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FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ________
Commission file number 333-20709
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
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(Exact Name of small business issuer as specified in its charter)
DELAWARE 13-3391820
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22681/22687 Old Canal Road, Yorba Linda, CA 92687
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(Address of principal executive offices)
(714) 974-7676
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(Registrants telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of during the past 12 months (or for
such shorter periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No___
The number of shares of common stock, $.01 par value, outstanding as of
January 30, 1999 was 598,734.
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<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets December 31, 1998 and
June 30, 1998....................................................... 3
Condensed consolidated statements of operations
three months ended December 31, 1998 and 1997....................... 4
Condensed consolidated statements of operations
six months ended December 31, 1998 and 1997......................... 5
Condensed consolidated statements of cash flows
six months ended December 31, 1998 and 1997......................... 6
Notes to condensed consolidated financial statements
December 31, 1998................................................... 7
Item 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations............................................... 9
PART II. OTHER INFORMATION
Item 5. Other Information................................................... 16
Item 6. Exhibits and Reports on Form 8-K.................................... 17
Signatures.......................................................... 18
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31 June 30
1998 1998
-----------------------
(000's omitted
except share data)
-----------------------
(unaudited) (Note)
<S> <C> <C>
Assets
Current assets
Cash ................................................................. $ 365 $ 120
Accounts receivable, less allowances of $30 and $20, respectively .... 845 754
Prepaid expenses and other current assets ............................ 26 64
-----------------------
Total current assets .......................................................... 1,236 938
Furniture and equipment ....................................................... 696 669
Less accumulated depreciation and amortization ................................ 449 407
-----------------------
247 262
Other assets
Security deposits .................................................... 82 82
Software development costs - net ..................................... 54 60
Excess of cost over fair value of net assets acquired, net ........... 49 52
-----------------------
Total assets .................................................................. $1,668 $1,394
=======================
Liabilities and stockholders equity
Current liabilities
Accounts payable and accrued expenses ................................ $ 242 $ 411
Accrued compensation expense ......................................... 367 332
Deferred income ...................................................... 462 301
-----------------------
Total current liabilities ..................................................... 1,071 1,044
Long-term obligation, line of credit .......................................... 845 620
Stockholders equity (deficiency)
Common stock, par value $.01 per share; authorized 5,000,000
shares; issued 598,734 shares as of December 31, 1998 and
June 30, 1998 ................................................................ 6 6
Additional paid-in capital ................................................... 553 553
Accumulated deficit .......................................................... (807) (829)
-----------------------
Total stockholders equity (deficiency) ........................................ (248) (270)
-----------------------
Total liabilities and stockholders equity (deficiency) ........................ $1,668 $1,394
=======================
</TABLE>
Note: The condensed consolidated balance sheet at June 30, 1998 has been derived
from the audited consolidated financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
December 31,
-----------------------
1998 1997
-----------------------
(000s omitted,
except per share data)
<S> <C> <C>
Revenues ............................................................. $ 1,203 $ 921
Selling, general and administrative expenses ........................ 1,070 1,112
Depreciation of equipment ........................................... 21 13
Amortization of software development costs and acquisition costs .... 5 3
Interest expense .................................................... 17 11
-----------------------
Income (loss) before income taxes ................................... 90 (218)
Provision for income taxes .......................................... -- --
-----------------------
Net income (loss) .................................................... $ 90 $ (218)
=======================
Net income (loss) per common share - basic ........................... $ .15 $ (0.36)
