SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 12b-25
Commission File Number 0-22779
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NOTIFICATION OF LATE FILING
(Check One): |X| Form 10-KSB |_| Form 20-F |_| Form 11-K |_| Form 10-Q
|_| Form N-SAR
For the Period Ended: June 30, 1999
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|_| Transition Report on Form 10-K |_| Transition Report on Form 10-Q
|_| Transition Report on Form 20-F |_| Transition Report on From N-SAR
|_| Transition Report on Form 11-K
For the Transition Period Ended:
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Read attached instruction sheet before preparing form. Please print or
type.
Nothing in this form shall be construed to imply that the Commission has
verified any information contained herein.
If the notification related to a portion of the filing checked above,
identify the item(s) to which the notification relates:
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PART I. REGISTRANT INFORMATION
Full name of registrant: Transition Analysis Component Technology, Inc.
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Former name if applicable:
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22700 Savi Ranch Parkway
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Address of Principal executive office (Street and number)
City, state and zip code Yorba Linda, CA 93687
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PART II. RULES 12b-25 (b) AND (c)
If the subject report could not be filed without unreasonable effort or
expense, and the registrant seeks relief pursuant to Rule 12b-25(b), the
following should be completed. (Check box if appropriate.)
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(a) The reasons described in reasonable detail in Part III of this
form could not be eliminated without unreasonable effort or
expense;
|X| (b) The subject annual report on Form 10-KSB will be filed on or
before the 15th calendar day following the prescribed due
date; and
(c) The accountant's statement or other exhibit required by Rule
12b-25(c) has been attached if applicable.
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PART III. NARRATIVE
State below in reasonable detail the reasons why Forms 10-K, 20-F, 11-K,
10-Q, N-SAR, or the transition report or portion thereof could not be filed
within the prescribed time period:
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As a result of the time required and issues presented by the Company's
recent extension of its credit facility, management was unable to complete the
report in a timely manner.
PART IV. OTHER INFORMATION
(1) Name and telephone number of person to contact in regard to this
notification
Martin S. Fawer (914) 747-7474
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(Name) (Area code) (Telephone number)
(2) Have all other periodic reports required under Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months or for such
shorter period that the registrant was required to file such report(s) been
filed? If the answer is no, identify report(s).
|X| Yes |_| No
(3) Is it anticipated that any significant change in results of operations
from the corresponding period for the last fiscal year will be reflected by the
earnings statements to be included in the subject report or portion thereof?
|X| Yes |_| No
If so: attach an explanation of the anticipated change, both narratively
and quantitatively, and, if appropriate, state the reasons why a reasonable
estimate of the results cannot be made.
Transition Analysis Component Technology, Inc.
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(Name of registrant as specified in charter)
has caused this notification to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: September 27, 1999 By: /s/ Martin S. Fawer
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Martin S. Fawer
Title: Chief Financial Officer
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Instruction. The form may be signed by an executive officer of the
registrant or by any other duly authorized representative. If the
statement is signed on behalf of the registrant by an authorized
representative (other than an executive officer), evidence of the
representative's authority to sign on behalf of the registrant shall be
filed with the form.
ATTENTION:
Intentional misstatements or omissions of fact constitute Federal criminal
violations (see 18 U.S.C. 1001).
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ATTACHEMENT - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The discussion and analysis below should be read in conjunction with the
Financial Statements of the Company and the Notes thereto included elsewhere in
this report. In addition to historical information, the following discussion and
analysis contains forward-looking statements that involve risks and
uncertainties within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, which are intended to be covered by the safe
harbors created thereby. Although the Company believes that the assumptions
underlying these forward-looking statements are reasonable, there can be no
assurance that they will prove to be accurate. Therefore, the inclusion herein
of information should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.
Analysis of Financial Condition and Results of Operations covers the
fiscal years ended June 30, 1999, 1998 and 1997.
The following table expresses certain items from the Company's statements
of operations as a percentage of revenues for the periods indicated:
Year Ended June 30,
1999 1998
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Revenues 100.0% 100.0%
Selling, general and administrative expenses 92.8 117.4
Depreciation of equipment 2.0 2.1
Amortization of software development costs and
acquisition costs .4 .4
Interest expense 1.4 1.2
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Income (loss) before income taxes 3.4 (21.1)
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Net income (loss) 3.4% (21.1)%
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Results of Operations - Fiscal Year Ended June 30, 1999
Compared to Fiscal Year Ended June 30, 1998
The Company realized net income of $150,484 or $0.25 per share (basic) and
$0.24 per share (diluted) for the fiscal year ended June 30, 1999 as compared to
a loss of $735,000 or $1.25 per share (basic and diluted) for the fiscal year
ended June 30, 1998.
