<PAGE> 1
FORM 10-QSB
[As last amended in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _______________ to __________________
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
OHIO 31-1200684
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2100 Sherman Avenue, Cincinnati, Ohio 45212
--------------------------------------------
(Address of principal executive offices)
(513) 731-6000
---------------------------
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
<PAGE> 2
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 12,270,331 shares of
common stock as of March 31, 1996.
Transitional Small Business Disclosure Format (check one):
Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The financial statements attached to the end of this quarterly report
are filed as part of this quarterly report. The financial statements include
all adjustments which in the opinion of management are necessary in order to
make the financial statements not misleading.
Item 2. Management's Discussions and Analysis or Plan of Operation.
The following selected financial information set forth below has been
derived from the unaudited financial statements of the Company. This
discussion and analysis should be read in conjunction with such financial
statements. All amounts are in US dollars.
Please note that during September 1995, the Company changed its fiscal
year end to June 30, commencing with June 30, 1995. Therefore, the financial
statements attached to the end of this report and the analysis below contain
information for the nine months ended March 31, 1996 compared with the nine
months ended March 31, 1995.
Results of Operations
For the nine months ended March 31, 1996 compared to the nine months
ended March 31, 1995
Sales for the first nine months of fiscal 1996 were $5,985,000 or 69%
ahead of the comparable period in the previous year. The increase in sales is
a result of the continued effectiveness of marketing programs implemented by
the Company which has enabled the Company to achieve a greater penetration of
its product line into its distribution channels. In particular, ACD sales
increased by 40%, due to the reason cited above as well as the introduction of
new versions of the products - Cinphony and Prelude 2.0. Tele-Series sales
also grew by 31%. During the first nine months, revenue from the sale of
Dial-by-Name on Northern Telecom's Norstar Voice Mail system began. This
product is sold by Northern Telecom with every Norstar Voice Mail system sold
and generated $477,000 in revenue for the Company in the first nine months of
fiscal 1996.
The Gross Margin increased to 61%, up from 59% in the comparable
period. The increase in the Gross Margin was a result of the Company's ability
to increase profit margins while increasing sales. This resulted in Gross
Profit for the nine month period of $3,640,000, compared to Gross Profit in the
comparable period in the previous year of $2,085,000.
Research and Development expenses decreased to $234,000 in the first
nine months of fiscal 1996 from $280,000 in the same nine month period in the
previous year. Selling, General and Administrative expenses increased 37% in
the first nine months of fiscal 1996 to $3,626,000.
<PAGE> 3
This increase is due primarily to an increase in payroll costs of $391,000 due
to an increase in staffing. Increases in other areas including Professional
Services / Installation Subcontractors ($150,000), Occupancy and related costs
($76,000), selling related costs ($260,000) and Other costs ($93,000) made up
the balance of the increases in expenses. Lease Termination Costs of $75,000
is due to the costs incurred as a result of the Company's relocation of its
office facility in March 1995.
Other Income decreased to $57,000 in the first nine months of fiscal
1996 compared with $143,000 in the comparable nine month period in the prior
year due to a reduction in interest income as a result of the decrease in
investments in marketable securities. As discussed below, this is due to the
cash required for operating purposes being provided by the sale of marketable
securities between the periods being compared in this report.
The Company's Net Loss for the first nine months of fiscal 1996 was
$237,000. This represents a 76% decrease from the loss of $984,000 in the
comparable period in the previous year. The Loss per Share also decreased to
$0.02 from $0.08.
Liquidity and Capital Resources.
In January 1994, the Company completed the initial public offering in
Canada ("IPO") of 2,181,820 shares of common stock. The net proceeds of this
offering, after deducting applicable issuance costs and expenses, were US$7.7
million. The proceeds of the offering have been used to retire the debt of the
Company incurred prior to the offering. In addition, the proceeds are being
used to implement sales and marketing programs, as well as for product
development.
