1
Exhibit 99
CINTECH SOLUTIONS, INC.
Condensed Financial Statements for the
Three and Nine-Months Ended March 31,
2001 and 2000 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 March 31, 2001 and 2000 and the related condensed
statements of operations, stockholders' equity and cash flows for the three
months and nine 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
May 3, 2001
- ---------------
Deloitte
Touche
Tohmatsu
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3
CINTECH SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2001, JUNE 30, 2000 AND MARCH 31, 2000
- -------------------------------------------------------------------------------------------------
MARCH 31, MARCH 31,
ASSETS 2001 JUNE 30, 2000
(UNAUDITED) 2000 (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 177,922 $ 2,521,039 $ 3,361,090
Marketable securities (Note 2) 6,860,093 5,828,194 5,205,258
Accounts receivable, trade - (Net of
allowance of $68,160, $24,509 and
$25,244 at March 31, 2001, June 30, 2000
and March 31, 2000, respectively) (Note 1) 317,433 869,435 578,000
Inventory (Note 1) 15,763 45,969 25,894
Prepaid expenses 100,990 31,131 28,607
Refundable income taxes (Note 6) 15,506 11,995
Deferred income taxes (Note 6) 542,271 584,067 379,637
---------- ----------- -----------
Total current assets 8,029,978 9,879,835 9,590,481
---------- ----------- -----------
FIXED ASSETS (Note 1):
Equipment 1,263,403 1,178,783 1,017,853
Furniture and fixtures 297,855 288,773 221,211
---------- ----------- -----------
Total 1,561,258 1,467,556 1,239,064
Less accumulated depreciation (1,193,612) (974,166) (908,502)
---------- ----------- -----------
Total fixed assets - net 367,646 493,390 330,562
---------- ----------- -----------
SOFTWARE DEVELOPMENT
COSTS - Net (Note 1) 1,746,646 1,250,148 998,670
DEFERRED INCOME TAXES (Note 6) 157,093
---------- ----------- -----------
Total other assets - net 1,903,739 1,250,148 998,670
---------- ----------- -----------
TOTAL $ 10,301,363 $ 11,623,373 $10,919,713
============ ============ ===========
CINTECH SOLUTIONS, INC.
CONDENSED BALANCE SHEETS
MARCH 31, 2001, JUNE 30, 2000 AND MARCH 31, 2000
- ------------------------------------------------------------------------------------------
MARCH 31, MARCH 31,
LIABILITIES AND 2001 JUNE 30, 2000
STOCKHOLDERS' EQUITY (UNAUDITED) 2000 (UNAUDITED)
CURRENT LIABILITIES:
Accounts payable $ 61,939 $ 347,664 $ 355,954
Accrued liabilities:
Accrued wages and compensation 355,479 660,074 562,703
Accrued income taxes 75,678
Warranty reserve 92,730 126,323 135,677
Other 137,384 171,558 129,671
Deferred maintenance revenue (Note 1) 710,330 832,528 995,717
--------- --------- ---------
Total current liabilities 1,357,862 2,213,825 2,179,722
--------- --------- ---------
DEFERRED INCOME TAXES (Note 6) 83,822 94,361
--------- --------- ---------
STOCKHOLDERS' EQUITY (Notes 1, 4, 5):
Common stock 9,008,289 9,005,433 9,005,121
Contributed capital 675,757 675,757 675,757
Treasury stock (2,290) (2,290) (2,290)
Accumulated deficit (738,255) (353,174) (1,032,958)
--------- --------- ---------
Total stockholders' equity 8,943,501 9,325,726 8,645,630
--------- --------- ---------
--------- --------- ---------
TOTAL $ 10,301,363 $ 11,623,373 $ 10,919,713
============= ============= ============
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 NINE-MONTHS ENDED MARCH 31, 2001 AND 2000
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE THREE-MONTHS ENDED FOR THE NINE-MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------ -----------------------------
2001 2000 2001 2000
NET SALES (Note 1):
Product sales $ 760,588 $ 2,090,906 $ 4,888,659 $ 7,634,932
Services and other sales 492,031 731,721 1,638,701 2,041,346
----------- ----------- ----------- -----------
Total net sales 1,252,619 2,822,627 6,527,360 9,676,278
----------- ----------- ----------- -----------
COST OF PRODUCTS SOLD AND
SERVICES PROVIDED (Note 1):
Cost of products sold 398,354 485,493 1,571,983 1,943,723
Cost of services and other sales 122,572 197,567 355,466 669,927
----------- ----------- ----------- -----------
Total cost of products sold and services provided 520,926 683,060 1,927,449 2,613,650
----------- ----------- ----------- -----------
GROSS PROFIT 731,693 2,139,567 4,599,911 7,062,628
RESEARCH AND DEVELOPMENT 232,801 190,191 744,687 466,830
SELLING, GENERAL AND
ADMINISTRATIVE (Notes 1, 3) 1,551,344 1,421,343 4,884,873 4,201,208
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS (1,052,452) 528,033 (1,029,649) 2,394,590
OTHER INCOME 122,532 102,604 355,843 228,643
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAX
PROVISION (929,920) 630,637 (673,806) 2,623,233
INCOME TAX PROVISION (BENEFIT) (Note 6) (368,612) 126,125 (288,725) 590,873
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (561,308) $ 504,512 $ (385,081) $ 2,032,360
=========== =========== =========== ===========
BASIC EARNINGS (LOSS)
PER COMMON SHARE (Note 4) $ (0.05) $ 0.04 $ (0.03) $ 0.17
=========== =========== =========== ===========
DILUTED EARNINGS (LOSS)
PER COMMON SHARE (Note 4) $ (0.05) $ 0.04 $ (0.03) $ 0.16
=========== =========== =========== ===========
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 NINE-MONTHS ENDED MARCH 31, 2001 AND 2000
- ---------------------------------------------------------------------------------------------------------------------------------
