<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, 2000
[ ] 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
incorporation or organization) Identification Number)
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: 12,320,889 SHARES OF COMMON
STOCK AS OF MARCH 31, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
The condensed 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 condensed financial statements of the Company. This
discussion and analysis should be read in conjunction with such financial
statements. All amounts are in US dollars.
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1999
Sales for the three months ended March 31, 2000 were $2,823,000
compared to $2,979,000 for the same period last year. The $156,000 or 5%,
decrease in sales is due to a 19% decrease in ACD revenue and a 7% decrease in
other CTI software revenue, offset by a 71% increase in services revenue.
Gross profit of $2,140,000 was $84,000, or 4%, higher than the
corresponding period of last year. Gross profit as a percentage of sales was 76%
or 7% higher than that experienced during the same period of the prior year.
Research and development costs of $190,000 were $91,000, or 92%, higher
than the comparable prior year period. Selling, general and administrative
expenses of $1,421,000 were $133,000, or 10%, higher than the comparable prior
year period.
The Company realized income from operations of $528,000, or 19%, for
the three months ended March 31, 2000 compared to income from operations of
$668,000, or 22%, reported for the same period last year.
Other income was $103,000 as compared to $34,000 for the comparable
prior year period.
The income tax provision of $126,000 for the three months ended March
31, 2000 as compared to $69,000 for the comparable prior year period is due to
taxable income exceeding net operating loss carryforwards available for Federal
tax purposes.
2
<PAGE> 3
The Company realized Net Income of $505,000 for the three months ended
March 31, 2000 compared to Net Income of $633,000 reported for the same period
last year. Earnings Per Share, basic and diluted, were $0.04, versus $0.05 per
share, reported for the comparable prior year period.
FOR THE NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE NINE MONTHS
ENDED MARCH 31, 1999
Sales for the nine months ended March 31, 2000 were $9,676,000 compared
to $8,496,000 for the same period last year. The $1,180,000 or 14%, increase in
sales is due to a 10% increase in ACD revenue and a 49% increase in services
revenue, offset by an 15% decrease in other CTI software revenue.
Gross profit of $7,063,000 was $1,155,000, or 20%, higher than the
corresponding period of last year. This increase in gross profit is a direct
result of the increase in sales volume. Gross profit as a percentage of sales
was 73% or 3% higher than that experienced during the same period of the prior
year.
Research and development costs of $467,000 were $172,000, or 58%,
higher than the comparable prior year period. Selling, general and
administrative expenses of $4,201,000 were $595,000, or 16%, higher than the
comparable prior year period.
The Company realized income from operations of $2,395,000, or 25%, for
the nine months ended March 31, 2000 compared to income from operations of
$2,007,000, or 24%, reported for the same period last year.
Other income was $229,000 as compared to $77,000 for the comparable
prior year period.
The income tax provision of $591,000 for the nine months ended March
31, 2000 as compared to $69,000 for the comparable prior year period is due to
taxable income exceeding net operating loss carryforwards available for Federal
tax purposes.
The Company realized Net Income of $2,032,000 for the nine months ended
March 31, 2000 compared to Net Income of $2,015,000 reported for the same period
last year. Earnings Per Share, basic and diluted, were $0.17 and $0.16
respectively, versus $0.16 per share, basic and diluted, reported for the
comparable prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital increased to $7.4 million as compared to $3.9 million
for the corresponding period of last year. The increase of $3.5 million is
primarily due to increases in cash and marketable securities of $3.5 million and
deferred income taxes of $0.4 million, which were offset by a decrease in
accounts receivable of $0.4 million and an increase in deferred maintenance
revenue of $0.3 million. The increases in cash and marketable securities reflect
the increase in sales volume and profitability experienced by the Company in
fiscal 1999 and continued profitability to date in fiscal 2000.
As of March 31, 2000, the Company held cash and marketable securities
totaling approximately $8.6 million and had no outstanding long-term debt
obligations.
3
<PAGE> 4
The Company's plan of operation is to continue distributing its contact
center solutions and development of services revenue. The Company has no
material commitments for capital expenditures. The Company feels that there are
no significant elements of income or loss that does not arise from the Company's
continuing operations.
YEAR 2000 COMPLIANCE
The Company has not experienced and does not anticipate experiencing
any significant Year 2000 problems related to its internal operating systems.
The costs for Year 2000 problems, which was less than $20,000, was funded
through operating cash flows of prior periods. The Company believes that no
significant future costs will be incurred to address the Year 2000 issue.