Working capital decreased to $1.9 million as of March 31, 1996 from
$2.6 million as of March 31, 1995. This decrease of $697,000 was due
primarily to the decrease in cash and marketable securities of $1.4 million,
and an increase in current liabilities of $545,000, offset by increases in
accounts receivable of $425,000 and inventory of $787,000.
The Company's operations used cash of $604,000 in the nine months
ended March 31, 1996. This use of cash was offset by net cash provided by
investing activities of $591,000.
As of March 31, 1996, the Company had no outstanding debt obligations
and had cash and marketable securities totaling $1.04 million.
The Company's operating plans are to continue distributing its
products through the current channels while adding Nortel and NEC America as
additional distribution options for North America. In addition, starting with
the distribution of the OCTuS PTA product, a Personal Computer Telephony
Application, the Company is expanding the distribution network for its products
to include retail channels. While operating expenses did increase during the
periods covered, the Company believes that increases in sales and/or the
liquidation of marketable securities will provide sufficient cash flow to meet
these expenses in future periods. The Company has no material commitments for
capital expenditures, nor is the Company subject to seasonal aspects that could
be expected to have a material effect on the Company's financial condition of
its results of operations. The Company believes that there are no significant
elements of income or loss that do not arise from the Company's continuing
operations, other than investment income on the net proceeds of the Company's
public offering in Canada.
3
<PAGE> 4
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) The following Exhibits are required by Item 601 of Regulation
S-B:
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Exhibit No. 2 - Plan of Acquisition, Reorganization, Arrangement, Liquidation,
or Succession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 3 - (i) Articles of Incorporation, (ii) By-laws . . . . . . . . . . . . . . . . . . . . . . . . . . *
Exhibit No. 4 - Instruments Defining Rights of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 10 - Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . *, **
Exhibit No. 11 - Statement re: Computation of Per Share Earnings . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 15 - Letter on Unaudited Interim Financial Information . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 18 - Letter on Change in Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 19 - Reports Furnished to Security-Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 22 - Published Report Regarding Matters Submitted to Vote . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 23 - Consent of Experts and Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 24 - Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
Exhibit No. 99 - Additional Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A
</TABLE>
(b) On September 15, 1995, the Company changed its fiscal year end
to June 30 commencing June 30, 1995. The Company filed a Form 8-K regarding
this change in fiscal year on September 26, 1995. This form is incorporated in
this report by reference.
* Previously provided in original filing on Form 10-SB.
** Previously provided in Amendment No. 2 to Form 10-SB.
4
<PAGE> 5
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, Cintech Tele-Management Systems, Inc., as Registrant, has caused this
Report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto
duly authorized.
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
<TABLE>
<S> <C>
By: /s/ Diane M. Kamionka Date: May 14, 1996
----------------------------------------
Diane M. Kamionka, President and
Chief Executive Officer
By: /s/ James K. Keller Date: May 14, 1996
----------------------------------------
James K. Keller, Chief Financial Officer
</TABLE>
5
<PAGE> 1
EXHIBIT NO. 19
REPORTS FURNISHED TO SECURITY-HOLDERS
<PAGE> 2
[Deloitte &
Touche LLP LOGO]
- ----------------------------------------------------------------------------
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
Financial Statements for the Nine Months
Ended March 31, 1996 and 1995 and
Independent Accountants' Report
- ----------------------------------------------------------------------------
[Deloitte Touche
Tohmatsu
International
LOGO ]
<PAGE> 3
[Deloitte &
Touche LLP LOGO] [LETTERHEAD]
INDEPENDENT ACCOUNTANTS' REPORT
To the Stockholders of
Cintech Tele-Management Systems, Inc.
We have reviewed the accompanying balance sheets of Cintech Tele-Management
Systems, Inc. (the "Company") as of March 31, 1996 and 1995 and the related
statements of operations for the three months and the nine months then ended
and of stockholders' equity and cash flows for the nine months then ended (all
expressed in U.S. dollars). These financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytic procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to such financial statements for them to be in conformity with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheet of the Company as of June 30, 1995, and in our
report dated October 11, 1995, we expressed an unqualified opinion on that
balance sheet.
