-----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, A2WoNMOJGZqj4+QHHwJKXuT3/iRC+yEg4bP5jBgvROQGbYrSLCta6jKo8jSmBe+Z zCNxFapDHOFMjYLeZ9r+9g== 0000950152-97-000972.txt : 19970222 0000950152-97-000972.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950152-97-000972 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970214 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: 97532733 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, INC. 10QSB 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 December 31, 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 incorporation or organization) Number) 2100 Sherman Avenue, Cincinnati, Ohio 45212 (Address of principal executive offices) (513) 731-6000 (Issuer's telephone number) N/A (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -- -- APPLICABLE ONLY TO CORPORATE ISSUERS 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 December 31, 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 six months ended December 31, 1996 compared to the six months ended December 31, 1995 Sales for the six months ended December 31, 1996 were $3,128,000 compared to $3,605,000 for the corresponding period of the prior year. The $477,000 or 13% decrease in sales reflects the initial impact of the transition to the Nortel sales and distribution strategy announced in March 1996. Under the terms of the joint marketing arrangement with Nortel, the Company's CINPHONY and PRELUDE ACD software products are listed in Nortel's catalog and are sold directly by Nortel sales representatives. In addition, the Company no longer sells the PC-hardware platforms required to run its ACD software products as such hardware is now supplied by Nortel. Included in the comparative prior period sales figure is approximately $1,146,000 of PC-hardware revenue. ACD unit volume for the current period increased by approximately 15% over the same period last year. Unit volume is expected to continue growing to a level which more than offsets the loss of revenues previously realized from PC-hardware. Revenues from ACD software training, installation and maintenance increased by approximately 41% over the same prior year period and sales of the Tele-Series call accounting product increased by 17% over the same period. In addition, the Company continued its efforts in repositioning the OCTuS PTA retail product. Gross Margin as a percentage of sales, increased to 67% compared to 58% for the comparable prior year period. This increase in Gross Margin percentage 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. During the first six months 2 3 of fiscal 1997 the Company generated Gross Profit of $2,085,000 a decrease of $17,000 or 1% compared to the prior year. Research and Development costs increased to $208,000 or 7% over the same prior year period. This reflects the Company's ongoing efforts to produce new products and new releases of existing products. Selling, General and Administrative (S,G&A) expenses of $2,330,000 were approximately 11% higher than the comparable prior year period due to the Company's continued implementation of its business plan. The greatest portion of the increase in S,G&A over the first six months of last year was due to higher payroll costs of $229,000 reflecting higher staffing levels which grew primarily during fiscal 1996. The Company incurred a Net Loss of $437,000 for the first six months of fiscal 1997 compared to the $194,000 Net Loss reported for the same period last year. The $0.04 Loss per Share was $0.02 higher than that realized for the corresponding period of 1996. As the transition of the Company's joint marketing strategy with Nortel nears completion, it is anticipated that the sales growth rate will exceed levels experienced in prior years and yield improved profitability. Liquidity and Capital Resources Working Capital decreased to $1.5 million for the period ended December 31, 1996 compared to $2.0 million for the corresponding prior year period. This $500,000 decrease was attributable to decreases in cash and marketable securities ($267,000), accounts receivable ($317,000), and current liabilities ($21,000) offset by increases in inventory and prepaid expenses of $14,000 and $19,000 respectively. The Company's operations provided cash of $30,000 for the six months ended December 31, 1996. As of December 31, 1996, Cintech had outstanding debt obligations of $100,000 due to the buyout of the lease on the Company's former office facilities in May, 1996 and held cash and marketable securities totaling $863,000. The Company's plan of operation is to continue distributing its ACD-related products via joint marketing agreements with Northern Telecom and NEC America. 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 or loss that do not arise from the Company's continuing operations, other than interest income realized from investment in marketable securities. 