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The provision for income taxes for the years ended June 30, 2001, 2000 and 1999, differs from the amount of income tax determined by applying the applicable U.S. statutory federal income tax rate to pre-tax loss from operations as a result of the following differences: 

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The change in the valuation allowance in fiscal 2001 and 2000 is due to the utilization of net operating loss in the current year. 

The change in the valuation allowance in fiscal 1999 is due to the loss for the year. 

## 8. COMMITMENTS 

## Operating Lease: 

The Company leases office space under a lease agree- ment, which expires October 31, 2004. Future minimum cash rental payments are as follows: 

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Rent expense charged to operations for the years ended June 30, 2001, 2000 and 1999, amounted to $110,888, $159,122 and $145,731, respectively. 

## Employment Agreements: 

The Company has one-year employment agreements with three of its officers, which require total minimum future compensation, at June 30, 2001, of $540,000.The terms of each of these agreements automatically extend, every February, for one additional year, unless terminat- ed by the Company or the officer, according to the terms of the agreements. 

## 9. STOCKHOLDERS’ EQUITY 

## Preferred Stock: 

The Company has 10,000,000 authorized and unissued shares of $.01 par value Preferred Stock. 

## Stockholders’ Rights Plan: 

The Company’s board of directors adopted a Stockholders’ Rights Plan in which preferred stock purchase rights (“Rights”) were distributed as a dividend at the rate of one Right for each share of common stock held as of close of business on September 11, 1997.The terms of the Stockholders Rights plan provide that if any person or group were to announce an intention to acquire or were to acquire 15 percent or more of the Company’s outstanding common stock, then the owners of each share of common stock (other than the acquiring person or group) would become entitled to exercise a right to buy one one-hun- dredth of a newly issued share of Series A Junior Participating Preferred Stock of the Company at an exercise price of $50 per Right. 

## Stock Option Plans: 

The Company adopted an Equity Incentive Plan (“the Plan”) whereby options under the Plan are exercisable at prices equal to the market value of the Company’s Common Stock as of the date of grant and expire ten years after the date of grant. 

## Stock Options and Warrants: 

The following schedules detail activity related to options for the years ended June 30, 1999, 2000 and 2001: 

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All exercisable options outstanding at June 30, 2001, are exercisable at a weighted average exercise price of $5.36. Options outstanding at June 30, 2001, consist of: 991,079 options, at an average strike price of $4.54 (a range of $2.81 to $5.63), and a weighted average remaining contrac- tual life of 6.6 years; and 60,000 options, at an average strike price of $12.73 (a range of $8.50 to $14.13), and a weighted average remaining contractual life of 1.9 years. 

