UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------
FORM 10-QSB
(MARK ONE)
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF EXCHANGE ACT
COMMISSION FILE NUMBER 000-31213
TEK DIGITEL CORPORATION
-----------------------
(Name of small business issuer as specified in its charter)
WYOMING 84-1465503
------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
20030 CENTURY BOULEVARD, SUITE 201
GERMANTOWN, MARYLAND 20874
--------------------------
(Address of principal executive offices)
(301) 916-7600
--------------
(Issuer's telephone number)
----------------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period 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
As of September 30, 2000, 22,954,500 shares of Common Stock were issued and
outstanding.
Transitional Small Business Disclosure Format (check one): [ ] Yes [x] No
<PAGE>
TEK DIGITEL CORPORATION
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999.......................................1
Consolidated Statement of Operations for the Three and
Nine Months Ended September 30, 2000 and 1999...............2
Consolidated Statement of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999...........................3
Notes to Consolidated Financial Statements.....................4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................12
Item 2. Changes in Securities and Use of Proceeds.....................12
Item 3. Defaults Upon Senior Securities...............................12
Item 4. Submission of Matters to a Vote of Security Holders...........12
Item 5. Other Information.............................................12
Item 6. Exhibits and Reports on Form 8-K..............................12
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
TEK DIGITEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, September 30,
1999 2000
---- ----
Assets
Current Assets:
Cash $ 477,682 $ 323,081
Accounts receivable 34,385 135,713
Inventory 371,432 462,591
Prepaid expenses and other current assets 171,563 70,799
----------- -----------
Total Current Assets 1,055,062 992,184
Property and equipment, net 66,877 88,547
Other assets 102,973 121,532
----------- -----------
$ 1,224,912 $ 1,202,263
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 169,873 $ 349,729
Accrued expenses 89,223 259,721
Unearned revenue 269,200 -
----------- -----------
Total Current Liabilities 528,296 609,450
----------- -----------
Commitments and Contingencies - -
Stockholders' Equity:
Preferred Stock, no par value, 20,000,000
shares authorized, of which 2,100,000 has
been designated as convertible Series A
voting preferred stock. At both
December 31, 1999 and September 30, 2000,
2,066,667 shares of convertible Series A
voting preferred stock were issued and
outstanding. 435,798 435,798
Common stock no par value, 50,000,000 shares
authorized, 18,949,500 and 22,954,500
shares issued and outstanding at
December 31, 1999 and September 30, 2000,
respectively. 3,362,353 5,562,853
Other - stock options 631,325 654,242
Deferred compensation (343,438) (195,926)
Accumulated deficit (3,389,422) (5,864,154)
----------- -----------
Total Stockholders' Equity 696,616 592,813
----------- -----------
$ 1,224,912 $ 1,202,263
=========== ===========
See accompanying notes to the consolidated financial statements.
2
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<TABLE>
<CAPTION>
TEK DIGITEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended For the nine months ended
September 30, September 30,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product sales $ 33,414 $ 420,111 $ 41,214 $ 616,101
License revenue 100,000 - 150,000 -
Contract sales 8,000 - 8,000 -
----------- ----------- ------------ ------------
Total revenue 141,414 420,111 199,214 616,101
----------- ----------- ------------ ------------
Operating expenses:
Cost of sales 37,873 312,292 46,322 465,762
Sales and marketing 199,602 285,850 331,274 746,060
General and administrative 117,595 329,593 466,448 976,241
Research and development 215,716 284,779 823,881 925,948
----------- ----------- ------------ ------------
Total operating expenses 570,786 1,212,514 1,667,925 3,114,011
----------- ----------- ------------ ------------
Loss from operations (429,372) (792,403) (1,468,711) (2,497,910)
Other income (net) - 5,618 - 23,178
----------- ----------- ------------ ------------
Net loss $ (429,372) $ (786,785) $ (1,468,711) $ (2,474,732)
=========== =========== ============ ============
Net loss per share:
Basic and diluted $ (0.03) $ (0.04) $ (0.10) $ (0.11)
=========== =========== ============ ============
Weighted average common shares
Outstanding 14,528,305 21,566,124 14,528,305 21,566,124
=========== =========== ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
3
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TEK DIGITEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1999 2000
---- ----
Cash Flows From Operating Activities
Net loss $ (1,468,711) $ (2,474,732)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 11,547 27,431
Amortization of deferred compensation 63,809 147,512
Issuance of common stock to employees
for services 3,150 -
Stock options issued for services 182,676 22,917
Changes in operating assets and liabilities
Increase in accounts receivables (18,755) (101,328)
Increase in inventory (292,301) (91,159)
(Increase) decrease in prepaids and
other current assets (116,850) 100,764
Decrease (increase) in other assets 33,800 (18,559)
Increase in accounts payable 368,751 179,856
Increase in accrued expenses 26,349 170,498
Increase (decrease) in unearned revenue 274,600 (269,200)
------------ ------------
Net cash used in operating activities (931,935) (2,306,000)
------------ ------------
Cash Flows From Investing Activities
Purchases of property and equipment (15,119) (49,101)
------------ ------------
Cash Flows From Financing Activities
Proceeds from issuance of common stock units 548,127 -
Proceeds from the exercise of stock purchase
Warrants 413,795 2,200,000
Proceeds from exercise of stock options 3,250 500
------------ ------------
Net cash provided by financing activities 965,172 2,200,500
------------ ------------
Net change in cash and cash equivalents 18,118 (154,601)
Cash at beginning of year 136,379 477,682
------------ ------------
Cash at end of year $ 154,497 $ 323,081
============ ============
See accompanying notes to the consolidated financial statements.
