10QSB

TABLE OF CONTENTS

EX-15

EX-99

FORM 10-QSB

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 December 31, 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 incorporation or organization)	(I.R.S. Employer Identification Number)

4747 Lake Forest Drive, Cincinnati, Ohio 45242 (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 December 31, 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 December 31, 2001 compared to the three months ended December 31, 2000

     Revenues for the quarter ended December 31, 2001 were $1,764,000. This figure includes a favorable adjustment of $283,000 to reduce reserves for customer returns and price adjustments. Net of this adjustment, revenues for the quarter were $1,481,000, compared to $2,664,000 for the same period last year. The $1,183,000 or 44%, decrease in sales is due to a 47% decrease in Automatic Call Distribution (ACD) revenue, a 38% decrease in revenue from other Company products and a 35% decrease in services revenue.

     Gross profit of $1,296,000 was $641,000, or 33%, 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 73% for the quarter. Gross profit was favorably impacted by the reserve adjustment described above. Without this adjustment, gross profit for the quarter would have been $1,014,000, representing gross margin of 68% for the period ended December 31, 2001, versus $1,937,000 or 73% for the same period last year.

     The Company continued its investment in its growth strategy. Research and development costs of $302,000 were $55,000, or 22%, higher than the comparable prior year period. Selling, general and administrative expenses of $1,670,000 were $4,000 higher than the comparable prior year period. Selling, general and administrative expenses included costs of $119,000 associated with the move to the company’s new facilities in Blue Ash in December 2001. Excluding the impact of these non-recurring costs, selling, general and administrative expenses for the quarter would have declined by 7% when compared to the same period last year. The Company accrued $104,000 of costs associated with the termination of the lease in Norwood.

2

     The Company realized a loss from operations of $780,000 for the three months ended December 31, 2001 as compared to income from operations of $24,000 reported for the same period last year.

     Other income was $29,000 as compared to $107,000 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 $239,000 as compared to an income tax provision of $41,000 for the comparable prior year period changed as a result of the change in taxable income.

     The Company realized a net loss of $512,000 for the three months ended December 31, 2001 compared to net income of $90,000 reported for the same period last year. Loss per share, basic and diluted, were $0.04 versus a net income of $0.01 per share reported for the comparable prior year period.

For the six months ended December 31, 2001 compared to the six months ended December 31, 2000

     Revenues for the six months ended December 31, 2001 were $3,377,000. This figure includes a favorable adjustment of $283,000 to reduce reserves for customer returns and price adjustments. Net of this adjustment, revenues for the six months were $3,094,000, compared to $5,275,000 for the same period last year. The $2,181,000 or 41%, decrease in sales is due to a 44% decrease in Automatic Call Distribution (ACD) revenue, a 35% decrease in revenue from other Company products and a 33% decrease in services revenue.

     Gross profit of $2,329,000 was $1,539,000, or 40%, 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 69% for the six months. Gross profit was favorably impacted by the reserve adjustment described above. Without this adjustment, gross profit for the six months would have been $2,046,000, representing gross margin of 66% for the period ended December 31, 2001, versus $3,868,000 or 73% for the same period last year.

     The Company continued its investment in its growth strategy. Research and development costs of $581,000 were $69,000, or 14%, higher than the comparable prior year period. Selling, general and administrative expenses of $3,361,000 were $28,000 higher than the comparable prior year period. Selling, general and administrative expenses included costs of $119,000 associated with the move to the company’s new facilities in Blue Ash in December 2001. Excluding the impact of these non-recurring costs, selling, general and administrative expenses for the six months would have declined by 3% when compared to the same period last year. The Company accrued $104,000 of costs associated with the termination of the lease in Norwood.

     The Company realized a loss from operations of $1,718,000 for the six months ended December 31, 2001 as compared to income from operations of $23,000 reported for the same period last year.

     Other income was $81,000 as compared to $233,000 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 $563,000 for the six months ended December 31, 2001 as compared to an income tax provision of $80,000 for the comparable prior year period changed as a result of the change in taxable income.

3

     The Company realized a net loss of $1,073,000 for the six months ended December 31, 2001 compared to net income of $176,000 reported for the same period last year. Loss per share, basic and diluted, were $0.09 versus a net income of $0.01 per share reported for the comparable prior year period.

