<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 September 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from _______________ to _______________
CINTECH SOLUTIONS, 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)
Cintech Tele-Management Systems, Inc.
----------------------------------------------
(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
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 12,323,328 shares of common
stock as of September 30, 2000. ---------------------------
-------------------------------
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE> 2
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 SEPTEMBER 30, 2000 COMPARED TO THE THREE
MONTHS ENDED SEPTEMBER 30, 1999
Sales for the three months ended September 30, 2000 were $2,611,000
compared to $3,019,000 for the same period last year. The $408,000 or 14%,
decrease in sales is due to a 13% decrease in ACD (Automatic Call Distribution)
revenue and a 44% decrease in revenue from other Company products, offset by a
2% increase in services revenue.
Gross profit of $1,931,000 was $273,000, or 12%, lower than the
corresponding period of last year. This decrease in gross profit is a direct
result of the decrease in sales volume. Gross profit as a percentage of sales
was 74% or 1% greater than that experienced during the same period of the prior
year.
The Company continued its investment in its growth strategy. Research
and development costs of $264,000 were $146,000, or 123%, higher than the
comparable prior year period. Selling, general and administrative expenses of
$1,668,000 were $419,000, or 34%, higher than the comparable prior year period.
The Company realized a loss from operations of $1,000 for the three
months ended September 30, 2000 as compared to income from operations of
$836,000 reported for the same period last year.
Other income was $126,000 as compared to $42,000 for the comparable
prior year period.
The income tax provision of $39,000 for the three months ended
September 30, 2000 as
2
<PAGE> 3
compared to $178,000 for the comparable prior year period decreased as a result
of lower taxable income.
The Company realized net income of $86,000 for the three months ended
September 30, 2000 compared to net income of $700,000 reported for the same
period last year. Earnings per share, basic and diluted, were $0.01 versus a
$0.06 per share reported for the comparable prior year period.
Liquidity and Capital Resources
-------------------------------
Working Capital increased to $7.6 million as compared to $6.4 million
for the corresponding period of last year. The increase of $1.2 million is
primarily due to an increase in cash and marketable securities of $0.9 million
and decreases in accounts payable and accrued wages and compensation of $0.2
million and $0.1 million, respectively.
As of September 30, 2000, the Company held cash and marketable
securities totaling approximately $7.7 million and had no outstanding long-term
debt obligations.
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.
3
<PAGE> 4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
None
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults upon Senior Securities
-------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not Applicable
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
The following Exhibits are required by Item 601 of Regulation S-B:
Exhibit
Number Description of Document Page
------ ------------------------ ----
15 Letter on Unaudited Interim Financial Information Attached
4
<PAGE> 5
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, Cintech Solutions, Inc., as Registrant, has caused this Report on Form
10-QSB to be signed on its behalf by the undersigned, thereunto duly authorized.
CINTECH SOLUTIONS, INC.
By: /s/ Diane M. Kamionka Date: November 14, 2000
---------------------------------
Diane M. Kamionka
President and Chief Executive Officer
By: /s/ Michael E. Freese Date: November 14, 2000
----------------------------------
Michael E. Freese
Director of Finance and Administration
5
<PAGE> 6
CINTECH
SOLUTIONS, INC.
Condensed Financial Statements for the
Three Months Ended September 30, 2000
and 1999 and Independent Accountants'
Report
<PAGE> 7
INDEPENDENT ACCOUNTANTS' REPORT
To the Directors of
Cintech Solutions, Inc.
