-----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, H9hzrV6B8AuEwKmhuADz2wvce7cR5yC/04GuZHgHyHZU2wBolt0tWGqjs1njEXx8 YaKomUxA7Hr20mNWQOWs+g== 0000950152-01-505886.txt : 20020410 0000950152-01-505886.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950152-01-505886 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINTECH SOLUTIONS 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: 1790048 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 FORMER COMPANY: FORMER CONFORMED NAME: CINTECH TELE MANAGEMENT SYSTEMS INC DATE OF NAME CHANGE: 19940628 10QSB 1 l91334ae10qsb.txt CINTECH SOLUTIONS, INC. FORM 10QSB 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, 2001 [ ] 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) 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 State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,325,727 shares of common stock as of September 30, 2001. 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 September 30, 2001 compared to the three ------------------------------------------------------------------- months ended September 30, 2000 - ------------------------------- Sales for the three months ended September 30, 2001 were $1,613,000 compared to $2,611,000 for the same period last year. The $998,000 or 38%, decrease in sales is due to a 41% decrease in ACD (Automatic Call Distribution) revenue, a 32% decrease in revenue from other Company products and a 32% decrease in services revenue. Gross profit of $1,033,000 was $898,000, or 46%, 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 64% or 10% less 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 $279,000 were $14,000, or 5%, higher than the comparable prior year period. Selling, general and administrative expenses of $1,692,000 were $24,000, or 1%, higher than the comparable prior year period. The Company realized a loss from operations of $937,000 for the three months ended September 30, 2001 as compared to a loss from operations of $1,000 reported for the same period last year. Other income was $52,000 as compared to $126,000 for the comparable prior year period due primarily to a decrease in marketable securities and the rate of return on investments. The income tax benefit of $324,000 as compared to an income tax provision of $39,000 for the comparable prior year period changed as a result of the change in taxable income. 2 The Company realized a net loss of $562,000 for the three months ended September 30, 2001 compared to net income of $86,000 reported for the same period last year. Loss per share, basic and diluted, were $0.05 versus a net income of $0.01 per share reported for the comparable prior year period. Liquidity and Capital Resources - ------------------------------- Working Capital decreased to $5.4 million as compared to $7.6 million for the corresponding period of last year. The decrease of $2.2 million is primarily due to decreases in cash and marketable securities and accounts receivable of $2.1 million and $0.6 million, respectively, which were offset by decreases in deferred maintenance revenue and other liabilities of $0.1 million and $0.1 million, respectively. As of September 30, 2001, the Company held cash and marketable securities totaling approximately $5.6 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 planned material commitments for capital expenditures associated with the move to a new facility. These capital expenditures will include a new computer network, computer systems, phone system and furniture. In the near term, the Company plans to lease and fund all items associated with these planned expenditures with its cash and marketable securities. The Company feels that there is no significant element of income or loss that does not arise from the Company's continuing operations. 3 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 99 Financial Statements/Independent Accountant's Report Attached
4 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, 2001 --------------------------------- Diane M. Kamionka President and Chief Executive Officer By: /s/ Dino Lucarelli Date: November 14, 2001 ---------------------------------- Dino Lucarelli Chief Financial Officer 5 EX-15 3 l91334aex15.txt EXHIBIT 15 EXHIBIT 15 LETTER RE: UNAUDITED INTERIM FINANCIAL INFORMATION Cintech Solutions, Inc.: We have made a review, in accordance with standards established by the American Institute of Certified Public Accountants, of the unaudited condensed interim financial information of Cintech Solutions, Inc. for the periods ended September 30, 2001 and 2000, as indicated in our report dated October 16, 2001; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-QSB for the quarter ended September 30, 2001, is incorporated by reference in Registration Statement Nos. 33-95366 and 333-94661 in Form S-8. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. "/s/ Deloitte & Touche LLP" Cincinnati, Ohio November 9, 2001 EX-99 4 l91334aex99.txt EXHIBIT 99 CINTECH SOLUTIONS, INC. Condensed Financial Statements for the Three Months Ended September 30, 2001 and 2000 and Independent Accountants' Report [Deloitte & Touche Letterhead] DELOITTE & TOUCHE INDEPENDENT ACCOUNTANTS' REPORT To the Directors of Cintech Solutions, Inc. We have reviewed the accompanying condensed balance sheets of Cintech Solutions, Inc. (the "Company") as of September 30, 2001 and 2000 and the related condensed 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 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, 2001, and the related statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated August 24, 2001, 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, 2001 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Deloitte & Touche LLP October 16, 2001 CINTECH SOLUTIONS, INC. CONDENSED BALANCE SHEETS SEPTEMBER 30, 2001, JUNE 30, 2001 AND SEPTEMBER 30, 2000
