CORPORATE STRUCTURE

Computer Research, Inc. (Registrant), a Pennsylvania corporation organized in July 1969, is a data processing service company providing data processing, accounting and recordkeeping services to securities firms, banks and other financial institutions. The principal office and a data center for the Registrant is located at Southpointe Plaza I, a suburban office park complex in Canonsburg, Pennsylvania, which is approximately 20 miles south of downtown Pittsburgh, Pennsylvania. The Registrant maintains a full service data center staffed with systems, programming, operations and client service personnel at Denver Place, 999 18th Street, Denver, Colorado, and also utilizes the data processing facilities of Wachovia Operational Services Corporation located in Winston-Salem, North Carolina. A service and sales support office is located in the Wall Street area of New York City.

SERVICES OFFERED

The principal data processing service offered by the Registrant is an IBM AS/400 computerized "Accounting and Recordkeeping System" that is utilized by stock and bond brokerage firms, as well as brokerage subsidiaries and capital markets divisions of banks. A fully integrated subsystem of software modules operated on the IBM AS/400 computer equipment offers a comprehensive automated system for serving financial institutions with brokerage accounting, institutional safekeeping, capital markets and portfolio accounting. The system provides such firms with on-line retrieval, reports and records on a day-to-day basis utilizing daily business transaction data which is prepared by the client. Presently, this service is being utilized by approximately 45 financial institutions throughout the country.

RESELLER AGREEMENTS

The Registrant offers its clients three products that it has obtained through reseller agreements.

One of the reseller products is a computerized order management system that is used to electronically route buy/sell orders for financial institutions to a pre-designated execution point. Upon completion of the order execution, the system routes the details of the executed order to the computerized recordkeeping system, as well as directing notification of the order execution results to the financial institution that initiated the order.

The Registrant also offers its clients an internet utilized system which permits customers of the client firm to view their account balances and current positions, as well as place buy and sell orders over the "world wide web" on a 24 hour, seven day per week, basis.

Another reseller product is a computerized data and document imaging system which electronically facilitates the storage and retrieval of data records and documents. The system catalogs and manages the storage of this information on optical disk files and provides automated retrieval for displaying or printing the stored information.

COMPETITION

The Registrant's competition for its "Accounting and Recordkeeping System" is primarily from three sources, (a) other independent data processing service companies, (b) in-house computer systems, and (c) correspondent clearing firms that offer trade clearing and recordkeeping and accounting services to securities firms on a "fully disclosed basis". The Registrant's "System" is also designed to offer recordkeeping and accounting services to such clearing firms on a correspondent basis, as well as to banks that offer safekeeping services to other banks and financial institutions.

JOINT VENTURE

During the 1999 fiscal year, the Registrant completed transferring all of its clients to be serviced from the IBM AS/400, which was the result of a nearly five year project for converting the software to function on the IBM platform. The conversion project also included modifying the entire software product line to encompass an expanded eight digit date format to accurately handle processing after the year 2000 (see Year 2000). The conversion project to the AS/400, from a previously utilized non-year 2000 compliant computer mainframe configuration, was the result of a joint venture transaction between Wachovia Operational Services Corporation (WOSC) and the Registrant. In return for providing funds for and participating in the software modification and conversion, the joint venture arrangement gave WOSC a perpetual Software License Agreement to utilize the converted software for the internal servicing of its affiliate, Wachovia Investments, Incorporated (WII), a former full service client of the Registrant. As a result, beginning in the second quarter of the 1998 fiscal year, WOSC utilized its Software License Agreement to begin offering processing services to WII. The loss of WII, which accounted for approximately 20% of the 1997 revenues, contributed to a 13% decrease in the Registrant's 1998 total revenues. During the 1999 fiscal year, increased business from existing clients, combined with revenues generated by new clients, enabled the Registrant to replace the amount of revenues which resulted from the loss of WII.

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DATA PROCESSING FACILITIES

The Registrant has IBM AS/400 computer equipment located at its suburban Pittsburgh, Pennsylvania, and Denver, Colorado, data centers in support of its service business. In addition, the Registrant has entered into a service agreement with Wachovia Operational Services Corporation (WOSC) for purchasing computer processing time on an IBM AS/400 computer located in Winston-Salem, North Carolina.

EMPLOYEES

The Registrant presently employs approximately 50 non-unionized employees. The majority of the Registrant's employees are located at the corporate headquarters in suburban Pittsburgh, Pennsylvania, as well as its Denver, Colorado, data center. In general, Registrant's relations with its employees have been satisfactory.

YEAR 2000

In previous years, in an effort to efficiently utilize expensive computer storage facilities, many computer software systems were developed utilizing two digits to identify a year (for example, "98" was used to represent "1998"). Such programs left untouched, would read "00" as the year "1900" and thus, would not accurately recognize dates beginning with the year 2000 (Y2K). Such failures could cause disruptions in normal business operations, as well as problems in maintaining computerized financial and accounting records. Much of the Registrant's software was originally developed utilizing the two digit year.

In support of being prepared to process accurately after the Y2K, all of the Registrant's software was modified during the past four years to contain a four digit year. This modification was performed and funded as part of a joint venture project with Wachovia Operational Services Corporation for converting the software to operate on an IBM AS/400 (see Joint Venture). As a result, the Registrant incurred no substantial costs for this software modification. At the start of the third quarter of the Registrant's 1999 fiscal year, all of the Registrant's service business was operating on a Y2K compliant four digit year IBM AS/400 system.

During the past two years, the Registrant, supported by the involvement of some of its clients, completed extensive detail testing of its software and firmly believes that it is prepared for processing beginning in the year 2000.

In providing its services to its clients, the Registrant's computer software is interfaced with over 100 other organizations that provide computer services to the financial industry. Many of those organizations have not modified their software from two digits to a four digit platform. As a result, when receiving data transmission from these organizations, situations exist which require the Registrant to programmatically apply the appropriate two digit century designation to the transaction (windowing) when it is entered

into the Registrant's computer system. In support of verifying the validity of this "windowing technique", as well as verifying the accuracy of the Registrant's software for processing after Y2K, during the past year, the Registrant successfully participated in financial industry system testing mandated by the Securities Industry Association.

The Registrant is also dependent upon vendors that supply it with computer software and equipment, as well as public utilities and communications suppliers that may be subject to the Y2K issue. The Registrant has received written responses from these suppliers indicating that they have addressed the Y2K issue and do not anticipate major disruptions in the year 2000.

As the Registrant approaches the start of the year 2000, it believes that all modifications and precautions have been taken to assure that there will be no significant interruption in its operation caused by the Y2K issue. However, there is no guarantee that Y2K problems will not exist with the Registrant's software or with any of the vendors or suppliers that it utilizes. As a result, the Registrant will employ contingency plans which require management, staff members and other resources to be available to react promptly should a problem occur. The Registrant believes that with the contingent plans and facilities that are in place, any unanticipated disruption for Y2K problems will be of a minimum nature.

Failure of the Registrant's software or third party vendors to correctly address Y2K issues could cause business disruptions for the Registrant and its clients. It is not possible to predict with certainty all of the adverse effects that may result from a Y2K failure, in the unlikely event that one should occur, or whether such effects could have a material impact on Registrant.

RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS

Statements regarding the Registrant's expectations as to its future operations and financial condition and certain other information presented in this statement constitute forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Registrant believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors, which could cause actual results to differ from expectations, include a general downturn in the economy or the stock market and related transaction activity, gain or loss of significant clients, unforeseen new competition, changes in government policy or regulation or unforeseen costs and other effects related to legal proceedings.

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