UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended April 30, 1999
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 0-21105
RESEARCH PARTNERS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3414302
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One State Street Plaza, New York, NY 10004
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(212)509-3800
- ----------------------------------------------------
(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 |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 10, 1999
- ------------------------------- -----------------------------
Common Stock, $.0001 par value 8,569,780 shares
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Index
Part I - Financial Information Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition as of
April 30, 1999 (Unaudited) and January 31, 1999 3
Consolidated Statements of Operations for the three months
ended April 30, 1999 and 1998 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity for
the year ended January 31, 1999 and the three months
ended April 30, 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the three months
ended April 30, 1999 and 1998 (Unaudited) 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 17
2
<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
April 30, January 31,
1999 1999
-------------- --------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 11,852,000 $ 10,553,000
Receivable from brokers and dealers 2,246,000 2,251,000
Securities owned, at market value 1,945,000 1,695,000
Securities owned, not readily marketable, at fair value 1,531,000 955,000
Investments 1,602,000 2,035,000
Office furniture, equipment and leasehold improvements, net 2,062,000 2,088,000
Goodwill, net 3,641,000 3,681,000
Loans receivable 1,467,000 1,563,000
Income taxes receivable 2,092,000 1,909,000
Other assets 1,823,000 1,550,000
-------------- --------------
Total assets $ 30,261,000 $ 28,280,000
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Securities sold, not yet purchased, at market value $ 708,000 $ 506,000
Commissions payable 3,828,000 2,658,000
Note payable 314,000 408,000
Accrued expenses and other liabilities 2,281,000 2,754,000
-------------- --------------
Total liabilities 7,131,000 6,326,000
-------------- --------------
Stockholders' equity:
Preferred stock, $.10 par value; 1,200,000 shares authorized;
1,140,000 shares issued and outstanding 114,000 114,000
Common stock, $.0001 par value; 35,000,000 shareS
authorized; 9,209,875 shares issued; 8,569,780 and
8,410,899 shares outstanding 1,000 1,000
Additional paid-in capital 20,890,000 21,022,000
Retained earnings 4,968,000 4,351,000
Accumulated other comprehensive loss (27,000) (18,000)
-------------- --------------
25,946,000 25,470,000
Less treasury stock, at cost; 640,095 and 798,976 shares (2,816,000) (3,516,000)
-------------- --------------
Total stockholders' equity 23,130,000 21,954,000
-------------- --------------
Total liabilities and stockholders' equity $ 30,261,000 $28,280,000
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
Three Months
Ended April 30,
-----------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
Revenues:
Commissions $ 13,514,000 $ 11,009,000
Investment banking 1,337,000 2,353,000
Principal transactions 1,127,000 1,132,000
Interest 392,000 352,000
Other 236,000 542,000
---------------- ---------------
Total revenues 16,606,000 15,388,000
---------------- ---------------
Expenses:
Compensation and benefits 10,653,000 9,855,000
Occupancy and equipment 1,456,000 1,366,000
Brokerage, clearing and exchange fees 1,122,000 852,000
Communications 1,118,000 1,101,000
Professional fees 543,000 270,000
Business development 363,000 533,000
Other 734,000 800,000
---------------- ---------------
Total expenses 15,989,000 14,777,000
---------------- ---------------
Income before income taxes 617,000 611,000
Income taxes - 311,000
---------------- ---------------
Net income $ 617,000 $ 300,000
================ ===============
Weighted average common shares outstanding - basic 8,471,421 8,095,899
================ ===============
Weighted average common shares outstanding - diluted 8,724,612 8,309,022
================ ===============
Basic earnings per common share: $ 0.07 $ 0.04
=============== ===============
Diluted earnings per common share: $ 0.07 $ 0.04
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Year Ended January 31, 1999 and the Three Months Ended April 30, 1999
(Unaudited)
<TABLE>
Accumulated
Other
Preferred Stock Common Stock Additional Compre- Treasury Stock
------------------ --------------- Paid-in Retained hensive ---------------------
Shares Amt. Shares Amt. Capital Earnings Income Shares Amount Total