Liquidity and Capital Resources

     Working Capital decreased to $4.4 million as compared to $7.7 million for the corresponding period of last year. The decrease of $3.3 million is primarily due to decreases in cash and marketable securities and accounts receivable of $3.1 million and $0.4 million, respectively, which were offset by decreases in deferred maintenance revenue and other liabilities of $0.2 million and $0.1 million, respectively.

     As of December 31, 2001, the Company held cash and marketable securities totaling approximately $4.7 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 feels that there is no significant element of income or loss that does not arise from the Company’s continuing operations.

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

     At the annual meeting of shareholders held on October 23, 2001, the following matters were to be voted upon: 1) to elect Directors and 2) to appoint Deloitte & Touche LLP as auditors. Of the proxies received, the following shares were voted For/Against/Withheld:

1)	To elect Directors:	For		Against		Withheld
	Diane M. Kamionka		8,854,246		0		4,300
	Bryant A. Downey		8,854,246		0		4,300
	Frank W. Terrizzi		8,854,246		0		4,300
	Christopher D. Brennan		8,854,246		0		4,300
	Richard G. Reid		8,854,246		0		4,300
2)	To appoint Deloitte & Touche LLP
	as auditors		8,853,346		1,700		3,500

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 99	Letter on Unaudited Interim Financial Information Financial Statements / Independent Accountants’ Report	Attached Attached

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 Diane M. Kamionka President and Chief Executive Officer	Date: February 14, 2002
By:	/s/ Dino Lucarelli Dino Lucarelli Chief Financial Officer	Date: February 14, 2002

6 EX-15 3 l92768aex15.htm EX-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 December 31, 2001 and 2000, as indicated in our report dated January 25, 2002; 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 December 31, 2001, is incorporated by reference in Registration Statement Nos. 33-95366 and 333-94661 on 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
February 11, 2002

EX-99 4 l92768aex99.htm EX-99

Exhibit 99

CINTECH SOLUTIONS,
INC.

Condensed Financial Statements for the Three and Six-Months Ended December 31,
2001 and 2000 and Independent Accountants’ Report

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 December 31, 2001 and 2000 and the related condensed statements of operations, stockholders’ equity and cash flows for the three months and six 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”

January 25, 2002

CINTECH SOLUTIONS, INC.

CONDENSED BALANCE SHEETS
DECEMBER 31, 2001, JUNE 30, 2001 AND DECEMBER 31, 2000

			December 31,						December 31,
			2001			June 30,			2000
ASSETS			(Unaudited)			2001			(Unaudited)
CURRENT ASSETS:
	Cash and cash equivalents (Note 1)		$	768,195		$	641,883		$	4,507,954
	Marketable securities (Note 2)			3,921,938			6,284,141			3,290,678
	Accounts receivable, trade — (Net of allowance of $68,152, $94,958 and $76,023 at December 31, 2001, June 30, 2001, and December 31, 2000, respectively) (Note 1)			591,457			301,389			944,055
	Inventory (Note 1)			11,067			21,387			24,767
	Prepaid expenses			126,408			73,845			69,052
	Deferred income taxes (Note 6)			388,753			497,671			544,183
		Total current assets		5,807,818			7,820,316			9,380,689
FIXED ASSETS (Note 1):
	Equipment			1,381,911			1,198,675			1,240,990
	Furniture and fixtures			4,198			325,756			297,855
		Total		1,386,109			1,524,431			1,538,845
	Less accumulated depreciation			(948,262	)		(1,208,086	)		(1,166,166	)
		Total fixed assets — net		437,847			316,345			372,679
SOFTWARE DEVELOPMENT COSTS - Net (Note 1)				1,931,261			1,807,357			1,560,678
DEFERRED INCOME TAXES (Note 6)				858,455			186,580
		Total other assets — net		2,789,716			1,993,937			1,560,678
TOTAL			$	9,035,381		$	10,130,598		$	11,314,046