- ---------------------------------------------------------------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, ASSETS 2001 JUNE 30, 2000 (UNAUDITED) 2001 (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents (Note 1) $ 283,746 $ 641,883 $ 2,181,256 Marketable securities (Note 2) 5,294,849 6,284,141 5,501,589 Accounts receivable, trade - (Net of allowance of $138,097, $94,958 and $69,698 at September 30, 2001, June 30, 2001, and September 30, 2000, respectively) (Note 1) 387,123 301,389 974,973 Inventory (Note 1) 23,399 21,387 19,780 Prepaid expenses 98,469 73,845 16,128 Deferred income taxes (Note 6) 505,826 497,671 561,360 ------------ ------------ ------------ Total current assets 6,593,412 7,820,316 9,255,086 ------------ ------------ ------------ FIXED ASSETS (Note 1): Equipment 1,248,709 1,198,675 1,203,064 Furniture and fixtures 325,756 325,756 288,773 ------------ ------------ ------------ Total 1,574,465 1,524,431 1,491,837 Less accumulated depreciation (1,259,086) (1,208,086) (1,070,166) ------------ ------------ ------------ Total fixed assets - net 315,379 316,345 421,671 ------------ ------------ ------------ SOFTWARE DEVELOPMENT COSTS-Net (Note 1) 1,843,705 1,807,357 1,478,683 DEFERRED INCOME TAXES (Note 6) 502,234 186,580 ------------ ------------ ------------ Total other assets - net 2,345,939 1,993,937 1,478,683 ------------ ------------ ------------ TOTAL $ 9,254,730 $ 10,130,598 $ 11,155,440 ============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 115,459 $ 134,919 $ 196,030 Accrued liabilities: Accrued wages and compensation 275,736 505,310 331,894 Accrued income taxes 65,558 Warranty reserve 73,582 82,382 119,658 Other 96,219 115,615 196,781 Deferred maintenance revenue (Note 1) 601,171 638,193 724,231 ------------ ------------ ------------ Total current liabilities 1,162,167 1,476,419 1,634,152 ------------ ------------ ------------ DEFERRED INCOME TAXES (NOTE 6) 108,817 ------------ ------------ ------------ STOCKHOLDERS' EQUITY (Notes 1,4,5) Common stock 9,008,289 9,008,289 9,006,013 Contributed capital 675,757 675,757 675,757 Treasury stock (2,290) (2,290) (2,290) Accumulated deficit (1,589,193) (1,027,577) (267,009) ------------ ------------ ------------ Total stockholders' equity 8,092,563 8,654,179 9,412,471 ============ ============ ============ TOTAL $ 9,254,730 $ 10,130,598 $ 11,155,440 ============ ============ ============
See notes to condensed financial statements and independent accountants' report. -2- CINTECH SOLUTIONS, INC. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 - -------------------------------------------------------------------------------
2001 2000 ----------- ----------- NET SALES (Note 1) Product sales $ 1,214,107 $ 2,023,783 Services and other sales 399,051 586,934 ----------- ----------- Total net sales 1,613,158 2,610,717 ----------- ----------- COST OF PRODUCTS SOLD AND SERVICES PROVIDED (Note 1): Cost of products sold 502,815 568,261 Cost of services and other sales 77,280 111,686 ----------- ----------- Total cost of products sold and services provided 580,095 679,947 ----------- ----------- GROSS PROFIT 1,033,063 1,930,770 RESEARCH AND DEVELOPMENT 278,770 264,404 SELLING, GENERAL AND ADMINISTRATIVE (Notes 1, 3) 1,691,550 1,667,818 ----------- ----------- LOSS FROM OPERATIONS (937,257) (1,452) OTHER INCOME 51,832 126,299 ----------- ----------- INCOME (LOSS) BEFORE INCOME TAX PROVISION/(BENEFIT) (885,425) 124,847 INCOME TAX PROVISION/(BENEFIT) (Note 6) (323,809) 38,682 ----------- ----------- NET INCOME (LOSS) $ (561,616) $ 86,165 =========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 4) $ (0.05) $ 0.01 =========== ===========
See notes to condensed financial statements and independent accountants' report. -3- CINTECH SOLUTIONS, INC. CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 - --------------------------------------------------------------------------------
COMMON TOTAL STOCK CONTRIBUTED TREASURY ACCUMULATED STOCKHOLDERS' NO PAR VALUE CAPITAL STOCK DEFICIT EQUITY ----------- ----------- ----------- ----------- ----------- 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 =========== =========== =========== =========== =========== BALANCE AT JUNE 30, 2001 $ 9,008,289 $ 675,757 $ (2,290) $(1,027,577) $ 8,654,179 NET LOSS (561,616) (561,616) ----------- ----------- ----------- ----------- ----------- BALANCE AT SEPTEMBER 30, 2001 $ 9,008,289 $ 675,757 $ (2,290) $(1,589,193) $ 8,092,563 =========== =========== =========== =========== ===========
See notes to condensed financial statements and independent accountants' report. -4- CINTECH SOLUTIONS, INC. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE-MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 - --------------------------------------------------------------------------------