---------- ------- --------- ------ ---------- ------------ ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 31, 1998 1,140,000 $114,000 9,209,875 $1,000 $20,710,000 $ 11,734,000 (36,000) (1,113,976) $(4,902,000) $27,621,000
Net loss - - - - - (7,383,000) - - - (7,383,000)
Stock issued -
compensation plan - - - - (6,000) - - 15,000 66,000 60,000
Stock issued - sale - - - - (270,000) - - 300,000 1,320,000 1,050,000
Amortization of
unearned
compensation - - - - 588,000 - - - - 588,000
Translation
adjustment - - - - - - 18,000 - - 18,000
---------- ------- --------- ------ ---------- ------------ ------ ---------- ---------- ------------
Balance at
January 31, 1999 1,140,000 114,000 9,209,875 1,000 21,022,000 4,351,000 (18,000) (798,976) (3,516,000) 21,954,000
Net income - - - - - 617,000 - - - 617,000
Stock issued -
deferred
compensation plan - - - - (93,000) - - 34,676 153,000 60,000
Stock issued -
401(k) plan - - - - (131,000) - - 48,179 212,000 81,000
Stock issued -
compensation plan - - - - (114,000) - - 25,861 114,000 -
Stock options
exercised - - - - (81,000) - - 50,165 221,000 140,000
Satisfaction of
subscription
receivable - - - - 121,000 - - - - 121,000
Amortization of
unearned
compensation - - - - 166,000 - - - - 166,000
Translation
adjustment - - - - - - (9,000) - - (9,000)
---------- ------- --------- ------ ---------- ------------ ------ ---------- ---------- ------------
Balance at
April 30, 1999 1,140,000 $114,000 9,209,875 $1,000 $20,890,000 $ 4,968,000 $(27,000) (640,095) $(2,816,000) $23,130,000
========== ======== ========= ====== =========== =========== ======== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
Three Months Ended April 30,
----------------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Operating activities:
Net income $ 617,000 $ 300,000
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 203,000 164,000
Deferred taxes - (163,000)
Translation adjustment (9,000) (11,000)
Other 166,000 132,000
---------------- ----------------
977,000 422,000
(Increase) decrease in operating assets:
Receivable from brokers and dealers 5,000 (7,344,000)
Securities owned, at market value (250,000) 3,107,000
Securities owned, not readily marketable (576,000) (286,000)
Loans receivable 96,000 (94,000)
Income taxes receivable (183,000) 386,000
Other assets (311,000) (266,000)
Increase (decrease) in operating liabilities:
Securities sold, not yet purchased 202,000 4,510,000
Commissions payable 1,170,000 799,000
Deferred compensation - (1,785,000)
Income taxes payable - (1,000)
Accrued expenses and other liabilities (332,000) (937,000)
---------------- ----------------
Net cash provided by (used in) operating activities 798,000 (1,489,000)
---------------- ----------------
Investing activities:
Purchase of office furniture, equipment
and leasehold improvements (99,000) (171,000)
Liquidation of investment in limited partnerships 433,000 104,000
---------------- ----------------
Net cash provided by (used in) investing activities 334,000 (67,000)
---------------- ----------------
Financing activities:
Satisfaction of subscription receivable 121,000 -
Issuance of treasury stock 140,000 -
Repayment of note payable (94,000) -
---------------- ----------------
Net cash provided by financing activities 167,000 -
---------------- ----------------
Net change in cash and cash equivalents 1,299,000 (1,556,000)
Cash and cash equivalents at beginning of year 10,553,000 8,111,000
---------------- ----------------
Cash and cash equivalents at end of period $ 11,852,000 $ 6,555,000
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Basis of Presentation
The consolidated financial statements include the activities of Research
Partners International, Inc., formerly, GKN Holding Corp., and its subsidiaries
(the "Company"). The Company is primarily engaged in the following segments:
full service retail, discounted retail and institutional securities brokerage
and research. These segments provide the following services: securities
brokerage, research, investment banking, and trading services for individuals,
institutions and corporations through the Company's wholly owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
consolidation. In the opinion of management, the consolidated financial
statements reflect all adjustments, which are all of a normal recurring nature,
necessary for a fair statement of the Company's financial position and results
of operations for the interim periods presented. These consolidated financial
statements should be read in conjunction with the Company's consolidated
financial statements and notes thereto for the year ended January 31, 1999, in
its annual report on Form 10-K. Certain reclassifications have been made to the
prior year amounts to conform to the current presentation.