We have reviewed the accompanying condensed balance sheets of Cintech Solutions,
Inc. (formerly Cintech Tele-Management Systems, Inc.) (the "Company") as of
September 30, 2000 and 1999 and the related condensed statements of income,
stockholders' equity and cash flows for the three 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, 2000, and the related statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated August 25, 2000, 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, 2000 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
October 27, 2000
<PAGE> 8
CINTECH SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2000, JUNE 30, 2000 AND SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
ASSETS 2000 June 30, 1999
(UNAUDITED) 2000 (UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 2,181,256 $ 2,521,039 $ 1,069,487
Marketable securities (Note 2) 5,501,589 5,828,194 5,735,168
Accounts receivable, trade - (Net of
allowance of $69,698, $24,509 and
$35,748 at September 30, 2000, June 30, 2000,
and September 30, 1999, respectively) (Note 1) 974,973 869,435 1,057,688
Inventory (Note 1) 19,780 45,969 43,899
Prepaid expenses 16,128 31,131 21,756
Refundable income taxes (Note 6) 72,000
Deferred income taxes (Note 6) 561,360 584,067 328,376
------------ ------------ ------------
Total current assets 9,255,086 9,879,835 8,328,374
------------ ------------ ------------
FIXED ASSETS (Note 1):
Equipment 1,203,064 1,178,783 824,321
Furniture and fixtures 288,773 288,773 151,433
------------ ------------ ------------
Total 1,491,837 1,467,556 975,754
Less accumulated depreciation (1,070,166) (974,166) (825,988)
------------ ------------ ------------
Total fixed assets - net 421,671 493,390 149,766
------------ ------------ ------------
SOFTWARE DEVELOPMENT COSTS-Net (Note 1) 1,478,683 1,250,148 659,156
DEFERRED INCOME TAXES (Note 6) 103,294
------------ ------------ ------------
Total other assets 1,478,683 1,250,148 762,450
------------ ------------ ------------
TOTAL $ 11,155,440 $ 11,623,373 $ 9,240,590
============ ============ ============
<CAPTION>
----------------------------------------------------------------------------------------------------
SEPTEMBER 30, SEPTEMBER 30,
LIABILITIES AND 2000 June 30, 1999
STOCKHOLDERS' EQUITY (UNAUDITED) 2000 (UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 196,030 $ 347,664 $ 368,998
Accrued liabilities:
Accrued wages and compensation 331,894 660,074 461,385
Accrued income taxes 65,558 75,678
Warranty reserve 119,658 126,323 118,756
Other 196,781 171,558 156,899
Deferred maintenance revenue (Note 1) 724,231 832,528 831,665
------------ ------------ ------------
Total current liabilities 1,634,152 2,213,825 1,937,703
------------ ------------ ------------
DEFERRED INCOME TAXES (Note 6) 108,817 83,822
------------ ------------ ------------
STOCKHOLDERS' EQUITY (Notes 1, 4, 5):
Common stock 9,006,013 9,005,433 8,994,623
Contributed capital 675,757 675,757 675,757
Treasury stock (2,290) (2,290) (2,290)
Accumulated deficit (267,009) (353,174) (2,365,203)
------------ ------------ ------------
Total stockholders' equity 9,412,471 9,325,726 7,302,887
------------ ------------ ------------
TOTAL $ 11,155,440 $ 11,623,373 $ 9,240,590
============ ============ ============
</TABLE>
See notes to condensed financial statements and independent accountants' report.
-3-
<PAGE> 9
CINTECH SOLUTIONS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
NET SALES (Note 1)
Product sales $ 2,023,783 $ 2,437,512
Services and other sales 586,934 581,436
----------- -----------
Total net sales 2,610,717 3,018,948
----------- -----------
COST OF PRODUCTS SOLD AND SERVICES PROVIDED (Note 1):
Cost of products sold 568,261 611,365
Cost of services and other sales 111,686 203,609
----------- -----------
Total cost of products sold and services provided 679,947 814,974
----------- -----------
GROSS PROFIT 1,930,770 2,203,974
RESEARCH AND DEVELOPMENT 264,404 118,799
SELLING, GENERAL AND ADMINISTRATIVE (Notes 1, 3) 1,667,818 1,249,028
----------- -----------
(LOSS)/INCOME FROM OPERATIONS (1,452) 836,147
OTHER INCOME 126,299 42,169
----------- -----------
INCOME BEFORE INCOME TAX PROVISION 124,847 878,316
INCOME TAX PROVISION (Note 6) 38,682 178,201
----------- -----------
NET INCOME $ 86,165 $ 700,115
=========== ===========
BASIC AND DILUTED EARNINGS PER COMMON SHARE (Note 4) $ 0.01 $ 0.06
=========== ===========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
-4-
<PAGE> 10
CINTECH SOLUTIONS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2000 AND 199
<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, 1999 $8,993,777 $675,757 $(2,290) $(3,065,318) $6,601,926
STOCK OPTIONS EXERCISED (2,375 shares) 846 846
NET INCOME 700,115 700,115
----------- --------- --------- ------------- ----------
BALANCE AT SEPTEMBER 30, 1999 $8,994,623 $675,757 $(2,290) $(2,365,203) $7,302,887
=========== ========= ========= ============== ===========
BALANCE AT JUNE 30, 2000 $9,005,433 $675,757 $(2,290) $ (353,174) $9,325,726
STOCK OPTIONS EXERCISED (2,000 shares) 580 580
NET INCOME 86,165 86,165
