Q1-02 US GAAP - MKS

Assets:
Mortice Kern Systems Inc.
Consolidated Balance Sheets
(Dollar Amounts In US, In Thousands)
US GAAP
July 31 April 30
2001 2001
(Unaudited)
Current assets:
Cash and cash equivalents ..................................................................$ 7,187 $ 9,005
Accounts receivable, net of allowances for doubtful accounts
of $480 (April 30, 2001 - $512) ........................................................... 3,474 4,269
Other ................................................................................................ 1,191 899
Total current assets .............................................................................. 11,852 14,173
Fixed assets ........................................................................................ 4,756 5,045
Intangibles (note 2) ............................................................................... 635 699
Goodwill (note 2) .................................................................................. 2,424 2,424
Total assets .........................................................................................$ 19,667 $ 22,341
Liabilities and shareholders’ equity:
Current liabilities:
Accounts payable ...............................................................................$ 2,993 $ 2,421
Accrued liabilities ............................................................................... 5,636 6,588
Income taxes payable ......................................................................... 528 563
Deferred revenue ................................................................................. 5,764 6,480
Total current liabilities ........................................................................... 14,921 16,052
Long-term liabilities:
Deferred compensation ....................................................................... 869 1,150
Total liabilities ...................................................................................... 15,790 17,202
Shareholders’ equity:
Share capital ...................................................................................... 39,996 39,851
Accumulated other comprehensive loss ................................................ (1,468) (1,468)
Accumulated deficit ............................................................................. (34,651) (33,244)
Total shareholders’ equity ...................................................................... 3,877 5,139
Total liabilities and shareholders’ equity ..................................................$ 19,667 $ 22,341
See accompanying Notes to Consolidated Financial Statements prepared in accordance with accounting
principles generally accepted in the United States of America

Mortice Kern Systems Inc.
Consolidated Statements of Operations
(Dollar Amounts in US, In Thousands, Except Per Share Data)
US GAAP
Three Months Ended July 31
2001 2000
(Unaudited)
Revenue:
License ......................................................................................... $ 5,101 $ 4,917
Service .......................................................................................... 1,543 1,593
Total revenue ..................................................................................... 6,644 6,510
Cost of revenue:
License ......................................................................................... 143 247
Service .......................................................................................... 1,305 1,456
Total cost of revenue .......................................................................... 1,448 1,703
Gross profit ....................................................................................... 5,196 4,807
Operating expenses:
Sales and marketing ....................................................................... 3,581 5,536
Research and development .............................................................. 2,025 1,900
General and administrative .............................................................. 957 1,379
Amortization of intangibles ............................................................... 64 272
Write down of intangibles ................................................................ – 8,091
Reorganization expense .................................................................. – 668
Total operating expenses ................................................................... 6,627 17,846
Loss from operations ......................................................................... (1,431) (13,039)
Interest income - net .......................................................................... 24 27
Loss before income taxes .................................................................. (1,407) (13,012)
Income tax recovery ........................................................................... – 537
Net loss ............................................................................................ (1,407) (12,475)
Accumulated deficit, beginning of period .............................................. (33,244) (6,589)
Accumulated deficit, end of period ....................................................... $ (34,651) $ (19,064)
Loss per share:
Basic and diluted ............................................................................ $ (0.04) $ (0.72)
Weighted average number of shares outstanding ............................... 32,169 17,438
See accompanying Notes to Consolidated Financial Statements prepared in accordance with accounting
principles generally accepted in the United States of America

Balances at April 30, 2000 17,325 $ 26,635
Mortice Kern Systems Inc.
Consolidated Statements of Shareholders’ Equity
(Dollar Amounts In US, In Thousands)
US GAAP
Common Shares
Additional
Paid In
Warrants
Number Amount Capital Number Amount
$
– –
Accumulated
Other
Comprehensive
Loss
$
– $ (1,468)
Retained
Earnings
(Deficit) Total
$
(6,589) $ 18,578
Issuance of common
shares for cash 114 420 – – – – – 420
Net loss – – – – – – (12,475) (12,475)
Balances at July 31, 2000 17,439 $ 27,055
$
– –
$
– $ (1,468)
$
(19,064) $ 6,523
Cancellation of shares
related to prepaid
compensation (35) (101) – – – – – (101)
Issuance of Secured
Special Debentures – 1,265 – 8,163 1,713 – – 2,978
Repayment/conversion
of Secured Special
Debentures 4,731 1,991 – – – – – 1,991
Issuance of special
warrants for cash – – – 9,260 7,089 – – 7,089
Issuance of
compensation warrants – – – 926 – – – –
Issuance of acquisition
warrants – – – 561 506 – – 506
Issuance of common
shares for cash 2 3 – – – – – 3
Stock based
compensation – – 330 – – – – 330
Net loss – – – – – – (14,180) (14,180)
Balances at April 30, 2001 22,137 $ 30,213 $ 330 18,910 $ 9,308 $ (1,468)
$
(33,244) $ 5,139
Conversion of special
warrants into common
shares (Unaudited) 9,260 7,089 – (9,260) (7,089) – – –
Exercise of purchase
warrants for cash
(Unaudited) 340 120 – (340) – – – 120
Issuance of common
shares for cash
(Unaudited) 63 25 – – – – – 25
Exercise of acquisition
warrants for cash
(Unaudited) 561 506 – (561) (506) – – –
Net loss – – – – – – (1,407) (1,407)