The financial statements conform with generally accepted accounting principles
("GAAP"). The preparation of financial statements in conformity with GAAP
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could vary from these estimates.
The Company's principal business activities are affected by many factors,
including general economic and market conditions, which can result in
substantial fluctuations in the Company's revenues and net income. Therefore,
the results of operations for the three months ended April 30, 1999, are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
2. Segment and Geographic Area Data
The Company operates in three principal segments: Full Service Retail,
Discounted Retail and Institutional Brokerage. Each segment is managed
separately based on types of products and services offered and the related
client bases. The Company evaluates the performance of its segments based
primarily on income before income taxes.
o Full Service Retail - provides full service securities brokerage and
trading services, through GKN Securities Corp. ("GKN"), to a clientele
which primarily consists of individuals who invest in OTC equity
securities.
o Discounted Retail - provides full service discount brokerage services,
through Shochet Securities Inc. ("Shochet"), to a clientele consisting
primarily of retired individuals who invest in exchange-listed equity
securities, fixed income securities and mutual funds.
o Institutional and Research - provides securities brokerage, research and
investment banking services, through Southeast Research Partners, Inc.
("Southeast"), to a clientele primarily consisting of institutional
investors and corporations who invest in listed and OTC equity securities.
7
<PAGE>
The Company allocates certain revenues to its operating segments based on
services provided by one segment to another. The Company also allocates to
segments, certain overhead expenses based upon specified agreed-upon amounts.
Certain of the segments incur interest expense on subordinated debt payable to
the Company at contract rates. All such amounts are eliminated in consolidation.
<TABLE>
<CAPTION>
Institutional Eliminations
Full Service Discounted and and
Retail Retail Research all other Total
------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Three months ended April 30, 1999:
Revenues from external
sources $ 10,561,000 $ 2,298,000 $ 2,926,000 $ 429,000 $ 16,214,000
Intersegment revenues $ 132,000 $ - $ 143,000 $ (275,000) $ -
Interest revenue $ 138,000 $ 197,000 $ 26,000 $ 31,000 $ 392,000
Income (loss) before income
taxes $ 571,000 $ (10,000) $ (108,000) $ 164,000 $ 617,000
Three months ended April 30, 1998:
Revenues from external
sources $ 9,892,000 $ 1,704,000 $ 2,507,000 $ 933,000 $ 15,036,000
Intersegment revenues $ 117,000 $ - $ 137,000 $ (254,000) $ -
Interest revenue $ 166,000 $ 142,000 $ 18,000 $ 26,000 $ 352,000
Income (loss) before income
taxes $ 73,000 $ (56,000) $ 209,000 $ 385,000 $ 611,000
Balance Sheet data:
April 30, 1999
Segment assets $ 11,634,000 $ 3,818,000 $ 5,684,000 $ 9,125,000 $ 30,261,000
January 31, 1999
Segment assets $ 11,427,000 $ 3,915,000 $ 6,260,000 $ 6,678,000 $ 28,280,000
</TABLE>
The Company's principal operations are located in the United States. The Company
maintains an office in Europe. Gross revenues from operations in Europe
represent less than 4% of the Company's overall revenues.
3. Net Capital Requirements
GKN, Southeast, and Shochet, all wholly owned subsidiaries of the Company, are
registered broker-dealers with the Securities and Exchange Commission (the
"SEC") and member firms of the National Association of Securities Dealers, Inc.