3 4 PART II - OTHER INFORMATION 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. 4 5 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, Cintech Tele-Management Systems, Inc., as Registrant, has caused this Report on Form 10-QSB to be signed on its behalf by the undersigned, thereunto duly authorized. CINTECH TELE-MANAGEMENT SYSTEMS, INC. By: /s/ Diane M. Kamionka Date: February 14, 1997 --------------------------------- Diane M. Kamionka, President and Chief Executive Officer By: /s/ James K. Keller Date: February 14, 1997 --------------------------------- James K. Keller, Chief Financial Officer 5 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 December 31, 1996 and 1995 and the related statements of operations for the three months and the six months then ended and of stockholders' equity and cash flows for the 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 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 & Touche LLP January 24, 1997 3 CINTECH TELE-MANAGEMENT SYSTEMS, INC. BALANCE SHEETS DECEMBER 31, 1996 JUNE 30, 1996 AND DECEMBER 31, 1995 - --------------------------------------------------------------------------------
DECEMBER 31, JUNE 30, DECEMBER 31, ASSETS 1996 1996 1995 (UNAUDITED) (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents $ 213,934 $ 203,441 $ 124,878 Marketable securities (Notes 3,5) 649,433 770,391 1,005,214 Accounts receivable, trade - (Net of allowance of $73,226, $53,726 and $67,623 at December 31, 1996, June 30, 1996 and December 31, 1995, respectively) (Note 2) 787,132 1,151,471 1,103,882 Inventory (Note 2) 997,906 1,009,960 983,417 Prepaid expenses 19,013 18,224 ----------- ----------- ----------- Total current assets 2,667,418 3,153,487 3,217,391 ----------- ----------- ----------- FIXED ASSETS (Note 2): Equipment 590,895 574,551 515,866 Furniture and fixtures 125,372 123,906 117,756 ----------- ----------- ----------- Total 716,267 698,457 633,622 Less accumulated depreciation (450,223) (394,184) (333,707) ----------- ----------- ----------- Total fixed assets - net 266,044 304,273 299,915 ----------- ----------- ----------- OTHER ASSETS: Deposits 5,062 Deferred software development costs - net (Note 2) 350,845 303,205 232,170 ----------- ----------- ----------- Total other assets 350,845 303,205 237,232 ----------- ----------- ----------- TOTAL $ 3,284,307 $ 3,760,965 $ 3,754,538 =========== =========== ===========
LIABILITIES AND DECEMBER 31, JUNE 30, DECEMBER 31, STOCKHOLDERS' EQUITY 1996 1996 1995 (UNAUDITED) (UNAUDITED) CURRENT LIABILITIES: Accounts payable $ 612,610 $ 649,271 $ 776,433 Accrued liabilities: Accrued salaries 75,902 82,228 58,018 Accrued payroll taxes 17,523 13,568 15,811 Accrued vacation 61,333 60,945 50,629 Accrued lease termination costs (Notes 4, 5) 154,335 Other 143,605 128,542 63,157 Current portion of notes payable (Note 5) 100,000 100,000 Deferred maintenance revenue (Note 2) 154,673 140,667 68,641 ----------- ----------- ----------- Total current liabilities 1,165,646 1,175,221 1,187,024 ----------- ----------- ----------- ACCRUED LEASE TERMINATION COSTS (Note 4, 5) 60,665 ----------- ----------- ----------- NOTES PAYABLE (Note 5) 30,000 ----------- ----------- ----------- STOCKHOLDERS' EQUITY (Notes 1, 6, 7): Common stock 8,982,580 8,982,580 8,968,038 Contributed capital 675,757 675,757 675,757 Treasury stock (2,290) (2,290) (2,290) Accumulated deficit (7,537,386) (7,100,303) (7,134,656) ----------- ----------- ----------- Total stockholders' equity 2,118,661 2,555,744 2,506,849 ----------- ----------- ----------- TOTAL $ 3,284,307 $ 3,760,965 $ 3,754,538 =========== =========== ===========
See notes to financial statements. -2- 4 CINTECH TELE-MANAGEMENT SYSTEMS, INC. STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 - --------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 NET SALES (Note 2) $ 1,606,690 $2,058,100 $ 3,127,887 $ 3,605,122 COST OF PRODUCTS SOLD 176,389 656,281 401,956 1,171,993 AMORTIZATION OF DEFERRED SOFTWARE DEVELOPMENT COSTS (Note 2) 34,078 31,481 45,242 65,551 LICENSING FEES 337,337 140,854 596,167 265,885 ----------- ---------- ----------- ----------- GROSS PROFIT 1,058,886 1,229,484 2,084,522 2,101,693 RESEARCH AND DEVELOPMENT 117,094 110,517 207,515 194,531 SELLING, GENERAL AND ADMINISTRATIVE (Notes 2, 4) 1,139,544 1,065,380 2,329,840 2,093,283 LEASE TERMINATION COSTS (Note 4, 5) 25,625 51,250 ----------- ---------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS (197,752) 27,962 (452,833) (237,371) OTHER INCOME - Interest income 7,765 19,549 15,750 43,471 ----------- ---------- ----------- ----------- NET INCOME (LOSS) $ (189,987) $ 47,511 $ (437,083) $ (193,900) =========== ========== =========== =========== NET INCOME (LOSS) PER SHARE (Note 6) $ (0.02) $ -- $ (0.04) $ (0.02) =========== ========== =========== ===========
