-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UpOaLd50d2yVUS2zRnj/wrrP1EdB99QL+LSzgbzcPYxyj262o6OfJBY+TVM0d9M3 XFVtgHyx6proWldh4JQY/g== 0000950152-96-005906.txt : 19961113 0000950152-96-005906.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950152-96-005906 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINTECH TELE MANAGEMENT SYSTEMS INC CENTRAL INDEX KEY: 0000926038 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 311200684 STATE OF INCORPORATION: OH FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-24448 FILM NUMBER: 96658889 BUSINESS ADDRESS: STREET 1: 2100 SHERMAN AVENUE CITY: CINCINNATI STATE: OH ZIP: 45212 BUSINESS PHONE: 5138612000 MAIL ADDRESS: STREET 1: 2100 SHERMAN AVEN STREET 2: 2100 SHERMAN AVEN CITY: CINCINNATI STATE: OH ZIP: 45212 10QSB 1 CINTECH TELE-MANAGEMENT SYSTEMS QUARTERLY REPORT 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, 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 2 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,279,371 SHARES OF COMMON STOCK AS OF SEPTEMBER 30, 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. Results of Operations - --------------------- For the three months ended September 30, 1996 compared to the three months ended - -------------------------------------------------------------------------------- September 30, 1995 - ------------------ Sales for the three months ended September 30, 1996 were $1,521,000 compared to $1,547,000 for the corresponding period of the prior year. ACD unit volume for the current period increased by approximately 15% over the same period last year. Revenues from ACD software training, installation and maintenance increased by approximately 42% over the prior year quarter and sales of the Tele-Series call accounting product increased by 24% over the same period. Sales of the Company's retail product, OCTus PTA, were negatively impacted due to higher than expected returns of inventory overstock by one of its distributors. Cintech is currently repositioning this product to generate higher unit sales. Gross Margin as a percentage of sales, increased to 67% compared to 56% for the comparable prior year period. This increase in Gross Margin is attributable to the Company's strategy of concentrating on higher margin ACD software unit sales while de-emphasizing distribution of the lower margin PC-hardware products. This change in strategy, combined with sales of high margin, non-ACD products such as Tele-Series, Dial-by-Name, maintenance, installation, etc., allowed the Company to generate Gross Profit of $1,026,000, an increase of $153,000 or 18% compared to the same period of last year. The first quarter represents the first full quarter whereby Cintech's ACD products were promoted and sold under the joint marketing agreement entered into with Nortel in March 1996. Under this partnership arrangement, Cintech's PRELUDE and CINPHONY ACD are listed in the Nortel catalog and are sold by Nortel through Authorized Norstar Distributors. Cintech receives revenue on software only instead of software and hardware as in the past. Nortel now is 2 3 responsible for supplying the PC hardware components. On a per unit basis then, Cintech realizes less revenue, countered by a higher gross margin. Unit volume is expected to continue to increase, brought about by the marketing and sales leverage of Nortel. (Nortel has approximately 120 salespeople versus Cintech's 10.) For comparative purposes, had Cintech continued to provide PC-hardware components during the current quarter, sales would have increased approximately 34% over the prior year's first quarter to about $2,075,000. Research and Development costs increased to $90,000 or 7% over the same prior year period. This reflects the Company's ongoing efforts in product development including the most recent software solution - JAZZ2000 ACD for NEC's NEAX 2000 IVS. Selling, General and Administrative (S,G&A) expenses of $1,190,000 were approximately 16% higher than the comparable quarter due to the implementation of the Company's joint marketing strategy. The greatest portion of the increase in S,G&A over the first quarter of last year was due to higher payroll costs of $139,000 reflecting higher staffing levels. The organizational growth occurred mainly in fiscal 1996 with staffing levels maintained from the fourth quarter of fiscal 1996 to the first quarter of 1997. Other Income decreased to $8,000 for the first three months of fiscal 1997 compared with $24,000 for the prior year quarter due to lower levels of interest income generated from corresponding lower levels of funds invested in marketable securities. The Company incurred a Net Loss of $247,000 for the first three months of fiscal 1997 compared to the $241,000 Net Loss reported for the same period last year. The $0.02 Loss per Share was equal to that realized for the first quarter of 1996. Liquidity and Capital Resources - ------------------------------- Working Capital decreased to $1.7 million for the current quarter compared to $2.0 million for the corresponding prior year. This $300,000 decrease was attributable to decreases in cash and marketable securities ($538,000), accounts receivable ($83,000), and current liabilities ($26,000) offset by increases in inventory and prepaid expenses of $277,000 and $18,000 respectively. The Company's operations provided cash of $175,000 during the first fiscal quarter ended September 30, 1996. The cash provided was partially offset by net cash used by investing activities of $67,000. As of September 30, 1996, Cintech had outstanding debt obligations of $115,000 due to the buyout of the lease on the Company's former office facilities in May, 1996 and held cash and marketable securities totaling $1.07 million. The Company is continuing to execute its joint marketing strategy with Nortel and NEC America that provides higher margin unit sales and a much larger sales and marketing effort from the partnering companies. 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 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 or its results of operations. The Company feels that there are no significant elements of income 3 4 or loss that do not arise from the Company's continuing operations, other than interest income realized from investment in marketable securities. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The Annual Meeting of Shareholders of the Company was held on October 8, 1996 (the "Annual Meeting"). The vote of holders of record of 12,281,371 shares of the Company's common stock outstanding at the close of business on September 2, 1996 was solicited by proxy pursuant to Regulation 14A under the Securities Exchange Act of 1934. (b) All of the Board of Directors nominees submitted for approval by shareholders were elected. The results of the shareholder voting were as follows:
VOTE ---- FOR AGAINST ABSTAIN --- ------- ------- Diane M. Kamionka 10,374,714 0 1,000 Bryant A. Downey 10,375,714 0 0 Frank W. Terrizzi 10,375,714 0 0 Robert I. Westheimer 10,375,714 0 0 John G. Slater 10,375,714 0 0 Carter F. Randolph 10,375,714 0 0
(c) At the Annual Meeting, stockholders approved the following matters by the vote indicated:
VOTE ---- FOR AGAINST ABSTAIN --- ------- ------- Ratification of Selection 10,371,214 4,000 500 of Deloitte Touche as Independent Auditors VOTE ---- FOR AGAINST ABSTAIN --- ------- ------- Amendment of Stock 10,366,714 7,000 2,000 Option Plan to Provide for Nonemployee Eligibility
4 5 Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) 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 - -------------- -----
(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. 5 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: _________________________________ Date: November 14, 1996 Diane M. Kamionka, President and Chief Executive Officer By: _________________________________ Date: November 14, 1996 James K. Keller, Chief Financial Officer 6 EX-19 2 EXHIBIT 19 1 EXHIBIT NO. 19 REPORTS FURNISHED TO SECURITY-HOLDERS 2 [DELOITTE & TOUCHE LLP LETTERHEAD] INDEPENDENT ACCOUNTANTS' REPORT To the Directors of Cintech Tele-Management Systems, Inc. We have reviewed the accompanying balance sheets of Cintech Tele-Management Systems, Inc. (the "Company") as of September 30, 1996 and 1995 and the related statements of operations, 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 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, 1996, and in our report dated August 23, 1996, we expressed an unqualified opinion on that balance sheet. /s/ Deloitte & Touch LLP October 25, 1996 3 CINTECH TELE-MANAGEMENT SYSTEMS, INC. BALANCE SHEETS SEPTEMBER 30, 1996 JUNE 30, 1996, AND SEPTEMBER 30, 1995 - --------------------------------------------------------------------------------
SEPT 30, JUNE 30, SEPT 30, ASSETS 1996 1996 1995 (UNAUDITED) (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 296,341 $ 203,441 $ 217,608 Marketable securities (Notes 3,5) 770,391 770,391 1,386,790 Accounts receivable, trade - (Net of allowance of $51,543, $53,726 and $59,701 at Sept 30, 1996, June 30, 1996, and Sept 30, 1995 respectively) (Note 2) 791,096 1,151,471 874,141 Inventory (Note 2) 1,021,935 1,009,960 744,565 Prepaid expenses 17,594 18,224 ----------- ----------- ----------- Total current assets 2,897,357 3,153,487 3,223,104 ----------- ----------- ----------- FIXED ASSETS (Note 2): Equipment 587,879 574,551 495,211 Furniture and fixtures 125,372 123,906 112,652 ----------- ----------- ----------- Total 713,251 698,457 607,863 Less accumulated depreciation 422,052 394,184 307,023 ----------- ----------- ----------- Total fixed assets - net 291,199 304,273 300,840 ----------- ----------- ----------- OTHER ASSETS: Deposits 5,062 Deferred software development costs - net (Note 2) 344,037 303,205 235,455 ----------- ----------- ----------- Total other assets 344,037 303,205 240,517 ----------- ----------- ----------- TOTAL $ 3,532,593 $ 3,760,965 $ 3,764,461 =========== =========== =========== LIABILITIES AND SEPT 30, JUNE 30, SEPT 30, STOCKHOLDERS' EQUITY 1996 1996 1995 (UNAUDITED) (UNAUDITED) CURRENT LIABILITIES: Accounts payable $ 607,916 $ 715,258 $ 804,780 Accrued liabilities: Accrued salaries 152,075 82,228 93,634 Accrued payroll taxes 10,013 13,568 7,792 Accrued vacation 66,563 60,945 57,171 Accrued lease termination costs (Notes 4, 5) 159,571 Other 133,135 62,555 36,583 Current portion of notes payable (Note 5) 100,000 100,000 Deferred maintenance revenue (Note 2) 139,243 140,667 75,511 ----------- ----------- ----------- Total current liabilities 1,208,945 1,175,221 1,235,042 ----------- ----------- ----------- ACCRUED LEASE TERMINATION COSTS (Note 4, 5) 72,429 ----------- ----------- ----------- NOTES PAYABLE (Note 5) 15,000 30,000 ----------- ----------- ----------- STOCKHOLDERS' EQUITY (Notes 1, 6, 7): Common stock 8,982,580 8,982,580 8,965,690 Contributed capital 675,757 675,757 675,757 Treasury stock (2,290) (2,290) (2,290) Accumulated deficit (7,347,399) (7,100,303) (7,182,167) ----------- ----------- ----------- Total stockholders' equity 2,308,648 2,555,744 2,456,990 ----------- ----------- ----------- TOTAL $ 3,532,593 $ 3,760,965 $ 3,764,461 =========== =========== ===========
-2- 4 CINTECH TELE-MANAGEMENT SYSTEMS, INC. STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 - --------------------------------------------------------------------------------
1996 1995 NET SALES (Note 2) $ 1,521,197 $ 1,547,022 COST OF PRODUCTS SOLD 225,567 515,712 AMORTIZATION OF DEFERRED SOFTWARE DEVELOPMENT COSTS (Note 2) 11,164 34,070 LICENSING FEES 258,830 125,031 ----------- ----------- GROSS PROFIT 1,025,636 872,209 RESEARCH AND DEVELOPMENT 90,421 84,014 SELLING, GENERAL AND ADMINISTRATIVE (Notes 2, 4) 1,190,296 1,027,903 LEASE TERMINATION COSTS (Note 4, 5) 0 25,625 ----------- ----------- LOSS FROM OPERATIONS (255,081) (265,333) OTHER INCOME - Interest income 7,985 23,922 ----------- ----------- NET LOSS $ (247,096) $ (241,411) =========== =========== NET LOSS PER SHARE (Note 6) $ (0.02) $ (0.02) =========== ===========
See notes to financial statements. - 3 - 5 CINTECH TELE-MANAGEMENT SYSTEMS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 - --------------------------------------------------------------------------------
COMMON TOTAL STOCK CONTRIBUTED TREASURY ACCUMULATED STOCKHOLDERS' NO PAR VALUE CAPITAL STOCK DEFICIT EQUITY BALANCE AT JUNE 30, 1995 $8,965,690 $675,757 $(2,290) $(6,940,756) $ 2,698,401 NET LOSS (241,411) (241,411) ---------- -------- ------- ----------- ----------- BALANCE AT SEPTEMBER 30, 1995 $8,965,690 $675,757 $(2,290) $(7,182,167) $ 2,456,990 ========== ======== ======= =========== =========== BALANCE AT JUNE 30, 1996 $8,982,580 $675,757 $(2,290) $(7,100,303) $ 2,555,744 NET LOSS (247,096) (247,096) ---------- -------- ------- ----------- ----------- BALANCE AT SEPTEMBER 30, 1996 $8,982,580 $675,757 $(2,290) $(7,347,399) $ 2,308,648 ========== ======== ======= =========== ===========
See notes to financial statements. -4- 6 CINTECH TELE-MANAGEMENT SYSTEMS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 - --------------------------------------------------------------------------------
1996 1995 CASH FLOWS FOR OPERATING ACTIVITIES: Net loss $(247,096) $(241,411) --------- --------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 27,868 21,178 Amortization of software development costs 11,164 34,070 Provision for doubtful accounts (2,183) 2,628 Loss on disposal of fixed assets 613 Changes in assets and liabilities: (Increase) decrease in accounts receivable 362,558 (4,406) Increase in inventory (11,975) (245,069) Decrease in prepaid expenses 630 Increase (decrease) in accounts payable (107,342) 204,830 Increase in accrued expenses 142,490 58,471 Decrease in accrued lease termination costs (Note 4, 5) (17,000) Decrease in deferred maintenance revenue (1,424) (12,497) --------- --------- Total adjustments 421,786 42,818 --------- --------- Net cash provided by (used in) operating activities 174,690 (198,593) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from marketable securities 358,873 Purchase of fixed assets (14,794) (24,217) Expenditures for software development costs (51,996) (37,168) --------- --------- Net cash provided by (used in) investing activities (66,790) 297,488 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Payment on notes payable (15,000) --------- --------- Net cash used in financing activities (15,000) --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 92,900 98,895 CASH AND CASH EQUIVALENTS: Beginning of period 203,441 118,713 --------- --------- End of period $ 296,341 $ 217,608 ========= =========