2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (561,616) $ 86,165 ----------- ----------- Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation 51,000 96,000 Amortization of software development costs 189,000 19,547 Deferred income tax provision/(benefit) (323,809) 47,702 Provision for doubtful accounts 43,139 45,189 Changes in assets and liabilities: Increase in accounts receivable (128,873) (150,727) (Increase) decrease in inventory (2,012) 26,189 (Increase) decrease in other assets (24,624) 15,003 Decrease in accounts payable (19,460) (151,634) Decrease in accrued expenses (257,770) (319,742) Decrease in deferred maintenance revenue (37,022) (108,297) ----------- ----------- Total adjustments (510,431) (480,770) ----------- ----------- Net cash used in operating activities (1,072,047) (394,605) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Redemption of marketable securities 989,292 326,605 Purchase of fixed assets (50,034) (24,281) Expenditures for software development costs (225,348) (248,082) ----------- ----------- Net cash provided by investing activities 713,910 54,242 ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES- Proceeds from exercise of stock options 580 ----------- ----------- NET DECREASE IN CASH AND CASH EQUIVALENTS (358,137) (339,783) CASH AND CASH EQUIVALENTS: Beginning of period 641,883 2,521,039 ----------- ----------- End of period $ 283,746 $ 2,181,256 =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION-Taxes paid $ 185 $ 1,100 =========== ===========
See notes to condensed financial statements and independent accountants' report. -5- CINTECH SOLUTIONS, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 2001 AND AS OF SEPTEMBER 30, 2001 AND 2000 AND FOR THE THREE-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE-MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 IS UNAUDITED) - -------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS - Cintech Solutions, Inc. (the "Company") develops and markets Internet technology solutions to manage and analyze interactions with customers, partners, and associates for improved relationships and informed decision-making. 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, 2001 has not changed materially unless otherwise disclosed herein. Financial information as of June 30, 2001 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. -6- DEPRECIATION - Fixed assets are carried at cost. Depreciation is computed using an accelerated method 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:
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 2001 2001 2000 -------- -------- -------- Literature and other documentation $ 16,007 $ 13,195 $ 14,256 Computer hardware 12,905 12,205 10,441 Allowance for obsolete inventory (5,513) (4,013) (4,917) -------- -------- -------- Total inventory $ 23,399 $ 21,387 $ 19,780 ======== ======== ========
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 SEPTEMBER 30, ----------------------------------------------- 2001 2000 Amount % Amount % ---------------------- ----------------------- Distributor A $1,093,569 68% $1,831,272 70% 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 September 30, 2001 2 75% June 30, 2001 2 71% September 30, 2000 1 76% INTERNATIONAL SALES - The Company had international sales as follows: SALES FOR THE THREE-MONTHS ENDED SEPTEMBER 30, ------------------------------------------------ 2001 2000 ----------------------- ----------------------- AMOUNT % AMOUNT % Canada $ 59,065 4 % $ 75,131 3 % -7- 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 $225,348 and $248,082 and related amortization was $189,000 and $19,547 for the three-months ended September 30, 2001 and 2000, 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 $274,496 and $487,361 for the three-months ended September 30, 2001 and 2000, 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 June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and eliminates the pooling-of-interests method. This statement will have no impact on the Company's financial statements. In June 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." This statement applies to intangibles and goodwill acquired after June 30, 2001, as well as goodwill and intangibles previously acquired. Under this statement goodwill, as well as other intangibles determined to have an indefinite life will no longer be amortized; however these assets will be reviewed for impairment on a periodic basis. This statement will have no impact on the Company's financial statements. In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations." This statement applies to legal obligations associated with the retirement of tangible long-lived assets. SFAS No. 143 requires the recognition of the fair value of a liability for an asset retirement obligation in the period in which it is incurred if a reasonable estimate of fair value can be made. This statement will have no impact on the Company's financial statements. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and applies to recognized long-lived assets of an entity to be held and used or to be disposed of. This statement will have 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. -8- 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 SFAS 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 (LOSS) September 30, 2001 - Federal Agency Notes $5,294,849 $5,299,585 $ 4,736 ========== ========== ========== June 30, 2001 - Federal Agency Notes $6,284,141 $6,284,163 $ 22 ========== ========== ========== September 30, 2000 - Federal Agency Notes $5,501,589 $5,507,250 $ 5,661 ========== ========== ==========
