The difference between the total expected income tax expense computed by applying the federal income tax rate of 34.0% to income before income taxes and the reported income tax expense is as follows:

The domestic and foreign components of earnings before income tax were:

10—ACCRUED EXPENSES AND OTHER LIABILITIES

Components of accrued expenses and other liabilities consist of the following:

11—INDEBTEDNESS

Bank Lines of Credit
The Company established a new $7.5 million bank line of credit for working capital purposes effective May 14, 1999. Borrowings under the line of credit bear interest at the bank’s floating rate of prime plus one percent. The Company is subject to covenants requiring maintenance of certain profitability, equity and liquidity ratios. As of December 31, 1999, the Company is currently compliant with all covenants under the line, and there are no amounts currently outstanding. This agreement is subject to renewal on May 13, 2000.

As part of the acquisition of QWES, the Company assumed its outstanding debt which consisted of promissory notes and notes payable. The total amount of debt outstanding at December 31, 1999 was $2.5 million from the QWES acquisition.

The debt bears interest ranging from 8.0% to 10.0% per annum. At December 31, 1999, $2.2 million of the debt matures on various dates in 2000 and is included in the current portion of long-term debt, and the remaining amount of $275,000 is included in long-term debt less current portion and matures in 2002. The acquisition of QWES caused the Company to be in default of a covenant with one of the lenders, however, as a condition of the acquisition being consummated, the lender waived the default. In connection with the issuance of some of the notes, the Company issued warrants to purchase 84,835 shares of common stock of the Company at an exercise price of $.07 per share for 70,542 shares and $7.87 per share for the remaining 14,293 shares. The warrants are exercisable in whole or in part at any time from the date of the grant and expire four years from the date of grant. At December 31, 1999, warrants to purchase 19,901 shares were outstanding. The estimated fair value of the warrants aggregating approximately $147,000, has been reflected as original issue discount reducing the carrying value of the notes on the accompanying balance sheet and is being amortized to interest expense over the respective lives of the notes.

The Company has a 2.0 million French franc ($309,000 at December 31, 1999) line of credit with a European bank. At December 31, 1999, there were no borrowings outstanding under this line. Borrowings under this line bear interest at rates ranging from 7.5% to 9.0%. Borrowings are collateralized by certain of the Company’s assets.

Included in debt is a government advance of $231,000 and $31,000 at December 31, 1998 and 1999, respectively. This represents an interest free loan from the French government repayable from the proceeds of export sales from France.