance at August
31, 1999.
The Company's existing funds, cash from operations, and the available portion of
its $8,500,000 revolving line and $1,500,000 equipment line of credit
arrangements are expected to be sufficient to meet the Company's present and
immediately foreseeable cash needs.* The Company also has access to certain
capital equipment financing arrangements through various equipment suppliers.
While the Company believes that there is sufficient market demand to absorb the
additional contracting capacity resulting from its various indefinite
delivery/indefinite quantity contracts, there can be no assurance that this
demand will, in fact, materialize.* Although the Company has the ability to
reduce its professional staff in periods of reduced demand, it may choose not to
make full reductions in such periods, with resulting adverse effects on
operations.
Year 2000 Readiness
EA recognized the seriousness of the challenge businesses worldwide face as a
result of the Year 2000 problem. EA put in place a formal Year 2000 project in
early 1998. As a result of these efforts, the Company has transitioned into the
new millennium without incident. EA does not foresee any additional risks
associated with Year 2000 problem.*
Third Party Vendors, Utilities and Customers
EA provides environmental consulting services, which are primarily labor based.
The Company maintains a broad base of vendors and suppliers, and believes there
is little risk to its ongoing operations from Year 2000 problems by its outside
vendors. Likewise, EA customers appear to have transitioned into Year 2000
without incident.* We are aware of no customer or vendor issues associated with
Year 2000 compliance at this time.
Reasonably Likely "Worst-Case" Scenarios
Due to the magnitude and complexity of the Year 2000 problem, even the most
conscientious and diligent efforts cannot guarantee that every problem has been
found and corrected prior to January 1, 2000. We believe that, if they exist,
any remaining, unresolved, Year 2000 problems, within the Company, our vendors,
or clients are minor in nature and can be resolved quickly and without any
substantial or material impact on EA's financial performance.
Costs to Address Year 2000 Issues
The Company has not incurred material costs in connection with its Year 2000
compliance efforts. This is because the replacement of major applications was
previously planned to improve performance and functionality requirements. These
replacements were not accelerated due to Year 2000 issues; as such the costs of
these systems are part of the Company's capital budget. The Company does not
separately track the internal costs for the Y2K project; such costs are
principally the related payroll costs for its Information Systems group.
Forward-Looking Statements
The foregoing contains "forward-looking information" within the meaning of The
Private Securities Litigation Reform Act of 1995. Such forward-looking
statements may be identified by an asterisk (*) or by such forward-looking
terminology as "may," "will," "believe," "anticipate," "expect," or similar
words or variations thereof. Such forward-looking statements involve significant
risks and uncertainties, including, among other things, risks associated with
(1) substantial reliance on government contracts, public budgetary restrictions
and uncertainties, discrepancies between awarded contract amounts and actual
revenues, and cancellation of contracts at the option of the government, (2)
timing and award of contracts, (3) timing and performance of contracts, and (4)
successful bidding of government and non-government contracts in a very
competitive environment. IN EACH CASE, ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
SUCH FORWARD-LOOKING STATEMENTS. Other important factors that the Company
believes may cause actual results to differ materially from such forward-looking
statements are discussed throughout this Report and in the Company's other
filings with the Securities and Exchange Commission. The Company does not
undertake to publicly update or revise its forward-looking statements even if
experience or future changes indicate that any such results or events (expressed
or implied) will not be realized.
<PAGE>
EA ENGINEERING, SCIENCE, AND TECHNOLOGY, INC. & SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
- On November 5, 1999, the Company filed a Form 8-K relative to
a November 2, 1999 press release announcing FY1999 fourth
quarter earnings, a stock repurchase program, and
optimism about the outlook for FY2000.
- On November 24, 1999, the Company filed a Form 8-K to
report a change in the Registrant's Certifying Accountant.
<PAGE>
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.
EA Engineering, Science, and
Technology, Inc. & Subsidiaries
-------------------------------
(Registrant)
January 11, 2000 By: /s/ Loren D. Jensen
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(Signature)
Loren D. Jensen
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Chairman of the Board, President and CEO
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(Title)
January 11, 2000 By: /s/ Barbara L. Posner
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(Signature)
Barbara L. Posner
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Chief Financial Officer,
Chief Operating Officer
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(Title)
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 1,869,700
<SECURITIES> 0
<RECEIVABLES> 8,528,900
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,733,700
<PP&E> 10,117,200
<DEPRECIATION> 9,174,900
<TOTAL-ASSETS> 26,012,900
<CURRENT-LIABILITIES> 9,901,600
<BONDS> 0
<COMMON> 63,500
0
0
<OTHER-SE> 12,708,800
<TOTAL-LIABILITY-AND-EQUITY> 26,012,900
<SALES> 8,702,100
<TOTAL-REVENUES> 14,808,600
<CGS> 8,274,200
<TOTAL-COSTS> 6,106,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,800
<INCOME-PRETAX> 381,100
<INCOME-TAX> 152,800
<INCOME-CONTINUING> 228,300
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