1
Exhibit 99
CINTECH
SOLUTIONS, INC.
Condensed Financial Statements for the
Three and Six-Months Ended December
31, 2000 and 1999 and Independent
Accountants' Report
2
Deloitte & Touche LLP
250 East Fifth Street
P.O. Box 5340
Cincinnati, Ohio 45201-5340
Tel: (513) 784-7100
www.us.deloitte.com
[DELOITTE
& TOUCHE LOGO]
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, 2000 and 1999 and the related condensed
statements of income, 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, 2000, and the related statements of income, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated August 25, 2000, we expressed an unqualified opinion on those financial
statements. In our opinion, the information set forth in the accompanying
condensed balance sheet as of June 30, 2000 is fairly stated, in all material
respects, in relation to the balance sheet from which it has been derived.
/s/ Deloitte & Touche LLP
January 26, 2001
- --------
DELOITTE
TOUCHE
TOHMATSU
- --------
3
CINTECH SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000, JUNE 30, 2000 AND DECEMBER 31, 1999
- ---------------------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
ASSETS 2000 June 30, 1999
(UNAUDITED) 2000 (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 4,507,954 $ 2,521,039 $ 1,317,733
Marketable securities (Note 2) 3,290,678 5,828,194 6,733,299
Accounts receivable, trade - (Net of
allowance of $76,023, $24,509 and
$86,086 at December 31, 2000, June 30, 2000,
and December 31, 1999, respectively) (Note 1) 944,055 869,435 1,024,001
Inventory (Note 1) 24,767 45,969 42,872
Prepaid expenses 69,052 31,131 30,518
Refundable income taxes (Note 6) 43,284
Deferred income taxes (Note 6) 544,183 584,067 420,829
---------- ---------- ----------
Total current assets 9,380,689 9,879,835 9,612,536
---------- ---------- ----------
FIXED ASSETS (Note 1):
Equipment 1,240,990 1,178,783 886,279
Furniture and fixtures 297,855 288,773 151,433
---------- ---------- ----------
Total 1,538,845 1,467,556 1,037,712
Less accumulated depreciation (1,166,166) (974,166) (864,988)
---------- ---------- ----------
Total fixed assets - net 372,679 493,390 172,724
---------- ---------- ----------
SOFTWARE DEVELOPMENT
COSTS-Net (Note 1) 1,560,678 1,250,148 763,341
---------- ---------- ----------
TOTAL $ 11,314,046 $ 11,623,373 $ 10,548,601
============= ============= ============
CINTECH SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
DECEMBER 31, 2000, JUNE 30, 2000 AND DECEMBER 31, 1999
- -----------------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31,
LIABILITIES AND 2000 June 30, 1999
STOCKHOLDERS' EQUITY (UNAUDITED) 2000 (UNAUDITED)
CURRENT LIABILITIES:
Accounts payable $ 174,573 $ 347,664 $ 268,518
Accrued liabilities:
Accrued wages and compensation 440,118 660,074 580,602
Accrued income taxes 52,636 75,678
Warranty reserve 106,949 126,323 137,240
Other 206,733 171,558 164,716
Deferred maintenance revenue (Note 1) 684,737 832,528 1,116,828
---------- ---------- ----------
Total current liabilities 1,665,746 2,213,825 2,267,904
---------- ---------- ----------
DEFERRED INCOME TAXES (Note 6) 145,767 83,822 145,490
-------- ------- -------
STOCKHOLDERS' EQUITY (Notes 1, 4, 5):
Common stock 9,006,013 9,005,433 8,999,210
Contributed capital 675,757 675,757 675,757
Treasury stock (2,290) (2,290) (2,290)
Accumulated deficit (176,947) (353,174) (1,537,470)
---------- ---------- -----------
Total stockholders' equity 9,502,533 9,325,726 8,135,207
---------- ---------- ---------
TOTAL $ 11,314,046 $ 11,623,373 $ 10,548,601
============= ============= ============
See notes to condensed financial statements and independent accountants' report.