Revenues increased $1,029,000, or 30%, during the fiscal year ended June
30, 1999 from $3,483,000 in the 1998 fiscal year. This increase in revenue was
primarily attributable to the conversion of customers from TACTech service to
the TACTRAC service, and the increase in the subscription prices and fees
associated with the TACTRAC service.
Selling, general and administrative expenses increased approximately
$103,000 to $4,190,000 for the current fiscal year as compared to $4,087,000 for
the prior year. The net dollar increase of $103,000 was primarily attributable
to the following factors: (1) salaries and related costs associated with the RAC
acquisition
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and ongoing costs related to the continued development and upgrading of the
TACTRAC software amounting to $75,000 and $105,000, respectively, and (2)
selling and related expenses incurred to promote and increase sales of the
TACTRAC product which amounted to $282,000. These increases were offset by a
reduction of legal and professional expense and relocation of facilities in the
prior fiscal year amounting to $337,000 and $45,000, respectively.
Depreciation for the fiscal year ended June 30, 1999 was approximately
$90,400 as compared to approximately $73,300 for the prior year. The Company
depreciates its capital assets over a five year period, recording only one half
year depreciation in the year of acquisition. The Company acquired capital
assets in fiscal 1999 and fiscal 1998 in the approximate amounts of $89,300 and
$119,000, respectively, and pursuant to its depreciation policy, recorded an
increase of $17,100 in fiscal 1999 as compared to the prior reporting period.
Interest expense, which increased by $22,000 to $63,000 from $41,000 in
1998, is attributable to amounts borrowed pursuant to the Company's bank line of
credit to fund operations and purchases of computer and related equipment.
The current provision for income taxes for the fiscal year ended June 30,
1999 was offset by a deferred tax benefit resulting from carryforward net
operating losses of approximately $208,000 and because of other timing
differences between book and taxable income. There is however, a current tax
liability of $98,000 at June 30, 1999. There was no provision for income taxes
for the fiscal year ended June 30, 1998 because of the reported loss for that
year. At June 30, 1999 and 1998, deferred tax assets of $348,000 and $317,000
were offset by the valuation allowances of $250,000 and $317,000, respectively.
Results of Operations - Fiscal Year Ended June 30, 1998
Compared to Fiscal Year Ended June 30, 1997
The Company sustained a loss of $735,000, or $1.25 per share, for the
fiscal year ended June 30, 1998 as compared to net income of $199,000, or $.36
per share, for the fiscal year ended June 30, 1997.
The loss for the fiscal year ended June 30, 1998 is primarily attributable
to an increase in selling, general and administrative expenses due primarily to
professional fees incurred by the Company in the Company's lawsuit, subsequently
terminated, seeking injunctive relief against a competitor and a former
employee, the cost of programming consultants incurred related to the
enhancement of the RAC search engine technology and certain management incentive
bonuses.
Revenues increased $1,277,000, or 58% during the fiscal year ended June
30, 1998 from $2,206,000 for 1997.
The current revenue increase in 1998 over 1997 is attributed, in part, to
an increase in the number of licenses and in part because they are generating
greater revenues per subscriber at June 30, 1998 as compared to June 30, 1997.
Year Ended June 30,
1998 1997
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Subscribers at beginning of period... 95 73
Subscribers who did not renew........ (17) (12)
Subscribers added during period...... 29 34
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Subscribers at end of period......... 107 95
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Approximately $584,000 of the revenue increase was generated by higher
subscription prices attributable to the TACTRAC products.
Prior to the acquisition, RAC principally derived revenues from consulting
services and customer-specific projects under cost plus fixed fee contracts with
the Department of Defense and government contractors. Such revenues contributed
approximately $198,000 to the 1998 revenue increase.
Selling, general and administrative expenses during fiscal 1998 increased
to approximately $4,087,000 from $1,863,000 for 1997. This increase of
approximately $2,224,000 is primarily attributed to the following:
o Coincident to the acquisition of RAC in September 1997, the two RAC
selling shareholders received employment agreements. Each employment
agreement provided for an annual base salary (including certain
employee benefits) up to an aggregate of $200,000 and an incentive
bonus up to $100,000 annually, measured by the Company achieving
certain targeted sales goals. The annual period for such measurement
commenced on September 1, 1997 and as the targeted performance
levels became probable of achievement, appropriate provisions for
the maximum incentive bonuses were recorded equally between the
third and fourth quarter of the current fiscal year. As a result of
these agreements, approximately $600,000 contributed to the increase
in selling and general administrative expenses for 1998.
o Other increases in costs are primarily attributable to the RAC
acquisition and include rent and utilities, professional fees,
telephone, insurance, travel and other general administrative
expenses of approximately $143,000.
o $264,000 of legal and professional fees incurred as the result of
the commencement by the Company of a lawsuit seeking injunctive
relief to enjoin a former employee from using trade secrets and a
competitor for breaching a non-solicitation agreement.
o Programming costs of $266,000 relating to augmenting the Company's
existing customer interface design as well as adopting RAC's
component analysis technology.
o Included in the total dollar increase were costs primarily related
to the ongoing development of the Company's database relating to
commercial components as represented by increases in personnel costs
as well as increases in marketing and selling expenses in the
approximate amount of $313,000.