("NASD"). As such, GKN, Southeast, and Shochet are subject to the SEC's net
capital rule, which requires the maintenance of minimum net capital.
GKN has elected to compute net capital using the alternative method permitted by
the net capital rule, which requires that it maintain minimum net capital, as
defined, to be greater than or equal to $250,000. At April 30, 1999, GKN had net
capital of $2,165,000.
8
<PAGE>
Southeast has elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule, which requires that the
ratio of aggregate indebtedness to net capital, both as defined, shall not
exceed 15 to 1. At April 30, 1999, Southeast had net capital of $ 893,000 and a
net capital requirement of $123,000. Southeast's net capital ratio at April 30,
1999, was 2.06 to 1.
Shochet has also elected to compute net capital under the standard aggregate
indebtedness method permitted by the net capital rule. At April 30, 1999,
Shochet had net capital of $ 568,000 and a net capital requirement of $100,000.
Shochet's net capital ratio at April 30, 1999, was 1.48 to 1.
4. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share ("EPS):
<TABLE>
Three months ended April 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Numerator for basic and diluted EPS:
Net income $ 617,000 $ 300,000
================ ================
Denominator for basic EPS:
Weighted-average common shares 8,471,421 8,095,899
---------------- ----------------
Dilutive stock options 70,791 30,723
Convertible preferred stock 182,400 182,400
---------------- ----------------
253,191 213,123
---------------- ----------------
Denominator for diluted EPS 8,724,612 8,309,022
================ ================
Basic EPS $ 0.07 $ 0.04
================ ================
Diluted EPS $ 0.07 $ 0.04
================ ================
</TABLE>
5. Supplemental Cash Flow Information
<TABLE>
Three Months Ended April 30,
1999 1998
---------------- ----------------
<S> <C> <C>
Cash paid for:
Income taxes $ 183,000 $ 109,000
Non-cash financing transactions:
Treasury stock issued to 401(k) plan $ 81,000 $ -
Treasury stock issued to deferred
compensation plan $ 60,000 $ -
</TABLE>
6. Commitments and Contingencies
The Company's broker-dealer subsidiaries are involved in various other legal
proceedings arising from its securities activities. Management believes that
resolution of these proceedings will have no material adverse effect on the
Company's consolidated financial position or results of operations.
9
<PAGE>
7. Comprehensive Income
The Company has adopted SFAS No. 130, Reporting Comprehensive Income, which
establishes standards for the reporting and display of comprehensive income and
its components. Total comprehensive income measures all changes in stockholders'
equity resulting from transactions of the period, other than transactions with
stockholders.
The components of comprehensive income for the three months ended April 30, 1999
and 1998 are as follows:
Three months ended April 30,
1999 1998
-------------- --------------
Net income $ 617,000 $ 300,000
Other comprehensive loss:
Foreign currency translation
adjustments (9,000) (11,000)
-------------- --------------
Total comprehensive income $ 608,000 $ 289,000
============== ==============
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following analysis of the consolidated results of operations and financial
condition of Research Partners International, Inc. and Subsidiaries should be
read in conjunction with the Consolidated Financial Statements included in Item
1 of this document and with the Management's Discussion and Analysis of the
Financial Condition and Results of Operations included in our company's Fiscal
1999 Annual Report on Form 10-K.
Business Environment
Our primary business activities, investment banking, securities brokerage,
securities trading and institutional research, with an emphasis on small- and
mid-capitalization companies, are subject to general economic and market
conditions and the volatility of trading markets, specifically the small- and
mid-capitalization market. The quarter ended April 30, 1999, which followed a
period of significant rebounding from the effects of a volatile market in fiscal
1999, ended on a high note, with market conditions at an all-time high. Our
company's focus on a return to profitability has led to positive results in the
first quarter of fiscal 2000.
The results of operations for the three months ended April 30, 1999 are not
necessarily indicative of the results which may be expected for the entire
fiscal year.