=======================
Net income (loss) per common share - diluted ......................... $ .15 $ (0.36)
=======================
Average number of outstanding shares - basic ......................... 598,734 598,734
=======================
Average number of outstanding shares - diluted ....................... 619,141 598,734
=======================
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 31,
-----------------------
1998 1997
-----------------------
(000s omitted,
except share data)
<S> <C> <C>
Revenues ............................................................. $ 2,127 $ 1,569
Selling, general and administrative expenses ........................ 2,019 1,712
Depreciation of equipment ........................................... 41 24
Amortization of software development costs and acquisition costs .... 10 4
Interest expense .................................................... 35 14
-----------------------
Income (loss) before income taxes ................................... 22 (185)
Provision for income taxes
-----------------------
Net income (loss) .................................................... $ 22 $ (185)
=======================
Net income (loss) per common share - basic ........................... $ .04 $ (0.32)
=======================
Net income (loss) per common share - diluted ......................... $ .04 $ (0.32)
=======================
Average number of outstanding shares - basic ......................... 598,734 583,603
=======================
Average number of outstanding shares - diluted ....................... 617,373 583,603
=======================
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
December 31,
-----------------------
1998 1997
-----------------------
(000s omitted)
<S> <C> <C>
Operating activities
Net income (loss) .................................................... $ 22 $ (185)
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization ....................................... 51 28
Changes in operating assets and liabilities:
Accounts receivable ......................................... (91) (197)
Prepaid expenses and other current assets ................... 38 (8)
Accounts payable and accrued expenses ....................... (134) 92
Deferred income ............................................. 161 30
Rent security deposits ...................................... (80)
-----------------------
Net cash provided by (used in) operating activities .................. 47 (320)
-----------------------
Investing activities
Costs related to RAC acquisition, net of cash received ............... -- 12
Purchase of equipment ................................................ (27) (78)
Additions to software development .................................... -- (10)
-----------------------
Net cash used in investing activities ................................ (27) (76)
-----------------------
Financing activities
Proceeds from lines of credit ........................................ 225 520
Net decrease in due to former parent ................................. -- (170)
-----------------------
Net cash provided by financing activities ............................ 225 350
-----------------------
Net increase (decrease) in cash ...................................... 245 (46)
Cash at beginning of period .......................................... 120 133
-----------------------
Cash at end of period ................................................ $ 365 $ 87
=======================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 1998
Note A -- Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six-month period ended December 31,
1998 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1999.
Note B -- Organization
Acquisition of Research Analysis Corp.
On September 22, 1997, Transition Analysis Component Technology, Inc. ("TACTech"
or the "Company") acquired the net assets of Research Analysis Corp. ("RAC")
pursuant to a merger (the "Merger") of RAC, a California corporation formed for
this purpose and wholly-owned by the Company, with and into RAC. Upon
consummation of the Merger, RAC, as the surviving corporation, became a
wholly-owned subsidiary of the Company. The RAC acquisition was accounted for
pursuant to the purchase method of accounting and is effective as of September
1, 1997.
The following unaudited pro-forma information has been prepared assuming that
this acquisition had taken place at the beginning of the 1998 fiscal year after
giving effect to pro-forma adjustments for compensation accruals and income
taxes.
<TABLE>
<CAPTION>
Three months ended
December 31, 1997
------------------
<S> <C>
Revenue $ 783,722
Net (loss) income $ 108,625
Net (loss) income per common share $ 0.18
Six months ended
December 31, 1997
------------------
Revenue $ 1,652,644
Net (loss) income $ (218,181)
Net (loss) income per common share $ (0.36)
</TABLE>
7
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Note C -- Summary of Significant Accounting Policies
As of July 1, 1998, the Company adopted AICPA SOP 97-2 Software Revenue
Recognition, which was effective for transactions that the Company entered into
in fiscal 1999. There was no effect on operating results for the six-month
period ending December 31, 1998 as a result of adopting SOP 97-2.