[DELOITTE & TOUCHE LLP SIG]
April 23, 1996
[Deloitte Touche
Tohmatsu
International LOGO]
<PAGE> 4
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
BALANCE SHEETS
MARCH 31, 1996, JUNE 30, 1995 AND MARCH 31, 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, MARCH 31,
ASSETS 1996 1995 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 113,076 $ 118,713 $ 40,308
Marketable securities (Note 3) 928,875 1,745,663 2,381,755
Accounts receivable, trade -
(Net of allowance of $55,261,
$57,073 and $38,974 at March 31,
1996, June 30, 1995, and March 31,
1995, respectively) (Note 2) 1,210,945 872,363 785,480
Inventory (Note 2) 1,012,008 499,496 225,229
Prepaid expenses 15,845
---------- ---------- ----------
Total current assets 3,280,749 3,236,235 3,432,772
---------- ---------- ----------
FIXED ASSETS (Note 2):
Equipment 546,481 475,068 437,143
Furniture and fixtures 123,586 110,113 60,232
---------- ---------- ----------
Total 670,067 585,181 497,375
Less accumulated depreciation 362,854 286,767 275,165
---------- ---------- ----------
Total fixed assets - net 307,213 298,414 222,210
---------- ---------- ----------
OTHER ASSETS:
Deposits 5,062 5,062 5,062
Deferred software development
costs - net (Note 2) 268,753 232,357 239,847
---------- ---------- ----------
Total other assets 273,815 237,419 244,909
---------- ---------- ----------
TOTAL $3,861,777 $3,772,068 $3,899,891
========== ========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 888,517 $ 599,950 $ 492,320
Accrued liabilities:
Accrued salaries 105,517 34,827 71,642
Accrued payroll taxes 6,780 12,660 6,371
Accrued vacation 49,803 50,649 34,442
Accrued lease termination costs
(Note 4) 158,950 164,702 86,061
Other 57,647 38,573 34,982
Deferred maintenance revenue
(Note 2) 90,519 88,008 84,929
---------- ---------- ----------
Total current liabilities 1,355,733 989,369 810,747
---------- ---------- ----------
ACCRUED LEASE TERMINATION
COSTS (Note 4) 37,118 84,298 174,731
---------- ---------- ----------
STOCKHOLDERS' EQUITY
(Notes 1, 5, 6):
Common stock 8,972,958 8,965,690 8,958,211
Contributed capital 675,757 675,757 675,757
Treasury stock (2,290) (2,290) (2,290)
Accumulated deficit (7,177,499) (6,940,756) (6,717,265)
---------- ---------- ----------
Total stockholders' equity 2,468,926 2,698,401 2,914,413
---------- ---------- ----------
TOTAL $3,861,777 $3,772,068 $3,899,891
========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 5
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS AND NINE MONTHS ENDED MARCH 31, 1996 AND 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For The For The For The For The
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES (Note 2) $2,360,474 $1,235,618 $5,985,030 $3,548,887
COST OF PRODUCTS SOLD 821,465 374,908 1,856,081 1,100,807
AMORTIZATION OF DEFERRED
SOFTWARE DEVELOPMENT
COSTS (Note 2) 37,755 14,157 103,306 71,343
LICENSING FEES 119,267 105,933 385,152 292,223
---------- ---------- ---------- ----------
GROSS PROFIT 1,381,987 740,620 3,640,491 2,084,514
RESEARCH AND
DEVELOPMENT 39,074 99,163 233,605 279,566
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 2, 4) 1,375,712 909,454 3,625,806 2,656,192
LEASE TERMINATION
COSTS (Note 4) 23,693 275,000 74,943 275,000
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (56,492) (542,997) (293,863) (1,126,244)
OTHER INCOME - Interest income 13,649 46,215 57,120 142,619
---------- ---------- ---------- ----------
NET LOSS $ (42,843) $ (496,782) $ (236,743) $ (983,625)
========== ========== ========== ==========
LOSS PER SHARE (Note 5) $ 0.00 $ (0.04) $ (0.02) $ (0.08)
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 6
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Total
Stock Contributed Treasury Accumulated Stockholders'
No Par Value Capital Stock Deficit Equity
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 $8,958,211 $675,757 $(5,733,640) $3,900,328
PURCHASE OF TREASURY SHARES $(2,290) (2,290)
NET LOSS (983,625) (983,625)