				December 31,						December 31,
LIABILITIES AND				2001			June 30,			2000
STOCKHOLDERS’ EQUITY				(Unaudited)			2001			(Unaudited)
CURRENT LIABILITIES:
	Accounts payable			$	238,857		$	134,919		$	174,573
	Accrued liabilities:
		Accrued wages and compensation			435,560			505,310			440,118
		Accrued income taxes									52,636
		Warranty reserve			64,939			82,382			106,949
		Accrued lease termination costs (Note 3)			113,365
		Other			90,534			115,615			206,733
	Deferred maintenance revenue (Note 1)				511,314			638,193			684,737
			Total current liabilities		1,454,569			1,476,419			1,665,746
DEFERRED INCOME TAXES (Note 6)											145,767
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				(2,100,944	)		(1,027,577	)		(176,947	)
			Total stockholders’ equity		7,580,812			8,654,179			9,502,533
TOTAL				$	9,035,381		$	10,130,598		$	11,314,046

See notes to condensed financial statements and independent accountants’ report.

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CINTECH SOLUTIONS, INC.

CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED DECEMBER 31, 2001 AND 2000

				For the Three-Months Ended					For the Six-Months Ended
				December 31,					December 31,
				2001			2000		2001			2000
NET SALES (Note 1):
	Product sales			$	1,405,630		$	2,104,288	$	2,619,737		$	4,128,071
	Services and other sales				358,143			559,736		757,194			1,146,670
			Total net sales		1,763,773			2,664,024		3,376,931			5,274,741
COST OF PRODUCTS SOLD AND
SERVICES PROVIDED (Note 1):
	Cost of products sold				409,782			605,368		912,597			1,173,629
	Cost of services and other sales				57,853			121,208		135,133			232,894
		Total cost of products sold and services provided			467,635			726,576		1,047,730			1,406,523
GROSS PROFIT					1,296,138			1,937,448		2,329,201			3,868,218
RESEARCH AND DEVELOPMENT					302,236			247,482		581,006			511,886
LEASE TERMINATION COSTS (Note 3)					104,397					104,397
SELLING, GENERAL AND ADMINISTRATIVE (Notes 1, 3)					1,669,781			1,665,711		3,361,331			3,333,529
INCOME (LOSS) FROM OPERATIONS					(780,276	)		24,255		(1,717,533	)		22,803
OTHER INCOME					29,377			107,012		81,209			233,311
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (BENEFIT)					(750,899	)		131,267		(1,636,324	)		256,114
INCOME TAX PROVISION (BENEFIT) (Note 6)					(239,148	)		41,205		(562,957	)		79,887
NET INCOME (LOSS)				$	(511,751	)	$	90,062	$	(1,073,367	)	$	176,227
BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 4)				$	(0.04	)	$	0.01	$	(0.09	)	$	0.01

See notes to condensed financial statements and independent accountants’ report.

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CINTECH SOLUTIONS, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
FOR THE SIX-MONTHS ENDED DECEMBER 31, 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									176,227			176,227
BALANCE AT DECEMBER 31, 2000	$	9,006,013	$	675,757	$	(2,290	)	$	(176,947	)	$	9,502,533
BALANCE AT JUNE 30, 2001	$	9,008,289	$	675,757	$	(2,290	)	$	(1,027,577	)	$	8,654,179
NET LOSS									(1,073,367	)		(1,073,367	)
BALANCE AT DECEMBER 31, 2001	$	9,008,289	$	675,757	$	(2,290	)	$	(2,100,944	)	$	7,580,812

See notes to condensed financial statements and independent accountants’ report.

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CINTECH SOLUTIONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2001 AND 2000