----------- --------- --------- ------------- ----------
BALANCE AT SEPTEMBER 30, 2000 $9,006,013 $675,757 $(2,290) $ (267,009) $9,412,471
=========== ========= ========= ============= ==========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
-5-
<PAGE> 11
CINTECH SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
2000 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 86,165 $ 700,115
----------- -----------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 96,000 39,000
Amortization of software development costs 19,547 46,249
Deferred income taxes 47,702 142,286
Provision for doubtful accounts 45,189 (14,853)
Changes in assets and liabilities:
Increase in accounts receivable (150,727) (20,682)
Decrease (increase) in inventory 26,189 (18,118)
Decrease (increase) in other assets 15,003 (63,584)
(Decrease) increase in accounts payable (151,634) 98,564
Decrease in accrued expenses (319,742) (378,703)
(Decrease) increase in deferred maintenance revenue (108,297) 102,987
----------- -----------
Total adjustments (480,770) (66,854)
----------- -----------
Net cash (used in) provided by operating activities (394,605) 633,261
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchase) of marketable securities 326,605 (870,321)
Purchase of fixed assets (24,281) (67,131)
Expenditures for software development costs (248,082) (127,249)
----------- -----------
Net cash provided by (used in) investing activities 54,242 (1,064,701)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES-
Proceeds from exercise of stock options 580 846
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (339,783) (430,594)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,521,039 1,500,081
----------- -----------
End of period $ 2,181,256 $ 1,069,487
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-Taxes paid $ 1,100 $ 166,255
=========== ===========
</TABLE>
See notes to condensed financial statements and independent accountants' report.
-6-
<PAGE> 12
CINTECH SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND AS OF SEPTEMBER 30, 2000 AND 1999 AND FOR THE
THREE-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE-MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999 IS UNAUDITED)
--------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Cintech Solutions, Inc. (formerly Cintech
Tele-Management Systems, Inc.) (the "Company") develops and markets
Internet technology solutions exclusively for small to mid-size entities
within the Fortune 1000 and small businesses to manage and analyze
interactions with their customers, partners, and associates for improved
relationships and informed decisions. In concert with the Internet
technology 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, 2000 has not changed materially unless
otherwise disclosed herein. Financial information as of June 30, 2000
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 accounting principles generally accepted in the United
States of America 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 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 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.
DEPRECIATION - Fixed assets are carried at cost. Depreciation is computed
using an accelerated method
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<PAGE> 13
over the following useful lives:
Equipment 3-5 years
Furniture and fixtures 2-7 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>
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2000 2000 1999
<S> <C> <C> <C>
Literature and other documentation $ 14,256 $ 40,318 $ 23,479
Computer hardware 10,441 9,068 31,929
Allowance for obsolete inventory (4,917) (3,417) (11,509)
-------- -------- --------
Total inventory $ 19,780 $ 45,969 $ 43,899
======== ======== ========
</TABLE>
SIGNIFICANT CUSTOMERS - Most of the Company's sales are to distributors in
the voice-centric call center solutions market. The Company had sales to
major distributors, as follows:
SALES FOR THE THREE-MONTHS ENDED SEPT 30,
2000 1999
------------------- --------------------
AMOUNT % AMOUNT %
Distributor A $1,831,272 70% $2,043,660 68%
Distributor B 140,391 5% 356,525 12%
---------- -- ---------- --
Total $1,971,663 75% $2,400,185 80%
========== == ========== ==
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:
GROSS
ACCOUNTS
DISTRIBUTORS RECEIVABLE
September 30, 2000 1 76 %
June 30, 2000 1 74 %
September 30, 1999 2 79 %
INTERNATIONAL SALES - The Company had international sales as follows:
SALES FOR THE THREE-MONTHS
ENDED SEPTEMBER 30,
------------------------------------------------
2000 1999
----------------------- -----------------------
AMOUNT % AMOUNT %
Canada $75,131 3% $46,190 2%
SOFTWARE DEVELOPMENT COSTS - Costs incurred internally for creation of the
computer software product
-8-
<PAGE> 14
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 $248,082 and $127,249 and related amortization was
$19,547 and $46,249 for the three-months ended September 30, 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. License fee expense was $487,361 and $468,642 for the
three-months ended September 30, 2000 and 1999, respectively.