---------- -------- ------- ----------- ----------
BALANCE AT MARCH 31, 1995 $8,958,211 $675,757 $(2,290) $(6,717,265) $2,914,413
========== ======== ======= =========== ==========
BALANCE AT JUNE 30, 1995 $8,965,690 $675,757 $(2,290) $(6,940,756) $2,698,401
SALE OF COMMON STOCK 7,268 7,268
NET LOSS (236,743) (236,743)
---------- -------- ------- ----------- ----------
BALANCE AT MARCH 31, 1996 $8,972,958 $675,757 $(2,290) $(7,177,499) $2,468,926
========== ======== ======= =========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 7
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (236,743) $ (983,625)
---------- ----------
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 77,009 51,377
Accrued rent 7,526 832
Amortization of software development costs 103,306 71,343
Provision for doubtful accounts (1,812) 19,126
Loss on disposal of fixed assets 613
Changes in assets and liabilities:
Increase in accounts receivable (336,770) (173,949)
Increase in inventory (512,512) (72,865)
Increase (decrease) in prepaid expenses (15,845) 10,840
Increase in accounts payable 288,567 42,511
Increase (decrease) in accrued expenses 73,511 (52,437)
Increase (decrease) in accrued lease termination costs (Note 4) (52,932) 260,792
Increase in deferred maintenance revenue 2,511 18,534
---------- ----------
Total adjustments (366,828) 176,104
---------- ----------
Net cash used in operating activities (603,571) (807,521)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from marketable securities 816,788 1,015,367
Purchase of fixed assets (86,421) (120,959)
Expenditures for software development costs (139,701) (58,085)
---------- ----------
Net cash provided by investing activities 590,666 836,323
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 7,268
Purchase of treasury shares (2,290)
---------- ----------
Net cash provided by (used in) financing activities 7,268 (2,290)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (5,637) 26,512
CASH AND CASH EQUIVALENTS:
Beginning of period 118,713 13,796
---------- ----------
End of period $ 113,076 $ 40,308
========== ==========
</TABLE>
See notes to financial statements.
<PAGE> 8
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 (UNAUDITED) AND AS OF MARCH 31, 1996 AND 1995 AND
FOR THE TWO NINE-MONTH PERIODS THEN ENDED
- -------------------------------------------------------------------------------
1. INITIAL PUBLIC OFFERING
In January 1994, Cintech Tele-Management Systems, Inc. (the "Company")
completed its initial public offering of 2,181,820 shares of common
stock (the "Offering"). Prior to the Offering, common shares were
split at a ratio of 83,757 to 1. All share information, including
earnings per share, gives effect to this split. The Company's shares
are traded on the Toronto Stock Exchange (TSE) under the symbol "CTM".
The net proceeds of the Offering, after deducting applicable issuance
costs and expenses, were $7,723,209. The proceeds were used to repay
approximately $3,300,000 of indebtedness, to provide for increased
sales, marketing, and product development activities, and for
additional working capital.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - The Company develops and markets computer software
in the emerging Computer-to-Telephone Integration (CTI) industry which
integrates the voice functions of the telephone with the data functions
of the computer to provide various business applications. This
provides the means for small to mid-sized offices to take advantage of
the rapid advances and emerging capabilities of CTI. This is
accomplished through StarDome, the Company's marketing and distribution
organization that offers Business and Personal Computer Telephony
Applications to this market. StarDome applications may be developed by
the Company or by selected development companies. These products are
offered through the Company's extensive distribution network with all
the major telephone companies in North America.