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 (19,704 shares) 11,344 11,344
NET INCOME 2,032,360 2,032,360
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2000 $ 9,005,121 $ 675,757 $ (2,290) $(1,032,958) $ 8,645,630
=========== =========== =========== =========== ===========
BALANCE AT JUNE 30, 2000 $ 9,005,433 $ 675,757 $ (2,290) $ (353,174) $ 9,325,726
STOCK OPTIONS EXERCISED (4,399 shares) 2,856 2,856
NET LOSS (385,081) (385,081)
----------- ----------- ----------- ----------- -----------
BALANCE AT MARCH 31, 2001 $ 9,008,289 $ 675,757 $ (2,290) $ (738,255) $ 8,943,501
=========== =========== =========== =========== ===========
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 NINE-MONTHS ENDED MARCH 31, 2001 AND 2000
- ---------------------------------------------------------------------------------------------------------------------------
2001 2000
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (385,081) $ 2,032,360
----------- -----------
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation 219,446 121,514
Amortization of software development costs 322,878 89,202
Deferred income taxes (199,119) 288,680
Provision for doubtful accounts 43,651 (25,357)
Changes in assets and liabilities:
Decrease in accounts receivable 508,351 469,510
Decrease (increase) in inventory 30,206 (113)
Increase in other assets (69,859) (10,430)
(Decrease) increase in accounts payable (285,725) 85,520
Decrease in accrued expenses (463,546) (287,692)
(Decrease) increase in deferred maintenance revenue (122,198) 267,039
----------- -----------
Total adjustments (15,915) 997,873
----------- -----------
Net cash (used in) provided by operating activities (400,996) 3,030,233
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of marketable securities (1,031,899) (340,411)
Purchase of fixed assets (93,702) (330,441)
Expenditures for software development costs (819,376) (509,716)
----------- -----------
Net cash used in investing activities (1,944,977) (1,180,568)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 2,856 11,344
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,343,117) 1,861,009
CASH AND CASH EQUIVALENTS:
Beginning of period 2,521,039 1,500,081
----------- -----------
End of period $ 177,922 $ 3,361,090
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION-Taxes paid $ 16,512 $ 372,528
=========== ===========
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, 2000 AND AS OF MARCH 31, 2001 AND 2000 AND FOR THE THREE-MONTH
AND NINE-MONTH PERIODS THEN ENDED (INFORMATION RELATED TO THE THREE AND
NINE-MONTHS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Cintech Solutions, Inc. (the "Company") develops and
markets Internet technology solutions 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.
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DEPRECIATION - Fixed assets are carried at cost. Depreciation is computed
using an accelerated method over the following useful lives:
Equipment 3-5 years
Furniture, fixtures and leasehold improvements 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:
MARCH 31, JUNE 30, MARCH 31,
2001 2000 2000
Literature and other documentation $ 8,898 $ 40,318 $ 18,174
Computer hardware 11,334 9,068 25,901
Allowance for obsolete inventory (4,469) (3,417) (18,181)
-------- -------- --------
Total inventory $ 15,763 $ 45,969 $ 25,894
======== ======== ========
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 MAR 31, SALES FOR THE NINE-MONTHS ENDED MAR 31,
2001 2000 2001 2000
-------------------- -------------------- ------------------- --------------------
Amount % Amount % Amount % Amount %
Distributor A $ 615,507 49 % $ 1,814,469 64 % $4,350,997 67 % $6,547,151 68 %
Distributor B 156,330 13 % 243,926 9 % 547,399 8 % 1,084,258 11 %
--------- ---- ----------- ----- ---------- ----- ---------- -----
Total $ 771,837 62 % $ 2,058,395 73 % $4,898,396 75 % $7,631,409 79 %
========= ==== =========== ==== ========== ===== ========== ====
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
March 31, 2001 2 60 %
June 30, 2000 1 74 %
March 31, 2000 1 70 %
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INTERNATIONAL SALES - The Company had international sales as follows:
SALES FOR THE THREE-MONTHS SALES FOR THE NINE-MONTHS
ENDED March 31, ENDED March 31,
---------------------------------------------- -------------------------------------------------
2001 2000 2001 2000
---------------------- ---------------------- ----------------------- ------------------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
Canada $34,905 3 % $23,940 1 % $125,981 2 % $114,213 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 $398,968 and $218,301 and related amortization was
$213,000 and $(17,047) for the three-months ended March 31, 2001 and 2000,
respectively. Costs capitalized were $819,376 and $509,716 and related
amortization was $322,878 and $89,202 for the nine-months ended March 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 $162,096 and $435,890 for the
three-months ended March 31, 2001 and 2000, respectively. License fee
expense was $1,046,082 and $1,587,984 for the nine-months ended March 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 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.