Balances at July 31, 2001
(Unaudited) 32,361 $ 37,953 $ 330 8,749 $ 1,713 $ (1,468)
$
(34,651) $ 3,877
See accompanying Notes to Consolidated Financial Statements prepared in accordance with accounting
principles generally accepted in the United States of America

Mortice Kern Systems Inc.
Consolidated Statements of Cash Flows
(Dollar Amounts in US, In Thousands, Unaudited)
US GAAP
Three Months Ended July 31
2001 2000
(Unaudited)
Cash flows from operating activities:
Net loss ............................................................................................ $ (1,407) $ (12,475)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Deferred income taxes .................................................................. – (549)
Depreciation and amortization of fixed assets................................... 365 314
Amortization of intangibles ............................................................. 64 272
Write down of intangibles .............................................................. – 8,091
Interest on deferred compensation .................................................. 29 30
Change in operating assets and liabilities, net of acquired balances:
Accounts receivable ...................................................................... 795 3,186
Other current assets ..................................................................... (294) 480
Accounts payable, net of deferred compensation ............................. 446 286
Accrued liabilities ......................................................................... (952) (298)
Income taxes payable ................................................................... (35) (439)
Deferred revenue ........................................................................... (716) (1,027)
Net cash used for operating activities .................................................. (1,705) (2,129)
Cash flows from investing activities:
Purchase of fixed assets ................................................................. (76) (471)
Net cash used for investing activities ................................................... (76) (471)
Cash flows from financing activities:
Proceeds on issuance of common shares ......................................... 145 420
Payments of deferred compensation ................................................. (182) –
Net cash provided by (used for) financing activities ................................ (37) 420
Effect of exchange rate changes on cash balances ............................... – 126
Change in cash and cash equivalents .................................................. (1,818) (2,054)
Cash and cash equivalents, beginning of period .................................... 9,005 8,193
Cash and cash equivalents, end of period ............................................ $ 7,187 $ 6,139
Supplemental schedules:
Cash paid for:
Interest .......................................................................................... $ 3 $ 32
Income taxes ................................................................................. $ 35 $ 360
See accompanying Notes to Consolidated Financial Statements prepared in accordance with accounting
principles generally accepted in the United States of America

1. Significant accounting policies
a) Basis of presentation:
Mortice Kern Systems Inc.
Notes to Consolidated Financial Statements
(Dollar Amounts in US, In Thousands, Except Per Share Data, Unaudited)
The accompanying consolidated financial statements of Mortice Kern Systems Inc. (“MKS” or the
“Company”) as at July 31, 2001 and for the three month periods ended July 31, 2001 and 2000 are unaudited
and have been prepared in accordance with generally accepted accounting principles in the United States
for interim financial information, using the same accounting policies and methods of application as used in
the April 30, 2001 financial statements, except for item 1(b) and 1(c) listed below. Accordingly, they do not
include all of the information and footnotes required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments, consisting only of normal recurring
adjustments necessary for a fair presentation, have been included. The results for the interim periods
presented are not necessarily indicative of the results that may be expected for any future period. The
following information should be read in conjunction with the consolidated financial statements and notes
thereto included in the Company’s Annual Report for the year ended April 30, 2001.
b) Change in classification of revenue:
As outlined in Note 1(c) to the April 30, 2001 financial statements, the Company’s revenue is derived from
license elements, comprised of license fees, upgrades and royalties from technology licenses, and service
elements, which include maintenance, installation and training. The Company delivers product upgrades in
the form of licenses to its customers and, accordingly, has changed the classification of revenue in the
statements of operations in the quarter ended July 31, 2001.
MKS bills its existing customers for ongoing maintenance, which includes both support and upgrade
licenses. The Company’s revenue recognition policy is to allocate such revenue between license and
service elements to the extent of their fair values where vendor specific objective evidence exists of the fair
value of the elements. The Company has reviewed its methodology for the classification of revenue in its
consolidated statements of operations relating to annual support contracts and has retroactively changed
the classification of license and service revenue. Although the Company continues to recognize upgrade
license revenue ratably over the term of the related support agreement and has, therefore, not changed its
accounting policy or the method of application, the Company has determined that upgrade license revenue
is more appropriately classified as license revenue and that service revenue reflects the cost of providing
maintenance service plus an estimated margin. Accordingly, the Company has increased license revenue
and decreased service revenue for the period ended July 31, 2000 by $1,793. This change in classification
has no impact on previously reported total revenue or net loss.
c) Recent accounting pronouncements:
Effective May 1, 2001, the Company adopted the recommendations in Statement of Financial Accounting
Standards No. 142, “Goodwill and Other Intangible Assets” (SFAS 142). This standard requires ceasing
amortization of goodwill, and allocating the goodwill to reporting units subject to at least an annual
impairment test. An impairment loss is determined under this test by comparing the book value of goodwill
to the fair value of the reporting unit to which the goodwill relates. The Company continues to amortize its
other intangible assets on the balance sheet over a three year period.