-2-
4
CINTECH SOLUTIONS, INC.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FOR THE THREE-MONTHS AND SIX-MONTHS ENDED DECEMBER 31, 2000 AND 1999
- ------------------------------------------------------------------------------------------------------------------
FOR THE THREE-MONTHS ENDED FOR THE SIX-MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------- ----------------------------
2000 1999 2000 1999
NET SALES (Note 1):
Product sales $2,104,288 $3,106,514 $4,128,071 $5,544,026
Services and other sales 559,736 728,189 1,146,670 1,309,625
---------- ---------- ---------- ----------
Total net sales 2,664,024 3,834,703 5,274,741 6,853,651
---------- ---------- ---------- ----------
COST OF PRODUCTS SOLD AND
SERVICES PROVIDED (Note 1):
Cost of products sold 605,368 846,865 1,173,629 1,458,230
Cost of services and other sales 121,208 268,751 232,894 472,360
---------- ---------- ---------- ----------
Total cost of products sold and services provided 726,576 1,115,616 1,406,523 1,930,590
---------- ---------- ---------- ----------
GROSS PROFIT 1,937,448 2,719,087 3,868,218 4,923,061
RESEARCH AND DEVELOPMENT 247,482 157,840 511,886 276,639
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 1, 3) 1,665,711 1,530,837 3,333,529 2,779,865
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 24,255 1,030,410 22,803 1,866,557
OTHER INCOME 107,012 83,870 233,311 126,039
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAX
PROVISION 131,267 1,114,280 256,114 1,992,596
INCOME TAX PROVISION (Note 6) 41,205 286,547 79,887 464,748
---------- ---------- ---------- ----------
NET INCOME $ 90,062 $ 827,733 $ 176,227 $1,527,848
========== ========== ========== ==========
BASIC EARNINGS
PER COMMON SHARE (Note 4) $ 0.01 $ 0.07 $ 0.01 $ 0.12
========== ========== ========== ==========
DILUTED EARNINGS
PER COMMON SHARE (Note 4) $ 0.01 $ 0.06 $ 0.01 $ 0.12
========== ========== ========== ==========
See notes to condensed financial statements and independent accountants' report.
-3-
5
CINTECH SOLUTIONS, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2000 AND 1999
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON TOTAL
STOCK CONTRIBUTED TREASURY ACCUMULATED STOCKHOLDERS'
NO PAR VALUE CAPITAL STOCK DEFICIT EQUITY
BALANCE AT JUNE 30, 1999 $8,993,777 $675,757 $ (2,290) $(3,065,318) $6,601,926
STOCK OPTIONS EXERCISED (8,831 shares) 5,433 5,433
NET INCOME 1,527,848 1,527,848
----------- --------- -------- ----------- ----------
BALANCE AT DECEMBER 31, 1999 $ 8,999,210 $675,757 $ (2,290) $(1,537,470) $8,135,207
=========== ========= ======== =========== ==========
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
=========== ========= ======== =========== ==========
See notes to condensed financial statements and independent accountants' report.
-4-
6
CINTECH SOLUTIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX-MONTHS ENDED DECEMBER 31, 2000 AND 1999
- -----------------------------------------------------------------------------------------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 176,227 $ 1,527,848
----------- -----------
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation 192,000 78,000
Amortization of software development costs 109,878 106,249
Deferred income taxes 101,829 298,617
Provision for doubtful accounts 51,514 35,485
Changes in assets and liabilities:
Increase in accounts receivable (126,134) (37,333)
Decrease (increase) in inventory 21,202 (17,091)
Increase in other assets (37,921) (43,630)
Decrease in accounts payable (173,091) (1,916)
Decrease in accrued expenses (227,197) (233,185)
(Decrease) increase in deferred maintenance revenue (147,791) 388,150
----------- -----------
Total adjustments (235,711) 573,346
----------- -----------
Net cash (used in) provided by operating activities (59,484) 2,101,194
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities (purchase) of marketable securities 2,537,516 (1,868,452)
Purchase of fixed assets (71,289) (129,089)
Expenditures for software development costs (420,408) (291,434)
----------- -----------
Net cash provided by (used in) investing activities 2,045,819 (2,288,975)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES-
Proceeds from exercise of stock options 580 5,433
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,986,915 (182,348)
CASH AND CASH EQUIVALENTS:
Beginning of period 2,521,039 1,500,081
----------- -----------
End of period $ 4,507,954 $ 1,317,733
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-Taxes paid $ 1,100 $ 267,755
=========== ===========
See notes to condensed financial statements and independent accountants' report.
-5-
7
CINTECH SOLUTIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND AS OF DECEMBER 31, 2000 AND 1999 AND FOR THE THREE-MONTH
AND SIX-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE AND
SIX-MONTHS ENDED DECEMBER 31, 2000 AND 1999 IS UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Cintech Solutions, Inc. (the "Company") develops and
markets Internet technology solutions exclusively for small to mid-size
entities within the Fortune 1000 and small businesses to manage and
analyze interactions with their customers, partners, and associates for
improved relationships and informed decisions. In concert with the
Internet technology solutions, the Company also provides services, such as
installation, training, project management, consulting and maintenance
support.
