Q1-02 US GAAP - MKS

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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.
Page 1 and 2: Assets: Mortice Kern Systems Inc. C
Page 3 and 4: Balances at April 30, 2000 17,325 $
Page 5: Mortice Kern Systems Inc. Consolida

Q1-02 US GAAP - MKS

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