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. Rent expense for the leased office facility in Norwood was $85,946 and $85,390 for the three-month periods ended September 30, 2001 and 2000, respectively. In fiscal 2001, the Company signed a lease agreement for a new office facility in Blue Ash, Ohio. This operating lease, which begins in December 2001 and expires in November 2011, calls for escalating lease payments over the term of the lease. The Company will record lease expense on a straight-line basis over the life of the lease. No lease payments are due until occupancy in December 2001. The annual minimum rent to be paid under the operating lease agreement for the facility in Blue Ash, Ohio, is as follows: Period Ending September 30: 2002 $ 616,240 2003 739,493 2004 739,493 2005 739,493 2006 739,493 2007 and after 4,263,548 -9- 4. CAPITAL STOCK AND INCOME 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, 2001 15,000,000 12,327,727 12,325,727 2,000 ========== ========== ========== ========== Balance at June 30, 2001 15,000,000 12,327,727 12,325,727 2,000 ========== ========== ========== ========== Balance at September 30, 2000 15,000,000 12,325,328 12,323,328 2,000 ========== ========== ========== ==========
Income (loss) per common share was based on the weighted average number of common shares outstanding during each period. Accordingly, the sum of the individual quarters may not equal the year to date total. The Company's basic and diluted earnings (loss) per share were determined as follows:
THREE-MONTHS ENDED THREE-MONTHS ENDED SEPTEMBER 30, 2001 SEPTEMBER 30, 2000 ------------------------------------- ------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT BASIC EPS Income (loss) available to common stockholders $ (561,616) 12,325,727 $ (0.05) $ 86,165 12,323,328 $ 0.01 EFFECT OF DILUTIVE SECURITIES Stock options 663,592 ---------- ---------- -------- ---------- ---------- ----- DILUTED EPS Income (loss) available to common stockholders and assumed conversions $ (561,616) 12,325,727 $ (0.05) $ 86,165 12,986,920 $ 0.01 ========== ========== ======== ========== ========== =====
Stock options representing 1,655,563 shares and 20,000 shares for the three-months ended September 30, 2001 and 2000, respectively, were not included in computing diluted earnings (loss) per share because their effects were antidilutive. 5. STOCK OPTION PLAN During 1994, the Board of Directors approved a plan providing for the granting of options, to employees, 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 -10- 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 2001 and 2000, determined using the fair value method consistent with SFAS No. 123, were presented in the footnotes to the 2001 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:
SEPTEMBER 30, JUNE 30, SEPTEMBER 30, 2001 2001 2000 Current deferred tax asset - Deferred revenue and other $ 505,826 $ 497,671 $ 561,360 =========== =========== =========== Non-current deferred tax asset - Carryforwards and credits $ 1,239,716 $ 909,523 $ 482,656 Non-current deferred tax liability - Deferred software development costs and other (737,482) (722,943) (591,473) ----------- ----------- ----------- Net non-current deferred tax asset/(liability) $ 502,234 $ 186,580 $ (108,817) =========== =========== ===========
The provision (benefit) for income taxes for the three-months ended September 30, 2001 and 2000 consists of the following: FOR THE THREE-MONTHS ENDED SEPTEMBER 30, ------------------------ 2001 2000 Current provision (benefit) $ - $ (9,020) Deferred provision (benefit) (323,809) 47,702 --------- --------- Income tax expense provision (benefit) $(323,809) $ 38,682 ========= ========= The primary differences between the statutory rate for federal income tax and the effective income tax rate are the benefits from research and development credits and state tax losses generated during the current year. At September 30, -11- 2001, the Company has available net operating loss carryforwards for U.S. Federal tax purposes of approximately $2,552,000 that will expire in 2021. Also at September 30, 2001, for U.S. Federal tax purposes, the Company has research and development credit carryforwards available to offset future income taxes of approximately $219,000, which will begin to expire in 2017. 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 of America. During the periods ended September 30, 2001 and 2000, 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 additional depreciation expense under Canadian GAAP of $7,755 and $38,244 for the periods ended September 30, 2001 and 2000, respectively. The difference does not have a material effect on the earnings (loss) per share calculation for either period. * * * * * -12- -----END PRIVACY-ENHANCED MESSAGE-----