Note D -- Earnings Per Share
The following is a reconciliation of the numerators and denominators of the
basic and diluted per share computations and other related disclosures:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
----------------------- -----------------------
(000s omitted, except share data)
<S> <C> <C> <C> <C>
Numerator
Numerator for basic and diluted earnings per
share - income (loss) available to common
stockholders $ 90 $ (218) $ 22 $ (185)
======================= =======================
Denominator
Denominator for basic earnings per share -
weighted average shares 598,734 598,734 598,734 583,603
Effect of dilutive securities:
Options 20,407 -- 18,639 --
----------------------- -----------------------
Denominator for diluted earnings per share -
adjusted weighted average shares and
assumed conversions 619,141 598,734 617,373 583,603
======================= =======================
Basic earnings (loss) per share $ .15 $ (.36) $ .04 $ (.32)
======================= =======================
Diluted earnings (loss) per share $ .15 $ (.36) $ .04 $ (.32)
======================= =======================
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
The following table sets forth for the periods indicated the percentage
relationship to net sales of certain items from the statements of operations:
<TABLE>
<CAPTION>
Percent of Net Sales
Three Months Ended Six Months Ended
December 31, December 31,
1998 1997 1998 1997
----------------------- -----------------------
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Selling, general and administrative expenses 88.9 120.7 94.9 109.1
Depreciation and amortization of equipment and 2.2 1.7 2.4 1.8
software development costs
Interest expense 1.4 1.2 1.6 .9
----------------------- -----------------------
Income (loss) before income taxes 7.5 (23.6) 1.1 (11.8)
Provision for income taxes -- -- -- --
----------------------- -----------------------
Net (loss) income 7.5% (23.6)% 1.1% (11.8)%
======================= =======================
</TABLE>
Results of Operations - Three Months Ended December 31, 1998 Compared to Three
Months Ended December 31, 1997
The Company reported net income of $90,000 or $.15 per share (basic and diluted)
for the quarter ended December 31, 1998, as compared to a loss of $(218,000) or
$(.36) (basic and diluted) per share for the quarter ended December 31, 1997.
The Company generates revenue primarily through licensing agreements. TACTech's
license agreements fall into two broad categories: (1) TACTech basic site
service ("Basic Site Service") which encompasses an electronic semi-conductor
library and database and (2) the TACTRAC service which consists of a Basic Site
Service, combined with propriety software tools for the processing and handling
of all configuration customer bill of materials indenturing and a workstation
application that allows the customer to view solutions, analyses and reports.
The number of subscriber licenses increased by approximately 8% at December 31,
1998 as compared to December 31, 1997.
Revenues for the three months ended December 31, 1998 were $1,203,000 as
compared to revenues for the three months ended December 31, 1997 of $921,000,
an increase of 31%. The net increase of $282,000 is primarily attributable to
the conversion of the existing TACTech product to the new TACTRAC product
version which technology was obtained in the acquisition of RAC on September 1,
1997 and the increase in the subscription prices and up-front fees associated
with the TACTRAC product, both generating an increase of $456,000. This increase
was offset by decreases of the TACTech product revenue of $55,000 and the
elimination of consulting revenues attributable to the former RAC operation
amounting to $119,000.
9
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Three Months Ended December 31, 1998 Compared to Three
Months Ended December 31, 1997 (continued)
Selling, general and administrative expenses decreased approximately $42,000 and
was attributable to the following offsetting factors:
Legal fees declined by approximately $142,000 in the current period
compared to 1997 as a result of the settlement in June 1998 of a lawsuit
brought by the Company.
The Company also incurred relocation costs in the fiscal quarter ended
December 31, 1997 of approximately $40,000 in connection with a move to new
facilities.
The above decreases were offset by current quarter selling, travel and
installation expense increases approximating $125,000 related to the
increase of sales of the TACTRAC product.
Depreciation and amortization increased approximately $10,000 for the three
months ended December 31, 1998 as compared to the 1997 period due to the
acquisition of assets in the RAC merger plus the purchase of approximately
$120,000 of computers and related equipment in the fiscal year ended June 30,
1998.
Interest expense increased approximately $6,000 for the three months ended
December 31, 1998 as a result of increased bank borrowings used to fund
operations and purchase computers and related equipment.
There is no provision for income taxes for the three months ended December 31,
1998 because of carryforward net operating losses (approximately $230,000 which
expire in 2013) for which the related deferred tax asset has been fully
reserved. There was no provision for income taxes for the three months ended
December 31, 1997 because of the reported loss.
Results of Operations - Six Months Ended December 31, 1998 Compared to Six
Months Ended December 31, 1997
The Company reported net income of $22,000 or $.04 per share (basic and diluted)
for the six months ended December 31, 1998 as compared to a net loss of $185,000
or $.32 per share (basic and diluted) for the six months ended December 31,
1997.