See notes to financial statements. -5- 7 CINTECH TELE-MANAGEMENT SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 1996 (AUDITED) AND AS OF SEPTEMBER 30, 1996 AND 1995 AND FOR THE TWO THREE 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"). The Company's shares are traded on the Toronto Stock Exchange (TSE) under the symbol "CTM". 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 9. REVENUE - Generally, the Company records revenue from product sales when the product is shipped. Contracts with certain distributors may have terms which cause the Company to record revenue when the product is sold to third parties. Also, the Company records an estimate of potential future returns of product sold at the time of sale. 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- 8 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: Equipment 5 years Furniture and Fixtures 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:
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 1996 1996 1995 Literature and other documentation $ 53,802 $ 70,935 61,357 Computer hardware 1,006,773 973,166 683,208 Allowance for obsolete inventory (38,640) (34,141) ----------- ----------- -------- Total inventory $ 1,021,935 $ 1,009,960 $744,565 =========== =========== ========
SIGNIFICANT CUSTOMERS - Most of the Company's sales are to distributors in the telephony industry. The Company had sales to major distributors, as follows:
SALES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---------------------- -------------------- AMOUNT % AMOUNT % Distributor A $706,819 46% Distributor B $162,089 10% Distributor C 163,004 11% Distributor D 147,407 10% -------- -- -------- -- Total $706,819 46% $472,500 31% ======== == ======== ==
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:
DISTRIBUTORS PERCENT OF GROSS ACCOUNTS RECEIVABLE September 30, 1996 1 61% June 30, 1996 2 58% September 30, 1995 1 13%
-7- 9 INTERNATIONAL SALES - The Company had international sales as follows:
SALES FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 ---------------------- -------------------- AMOUNT % AMOUNT % Canada $55,654 4% $158,950 10% Other 23,385 2% 1,440 0% -------- -- -------- -- Total $79,039 6% $160,390 10% ======== == ======== ==
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 $51,996 and $37,168 and related amortization was $11,164 and $34,070 for the three months ended September 30, 1996 and 1995, 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. The Company's notes payable also approximate fair value based on the borrowing rates currently available to the Company for notes with similar terms and average maturities. CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the Company considers all money market instruments to be cash equivalents. RECLASSIFICATION - Certain 1995 amounts have been reclassified in order to conform to 1996 presentation. 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. The cost and market value of the investments are summarized below:
NET AMORTIZED UNREALIZED DESCRIPTION COST MARKET GAIN September 30, 1996 - United States Treasury Bills $ 770,391 $ 789,848 $19,457 ========== ========== ======= June 30, 1996 - United States Treasury Bills $ 770,391 $ 778,146 $ 7,755 ========== ========== ======= September 30, 1995 - United States Treasury Bills $1,386,790 $1,405,771 $18,981 ========== ========== =======
-8- 10 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. The annual minimum rent to be paid under the operating lease agreement for the facility in Norwood, Ohio is as follows:
Year Ending September 30: 1997 $ 168,938 1998 192,188 1999 205,000 2000 213,750 2001 220,000 2002 128,331
Rent expense for the leased office space was $73,276 and $57,098 in the three month periods ended September 30, 1996 and 1995, respectively. During 1996 and 1995, the Company remained 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 accrued as lease termination cost the remaining lease payments on the Cincinnati facility, less projected sublease income and expenses. In May 1996, this obligation was removed through a buyout of the lease as discussed in Note 5. 5. NOTES PAYABLE Notes Payable consisted of the following at September 30, 1996 and June 30, 1996 respectively:
SEPTEMBER 30 JUNE 30 1996 1996 Term Note Payable - Bank $ 75,000 $ 90,000 Term Note Payable - Third Party 40,000 40,000 -------- -------- Total $115,000 $130,000 ======== ========
The Term Note Payable - Bank bears interest at the prime lending rate (8.25% at September 30, 1996). The remaining term is 15 months. The note is secured by various securities on deposit with the bank. The Term Note Payable - Third Party bears interest at 6%. The term of the note is for 12 months with principal and interest due in full on May 13, 1997. The note is with a partnership in which two of the company's stockholders, one of whom is also a director, are partners. The notes are a result of the buyout of the lease on the Company's former office facility in Cincinnati, Ohio. As a result of the lease buyout, the Company has eliminated the liability for accrued lease termination costs. -9- 11 6. CAPITAL STOCK AND LOSS PER SHARE The following schedule is a summary of the Company's shares of capital stock.