Use of Estimates - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Financial Statement Presentation - These financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America and are expressed in United States
dollars. The differences in accounting principles generally accepted
in the United States of America and Canada are described in Note 8.
Revenue - The Company records revenue from product sales when the
product is shipped.
The Company sells product maintenance agreements which provide for
repair of hardware and no-cost upgrade of software. These agreements
normally cover a one-year period with revenue being recognized on a
straight-line basis over the maintenance period.
- 6 -
<PAGE> 9
Depreciation - Fixed assets are carried at cost. Depreciation is based on the
estimated useful lives of the assets and is computed using an accelerated
method. Depreciation is computed using the following useful lives:
<TABLE>
<S> <C>
Equipment 5 years
Furniture and Fixtures 7 years
</TABLE>
Inventory - Inventories are valued at the lower of cost or market, with cost
being computed using the first-in, first-out method. Inventories consist of:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, MARCH 31,
1996 1995 1995
<S> <C> <C> <C>
Literature and other documentation $ 59,117 $ 51,980 $ 48,730
Computer hardware 952,891 447,516 176,499
---------- -------- --------
Total inventory $1,012,008 $499,496 $225,229
========== ======== ========
</TABLE>
Significant Customers - Most of the Company's sales are to distributors in
the telephony industry.
The Company had sales to major distributors, as follows:
<TABLE>
<CAPTION>
SALES FOR THE THREE SALES FOR THE THREE SALES FOR THE NINE SALES FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
------------------ ------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Customer A $347,788 15% $ 95,355 8% $ 677,734 11% $392,296 11%
Customer B 193,701 8% 133,743 11% 468,618 8% 360,926 10%
-------- -- -------- -- ---------- -- -------- --
Total $541,489 23% $229,098 19% $1,146,352 19% $753,222 21%
======== == ======== == ========== == ======== ==
</TABLE>
The Company had gross accounts receivable from major distributors, each of
which was in excess of 10% of the Company's total accounts receivable, as
follows:
<TABLE>
<CAPTION>
Percent of
Gross
Accounts
Distributors Receivable
<S> <C> <C>
March 31, 1996 0 0%
June 30, 1995 2 20%
March 31, 1995 0 0%
</TABLE>
- 7 -
<PAGE> 10
International Sales - The Company had international sales as follows:
<TABLE>
<CAPTION>
SALES FOR THE THREE SALES FOR THE THREE SALES FOR THE NINE SALES FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1996 1995 1996 1995
------------------ ------------------ ------------------ ------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Canada $227,587 10% $173,761 14% $647,691 11% $478,568 13%
Other 5,405 0% 8,650 1% 6,845 0 19,775 1%
-------- -- -------- -- -------- -- -------- --
Total $232,992 10% $182,411 15% $654,536 11% $498,343 14%
======== == ======== == ======== == ======== ==
</TABLE>
Software Development Costs - Costs incurred internally for creation of
the computer software product are charged to research and development
expense when incurred until technological feasibility has been
established for the product. Thereafter, until general release, all
software production costs are capitalized and subsequently reported at
the lower of amortized cost or net realizable value. As the Company's
products are in their early product life cycle, the capitalized costs
are amortized on a straight-line basis over the estimated economic life
of the product.
Costs capitalized were $74,338 and $ 2,804 and related amortization was
$37,755 and $14,157 for the three months ended March 31, 1996 and 1995,
respectively. Costs capitalized were $139,701 and $58,085 and related
amortization was $103,306 and $71,343 for the nine months ended March
31, 1996 and 1995, respectively.
Cash and Cash Equivalents - For purposes of reporting cash flows, the
Company considers all money market instruments to be cash equivalents.