10
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Six Months Ended December 31, 1998 Compared to Six
Months Ended December 31, 1997 (continued)
Revenues for the six months ended December 31, 1998 were $2,127,000 as compared
to revenues for the six months ended December 31, 1997 of $1,569,000, an
increase of 36%. The net increase of $558,000 is primarily attributable to the
conversion of the existing TACTech product to the new TACTRAC product and the
increase in the subscription prices and up-front fees associated with the
TACTRAC product totalling $786,000. This increase was offset by decreases of the
TACTech product line of $69,000 and the elimination of consulting revenue
attributable to the former RAC operation amounting to $158,000.
Selling, general and administrative expenses increased by approximately $307,000
for the six months ended December 31, 1998 as compared to the 1997 period. The
increase was attributable to the following factors: (1) Salaries and related
costs associated with the RAC acquisition, consulting costs with the continued
development of the TACTRAC software amounting to $220,000 and $45,000,
respectively; and (2) Selling and related expenses incurred to promote and
increase sales of the TACTRAC product which amounted to approximately $200,000.
These increases were offset by a reduction of legal and professional expenses of
approximately $185,000.
Depreciation and amortization increased $23,000 for the six month period ended
December 31, 1998 as compared to the comparable 1997 period. This increase
relates to the acquisition of assets in the RAC merger plus the purchase of
approximately $150,000 of computers and related equipment in the fiscal year
ended June 30, 1998 and in the six month period ended December 31, 1998.
Interest expense increased $21,000 for the six month period ended December 31,
1998 as compared to the comparable 1997 period. This resulted from an increase
in bank borrowings used to fund operations and purchases of computers and
related equipment.
There is no provision for income taxes for the six month period ended December
31, 1998 because of carryforward operating losses (approximately $230,000 which
expire in 2013) for which the related deferred tax asset has been fully
reserved. There was no provision for income taxes for the six months ended
December 31, 1997 because of the reported loss.
Liquidity and Capital Resources
For the six months ended December 31, 1998, cash from operations and a line of
credit was used to acquire computers and related equipment and provide working
capital. For the six months ended December 31, 1997, the Company financed its
operations, acquired computers and computer related equipment and reduced its
obligations to its former parent company, Zing Technologies, Inc. with the
proceeds from its line of credit.
Based upon current and anticipated levels of operations, the Company believes
that its cash flow from operations, combined with borrowings available under the
existing line of credit, will be sufficient to meet is current and anticipated
cash operating requirements, including scheduled interest and principal
payments, capital expenditures and working capital needs for the foreseeable
future.
11
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Six Months Ended December 31, 1998 Compared to Six
Months Ended December 31, 1997 (continued)
Year 2000 Impact - Overview
Nearly every aspect of a modern organization is supported by information
technology. As a result, the unavailability of computer services or errors in
data processing would have a considerable impact on most businesses.
Many computer systems and electronic devices process dates using two digits,
representing only the last two numerals of a year, instead of four digits. Dates
processed by these systems are assumed to occur in the 20th century. By January
1, 2000, and sometimes even sooner, unless these systems deficiencies in this
area are addressed and resolved these systems could miscalculate dates or fail
completely, which could result in disruption of business operations controlled
by such systems and devices.
The following discussion of the effect of the Year 2000 on the Company's systems
is based on management's best estimates, which were derived using numerous
assumptions of future events, including the continuing availability of basic
utilities and other resources, the availability of trained personnel at
reasonable cost, and the ability of third parties to cure noncompliant software
and hardware. There can be no guarantee that these assumptions will prove
accurate, and accordingly the actual results may materially differ from those
anticipated.
Evaluation Efforts
TACTech is proceeding in its assessment of all of its systems that could be
affected by the Year 2000 problem. This includes software developed specifically
for license or sale, software developed for in-house use, third-party software
and hardware used by TACTech, and telecommunications systems. In addition,
TACTech is gathering Year 2000 compliance information from its significant
vendors and suppliers and plans to gather Year 2000 compliance information from
its customers as well.
Readiness and Compliance Plan
TACTech's Year 2000 compliance efforts fall into four major areas: Information
Technology (including production software, internal software and hardware),
Telecommunications Systems, Compliance by Vendors, and Compliance by Customers.
Information Technology
Production Software - TACTRAC and TACTech Basic Site Services
TACTech markets information services based on two different sets of software,
"TACTRAC" and "TACTech Basic Site Services."