Depreciation for the fiscal year ended June 30, 1998 was approximately
$73,300 as compared to approximately $40,000 for 1997. The Company acquired
capital assets in fiscal 1998 and fiscal 1997 in the amounts of approximately
$119,000 and $153,000, respectively, and pursuant to its depreciation policy,
recorded an increase of approximately $23,000 in fiscal 1998 as compared to the
prior reporting period. The acquisition of RAC in September 1997 accounted for
the balance of the increase in depreciation expense in the amount of $11,000.
The 1998 interest expense is attributable to amounts borrowed pursuant to
the Company's bank line of credit to fund operations and purchases of computer
and related equipment. There were no significant short term borrowings during
1997.
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There was no provision for income taxes for the fiscal year ended June 30,
1998 because of the reported loss. In 1997 the Company filed its federal income
taxes on a consolidated basis for the fiscal 1997 year with its former parent,
Zing Technologies, Inc. Income taxes were computed on a separate company basis
pursuant to the liability method.
Trends
Core Business.
TACTech's intention is to position itself as the leading supplier of
information and tools to fill the increasing need of the marketplace for more
efficient obsolescence management in electronic system designs and modernization
efforts that require long production and sustainment cycles. Although a
declining U.S. military budget may result in a reduction in new program awards,
the total number or dollar value of expenditures for maintenance, repair and
operations is increasing to sustain the deployment of existing military systems.
TACTech believes that Department of Defense imperatives aimed at modernizing
existing systems will make TACTech's services more valuable as a means of
reducing and managing the incidence of technological obsolescence and assisting
designers in identifying the best solution options for semiconductor content in
electronic systems.
New Market Opportunities.
Management also believes that the expertise TACTech has developed in the
military and aerospace market to rapidly distribute reliable semiconductor
availability, compatibility and obsolescence data to the affected engineering
community will also be valuable to the general commercial and industrial markets
and could become an integral tool on an enterprise-wide basis to help control
design and inventory costs of systems that incorporate semiconductor components.
The expansion of the Company's focus to include a larger number of commercial
and industrial components and to present its services to an enterprise-wide
audience potentially expands the market which the Company may penetrate. There
can be no assurance, however, that the Company will be able, on a cost-effective
basis or at all, to develop a commercial or industrial market or to broaden its
current reach principally among systems design engineers.
As part of this expanded focus, TACTech was selected by SAP, A.G., the
world's largest provider of enterprise resource planning solutions, as a
featured development partner in SAP's new internet portal and ecommerce project,
known as "mySAP.com." The Company hopes that the project, which was the focus of
a September 1999 convention in Philadelphia, attended by more than 10,000
industry executives representing millions of corporate users of SAP's systems,
will present TACTech with a fundamentally new and large long-term market for its
services beyond its traditional base of electronics component systems design
engineers. The Company's board of directors holds the view that TACTech will
have to make substantial capital investments in both the depth and breadth of
its services and in additional management and other personnel in order to
attempt to capitalize on the new SAP-related opportunity. There is no assurance,
however, that TACTech will be able to obtain the necessary capital to make such
investments or, if such investments are made, that TACTech will be successful in
growing its business into the new market.
Liquidity and Capital Resources
In fiscal 1999, cash from operations was used to purchase computer and
related equipment, reduce borrowings under a line of credit and provide working
capital.
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In fiscal 1998, the Company used proceeds from a line of credit to fund
operations and for the acquisition of computer related equipment.
Internal cash flow generated by the operations of the Company, together
with borrowings under the Company's $1.5 million credit facility (see Note 6 of
Notes to Consolidated Financial Statements), should be sufficient for the
Company to meet its short-term working capital and capital expenditure
requirements for its current core business. It is likely that the Company will
be required to make other financing arrangements upon the expiration of its
present credit facility. At August 31, 1999 approximately $780,000 remains
available under the credit facility.
Management believes that the combination of internally generated cash and
capital available under existing bank lines of credit will not, however, be
sufficient to enable the Company to achieve the market expansion contemplated by
the Company's strategic plan. Additional capital will be required to expand the
Company's product depth, and to strengthen marketing staff and senior
management, particularly to address the commercial and industrial market and to
enable the Company to focus marketing efforts on enterprise-wide solutions. The
Company is actively exploring means to secure the necessary capital as equity,
including through the public securities markets.