1. Significant accounting policies:
Mortice Kern Systems Inc.
Notes to Consolidated Financial Statements
(Dollar Amounts in US, In Thousands, Except Per Share Data)
c) Recent accounting pronouncements: con’t
On May 1, 2001, the Company assigned its goodwill balances to reporting units that coincided with the
Company’s reportable operating segments as follows:
May 1
2001
Software Configuration Management $ 2,424
Interoperability -
$ 2,424
The impact on the July 31, 2001 interim quarterly financial statements is a reduction of amortization
expense of $208, or a reduction of loss of $0.01 per share. Had SFAS 142 been in effect in July 31, 2000,
there would be no impact on the financial statements given the Company did not have any goodwill at this
point of time.
2. Intangibles and goodwill:
Intangibles:
July 31 April 30
2001 2001
Purchased software, gross $ 681 $ 681
Other intangibles, gross 356 356
Accumulated amortization (402) (336)
Intangibles, net $ 635 $ 701
Goodwill, gross $ 2,493 $ 2,493
Accumulated amortization (69) (69)
Goodwill, net $ 2,424 $ 2,424
3. Segmented information:
The Company evaluates operational performance based on two operating segments:
Software Configuration Management (SCM) and Interoperability (IO). The segments are managed separately
because each requires unique marketing strategies and is exposed to different economic environments. The
SCM segment develops and markets software solutions that assist programmers in the creation of
traditional and Web-based software, and in the management of the software development process. The IO
segment encompasses products that address the issues surrounding cross-platform development,
application migration, systems administration and network management.
It is the Company’s policy to price internal sales or transfer values for services on an equivalent basis as
that used for external pricing.

3. Segmented information: con’t
Mortice Kern Systems Inc.
Notes to Consolidated Financial Statements
(Dollar Amounts in US, In Thousands, Except Per Share Data)
The following schedules provide required segmented information disclosure.
Quarter Ended
July 31, 2001 July 31, 2000
SCM IO Total SCM IO Total
Revenue:
License........................... $ 2,599 $ 2,502 $ 5,101 $ 2,667 $ 2,250 $ 4,917
Service ............................ 1,258 285 1,543 1,328 265 1,593
Total revenue .................... $ 3,857 $ 2,787 $ 6,644 $ 3,995 $ 2,515 $ 6,510
Segment profit (loss)....... (1,863) 432 (1,431) (13,143) 104 (13,039)
Interest and income taxes 24 564
Net loss .............................. $ (1,407) $ (12,475)
July 31, 2001 April 30, 2001
Identifiable assets ........... $ 16,724 $ 2,943 $ 19,667 $ 18,771 $ 3,570 $ 22,341
Geographic segmentation of revenue is determined based on the location of the customer.
4. Reclassification:
Quarter Ended
July 31, 2001 July 31, 2000
SCM IO Total SCM IO Total
Revenue:
North America................ $ 3,006 $ 2,334 $ 5,340 $ 2,593 $ 2,059 $ 4,652
Europe & Other.............. 851 453 1,304 1,402 456 1,858
Total revenue .................... $ 3,857 $ 2,787 $ 6,644 $ 3,995 $ 2,515 $ 6,510
Certain comparative figures have been reclassified to conform with the current period’s financial statement
presentation.