Results of Operations
Three Months Ended April 30, 1999 vs. Three Months Ended April 30, 1998
Net income for the three months ended April 30, 1999 was $617,000 as compared
with $300,000 for the three months ended April 30, 1998. Earnings per share of
common stock was $0.07 for the first quarter of fiscal 2000 as compared to $0.04
for the fiscal 1999 quarter.
Revenues
Total revenues increased by 8% to $16,606,000 for the first quarter of fiscal
2000, mainly as a result of increased commission revenue, offset by decreases in
investment banking and principal transactions.
Commission revenues increased by $2,505,000, or 23%, in the first quarter. The
increase was primarily attributable to a 40% increase in trades offset by a 10%
decrease in average commissions per trade.
Investment banking revenues decreased by $1,016,000, or 43%. During the first
quarter of fiscal 2000 our Company raised $7,589,000 for corporate clients
through three private placements as compared to $8,000,000 raised in the first
quarter of fiscal 1999 through one public offering. The decrease is attributable
to less fees generated from private placements, as compared to managed public
offerings.
Principal transactions income for the first quarter of fiscal 2000 was
consistent with the first quarter of fiscal 1999.
Interest income increased 11% to $392,000 in fiscal 2000 as a result of
increased interest on customer balances held at our clearing firm.
Other revenues decreased 57% to $236,000 from $542,000 in fiscal 1999 due
primarily to less merchant banking revenue.
11
<PAGE>
Expenses
Total expenses for the quarter in fiscal 2000 were $15,989,000, an 8% increase
from the same quarter in fiscal 1999. The increase is attributable to increased
compensation and benefits expense and professional fees, offset by decreases in
business development spending and other expenses.
Compensation and benefits expense increased 8% to $10,653,000. These expenses
are primarily variable as commissions to brokers are paid as a percentage of
commission revenues generated. As commission revenue increased 23%, the increase
in commission expense was offset by a decrease in the personnel costs associated
with some unprofitable business activities which were closed during fiscal 1999.
Occupancy and equipment expense increased 7% or $90,000 as a result of costs
associated with a new office opening.
Brokerage, clearing and exchange fees increased by $270,000 or 32%. This
increase is consistent with the increase in trade volume.
Communications expenses remained consistent from quarter to quarter, despite new
office openings primarily as a result of aggressive cost-reduction efforts.
Professional fees increased by $273,000 or 101%, mainly as a result of costs
associated with the modification of our Company's strategic goals, expanding the
firm's business and supporting the firm's technological infrastructure.
Business development expenses decreased by 32% to $363,000 due to decreased
promotional activities.
Other expenses decreased $66,000, or 8% primarily due to credits resulting from
the collection of previously written-off loans from terminated brokers.
Income taxes
For the quarter ended April 30, 1999, our company incurred no income tax expense
primarily due to the use of tax benefits from net operating loss
carryforwards.
Weighted average common shares outstanding
The average number of common shares and common stock equivalents outstanding
used in the computation of basic earnings per common share was 8,471,421 for the
first quarter of fiscal 2000, compared with 8,095,899 in fiscal 1999. The
average number of common shares and dilutive potential common shares used in the
computation of diluted earnings per common share was 8,724,612 for the first
quarter of fiscal 2000, compared with 8,309,022 in fiscal 1999. These changes
are primarily attributable to the sale of treasury stock to a Swiss investor
which occurred during October, 1998.
12
<PAGE>
Liquidity and Capital Resources
Approximately 53% of the Company's assets at April 30, 1999 are highly liquid,
consisting primarily of cash and cash equivalents, securities inventories, and
receivables from other broker-dealers, all of which fluctuate depending upon the
levels of customer business and trading activity. Receivables from
broker-dealers, which are primarily from our clearing broker, turn over rapidly.
As a securities dealer, we may carry significant levels of securities
inventories to meet customer needs. Our inventory of market-making securities is
readily marketable; however, holding large blocks of the same security may limit
liquidity and prevent realization of full market value for the securities.