The Company has evaluated all of its products for Year 2000 readiness.
The evaluation included comprehensive testing of the capability of its products
to handle the transition to and operate in the Year 2000. The Company has not
experienced and does not anticipate experiencing any significant Year 2000
problems with its products. Additional information regarding the Year 2000
readiness of the Company's products or services is available through the
Company's website: www.cintech-cti.com.
In addition, the Company has not experienced and does not anticipate
experiencing any significant Year 2000 problems related to its significant
suppliers and customers.
4
<PAGE> 5
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The following Exhibits are required by Item 601 of
Regulation S-B:
PAGE
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
* Previously provided in original filing on Form 10-SB.
** Previously provided in Amendment No. 2 to Form 10-SB.
5
<PAGE> 6
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.
By: /s/ Diane M. Kamionka Date: May 15, 2000
--------------------------------------
Diane M. Kamionka
President and Chief Executive Officer
By: /s/ Michael E. Freese Date: May 15, 2000
-------------------------------------
Michael E. Freese
Director of Finance and Administration
6
<PAGE> 1
EXHIBIT NO. 19
REPORTS FURNISHED TO SECURITY-HOLDERS
<PAGE> 2
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
Condensed Financial Statements for the Three and Nine-Months Ended March 31,
2000 and 1999 and Independent Accountants' Report
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<PAGE> 3
[Logo]
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DELOITTE & TOUCHE LLP Telephone: (513) 784-7100
250 East Fifth Street
P.O. Box 5340
Cincinnati, Ohio 45201-5340
INDEPENDENT ACCOUNTANTS' REPORT
To the Directors of
Cintech Tele-Management Systems, Inc.
We have reviewed the accompanying condensed balance sheets of Cintech
Tele-Management Systems, Inc. (the "Company") as of March 31, 2000 and 1999 and
the related condensed statements of income, stockholders' equity and cash flows
for the three months and 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 auditing standards generally accepted in the United States of
America, 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 condensed 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 auditing standards generally
accepted in the United States of America, the balance sheet of the Company as of
June 30, 1999, and the related statement of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated August 20, 1999, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of June 30, 1999 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
April 21, 2000
[Logo]
<PAGE> 4
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2000, JUNE 30, 1999 AND MARCH 31, 1999
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
MARCH 31, MARCH 31,
ASSETS 2000 JUNE 30, 1999
(UNAUDITED) 1999 (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 3,361,090 $ 1,500,081 $ 1,602,620
Marketable securities (Note 2) 5,205,258 4,864,847 3,417,789
Accounts receivable, trade - (Net of
allowance of $25,244, $50,601 and
$121,705 at March 31, 2000, June 30, 1999,
and March 31, 1999, respectively) (Note 1) 578,000 1,022,153 936,816
Inventory (Note 1) 25,894 25,781 48,661
Prepaid expenses 28,607 30,172 15,548
Refundable income taxes (Note 6) 11,995
Deferred income taxes (Note 6) 379,637 298,960
------------ ----------- -----------
Total current assets 9,590,481 7,741,994 6,021,434
------------ ----------- -----------
FIXED ASSETS (Note 1):
Equipment 1,017,853 757,190 731,969
Furniture and fixtures 221,211 151,433 151,433
------------ ----------- -----------
Total 1,239,064 908,623 883,402
Less accumulated depreciation (908,502) (786,988) (778,094)
------------ ----------- -----------
Total fixed assets - net 330,562 121,635 105,308
------------ ----------- -----------
SOFTWARE DEVELOPMENT COSTS-Net (Note 1) 998,670 578,156 522,552
DEFERRED INCOME TAXES (Note 6) 274,996
-----------
Total other assets 998,670 853,152 522,552
------------ ----------- -----------
TOTAL $ 10,919,713 $ 8,716,781 $ 6,649,294
============ =========== ===========
MARCH 31, MARCH 31,
2000 JUNE 30, 1999
(UNAUDITED) 1999 (UNAUDITED)
<C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 355,954 $ 270,434 $ 490,178
Accrued liabilities:
Accrued wages and compensation 562,703 755,715 571,339
Accrued income taxes 58,340 18,245
Warranty reserve 135,677 119,078 121,556
Other 129,671 182,610 195,818
Deferred maintenance revenue (Note 1) 995,717 728,678 688,055
--------- --------- ---------
Total current liabilities 2,179,722 2,114,855 2,085,191
--------- --------- ---------
DEFERRED INCOME TAXES (Note 6) 94,361
---------
STOCKHOLDERS' EQUITY (Notes 1, 4, 5):
Common stock 9,005,121 8,993,777 8,993,777
Contributed capital 675,757 675,757 675,757
Treasury stock (2,290) (2,290) (2,290)
Accumulated deficit (1,032,958) (3,065,318) (5,103,141)
--------- ---------- ---------
Total stockholders' equity 8,645,630 6,601,926 4,564,103