Separately, TACTech's management continues to explore ways to establish
marketing and selling relationships, both domestically and internationally, and
from time-to-time evaluates potential acquisitions of business, products and
technologies.
Impact of Inflation
In fiscal 1999 and fiscal 1998, inflation did not have a significant
impact on the operations of the Company.
Impact of Year 2000
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 instead of four. Therefore all dates within these systems are assumed to
be 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 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 has finished its assessment and upgrade of all 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,
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third-party software and hardware used by TACTech, and telecommunications
systems. Additional testing however, will continue on these systems as a safety
precaution.
In addition, TACTech is gathering Year 2000 compliance information from
its significant vendors and suppliers. Furthermore, TACTech is also actively
gathering Year 2000 compliance information from its customers.
Readiness and Compliance Plan
TACTech's Year 2000 compliance efforts fall into four major areas:
Information Technology (including production software, internal software and
hardware), Telecommuni-cations Systems, Compliance by Vendors, and Compliance by
Customers.
Information Technology
Production Software - TACTRAC and TACTech Basic Site Services
TACTech currently markets information services based on two different sets
of software, one relating to the TACTRAC service, and one relating to TACTech's
basic library service.
TACTRAC. - TACTech has evaluated its TACTRAC software for Year 2000
readiness and concludes that the TACTRAC software which is used by the
subscriber is fully Year 2000 compliant. However, information updates to the
TACTRAC software are part of the TACTRAC service. These updates are dependent
upon software that runs at TACTech's headquarters in Yorba Linda, California.
This software had been evaluated and had been determined to be only partially
Year 2000 compliant. TACTech determined that an operating system software
upgrade and compiler software upgrade were necessary to bring this software to
Year 2000 compliance. These upgrades were finished and successfully tested in
May 1999.
Basic Library Services - TACTech had evaluated its basic library services
software for Year 2000 readiness and concluded that this software was only
partially Year 2000 compliant. TACTech determined that an operating system
software upgrade and compiler upgrade were necessary to bring this software to
Year 2000 compliance. This upgrade was completed and successfully tested in May
1999.
Internal IT Systems
TACTech has evaluated all of its internal IT Systems software and has
performed the necessary upgrades or modifications to ensure that 100% of its
systems are fully Year 2000 compliant.
TACTech has evaluated all of its internal IT Systems hardware that is
critical for continued business operations and has determined that it falls into
the following categories:
a) Approximately 80% of its hardware is fully Year 2000 compliant.
b) Approximately 20% of its hardware is not fully Year 2000 compliant
and will require manually setting the date to January 1, 2000. This
fix is easily performed on any system after January 1, 2000. For
continued business operations, this equipment is considered to be
Year 2000 compliant.
Telecommunications Systems
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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 actively requesting Year 2000 compliance certificates from its
vendors. TACTech has grouped its vendor list into high, medium, and low risk
groups depending on the potential impact to TACTech if the vendor is not Year
2000 compliant. To date, TACTech has received responses as illustrated in the
following table:
High Risk Vendors 100%
Medium Risk Vendors 55%
Low Risk Vendors 26%
Not every vendor who replied is fully 100% Year 2000 compliant. However,
all vendors have stated they will be fully compliant by year's end.
Customer Compliance
TACTech is also requesting similar compliance certifications from its
customers. To date, TACTech has received responses from 60% of its customers.
TACTech cannot guarantee that all of 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 are Year 2000
compliant, 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 the basic TACTech library service and by its more
robust 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.
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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 customer's site or at TACTech, direct telephone data transmission
will continue to be available.
In the event that one or more of TACTech's vendors does not appear that
they will be Year 2000 compliant in time, TACTech will take steps to determine
the business risk to TACTech this vendor represents, and will take the
appropriate action at that time. Such action may include terminating the
relationship with the vendor and establishing a relationship with a different
vendor that provides similar goods or services and is also Year 2000 compliant.
Subsequent Events
Possible Acquisition Terminated.
During the 1999 fiscal year and for a few months thereafter, TACTech had
been engaged in substantive discussions concerning a possible merger with and
into another entity, as a result of which the shareholders of TACTech would have
received a combination of cash and shares of common stock of the acquiring
company having an aggregate value of approximately $21 per TACTech share. Late
in the summer of 1999, negotiations relating to the possible merger were
terminated when the Company's controlling shareholders advised the TACTech board
of directors that they would not agree to the contemplated transaction and when
the board determined that (1) volatility in the market price of the shares of
the potential acquiror since the inception of the negotiations could jeopardize
the value the board had originally hoped the TACTech shareholders would receive;
and (2) the Company could generate greater shareholder values by remaining
independent and proceeding to develop its long-term strategic plan, particularly
in light of the new market opportunities presented by the Company's expanded
focus and the potential relationship with SAP and its other portal development
partners.
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