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 PRONOUNCEMENTS - In 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements." The bulletin had no impact on the Company's
financial statements.
In 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement, as amended, was adopted on July 1, 2000 and had no impact
on the Company's reported financial position, results of operations or
cash flows.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers all money market instruments to be cash equivalents.
RECLASSIFICATION - Certain fiscal 2000 amounts have been reclassified in
order to conform to fiscal 2001 presentation.
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>
September 30, 2000 - Federal Agency Notes $5,501,589 $5,507,250 $ 5,661
========== ========== =======
June 30, 2000 - Federal Agency Notes $5,828,194 $5,831,140 $ 2,946
========== ========== =======
September 30, 1999 - Federal Agency Notes $5,735,168 $5,730,615 $(4,553)
========== ========== =======
</TABLE>
3. OPERATING LEASES
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<PAGE> 15
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 September 30:
2001 $233,816
2002 116,910
Rent expense for the leased office space was $85,390 and $73,277 for the
three-month periods ended September 30, 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 September 30, 2000 15,000,000 12,325,328 12,323,328 2,000
========== ========== ========== =====
Balance at June 30, 2000 15,000,000 12,323,328 12,321,328 2,000
========== ========== ========== =====
Balance at September 30, 1999 15,000,000 12,305,560 12,303,560 2,000
========== ========== ========== =====
</TABLE>
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
SEPTEMBER 30, 2000 SEPTEMBER 30, 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 $86,165 12,323,328 $0.01 $700,115 12,302,893 $0.06
EFFECT OF DILUTIVE SECURITIES
Stock options 663,592 409,357
------- ---------- ----- -------- ---------- -----
DILUTED EPS
Income available to
common stockholders
and assumed conversions $86,165 12,986,920 $0.01 $700,115 12,712,250 $0.06
======= ========== ===== ======== ========== =====
</TABLE>
Stock options representing 20,000 shares for the three-months ended
September 30, 2000 were not included in computing diluted earnings per
share because their effects were antidilutive.
-10-
<PAGE> 16
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 2000, 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 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 2000 and 1999, determined using the
fair value method consistent with SFAS No. 123, were presented in the
footnotes to the 2000 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>
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
2000 2000 1999
<S> <C> <C> <C>
Current deferred tax asset - Deferred revenue
and other $ 561,360 $ 584,067 $ 328,376
========= ========= =========
Non-current deferred tax asset - Carryforwards
and credits $ 482,656 $ 416,237 $ 790,534
Non-current deferred tax liability - Deferred
software development costs and other (591,473) (500,059) (224,113)
---------- ---------- ----------
Net non-current deferred tax asset (108,817) (83,822) 566,421
Less valuation allowance (463,127)
---------- ---------- ----------
Net $(108,817) $ (83,822) $ 103,294
========= ========= =========
</TABLE>
The provision for income taxes for the three-months ended September 30,
2000 and 1999 consists of the following:
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<PAGE> 17
<TABLE>
<CAPTION>
FOR THE THREE-MONTHS
ENDED SEPTEMBER 30,
------------------------
2000 1999
<S> <C> <C>
Current provision (benefit) $ (9,020) $ 35,915
Deferred provision 47,702 288,273
--------- ---------
Total 38,682 324,188
Decrease in the valuation allowance (145,987)
--------- ---------
Income tax expense $ 38,682 $ 178,201
========= =========
</TABLE>
The primary difference between the statutory rate for federal income tax
and the effective income tax rate is the utilization of research and
development credits to reduce the income tax liability. At September 30,
2000, for U.S. Federal tax purposes, the Company has research and
development credit carryforwards available to offset future income taxes
of approximately $301,000 which will begin to expire in 2009.
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 September 30, 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 $38,244 and $2,104 for
the periods ended September 30, 2000 and 1999, respectively. The
difference does not have a material effect on the earnings per share
calculation for either period.
* * * * * *
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