Securities owned, but not readily marketable, represent underwriter warrants and
the securities underlying such warrants. The liquidity of these securities is
limited. A relatively small percentage of our total assets are fixed. The total
assets or the individual components of total assets may vary significantly from
period to period because of changes relating to customer demand, economic and
market conditions, and proprietary trading strategies.
Our brokerage subsidiaries, GKN, Southeast, and Shochet, the Company's domestic
operating broker-dealer subsidiaries, are subject to the net capital rules of
the NASD and the SEC. They and the Company, therefore, are subject to certain
restrictions on the use of capital and its related liquidity. GKN's,
Southeast's, and Shochet's respective net capital positions as of April 30,
1999, were $2,165,000, $893,000, and $568,000, which were $1,915,000, $770,000
and $468,000, respectively, in excess of their respective net capital
requirements.
In conjunction with our corporate headquarters relocation in New York we have
significantly upgraded our technological infrastructure. The combined costs of
the move and the technological investment were financed through a series of
operating leases. These leases total $4.8 million. As security for these leases,
we arranged for a standby letter of credit. As collateral for the standby letter
of credit, we have placed $2.4 million in a restricted cash escrow account with
the provider. We intend to use debt and lease financing prudently in the future.
Our overall capital and funding needs are continually reviewed to ensure that
our capital base can support the estimated needs of its business units. These
reviews take into account business needs as well as regulatory capital
requirements of the subsidiaries. Based upon these reviews, management believes
that our capital structure is adequate for current operations and reasonably
foreseeable future needs.
During fiscal 2000, we intend to offer a day trading service over the internet.
This new venture, in addition to others, may require us to raise additional
capital.
13
<PAGE>
Other Matters
Year 2000 Computer Issue
We initiated a firm-wide program to address the "Year 2000 Computer Issue" in
order to prepare our computer systems and applications for properly processing
dates after December 31, 1999. This program consists of a series of steps to
identify all critical & non-critical systems, determine Y2K compliance through
inquiries and testing and change non-compliant systems. Our program is
proceeding on schedule and it is our expectation that we will have our firm-wide
Year 2000 solution substantially in place by August 1, 1999.
We have completed our identification phase. Third party vendors and service
providers provide all of our computer programs and services. Most of the
programs were purchased after the year 2000 Computer Issue became widely
recognized. We have contacted approximately 85% of our third party vendors and
service providers and have received written confirmation from approximately 75%
of them that the Year 2000 Computer Issue has been appropriately managed.
Schroder, our clearing firm, is our largest and most important computer services
related vendor. Schroder has provided us with assurances that it expects to
appropriately manage the Year 2000 Computer Issue on a timely basis.
The Year 2000 Computer Issue creates a risk for us from unforeseen problems in
our own computer systems, third-party vendors and service providers, and from
third parties with whom we deal worldwide. We are continuing to communicate with
our third-party vendors and service providers to determine the likely extent to
which we may be affected by third parties' Year 2000 plans and target dates. In
this regard, while we do not now expect material financial exposure as a result
of the Year 2000 problem, there can be no guarantee that the systems of other
entities on which we rely will be remediated on a timely basis, or that a
failure to remediate by another party, would not have a material adverse effect
on us. Such failures could have a material impact on our ability to conduct
business.
We are developing contingency plans in the event that significant external
parties fail to achieve their Year 2000 plans by the targeted dates. We
anticipate that beginning on January 1, 2000, Year 2000 related failures may
result in sporadic disruption of communications, power or other external
infrastructure worldwide that could compromise the timely performance of
specific business functions and/or limit the flow of business opportunities
across the organization. We intend to have contingency plans and crisis
management teams in place to coordinate our response to those events likely to
present material risks to us. The process is currently underway, but there can
be no assurance that any such contingency plans will fully mitigate the effects
of any third party failure.
Based on information currently available, we do not expect our Year 2000
expenditures for 1999 to be a material cost to us. To date, we have spent less
than $100,000, and expect that the entire program will not exceed $200,000. The
expected costs of the Year 2000 program are based on management's current
estimates; however, actual results could differ materially from those plans.