See notes to financial statements. -3- 5 CINTECH TELE-MANAGEMENT SYSTEMS, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 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 SALE OF COMMON STOCK 2,348 2,348 NET LOSS (193,900) (193,900) ----------- --------- ------- ----------- ---------- BALANCE AT DECEMBER 31, 1995 $ 8,968,038 $ 675,757 $(2,290) $(7,134,656) $2,506,849 =========== ========= ======= =========== ========== BALANCE AT JUNE 30, 1996 $ 8,982,580 $ 675,757 $(2,290) $(7,100,303) $2,555,744 NET LOSS (437,083) (437,083) ----------- --------- ------- ----------- ---------- BALANCE AT DECEMBER 31, 1996 $ 8,982,580 $ 675,757 $(2,290) $(7,537,386) $2,118,661 =========== ========= ======= =========== ==========
See notes to financial statements. -4- 6 CINTECH TELE-MANAGEMENT SYSTEMS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 - --------------------------------------------------------------------------------
1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(437,083) $(193,900) --------- --------- Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation 56,039 47,861 Amortization of software development costs 45,242 65,551 Provision for doubtful accounts 19,500 10,550 Loss on disposal of fixed assets 613 Changes in assets and liabilities: (Increase) decrease in accounts receivable 344,839 (242,069) (Increase) decrease in inventory 12,054 (483,921) Increase in prepaid expenses (789) Increase (decrease) in accounts payable (36,661) 196,483 Increase in accrued expenses 13,080 31,281 Decrease in accrued lease termination costs (Note 4, 5) (34,375) Increase (decrease) in deferred maintenance revenue 14,006 (19,367) --------- --------- Total adjustments 467,310 (427,393) --------- --------- Net cash provided by (used in) operating activities 30,227 (621,293) --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from marketable securities 120,958 740,449 Purchase of fixed assets (17,810) (49,975) Expenditures for software development costs (92,882) (65,364) --------- --------- Net cash provided by investing activities 10,266 625,110 --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of common stock 2,348 Payment on notes payable (30,000) --------- Net cash provided by (used in) financing activities (30,000) 2,348 --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 10,493 6,165 CASH AND CASH EQUIVALENTS: Beginning of period 203,441 118,713 --------- --------- End of period $ 213,934 $ 124,878 ========= =========
See notes to financial statements. -5- 7 CINTECH TELE-MANAGEMENT SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND AS OF DECEMBER 31, 1996 AND 1995 AND FOR THE THREE-MONTH AND SIX-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995 IS UNAUDITED) 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 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:
DECEMBER 31, JUNE 30, DECEMBER 31, 1996 1996 1995 Literature and other documentation $ 43,246 $ 70,935 $ 65,077 Computer hardware 999,443 973,166 918,340 Allowance for obsolete inventory (44,783) (34,141) --------- ----------- -------- Total inventory $ 997,906 $ 1,009,960 $983,417 ========= =========== ========
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 SALES FOR THE SIX MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31, 1996 1995 1996 1995 --------------------------------------- ----------------------------------------- AMOUNT % AMOUNT % Distributor A $927,521 58% $1,634,340 52% Distributor B $205,169 10% $298,815 8% -------- -- -------- -- ---------- -- -------- - Total $927,521 58% $205,169 10% $1,634,340 52% $298,815 8% ======== == ======== == ========== == ======== =
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 December 31, 1996 1 50% June 30, 1996 2 58% December 31, 1995 2 20%
-7- 9 INTERNATIONAL SALES - The Company had international sales as follows:
SALES FOR THE THREE MONTHS ENDED DECEMBER 31, SALES FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 1995 1996 1995 ------------------ ----------------------- ------------------ ---------------------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % Canada $10,172 1% $261,154 13% $65,826 2% $420,104 12% Other 4,485 0% 27,870 1% 1,440 0% ------- - -------- -- ------- - -------- -- Total $14,657 1% $261,154 13% $93,696 3% $421,544 12% ======= = ======== == ======= = ======== ==
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 $40,886 and $28,196 and related amortization was $34,078 and $31,481 for the three months ended December 31, 1996 and 1995, respectively. Costs capitalized were $92,882 and $65,364 and related amortization was $45,242 and $65,551 for the six months ended December 31, 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 fiscal 1996 amounts have been reclassified in order to conform to fiscal 1997 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 December 31, 1996 - United States Treasury Bills $ 649,433 $ 663,580 $14,147 ========== ========== ======= June 30, 1996 - United States Treasury Bills $ 770,391 $ 778,146 $ 7,755 ========== ========== ======= December 31, 1995 - United States Treasury Bills $1,005,214 $1,023,786 $18,572 ========== ========== =======