COMMON IN AUTHORIZED ISSUED OUTSTANDING TREASURY Balance at September 30, 1996 15,000,000 12,281,371 12,279,371 2,000 ========== ========== =========== ===== Balance at June 30, 1996 15,000,000 12,281,371 12,279,371 2,000 ========== ========== =========== ===== Balance at September 30, 1995 15,000,000 12,266,422 12,264,422 2,000 ========== ========== =========== =====
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 12,279,371, 12,269,699 and 12,264,422 at September 30, 1996, June 30, 1996, and September 30, 1995, respectively. 7. 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. In January, March, June and August of 1996, the Company granted additional stock options to its employees of 35,000, 10,000, 174,015 and 50,000, respectively. These options were all granted at prices equal to market value at the date of the grant and become exercisable over a four year period and expire at the end of ten years from the date of grant. The status of stock options granted at September 30, 1996, June 30, 1996 and September 30, 1995 is as follows:
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 1996 1996 1995 Forfeited 95,213 95,213 47,915 Exercised 20,885 20,885 5,936 Currently exercisable 90,447 90,447 47,042 Exercisable in fiscal year 1996 75,786 Exercisable in fiscal year 1997 72,405 72,405 27,607 Exercisable in fiscal year 1998 84,906 72,405 27,607 Exercisable in fiscal year 1999 84,905 72,405 27,607 Exercisable in fiscal year 2000 67,254 54,755 Exercisable in fiscal year 2001 12,500 ------- ------- ------- Total options granted 528,515 478,515 259,500 ======= ======= =======
-10- 12 In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation," which is effective for the Company beginning July 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based compensation arrangements with employees and encourages (but does not require) compensation cost to be measured based on the fair value of the equity instrument awarded. Companies are permitted, however, to continue to apply APB Opinion No. 25, which recognizes compensation cost based on the intrinsic value of the equity instrument awarded. The Company will continue to apply APB Opinion No. 25 to its stock based compensation awards to employees. 8. 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:
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 1996 1996 1995 Current deferred tax asset: Deferred revenue $ 47,343 $ 47,827 $ 25,674 Accrued compensation 8,086 9,411 9,074 Reserves not currently deductible 17,525 18,267 20,298 Accrued lease termination costs 54,254 Accrued rent 17,014 14,328 6,268 ----------- ----------- ----------- Total 89,968 89,833 115,568 Less valuation allowance (89,968) (89,833) (115,568) ----------- ----------- ----------- Net $ $ $ =========== =========== =========== Non-current deferred tax asset: Accrued lease termination costs $ 24,626 Net operating loss carryforward $ 2,283,791 $ 2,173,836 2,136,056 Research and development credits 140,075 134,525 117,875 ----------- ----------- ----------- Total 2,423,866 2,308,361 2,278,557 Non-current deferred tax liability: Deferred software development costs (116,973) (103,007) (80,055) ----------- ----------- ----------- Net non-current deferred tax asset 2,306,893 2,205,354 2,198,502 Less valuation allowance (2,306,893) (2,205,354) (2,198,502) ----------- ----------- ----------- Net $ $ $ =========== =========== ===========
-11- 13 The provision for income taxes for the three months ended September 30, 1996 and 1995 consists of the following:
1996 1995 Current provision $ $ Deferred credit 101,674 85,061 -------- ------- Total 101,674 85,061 Less increase in the valuation allowance (101,674) (85,061) -------- ------- Income tax expense $ $ ======== =======
At September 30, 1996, the Company has net operating loss carryforwards of $6,717,031 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 2011. Also at September 30, 1996, for U.S. Federal tax purposes, the Company has research and development credit carryforwards available to offset future income taxes of $140,075 which will begin to expire in 2003. 9. 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 three months ended September 30, 1996 and 1995, 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. * * * * * * -12- EX-27 3 EXHIBIT 27
5 3-MOS JUN-30-1997 JUL-01-1996 SEP-30-1996 296,341 770,391 842,639 51,543 1,021,935 2,897,357 713,251 422,052 3,532,593 1,208,945 15,000 8,982,580 0 0 (6,673,932) 3,532,593 1,521,197 1,521,197 225,567 495,561 1,280,717 0 0 (247,096) 0 (247,096) 0 0 0 (247,096) (0.02) (0.02)
-----END PRIVACY-ENHANCED MESSAGE-----