TACTRAC
TACTech has evaluated its TACTRAC software for Year 2000 readiness and concludes
that the TACTRAC software itself is fully Year 2000 compliant.
12
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Six Months Ended December 31, 1998 Compared to Six
Months Ended December 31, 1997 (continued)
However, information updates to the TACTRAC software are part of the services
that the TACTRAC customer pays for. These updates are dependent upon software
that runs at TACTech's headquarters in Yorba Linda, California. This software
has been evaluated and has been determined to be only partially Year 2000
compliant. TACTech has determined that an operating system software upgrade and
compiler software upgrade are necessary to bring this software to Year 2000
compliance. These upgrades are proceeding and are currently scheduled to be
completed by May 31, 1999.
TACTech Basic Site Services
TACTech has evaluated its Basic Site Services software for Year 2000 readiness
and concludes that this software is only partially Year 2000 compliant. TACTech
has determined that an operating system software upgrade and compiler upgrade
are necessary to bring this software to Year 2000 compliance. This is the same
upgrade mentioned above and is scheduled to be completed by May 31, 1999.
Internal IT Systems
TACTech has evaluated all of its internal IT Systems software and has determined
that its systems fall into the following categories:
a. Approximately 5% of its systems are not Year 2000 compliant, and either
have been discarded as unnecessary for continued operation or are scheduled
to be completely replaced by fully Year 2000 compliant systems before June
1999. TACTech's client support and tracking software was completely
replaced by a Year 2000 compliant system in mid-December 1998.
b. Approximately 40% of its systems are not Year 2000 compliant, and are
necessary for continued business operations into the next century. In each
of these cases either an operating system upgrade or software upgrade is
required. Some of these systems have already been upgraded. All are
scheduled to be completed by June 30, 1999.
c. Approximately 55% of its systems are already fully Year 2000 compliant.
TACTech has evaluated all of its internal IT Systems hardware and has determined
that it falls into the following categories:
a. Approximately 75% of its hardware is fully Year 2000 compliant.
b. Approximately 22% of its hardware is not fully Year 2000 compliant and will
require the internal system clock to be manually set to January 1, 2000 on
that date.
c. Approximately 3% of its hardware is not fully Year 2000 compliant, and will
require an upgrade to the BIOS chip. This hardware is older and not
critical to continued business operation, and will either be replaced by
fully Year 2000 compliant hardware before December 31, 1999, or upgraded
with Year 2000 compliant BIOS before December 31, 1999.
13
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Six Months Ended December 31, 1998 Compared to Six
Months Ended December 31, 1997 (continued)
Telecommunications Systems
In early January 1999, TACTech replaced its PBX telephone system and its voice
mail system with new models that are fully Year 2000 compliant.
Vendor Compliance
TACTech is beginning the process of requesting Year 2000 compliance certificates
from its vendors, and has received responses from approximately 36% of its
vendors. TACTech anticipates that it will have such certifications from all of
its vendors by June 1999.
Customer Compliance
TACTech began requesting similar compliance certifications from its major
customers in late December 1998. This process is anticipated to be completed by
June 1999. TACTech cannot guarantee that its customers will either be Year 2000
compliant, or will comply with TACTech's request for certification.
Cost of Year 2000 Compliance
TACTech estimates that the total cost of achieving Year 2000 compliance will be
approximately $20,000. The bulk of these costs are for new versions and upgrades
to software and operating systems, and telephone equipment. Personnel and labor
costs are included in salaries and are not included in this total. In addition,
other software and operating system upgrades are already paid for by ongoing
maintenance contracts and are not included in the above total. To date, TACTech
has spent approximately $12,400 for its Year 2000 compliance efforts.
Contingency Plan
Since TACTech believes that its production software, information technology
systems, hardware and telecommunications systems will be Year 2000 compliant by
December 31, 1999, it has not developed and does not plan to develop a
contingency plan for noncompliant software, information technology systems,
hardware and telecommunications systems.
Management believes that TACTech's ability to assemble and acquire the update
component data used in its Basic Site Service and by its TACTRAC service is
facilitated by, but is not dependent upon, electronic data processing and
telecommunications systems. If such systems were to fail as a result of the
advent of January 1, 2000 without its data suppliers having achieved Year 2000
compliance, TACTech could, and will if necessary, continue to obtain such data
through available printed documentation as it has done in the past and continues
to do presently.