-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 December 31: 1997 $172,125 1998 199,875 1999 205,000 2000 217,500 2001 220,000 2002 73,332
Rent expense for the leased office space was $73,277 and $73,277 in the three-month periods ended December 31, 1996 and 1995, respectively. Rent expense for the leased office space was $146,553 and $130,375 in the six-month periods ended December 31, 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 December 31, 1996 and June 30, 1996, respectively:
DECEMBER 31, JUNE 30, 1996 1996 Term Note Payable - Bank $ 60,000 $ 90,000 Term Note Payable - Third Party 40,000 40,000 -------- -------- Total $100,000 $130,000 ======== ========
The Term Note Payable - Bank bears interest at the prime lending rate (8.25% at December 31, 1996). The remaining term is 12 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 December 31, 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 December 31, 1995 15,000,000 12,268,331 12,266,331 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 12,276,696, 12,269,699 and 12,265,377 at December 31, 1996, June 30, 1996, and December 31, 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 1996, the plan was amended to provide for non-employee eligibility. In February 1994 the Company granted 141,500 stock options 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. 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, August and October of 1996, the Company granted additional stock options of 35,000; 10,000; 174,015; 50,000 and 7,500, 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 December 31, 1996, June 30, 1996 and December 31, 1995 is as follows:
DECEMBER 31, JUNE 30, DECEMBER 31, 1996 1996 1995 Forfeited 108,554 95,213 67,151 Exercised 20,885 20,885 7,845 Currently exercisable 90,447 90,447 43,468 Exercisable in fiscal year 1996 68,712 Exercisable in fiscal year 1997 68,975 72,405 24,108 Exercisable in fiscal year 1998 88,975 72,405 24,108 Exercisable in fiscal year 1999 81,475 72,405 24,108 Exercisable in fiscal year 2000 64,204 54,755 Exercisable in fiscal year 2001 12,500 ------- ------- ------- Total options granted 536,015 478,515 259,500 ======= ======= =======
-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:
DECEMBER 31, JUNE 30, DECEMBER 31, 1996 1996 1995 Current deferred tax asset: Deferred revenue $ 52,589 $ 47,827 $ 23,338 Accrued compensation 8,086 9,411 10,037 Reserves not currently deductible 24,897 18,267 22,992 Accrued lease termination costs 52,474 Accrued rent 19,701 14,328 8,955 ----------- ----------- ----------- Total 105,273 89,833 117,796 Less valuation allowance (105,273) (89,833) (117,796) ----------- ----------- ----------- Net $ -- $ -- $ -- =========== =========== =========== Non-current deferred tax asset: Accrued lease termination costs $ -- $ -- $ 20,626 Net operating loss carryforward 2,332,829 2,173,836 2,334,735 Research and development credits 145,625 134,525 123,425 ----------- ----------- ----------- Total 2,478,454 2,308,361 2,478,786 Non-current deferred tax liability: Deferred software development costs (119,287) (103,007) (78,938) ----------- ----------- ----------- Net non-current deferred tax asset 2,359,167 2,205,354 2,399,848 Less valuation allowance (2,359,167) (2,205,354) (2,399,848) ----------- ----------- ----------- Net $ -- $ -- $ -- =========== =========== ===========
-11- 13 The provision for income taxes for the three months and six months ended December 31, 1996 and 1995 consists of the following:
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1996 1995 1996 1995 Current provision $ -- $ -- $ -- $ -- Deferred credit 67,579 332,641 169,253 288,635 -------- --------- --------- --------- Total 67,579 332,641 169,253 288,635 Less increase in the valuation allowance (67,579) (332,641) (169,253) (288,635) -------- --------- --------- --------- Income tax expense $ -- $ -- $ -- $ -- ======== ========= ========= =========
At December 31, 1996, the Company has net operating loss carryforwards of $6,861,261 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 December 31, 1996, for U.S. Federal tax purposes, the Company has research and development credit carryforwards available to offset future income taxes of $145,625 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 and six months ended December 31, 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 1 U.S. DOLLARS 6-MOS JUN-30-1997 JUL-01-1996 DEC-31-1996 1 213,934 649,433 860,358 73,226 997,906 2,667,418 716,267 450,223 3,284,307 1,165,646 0 0 0 8,982,580 (6,863,919) 3,284,307 3,127,887 3,127,887 401,956 1,043,365 2,537,355 0 0 (437,083) 0 (437,083) 0 0 0 (437,083) (0.04) (0.04)
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