3. MARKETABLE SECURITIES
The Company maintains various investments in treasury bills which are
classified as held to maturity and are reported at amortized cost in
accordance with FASB Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities". All items mature within
one year. At March 31, 1996, June 30, 1995 and March 31, 1995 the cost
and market value of the investments is summarized below:
<TABLE>
<CAPTION>
NET
AMORTIZED UNREALIZED
DESCRIPTION COST MARKET GAIN
<S> <C> <C> <C>
March 31, 1996 - United States Treasury Bills $ 928,874 $ 944,959 $16,085
========== ========== =======
June 30, 1995 - United States Treasury Bills $1,745,663 $1,748,549 $ 2,886
========== ========== =======
March 31, 1995 - United States Treasury Bills $2,381,754 $2,382,870 $ 1,116
========== ========== =======
</TABLE>
4. OPERATING LEASES
Operating Leases - The Company leases its office facility in Norwood,
Ohio. This operating lease, which began in March 1995 and expires in
March 2002, calls for escalating lease payments over the term of the
lease. The Company records lease expense on a straight-line basis over
the life of the lease.
- 8 -
<PAGE> 11
The annual minimum rent to be paid under the operating lease agreement for the
facility in Norwood, Ohio is as follows:
<TABLE>
<CAPTION>
Year Ending March 31,
<S> <C>
1997 $162,563
1998 176,813
1999 205,000
2000 206,250
2001 220,000
2002 and thereafter 238,333
</TABLE>
Rent expense for the leased office space was $73,276 and $51,444 in the
three-month periods ended March 31, 1996 and 1995, respectively. Rent expense
for the leased office space was $203,651 and $134,500 in the nine month periods
ended March 31, 1996 and 1995, respectively.
The Company remains obligated for the lease on its former office facility in
Cincinnati, Ohio leased from a partnership in which two of the Company's
stockholders, one of whom is also a director, are partners. As a result of the
duplicate office facility the Company has accrued as lease termination cost the
remaining lease payments on the Cincinnati facility, less projected sublease
income and expenses.
5. CAPITAL STOCK AND LOSS PER SHARE
The following schedule is a summary of the Company's shares of capital stock.
<TABLE>
<CAPTION>
Common In
Authorized Issued Outstanding Treasury
<S> <C> <C> <C> <C>
Balance at March 31, 1995 15,000,000 12,260,486 12,258,486 2,000
========== ========== ========== =====
Balance at June 30, 1995 15,000,000 12,266,422 12,264,422 2,000
========== ========== ========== =====
Balance at March 31, 1996 15,000,000 12,272,331 12,270,331 2,000
========== ========== ========== =====
</TABLE>
Loss per common share was based on the weighted average number of common shares
outstanding during each period. Exercise of stock options is not assumed as
the effect is antidilutive. The weighted average number of common shares
outstanding was 12,267,028, 12,261,454 and 12,259,375 at March 31, 1996, June
30, 1995 and March 31, 1995, respectively.
6. STOCK OPTION PLAN
During 1994, the Board of Directors approved a plan providing for the granting,
to employees, options for the purchase of a maximum of 1,500,000 shares of
common stock. In February 1994 the Company granted 141,500 stock options to
its employees to purchase common stock at prices which reflect a discount from
the market value at the date of grant. The related compensation expense is
recognized over the period earned. Options granted become exercisable over a
two-year period and expire at the end of ten years from the date of grant. In
November 1994, the Company adjusted the exercise price on the options to $.88.
In March 1995, the Company granted an additional 118,000 stock options to its
employees. These options were granted at prices equal to the market value at
the date of grant and become exercisable over a four-year period and expire at
the end of ten years from the date of grant. As of June 30, 1995, the Company
had granted options to purchase 259,500 shares of which 5,936 have been
exercised, 47,042 are currently exercisable, 48,179 will become exercisable in
February 1996 and 27,607 will become exercisable each March of 1996, 1997, 1998
and 1999. The remaining 47,915 options have been forfeited. As of March 31,
1996, the Company had granted options to purchase 304,500 shares of which
11,845 have been exercised, 61,836.8 are currently exercisable, and 51,501.5
will become exercisable each March of 1997 and 1998, 32,339.2 will become
exercisable in March 1999, and 11,250 will become exercisable in March 2000.
The remaining 84,226 options have been forfeited.