					2001			2000
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income (loss)				$	(1,073,367	)	$	176,227
	Adjustments to reconcile net income (loss) to net cash used in operating activities:
		Depreciation				42,251			192,000
		Amortization of software development costs				301,329			109,878
		Deferred income tax provision/(benefit)				(562,957	)		101,829
		Provision for doubtful accounts				(26,806	)		51,514
		Changes in assets and liabilities:
			Increase in accounts receivable			(263,262	)		(126,134	)
			Decrease in inventory			10,320			21,202
			Increase in other assets			(52,563	)		(37,921	)
			Increase (decrease) in accounts payable			103,938			(173,091	)
			Decrease in accrued expenses			(112,274	)		(227,197	)
			Increase in accrued lease termination costs			113,365
			Decrease in deferred maintenance revenue			(126,879	)		(147,791	)
				Total adjustments		(573,538	)		(235,711	)
				Net cash used in operating activities		(1,646,905	)		(59,484	)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Redemption of marketable securities					2,362,203			2,537,516
	Purchase of fixed assets					(198,753	)		(71,289	)
	Proceeds on disposal of fixed assets					35,000
	Expenditures for software development costs					(425,233	)		(420,408	)
				Net cash provided by investing activities		1,773,217			2,045,819
CASH FLOWS FROM FINANCING ACTIVITIES -
	Proceeds from exercise of stock options								580
NET INCREASE IN CASH AND CASH EQUIVALENTS						126,312			1,986,915
CASH AND CASH EQUIVALENTS:
	Beginning of period					641,883			2,521,039
	End of period				$	768,195		$	4,507,954
SUPPLEMENTAL CASH FLOW INFORMATION-Taxes paid					$	185		$	1,100

See notes to condensed financial statements and independent accountants’ report.

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CINTECH SOLUTIONS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS AS OF JUNE 30, 2001 AND AS OF DECEMBER 31, 2001 AND 2000 AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE AND SIX-MONTHS ENDED DECEMBER 31, 2001 AND 2000 IS UNAUDITED)

1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	Nature of Business - Cintech Solutions, Inc. (the “Company”) develops and markets interaction management software to help businesses manage voice and data contacts with their customers, partners, and associates. In concert with the interaction management software, 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. There are no significant differences in accounting principles generally accepted in the United States of America and Canada. 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.
	Depreciation - Fixed assets are carried at cost. Depreciation is computed using a straight-line method over the following useful lives:

-6-

Equipment	3-5 years
Furniture and Fixtures	2-10 years

The Company changed its method of accounting for depreciation from an accelerated method. The effects of such change were not material to the financial statements.

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:

	December 31,			June 30,			December 31,
	2001			2001			2000
Literature and other documentation	$	9,263		$	13,195		$	13,006
Computer hardware		8,398			12,205			16,991
Allowance for obsolete inventory		(6,594	)		(4,013	)		(5,230	)
Total inventory	$	11,067		$	21,387		$	24,767

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 Dec 31,
	2001					2000
	Amount		%			Amount		%
Distributor A	$	1,304,935		74	%	$	1,904,218		72	%

	Sales for the Six-Months Ended Dec 31,
	2001					2000
	Amount		%			Amount		%
Distributor A	$	2,398,504		71	%	$	3,735,490		71	%

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
December 31, 2001		1		72	%
June 30, 2001		2		71	%
December 31, 2000		1		74	%

International Sales - The Company’s international sales to Canada were approximately 1% of total sales for the three-months ended December 31, 2001 and 2000, and approximately 2% of total sales for the six-months ended December 31, 2001 and 2000, respectively.

-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 $199,885 and $172,326 and related amortization was $112,329 and $90,331 for the three-months ended December 31, 2001 and 2000, respectively. Costs capitalized were $425,233 and $420,408 and related amortization was $301,329 and $109,878 for the six-months ended December 31, 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 $249,501 and $396,625 for the three-months ended December 31, 2001 and 2000, respectively. License fee expense was $523,997 and $883,986 for the six-months ended December 31, 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.

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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:

					Net
	Amortized				Unrealized
Description	Cost		Market		Gain
December 31, 2001 - Federal Agency Notes	$	3,921,938	$	3,921,701	$	237
June 30, 2001 - Federal Agency Notes	$	6,284,141	$	6,284,163	$	22
December 31, 2000 - Federal Agency Notes	$	3,290,678	$	3,295,080	$	4,402

3.	OPERATING LEASES
	Operating Leases- During the second quarter of 2002, the Company accrued for costs associated with terminating its Norwood, Ohio lease and relocating its office facility.
	In fiscal 2001, the Company signed a lease agreement for a new office facility in Blue Ash, Ohio. This operating lease, which began in December 2001 and expires in November 2011, 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.
	In fiscal 2001, the Company signed lease agreements for office equipment and furniture. These operating leases began in December 2001 and expire in November 2005 and November 2006, respectively.
	The annual minimum rent to be paid under the operating lease agreements is as follows:

Period Ending December 31:
2002	$  1,069,389
2003	1,069,389
2004	1,069,389
2005	1,069,389
2006	899,747
2007 and after	4,140,272

Rent expense for the leased office space was $141,744 and $71,211 for the three-month periods ended December 31, 2001 and 2000. Rent expense for the leased office space was $227,690 and $156,601 for the six-month periods ended December 31, 2001 and 2000. The lease expense for the equipment and furniture was $12,512 for the three-month and six-month periods ended December 31, 2001.

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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 December 31, 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 December 31, 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
	December 31, 2001								December 31, 2000
	Income			Shares		Per Share			Income		Shares		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)		(Denominator)		Amount
Basic EPS
Income (loss) available to common stockholders	$	(511,751	)		12,325,727	$	(0.04	)	$	90,062		12,323,328	$	0.01
Effect of Dilutive Securities
Stock options												358,047
Diluted EPS
Income (loss) available to common stockholders and assumed conversions	$	(511,751	)		12,325,727	$	(0.04	)	$	90,062		12,681,375	$	0.01

	Six-Months Ended								Six-Months Ended
	December 31, 2001								December 31, 2000
	Income			Shares		Per Share			Income		Shares		Per Share
	(Numerator)			(Denominator)		Amount			(Numerator)		(Denominator)		Amount
Basic EPS
Income (loss) available to common stockholders	$	(1,073,367	)		12,325,727	$	(0.09	)	$	176,227		12,323,328	$	0.01
Effect of Dilutive Securities
Stock options												543,286
Diluted EPS
Income (loss) available to common stockholders and assumed conversions	$	(1,073,367	)		12,325,727	$	(0.09	)	$	176,227		12,866,614	$	0.01

Stock options representing 1,515,412 shares and 660,525 shares for the three-months ended December 31, 2001 and 2000, respectively, were not included in computing diluted earnings per share

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	because their effects were antidilutive. Stock options representing 1,515,412 shares and 211,650 shares for the six-months ended December 31, 2001 and 2000, respectively, were not included in computing diluted earnings per share because their effects were antidilutive.
5.	STOCK OPTION PLAN
	During 1994, the Board of Directors approved a plan providing for the granting, to employees, options for the purchase of a maximum of 1,500,000 shares of common stock. In 1996, the plan was amended to provide for non-employee eligibility. In 1999, the plan was amended and restated to include in one document all previous amendments and other non-material changes designed to improve the operation of the plan and to reserve an additional 1,000,000 shares for issuance under the plan. Excluding the options granted in February 1994, all options have been granted at an exercise price equal to the fair market value at the date of grant and become exercisable equally over a period ranging from one to four 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 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:

	December 31,			June 30,			December 31,
	2001			2001			2000
Current deferred tax asset — Deferred revenue and other	$	388,753		$	497,671		$	544,183
Non-current deferred tax asset — Carryforwards and credits	$	1,630,960		$	909,523		$	478,504
Non-current deferred tax liability — Deferred software development costs and other		(772,505	)		(722,943	)		(624,271	)
Net non-current deferred tax asset/(liability)	$	858,455		$	186,580		$	(145,767	)

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The provision (benefit) for income taxes for the three-months and six-months ended December 31, 2001 and 2000 consists of the following:

	For the Three-Months						For the Six-Months
	Ended December 31,						Ended December 31,
	2001			2000			2001			2000
Current benefit	$	—		$	(12,922	)	$	—		$	(21,942	)
Deferred provision (benefit)		(239,148	)		54,127			(562,957	)		101,829
Income tax expense provision (benefit)	$	(239,148	)	$	41,205		$	(562,957	)	$	79,887

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 December 31, 2001, the Company has available net operating loss carryforwards for U.S. Federal tax purposes of approximately $3,614,000 that will expire in 2021. Also at December 31, 2001, for U.S. Federal tax purposes, the Company has research and development credit carryforwards available to offset future income taxes of approximately $249,000 which will begin to expire in 2017.

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