14
<PAGE>
Quantitative and qualitative disclosures about market risk
Our market making, investing and underwriting activities often involve the
purchase, sale or short sale of securities as principal. Such activities subject
our capital to significant risks from markets that may be characterized by
relative illiquidity or may be particularly susceptible to rapid fluctuations in
liquidity. Such market conditions could limit our ability to resell securities
purchased or to purchase securities sold short. These activities subject our
capital to significant risks, including market, credit counterparty and
liquidity risks. Market risk relates to the risk of fluctuating values based on
market prices without action on our part. Our primary credit risk is settlement
or counterparty risk, which relates to whether a counterparty will fulfill its
contractual obligations, such as delivery of securities or payment of funds.
Liquidity risk relates to our inability to liquidate assets or redirect the
deployment of assets contained in illiquid investments. In addition, our market
and liquidity risks associated with asset revaluation are increased because
these risks associated with asset revaluation are increases because these risks
for us are concentrated and thus subject us to increased risks if market
conditions deteriorate.
New Accounting Pronouncement
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes standards for accounting and
reporting of derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. SFAS 133 was originally
effective for fiscal quarters beginning after June 15, 1999; however, in May
1999, the FASB postponed implementation until June 15, 2000. We expect to adopt
this standard when required in fiscal year 2001. The effect of SFAS 133 is not
expected to be material to our financial statement disclosures.
15
<PAGE>
Safe Harbor Cautionary Statement
We occasionally make forward-looking statements such as forecasts and
projections of expected future performance or statements of our plans and
objectives. When used in this quarterly report and in future filings with the
SEC, in our press releases and in oral statements made with the approval an
authorized executive officer, the words or phrases "will likely result," "the
Company expects," "we intend or expect," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions, including
confirmations by one of our authorized executive officers of any such
expressions made by a third party regarding us with respect to the company are
intended to identify forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. We want to caution you not to
place undue reliance on these forward-looking statements, each of which speaks
only as of the date made. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. Factors that
could affect our results of operations and cause its results to differ from
these statements include:
o the volatility and price level of the securities markets
o the volume, size and timing of securities transactions
o the demand for investment banking services
o the level and volatility of interest rates
o the availability of credit
o legislation affecting the business and financial communities, and
o the economy in general.
For a more complete discussion of these and other factors, see our registration
statement filed on Form S-1, as amended (No. 333-05273). We have no obligation
to publicly release the result of any revisions that may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of these statements.
16
<PAGE>
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 - Financial Data Schedule BD
17
<PAGE>
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.
RESEARCH PARTNERS INTERNATIONAL, INC.
Date: June 14, 1999 /s/ David M. Nussbaum
--------------------------------
David M. Nussbaum
Chairman of the Board and
Chief Executive Officer
/s/ Richard M. Feldman
--------------------------------
Richard M. Feldman, Senior Vice President and
Chief Financial Officer
18
<PAGE>
RESEARCH PARTNERS INTERNATIONAL, INC. AND SUBSIDIARIES
Exhibit Index
Number Description
27 Financial Data Schedule BD (4/30/99)
19
<TABLE> <S> <C>
<ARTICLE> BD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-END> APR-30-1999
<CASH> 11,852,000
<RECEIVABLES> 5,805,000
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 5,078,000
<PP&E> 2,062,000
<TOTAL-ASSETS> 30,261,000
<SHORT-TERM> 0
<PAYABLES> 0
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 708,000
<LONG-TERM> 314,000
0
114,000
<COMMON> 1,000
<OTHER-SE> 23,015,000
<TOTAL-LIABILITY-AND-EQUITY> 30,261,000
<TRADING-REVENUE> 1,127,000
<INTEREST-DIVIDENDS> 392,000
<COMMISSIONS> 13,514,000
<INVESTMENT-BANKING-REVENUES> 1,337,000
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 0
<COMPENSATION> 10,653,000
<INCOME-PRETAX> 617,000
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 617,000
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