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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 (LOSS)
March 31, 2001 - Federal Agency Notes $ 6,860,093 $ 6,864,720 $ 4,627
============ ============ =======
June 30, 2000 - Federal Agency Notes $ 5,828,194 $ 5,831,140 $ 2,946
============ ============ =======
March 31, 2000 - Federal Agency Notes $ 5,205,258 $ 5,203,625 $(1,633)
============ ============ ========
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 March 31:
2002 $233,816
Rent expense for the leased office space was $93,341 and $83,875 for the
three-month periods ended March 31, 2001 and 2000. Rent expense for the
leased office space was $249,942 and $230,428 for the nine-month periods
ended March 31, 2001 and 2000.
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 March 31, 2001 15,000,000 12,327,727 12,325,727 2,000
=========== =========== =========== =====
Balance at June 30, 2000 15,000,000 12,323,328 12,321,328 2,000
=========== =========== =========== =====
Balance at March 31, 2000 15,000,000 12,322,889 12,320,889 2,000
=========== =========== =========== =====
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Income 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 per share were determined as
follows:
THREE-MONTHS ENDED THREE-MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
BASIC EPS
Income (loss) available to
common stockholders $ (561,308) 12,325,727 $ (0.05) $ 504,512 12,316,307 $ 0.04
EFFECT OF DILUTIVE SECURITIES
Stock options 817,777
---------- ---------- ------- --------- ---------- ------
DILUTED EPS
Income (loss) available to
common stockholders
and assumed conversions $ (561,308) 12,325,727 $ (0.05) $ 504,512 13,134,084 $ 0.04
========== ========== ======= ========= ========== ======
NINE-MONTHS ENDED NINE-MONTHS ENDED
MARCH 31, 2001 MARCH 31, 2000
-------------------------------------- --------------------------------------
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT
BASIC EPS
Income (loss) available to
common stockholders $ (385,081) 12,324,128 $ (0.03) $ 2,032,360 12,308,304 $ 0.17
EFFECT OF DILUTIVE SECURITIES
Stock options 691,978
---------- ---------- ------- ----------- ---------- ------
DILUTED EPS
Income (loss) available to
common stockholders
and assumed conversions $ (385,081) 12,324,128 $ (0.03) $ 2,032,360 13,000,282 $ 0.16
========== ========== ======= =========== ========== ======
Stock options representing 991,513 shares for the three-months ended March
31, 2001 were not included in computing diluted earnings per share because
their effects were antidilutive. Stock options representing 664,842 shares
for the nine-months ended March 31, 2001 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
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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:
2001 2000 2000
Current deferred tax asset - Deferred revenue
and other $ 542,271 $ 584,067 $ 379,637
========== ========== =========
Non-current deferred tax asset - Carryforwards
and other credits $ 855,752 $ 416,237 $ 376,501
Non-current deferred tax liability - Deferred
software development costs and other (698,659) (500,059) (470,862)
--------- --------- ---------
Net non-current deferred tax asset $ 157,093 $ (83,822) $ (94,361)
========= ========= =========
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The provision (benefit) for income taxes for the three-months and
nine-months ended March 31, 2001 and 2000 consists of the following:
FOR THE THREE-MONTHS FOR THE NINE-MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------------- --------------------------
2001 2000 2001 2000
Current provision (benefit) $ (50,805) $ 136,062 $ (72,747) $ 302,193
Deferred provision (benefit) (317,807) 205,493 (215,978) 897,794
--------- --------- --------- ---------
Total (368,612) 341,555 (288,725) 1,199,987
Decrease in the valuation allowance (215,430) (609,114)
--------- --------- --------- ---------
Income tax expense (benefit) $(368,612) $ 126,125 $(288,725) $ 590,873
========= ========= ========= =========
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 March 31, 2001,
for U.S. Federal tax purposes, the Company has research and development
credit carryforwards available to offset future income taxes of
approximately $335,000 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 March 31, 2001 and 2000, differences between
Canadian GAAP and U.S. GAAP arose as a result of depreciation. For U.S.
GAAP purposes, furniture and fixtures, equipment, leasehold improvements,
and computer equipment are depreciated over useful lives of seven, five,
two, and three years, respectively, using an accelerated method. For
Canadian GAAP purposes, furniture and fixtures, equipment, leasehold
improvements, and computer equipment are to be depreciated over useful
lives of five, three, two, and three years, respectively, using a
straight-line method. The difference in methodology results in a reported
U.S. GAAP net income in excess of Canadian GAAP of $36,835 and $23,551 for
the periods ended March 31, 2001 and 2000, respectively. The difference
does not have a material effect on the earnings per share calculation for
either period.
* * * * * *
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