--------- ---------- ---------
TOTAL $ 10,919,713 $ 8,716,781 $ 6,649,294
============ =========== ===========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
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<PAGE> 5
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS AND NINE-MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
FOR THE THREE-MONTHS ENDED FOR THE NINE-MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------------- -------------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
NET SALES (Note 1) $2,822,627 $ 2,978,853 $ 9,676,278 $ 8,496,413
COST OF PRODUCTS SOLD (Note 1) 264,217 296,894 936,464 997,465
AMORTIZATION OF DEFERRED
SOFTWARE DEVELOPMENT
COSTS (Note 1) (17,047) 37,891 89,202 109,891
LICENSING FEES (Note 1) 435,890 588,653 1,587,984 1,481,161
---------- ---------- ----------- -----------
GROSS PROFIT 2,139,567 2,055,415 7,062,628 5,907,896
RESEARCH AND DEVELOPMENT 190,191 98,983 466,830 294,966
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 1, 3) 1,421,343 1,288,255 4,201,208 3,606,339
---------- ---------- ----------- -----------
INCOME FROM OPERATIONS 528,033 668,177 2,394,590 2,006,591
OTHER INCOME 102,604 33,818 228,643 77,460
---------- ---------- ----------- -----------
INCOME BEFORE INCOME TAX
PROVISION 630,637 701,995 2,623,233 2,084,051
INCOME TAX PROVISION (Note 6) 126,125 69,155 590,873 69,155
---------- ---------- ----------- -----------
NET INCOME $ 504,512 $ 632,840 $ 2,032,360 $ 2,014,896
========== ========== =========== ===========
BASIC EARNINGS
PER COMMON SHARE (Note 4) $ 0.04 $ 0.05 $ 0.17 $ 0.16
========== ========== =========== ===========
DILUTED EARNINGS
PER COMMON SHARE (Note 4) $ 0.04 $ 0.05 $ 0.16 $ 0.16
========== ========== =========== ===========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
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<PAGE> 6
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE NINE-MONTHS ENDED MARCH 31, 2000 AND 1999
<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, 1998 $8,982,842 $675,757 $(2,290) $(7,118,037) $2,538,272
STOCK OPTIONS EXERCISED (21,434 shares) 10,935 10,935
NET INCOME 2,014,896 2,014,896
---------- -------- ------- ----------- ----------
BALANCE AT MARCH 31, 1999 $8,993,777 $675,757 $(2,290) $(5,103,141) $4,564,103
========== ======== ======= =========== ==========
BALANCE AT JUNE 30, 1999 $8,993,777 $675,757 $(2,290) $(3,065,318) $6,601,926
STOCK OPTIONS EXERCISED (19,704 shares) 11,344 11,344
NET INCOME 2,032,360 2,032,360
---------- -------- ------- ----------- ----------
BALANCE AT MARCH 31, 2000 $9,005,121 $675,757 $(2,290) $(1,032,958) $8,645,630
========== ======== ======= =========== ==========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
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<PAGE> 7
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE-MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,032,360 $ 2,014,896
----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 121,514 76,500
Amortization of software development costs 89,202 109,891
Deferred income taxes 288,680
Provision for doubtful accounts (25,357) 93,308
Changes in assets and liabilities:
Decrease in accounts receivable 469,510 492,934
(Increase) decrease in inventory (113) 38,811
(Increase) decrease in other assets (10,430) 12,902
Increase in accounts payable 85,520 288,886
(Decrease) increase in accrued expenses (287,692) 283,652
Increase in deferred maintenance revenue 267,039 245,444
----------- -----------
Total adjustments 997,873 1,642,328
----------- -----------
Net cash provided by operating activities 3,030,233 3,657,224
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (340,411) (2,500,957)
Purchase of fixed assets (330,441) (70,955)
Expenditures for software development costs (509,716) (407,326)
----------- -----------
Net cash used in investing activities (1,180,568) (2,979,238)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 11,344 10,935
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,861,009 688,921
CASH AND CASH EQUIVALENTS:
Beginning of period 1,500,081 913,699
----------- -----------
End of period $ 3,361,090 $ 1,602,620
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-Taxes paid $ 372,528 $ 52,000
=========== ===========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
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<PAGE> 8
CINTECH TELE-MANAGEMENT SYSTEMS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND AS OF MARCH 31, 2000 AND 1999 AND FOR THE THREE-MONTH
AND NINE-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE AND
NINE-MONTHS ENDED MARCH 31, 2000 AND 1999 IS UNAUDITED)
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - The Company develops and markets contact center
solutions for small- to mid-size entities, such as departments, branch
offices and workgroups, within global enterprises as well as small- to
mid-size businesses. In addition to the contact center solutions, the
Company also provides services, such as installation, training, project
management, consulting and maintenance support.