-9-
<PAGE> 12
In connection with its January 1994 initial public offering, the Company
issued 218,182 stock options to its underwriters. These options are
exercisable at any time until January 31, 1996 at $5.50 (Canadian) per
share; any unexercised options expire at that time.
7. INCOME TAXES
Deferred income tax assets and liabilities are computed quarterly for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Deferred taxes at March 31, 1996 and June 30, 1995 consist of the
following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
<S> <C> <C>
Current deferred tax asset:
Deferred revenue $ 30,776 $ 29,923
Accrued compensation 10,156 6,297
Reserves not currently deductible 18,789 19,405
Accrued lease termination costs 54,043 55,999
Accrued rent 11,641 9,082
--------- ---------
Total 125,405 120,706
Less valuation allowance (125,405) (120,706)
--------- ---------
Net $ 0 $ 0
========= =========
</TABLE>
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
<S> <C> <C>
Non-current deferred tax asset:
Accrued lease termination costs $ 12,620 $ 28,661
Net operating loss carryforward 2,359,569 2,046,318
Research and development credits 128,975 112,325
---------- ----------
Total 2,501,164 2,187,304
Non-current deferred tax liability:
Deferred software development costs (91,376) (79,001)
---------- ----------
Net non-current deferred tax asset 2,409,788 2,108,303
Less valuation allowance (2,409,788) (2,108,303)
---------- ----------
Net $ 0 $ 0
========== ==========
</TABLE>
- 10 -
<PAGE> 13
The provision for income taxes for the three months and nine months ended
March 31, 1996 consists of the following:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
1996 1996
<S> <C> <C>
Current provisions $ 0 $ 0
Deferred credit (debit) 17,549 306,184
-------- ---------
Total 17,549 306,184
Less (increase) decrease in the valuation allowance (17,549) (306,184)
-------- ---------
Income tax expense $ 0 $ 0
======== =========
</TABLE>
At March 31, 1996, the Company has net operating loss carryforwards of
$6,896,495 for U.S. Federal tax purposes. Such loss carryforwards, if
unused as offsets to future taxable income, will expire beginning in 2002
and continuing through 2010. Also at March 31, 1996, for U.S. Federal tax
purposes, the Company has research and development credit carryforwards
available to offset future income taxes of $128,975 which will begin to
expire in 2002.
The March 31, 1995 information is not presented herein as it was not readily
attainable due to the change in the Company's year ended from February 28
to June 30.
8. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES ("CANADIAN GAAP AND U.S. GAAP")
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States.
During the nine months ended March 31, 1996, differences between
Canadian GAAP and U.S. GAAP arose as a result of depreciation. For U.S.
GAAP purposes, furniture and fixtures and equipment are depreciated over
useful lives of seven and five years, respectively, using an accelerated
method. For Canadian GAAP purposes, furniture and fixtures and equipment
are to be depreciated over useful lives of five and three years,
respectively, using a straight-line method. The difference does not have a
material effect on income nor on the earnings per share calculation.
The March 31, 1995 information is not presented herein as it was not readily
attainable due to the change in the Company's year ended from February 28
to June 30.
* * * * * *
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 113,076
<SECURITIES> 928,875
<RECEIVABLES> 1,266,206
<ALLOWANCES> 55,261
<INVENTORY> 1,012,008
<CURRENT-ASSETS> 3,280,749
<PP&E> 670,067
<DEPRECIATION> 362,054
<TOTAL-ASSETS> 3,861,777
<CURRENT-LIABILITIES> 1,355,733
<BONDS> 37,118
0
0
<COMMON> 8,972,958
<OTHER-SE> (6,504,032)
<TOTAL-LIABILITY-AND-EQUITY> 3,861,777
<SALES> 5,985,030
<TOTAL-REVENUES> 2,360,474
<CGS> 1,856,081
<TOTAL-COSTS> 2,344,539
<OTHER-EXPENSES> 3,934,354
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (236,743)
<INCOME-TAX> 0
<INCOME-CONTINUING> (236,743)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (236,743)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