BASIS OF PRESENTATION - The condensed financial statements have been
prepared in accordance with accounting principles generally accepted in
the United States of America for interim financial information and with
the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X and are
expressed in United States dollars. The differences in accounting
principles generally accepted in the United States of America and Canada
are described in Note 7. The information disclosed in the notes to the
financial statements included in the Company's Annual Report on Form
10-KSB for the year ended June 30, 2000 has not changed materially unless
otherwise disclosed herein. Financial information as of June 30, 2000
included in these 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-
8
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:
DECEMBER 31, JUNE 30, DECEMBER 31,
2000 2000 1999
Literature and other documentation $ 13,006 $ 40,318 $ 29,175
Computer hardware 16,991 9,068 27,378
Allowance for obsolete inventory (5,230) (3,417) (13,681)
-------- -------- --------
Total inventory $ 24,767 $ 45,969 $ 42,872
======== ======== ========
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, SALES FOR THE SIX-MONTHS ENDED DEC 31,
2000 1999 2000 1999
-------------------- -------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
Distributor A $1,904,218 72 % $ 2,689,022 70 % $3,735,490 71 % $4,732,682 69 %
Distributor B 250,678 9 % 483,807 13 % 391,069 7 % 840,332 12 %
---------- --- ----------- ---- --------- --- ---------- ----
Total $2,154,896 81 % $ 3,172,829 83 % $4,126,559 78 % $5,573,014 81 %
========== === =========== ==== ========== === ========== ====
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, 2000 1 74 %
June 30, 2000 1 74 %
December 31, 1999 2 71 %
-7-
9
INTERNATIONAL SALES - The Company had international sales as follows:
SALES FOR THE THREE-MONTHS SALES FOR THE SIX-MONTHS
Ended December 31, Ended December 31,
---------------------------------------------- ----------------------------------------------
2000 1999 2000 1999
---------------------- ---------------------- ---------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
Canada $15,945 1 % $44,083 1 % $91,076 2 % $90,273 1 %
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 $172,326 and $164,185 and related amortization was
$90,331 and $60,000 for the three-months ended December 31, 2000 and 1999,
respectively. Costs capitalized were $420,408 and $291,434 and related
amortization was $109,878 and $106,249 for the six-months ended December
31, 2000 and 1999, respectively. The Company periodically evaluates the
capitalized cost relative to potential sales and accelerates the write-off
when appropriate.
LICENSING FEE - The Company has agreements with distributors which require
the payment of a license fee on certain software sales made by the
distributors. This license fee is for the distribution of the Company's
products. License fee expense was $396,625 and $683,452 for the
three-months ended December 31, 2000 and 1999, respectively. License fee
expense was $883,986 and $1,152,094 for the six-months ended December 31,
2000 and 1999, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of certain of the
Company's financial instruments, such as cash, trade accounts receivable
and trade accounts payable, approximate their fair values.
ACCOUNTING PRONOUNCEMENTS - In 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition
in Financial Statements." The bulletin had no impact on the Company's
financial statements.
In 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement, as amended, was adopted on July 1, 2000 and had no impact
on the Company's reported financial position, results of operations or
cash flows.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, the
Company considers all money market instruments to be cash equivalents.
RECLASSIFICATION - Certain fiscal 2000 amounts have been reclassified in
order to conform to fiscal 2001 presentation.
-8-
10
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 (LOSS)
December 31, 2000 - Federal Agency Notes $ 3,290,678 $ 3,295,080 $ 4,402
============ ============ =======
June 30, 2000 - Federal Agency Notes $ 5,828,194 $ 5,831,140 $ 2,946
============ ============ =======
December 31, 1999 - Federal Agency Notes $ 6,733,299 $ 6,730,870 $(2,429)
============ ============ ========
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.
The annual minimum rent to be paid under the operating lease agreement for
the facility in Norwood, Ohio is as follows:
Period Ending December 31:
2001 $233,816
2002 77,940
Rent expense for the leased office space was $71,211 and $73,277 for the
three-month periods ended December 31, 2000 and 1999. Rent expense for the
leased office space was $156,601 and $146,553 for the six-month periods
ended December 31, 2000 and 1999.
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, 2000 15,000,000 12,325,328 12,323,328 2,000
=========== =========== =========== =====
Balance at June 30, 2000 15,000,000 12,323,328 12,321,328 2,000
=========== =========== =========== =====
Balance at December 31, 1999 15,000,000 12,312,016 12,310,016 2,000
=========== =========== =========== =====
-9-
11
Income per common share was based on the weighted average number of common
shares outstanding during each period.