BASIS OF PRESENTATION - The condensed financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X 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 7. The information disclosed in the notes to the
financial statements included in the Company's Annual Report on Form 10-KSB
for the year ended June 30, 1999 has not changed materially unless
otherwise disclosed herein. Financial information as of June 30, 1999
included in these condensed financial statements has been derived from the
audited financial statements included in that report. In management's
opinion all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of the interim periods have been made.
Results of operations are not necessarily indicative of the results that
may be expected for future interim periods or for the full year.
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.
REVENUE - Generally, the Company records product and service revenue when
the product is shipped and the service is provided. Also, the Company
records an estimate of potential future returns of product sold at the time
of sale.
DEFERRED MAINTENANCE REVENUE - The Company sells product maintenance
agreements which provide for repair of hardware and no-cost upgrade of
software. These agreements normally cover periods ranging from 1-5 years
with revenue being recognized on a straight-line basis over the maintenance
period.
WARRANTY RESERVE - At the time of sale, the Company accrues for warranty
costs relating to hardware or software replacement or on site support to be
provided during the first twelve months following the sale. Costs
associated with supporting product under warranty are charged to the
reserve instead of current period cost. The reserve is adjusted
periodically based upon actual experience.
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<PAGE> 9
DEPRECIATION - Fixed assets are carried at cost. Depreciation is computed
using an accelerated method over the following useful lives:
Equipment 5 years
Furniture and fixtures 7 years
Leasehold improvements 2 years
Computer equipment 3 years
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,
2000 1999 1999
<S> <C> <C> <C>
Literature and other documentation $ 18,174 $ 14,309 $ 26,576
Computer hardware 25,901 21,621 58,024
Allowance for obsolete inventory (18,181) (10,149) (35,939)
-------- -------- --------
Total inventory $ 25,894 $ 25,781 $ 48,661
======== ======== ========
</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-MONTHS ENDED MAR 31, SALES FOR THE NINE-MONTHS ENDED MAR 31,
2000 1999 2000 1999
-------------------- ------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Distributor A $1,814,469 64% $ 2,220,043 75% $6,547,151 68% $5,814,187 68%
Distributor B 243,926 9% 226,583 8% 1,084,258 11% 706,346 8%
---------- -- ----------- -- ---------- -- ---------- --
Total $2,058,395 73% $ 2,446,626 83% $7,631,409 79% $6,520,533 76%
========== == =========== == ========== == ========== ==
</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:
PERCENT OF
GROSS
ACCOUNTS
DISTRIBUTORS RECEIVABLE
March 31, 2000 1 70 %
June 30, 1999 2 83 %
March 31, 1999 2 78 %
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<PAGE> 10
INTERNATIONAL SALES - The Company had international sales as follows:
<TABLE>
<CAPTION>
SALES FOR THE THREE-MONTHS SALES FOR THE NINE-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------------------------------------- ---------------------------------------------------
2000 1999 2000 1999
------------------------ ----------------------- ------------------------ -------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Canada $ 23,940 1% $ 47,727 2% $ 114,213 1% $ 79,090 1%
Other 2,000 3,519
-------- -- -------- -- --------- -- -------- --
Total $ 23,940 1% $ 49,727 1% $ 114,213 1% $ 82,609 1%
======== == ======== == ========= == ======== ==
</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. The capitalized costs are amortized on a
straight-line basis over the estimated economic life of the product.
Costs capitalized were $218,301 and $78,292 and related amortization was
$(17,047) and $37,891 for the three-months ended March 31, 2000 and 1999,
respectively. Costs capitalized were $509,716 and $407,326 and related
amortization was $89,202 and $109,891 for the nine-months ended March 31,
2000 and 1999, respectively. The Company periodically evaluates the
capitalized cost relative to potential sales and accelerates the write-off
when appropriate.