14
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Results of Operations - Six Months Ended December 31, 1998 Compared to Six
Months Ended December 31, 1997 (continued)
TACTech provides its component compatibility and other information through
routine telephone and Internet connections. If TACTech's current Internet
Service Provider is unable to provide a certificate of compliance prior to
January 1, 2000, TACTech will select another provider from among the hundreds of
other such providers, many of whom are expected to have achieved Year 2000
compliance before such date. If Internet access is unavailable from any source,
at either the Customers' site or at TACTech, direct telephone data transmission
will continue to be available. If, however, in the worst case scenario,
essential utilities such as electricity and telecommunications cease to
function, TACTech would have to suspend operations until utilities were
restored. TACTech cannot develop a contingency plan to overcome such a scenario.
15
<PAGE>
PART II. OTHER INFORMATION
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
ITEM 5. OTHER INFORMATION
When used in this Form 10-QSB, and in future filings by TACTech with the
Securities and Exchange Commission, in TACTech's press releases and in any oral
statements made with the approval of an authorized TACTech executive officer,
the words or phrases will likely result, are expected to, will continue, is
anticipated, estimate, project, or similar expressions are intended to identify
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties, including those discussed below, that could cause actual results
to differ materially from historical earnings or those presently anticipated or
projected. TACTech wishes to caution readers not to place undo reliance on such
forward-looking statements, which speak only as of the date made. TACTech wishes
to advise readers that factors listed below could affect TACTech's financial
performance and could cause TACTech's actual results for future periods to
differ materially from any opinion or statements expressed with respect to
future periods in any current statements.
Dependence on Key Personnel
The business of TACTech is substantially dependent upon the active participation
and technical expertise of its executive officers. TACTech is dependent upon the
services of Malcolm Baca, its Executive Vice President and Chief Operating
Officer. The Company currently maintains a key-man life insurance policy on such
executive officer in the amount of $1,700,000. The Company's Board of Directors
regularly re-evaluates the need for and the amount of such key-man life
insurance. There can be no assurance, however, that TACTech can obtain
executives of comparable expertise and commitment in the event of death, or that
the business of TACTech would not suffer material adverse effects as the result
of the death (notwithstanding coverage by key-man insurance), disability or
voluntary departure or any such executive officer.
Competition
TACTech's Basic Site Service license agreements are cancelable on thirty (30)
days notice. Approximately 50% of TACTech's information for its data bases comes
from numerous companies in the private sector. Accordingly, there can be no
assurance that existing arrangements with private suppliers of data will
continue in effect or, if they are canceled, that TACTech will be able to enter
into arrangements with other suppliers on terms as beneficial to TACTech as
those presently in effect. Moreover, there can be no assurance that other
companies, including existing customers of TACTech, will not avail themselves of
sources of data to develop their own software and data base services either in
competition with TACTech or to enable them to have their own sources for such
services or obtain such services from others. TACTech's software services and
data bases are protected by trade secret provisions of license agreements and by
copyright laws, but because such provisions and laws are frequently difficult or
costly to enforce, there can be no assurance that such protection will prove
effective.
16
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
Technical Changes and New Product Development
In the event of changes in the structure of the computer hardware systems used
by subscribers to operate TACTech's data software, TACTech would incur capital
costs for new equipment and development costs in connection with the
reconfiguring of its software programs, which cost could be substantial and
could have an adverse effect on TACTech's profitability.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
No exhibit is included herein.
The Company did not file any report on Form 8-K during the three months ended
December 31, 1998.
17
<PAGE>
TRANSITION ANALYSIS COMPONENT TECHNOLOGY, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Transition Analysis Component Technology, Inc.
(Registrant)
Date: February 4, 1999 Robert E. Schrader
----------------------------------------------
Robert E. Schrader
President and Chief Executive Officer
Date: February 4, 1999 Martin S. Fawer
----------------------------------------------
Martin S. Fawer
Treasurer and Chief Financial Officer
18
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<PERIOD-END> DEC-31-1998
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