The Company's basic and diluted earnings per share were determined as
follows:
THREE-MONTHS ENDED THREE-MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
BASIC EPS
Income available to
common stockholders $ 90,062 12,323,328 $ 0.01 $ 827,733 12,305,712 $ 0.07
EFFECT OF DILUTIVE SECURITIES
Stock options 358,047 708,966
-------- -------
DILUTED EPS
Income available to
common stockholders
and assumed conversions $ 90,062 12,681,375 $ 0.01 $ 827,733 13,014,678 $ 0.06
========= =========== ======= ========== =========== ======
SIX-MONTHS ENDED SIX-MONTHS ENDED
DECEMBER 31, 2000 DECEMBER 31, 1999
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
BASIC EPS
Income available to
common stockholders $ 176,227 12,323,328 $ 0.01 $ 1,527,848 12,304,303 $ 0.12
EFFECT OF DILUTIVE SECURITIES
Stock options 543,286 595,034
-------- -------
DILUTED EPS
Income available to
common stockholders
and assumed conversions $ 176,227 12,866,614 $ 0.01 $ 1,527,848 12,899,337 $ 0.12
========== =========== ======= ============ =========== ======
Stock options representing 660,525 shares and 150,000 shares for the
three-months ended December 31, 2000 and 1999, respectively, were not
included in computing diluted earnings per share because their effects
were antidilutive. Stock options representing 211,650 shares and 369,015
shares for the six-months ended December 31, 2000 and 1999, 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
-10-
12
options granted in February 1994, all options have been granted at an
exercise price equal to the fair market value at the date of grant and
become exercisable equally over a period ranging from one to four years.
The February 1994 options were granted at a price below fair market value
at the date of grant and were subsequently adjusted to market. The 1994
options granted became exercisable equally over a two-year period. All
options expire at the end of ten years from the date of grant or are
subject to the performance provisions of specific grants.
The Company has adopted the disclosure only provision of SFAS No. 123 and
applies APB Opinion No. 25 in accounting for its stock options. Proforma
disclosure reflecting the financial impact of compensation cost for stock
option grants made in fiscal years 2000 and 1999, determined using the
fair value method consistent with SFAS No. 123, were presented in the
footnotes to the 2000 annual report.
6. INCOME TAXES
Deferred income tax assets and liabilities are computed for differences
between the financial statement and tax basis of assets and liabilities
that will result in taxable or deductible amounts in the future based on
enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable or
refundable for the period plus or minus the change during the period in
deferred tax assets and liabilities.
Deferred taxes consist of the following:
DECEMBER 31, JUNE 30, DECEMBER 31,
2000 2000 1999
Current deferred tax asset - Deferred revenue
and other $ 544,183 $ 584,067 $ 420,829
========== ========== =========
Non-current deferred tax asset - Carryforwards
and other credits $ 478,504 $ 416,237 $ 458,436
Non-current deferred tax liability - Deferred
software development costs and other (624,271) (500,059) (388,496)
---------- ---------- ---------
Net non-current deferred tax asset (145,767) (83,822) 69,940
Less valuation allowance (215,430)
---------- ---------- ---------
Net $ (145,767) $ (83,822) $(145,490)
========== ========== =========
-11-
13
The provision for income taxes for the three-months and six-months ended
December 31, 2000 and 1999 consists of the following:
FOR THE THREE-MONTHS FOR THE SIX-MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
---------------------------------- -----------------------------------
2000 1999 2000 1999
Current provision (benefit) $ (12,922) $ 130,216 $ (21,942) $ 166,131
Deferred provision 54,127 404,028 101,829 692,301
--------- --------- --------- ---------
Total 41,205 534,244 79,887 858,432
Decrease in the valuation allowance (247,697) (393,684)
--------- --------- --------- ---------
Income tax expense $ 41,205 $ 286,547 $ 79,887 $ 464,748
========= ========= ========= =========
The primary differences between the statutory rate for federal income tax
and the effective income tax rate are the utilization of research and
development credits to reduce the income tax liability. At December 31,
2000, for U.S. Federal tax purposes, the Company has research and
development credit carryforwards available to offset future income taxes
of approximately $318,000 which will begin to expire in 2009.
7. RECONCILIATION OF CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES ("CANADIAN GAAP AND U.S. GAAP")
These condensed financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
During the periods ended December 31, 2000 and 1999, differences between
Canadian GAAP and U.S. GAAP arose as a result of depreciation. For U.S.
GAAP purposes, furniture and fixtures, equipment, leasehold improvements,
and computer equipment are depreciated over useful lives of seven, five,
two, and three years, respectively, using an accelerated method. For
Canadian GAAP purposes, furniture and fixtures, equipment, leasehold
improvements, and computer equipment are to be depreciated over useful
lives of five, three, two, and three years, respectively, using a
straight-line method. The difference in methodology results in a reported
U.S. GAAP net income in excess of Canadian GAAP of $26,713 and $23,839 for
the periods ended December 31, 2000 and 1999, respectively. The difference
does not have a material effect on the earnings per share calculation for
either period.
* * * * * *
-12-