LICENSING FEE - The Company has agreements with distributors which require
the payment of a license fee on certain software sales made by the
distributors. This license fee is for the distribution of the Company's
products.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of certain of the
Company's financial instruments, such as cash, trade accounts receivable
and trade accounts payable, approximate their fair values.
ACCOUNTING CHANGES - In 1998, the Financial Accounting Standards Board
(FASB) issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This statement, as amended, which is effective for
fiscal year 2001, will have no impact on the Company's reported financial
position, result of operations or cash flows.
The Company adopted FASB Statement No. 131, "Disclosures about Segments of
an Enterprise and Related Information," during 1999. There was no impact on
the Company's financial statements.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers all money market instruments to be cash equivalents.
RECLASSIFICATION - Certain fiscal 1999 amounts have been reclassified in
order to conform to fiscal 2000 presentation.
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<PAGE> 11
2. MARKETABLE SECURITIES
The Company maintains various investments in federal agency notes 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. The cost
and market value of the investments are summarized below:
<TABLE>
<CAPTION>
NET
AMORTIZED UNREALIZED
DESCRIPTION COST MARKET GAIN (LOSS)
<S> <C> <C> <C>
March 31, 2000 - Federal Agency Notes $ 5,205,258 $ 5,203,625 $(1,633)
============ ============ ========
June 30, 1999 - Federal Agency Notes $ 4,864,847 $ 4,858,395 $(6,452)
============ ============ ========
March 31, 1999 - Federal Agency Notes $ 3,417,789 $ 3,416,287 $(1,502)
============ ============ ========
</TABLE>
3. OPERATING LEASES
OPERATING LEASES - The Company leases its office facility in Norwood, Ohio.
This operating lease, which began in March 1995 and expires in April 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.
The annual minimum rent to be paid under the operating lease agreement for
the facility in Norwood, Ohio is as follows:
Period Ending March 31:
2001 $233,816
2002 253,300
Rent expense for the leased office space was $83,875 and $73,277 for the
three-month periods ended March 31, 2000 and 1999, respectively. Rent
expense for the leased office space was $230,428 and $219,829 for the
nine-month periods ended March 31, 2000 and 1999, respectively.
4. CAPITAL STOCK AND INCOME 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, 2000 15,000,000 12,322,889 12,320,889 2,000
========== ========== ========== =====
Balance at June 30, 1999 15,000,000 12,303,185 12,301,185 2,000
========== ========== ========== =====
Balance at March 31, 1999 15,000,000 12,303,185 12,301,185 2,000
========== ========== ========== =====
</TABLE>
-9-
<PAGE> 12
Income per common share was based on the weighted average number of common
shares outstanding during each period.
The Company's basic and diluted earning per share were determined as
follows:
<TABLE>
<CAPTION>
THREE-MONTHS ENDED THREE-MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
common stockholders $ 504,512 12,316,307 $ 0.04 $ 632,840 12,299,207 $ 0.05
EFFECT OF DILUTIVE
SECURITIES
Stock options 817,777 491,425
--------- ---------- ------ -------- ---------- ------
DILUTED EPS
Income available to
common stockholders
and assumed conversions $ 504,512 13,134,084 $ 0.04 $ 632,840 12,790,632 $ 0.05
========= ========== ====== ========= ========== ======
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTHS ENDED NINE-MONTHS ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
common stockholders $ 2,032,360 12,308,304 $ 0.17 $ 2,014,896 12,290,007 $ 0.16
EFFECT OF DILUTIVE
SECURITIES
Stock options 691,978 327,166
----------- ---------- ------ ----------- ---------- ------
DILUTED EPS
Income available to
common stockholders
and assumed conversions $ 2,032,360 13,000,282 $ 0.16 $ 2,014,896 12,617,173 $ 0.16
=========== ========== ====== =========== ========== =====
</TABLE>
Stock options representing 150,000 shares for the nine-months ended March
31, 1999 were not included in computing diluted earnings per share because
their effects were antidilutive.
5. 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 1996, the plan was amended to provide for
non-employee eligibility. In 1999, the plan was amended and restated to
include in one document all previous amendments and other non-material
changes designed to improve the operation of the plan and to reserve an
additional 1,000,000 shares for issuance under the plan. Excluding the
options granted in February 1994, all options have been granted at an
exercise price equal to the fair market value at the date of grant and
become exercisable equally over a period ranging from one to four
-10-
<PAGE> 13
years. The February 1994 options were granted at a price below fair market
value at the date of grant and were subsequently adjusted to market. The
1994 options granted became exercisable equally over a two-year period. All
options expire at the end of ten years from the date of grant or are
subject to the performance provisions of specific grants.
The Company has adopted the disclosure only provision of SFAS No. 123 and
applies APB Opinion No. 25 in accounting for its stock options. Proforma
disclosure reflecting the financial impact of compensation cost for stock
option grants made in fiscal years 1999 and 1998, determined using the
fair value method consistent with SFAS No. 123, were presented in the
footnotes to the 1999 annual report.
6. INCOME TAXES
Deferred income tax assets and liabilities are computed 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 consist of the following:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, MARCH 31,
2000 1999 1999
<S> <C> <C> <C>
Current deferred tax asset - Deferred revenue
and other $ 379,637 $ 298,960 $ 599,358
Less valuation allowance (599,358)
--------- ---------- -----------
Net $ 379,637 $ 298,960 $ -
========= ========== ===========
Non-current deferred tax asset - Carryforwards
and credits $ 376,501 $1,080,683 $ 1,491,798
Non-current deferred tax liability - Deferred
software development costs and other (470,862) (196,573) (177,668)
--------- ---------- -----------
Net non-current deferred tax asset (liability) (94,361) 884,110 1,314,130
Less valuation allowance (609,114) (1,314,130)
--------- ---------- -----------
Net $ (94,361) $ 274,996 $ -
========= ========== ===========
</TABLE>
-11-
<PAGE> 14
The provision for income taxes for the three-months and nine-months ended
March 31, 2000 and 1999 consists of the following:
<TABLE>
<CAPTION>
FOR THE THREE-MONTHS FOR THE NINE-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------------------------------- -----------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Current provision $ 136,062 $ 69,155 $ 302,193 $ 69,155
Deferred provision 205,493 201,695 897,794 708,610
--------- -------- --------- --------
Total 341,555 270,850 1,199,987 777,765
Decrease in the valuation allowance (215,430) (201,695) (609,114) (708,610)
--------- -------- --------- --------
Income tax expense $ 126,125 $ 69,155 $ 590,873 $ 69,155
========= ======== ========= ========
</TABLE>
The primary differences between the statutory rate for federal income tax
and the effective income tax rate are the utilization of net operating
losses to offset current income and the change in the valuation allowance.
At March 31, 2000, the Company has state net operating loss carryforwards,
research and development credit carryforwards and alternative minimum tax
credits available to offset future income taxes.
7. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("CANADIAN GAAP AND U.S. GAAP")
These condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
During the periods ended March 31, 2000 and 1999, differences between
Canadian GAAP and U.S. GAAP arose as a result of depreciation. For U.S.
GAAP purposes, furniture and fixtures, equipment, leasehold improvements,
and computer equipment are depreciated over useful lives of seven, five,
two, and three years, respectively, using an accelerated method. For
Canadian GAAP purposes, furniture and fixtures, equipment, leasehold
improvements, and computer equipment are to be depreciated over useful
lives of five, three, two, and three years, respectively, using a
straight-line method. The difference in methodology results in a reported
U.S. GAAP net income in excess of Canadian GAAP of $23,551 and $12,281 for
the periods ended March 31, 2000 and 1999, respectively. The difference
does not have a material effect on the earnings per share calculation for
either period.
* * * * * *
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,361,090
<SECURITIES> 5,205,258
<RECEIVABLES> 603,244
<ALLOWANCES> 25,244
<INVENTORY> 25,894
<CURRENT-ASSETS> 9,590,481
<PP&E> 1,239,064
<DEPRECIATION> 908,502
<TOTAL-ASSETS> 10,919,713
<CURRENT-LIABILITIES> 2,179,722
<BONDS> 0
0
0
<COMMON> 9,005,121
<OTHER-SE> (359,491)
<TOTAL-LIABILITY-AND-EQUITY> 10,919,713
<SALES> 9,676,278
<TOTAL-REVENUES> 9,676,278
<CGS> 936,464
<TOTAL-COSTS> 2,613,650
<OTHER-EXPENSES> 4,668,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,623,233
<INCOME-TAX> 590,873
<INCOME-CONTINUING> 2,032,360
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,032,360
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.16
</TABLE>