4
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TEK DIGITEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(Unaudited)
1 - BASIS OF PRESENTATION
The Company is a state-of-the-art technology company that develops and
manufactures internet access devises used by service providers to offer
integrated voice/data services to the small and medium business and SOHO
marketplace. In addition, the Company has developed the software and
services necessary to help them deploy and manage these devises and offer
sophisticated voice services to their customers.
TEK DigiTel Corporation (the "Company") was formed as ATC Group LLC in
December 1995. In July 1998, the Company merged with and into ATC Group,
Inc. a wholly-owned subsidiary of Diversified Technologies, Inc.
(Diversified). The merger was in effect a re verse acquisition, and was
accounted for as a recapitalization. The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, ATC
Group, Inc. (ATC Inc.). Intercompany accounts and transactions have been
eliminated in consolidation.
In the opinion of the Company's management, the interim consolidated
financial statements include all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the results for
the interim periods. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The interim
consolidated financial statements should be read in conjunction with the
Company's December 31, 1999 audited financial statements included with the
Company's filing on Form 10-SB filed with the Securities and Exchange
Commission on August 2, 2000 and amended on October 18, 2000. The interim
operating results are not necessarily indicative of the operating results
for the full fiscal year.
As shown in the accompanying financial statements, the Company has incurred
operating losses since its inception, and has accumulated a deficit of
$5,864,154 at September 30, 2000. The Company's continued existence is
dependent upon its ability to develop profitable operations, successfully
introduce its products to market and if necessary, obtain additional
financing to fund future operations. An existing investor in the Company
currently holds exercisable warrants for the purchase of an additional
2,000,000 shares of the Company's common stock for $1,300,000. Management
believes that this investor will exercise this warrant during 2000, even
though it does not expire until August 2001. In addition, management
believes that cash on hand, proceeds from the warrants exercised during the
nine months ended September 30, 2000, detailed in Note 2 below, and cash
flow from operations will be sufficient to meet its operating needs through
December 31, 2000, even without the exercise of the currently outstanding
warrant.
2 - STOCKHOLDERS' EQUITY
On October 18, 1999, the Company entered into a Private Placement Agreement
for the sale of 2,000,000 units under an exemption from registration
provided by Regulation S with an individual for $0.50 per unit. Each unit
consists of one share of the Company's common stock, and four warrants,
Class D, E, F, and G exercisable at various dates through August 31, 2001.
The Class D and Class E warrants are exercisable at $0.50 per share, the
class F warrant is exercisable at $0.60 per share, and the class G warrant
is exercisable at $0.65 per share.
As of September 30, 2000, this investor had exercised the Class D, E and F
warrants, investing an additional $3,200,000 for the purchase of 6,000,000
shares. The outstanding Class G warrant is currently exercisable.
On September 11, 2000, the Company terminated its President, Mr. DiCarlo,
and three consultants. In connection with the termination of these
individuals, the Company extended the expiration period of previously vested
options for the purchase of 333,334 shares of its common stock, exercisable
at $0.10 per share for
5
<PAGE>
300,000 shares and $0.60 for 33,334 shares, for one year. The Company
considers the modification to the terms of these vested options to have
created a new measurement date. As such, the Company recorded additional
compensation expense of approximately $39,000 representing the difference
between the calculated fair market value, using the Black-Scholes model, for
these options, less an amount previously expensed at $153,000.
In addition, the Company extended the vesting period for options to purchase
up to 1,950,000 shares of its common stock previously granted to Mr. DiCarlo
and another consultant for one year. These options vest only on the
achievement of certain quarterly sales goals that the Company does not
currently believe will be achieved during the one year extension. As such,
due to the contingent nature of the vesting of these options, the Company
has recorded no related compensation expense.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements made by our management may be considered to be
"forward-looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements are based on various
factors and assumptions that include known and unknown risks and
uncertainties. The words "believe," "expect," "anticipate" and "project,"
and similar expressions identify forward-looking statements, which speak
only as of the date the statement was made. Such statements may include,
but not be limited to, projections of revenues, income or loss, expenses,
plans, as well as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Future results could differ materially
from those described in forward-looking statements as a result of the risks
set forth in the following discussion, among others.
Our financial statements have been presented on a going concern basis, which
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. The Company has experienced
losses since its inception. Although we expect operating results to
improve, there can be no assurances that we will not experience adverse
results of operation in the future.
Our common stock is currently traded on the Pink Sheets, a service operated
by the National Quotation Bureau's Electronic Quotation Service under the
trading symbol "TEKI". On August 2, 2000 the Company filed a Form 10-SB,
which included audited financial statements. Upon approval of our Form
10-SB by the Securities and Exchange Commission we will request Nasdaq to
reinstate our listing on the OTC Bulletin Board.
On the following pages we present management's discussion and analysis of
financial condition and results of operations. You should read this
information in conjunction with our consolidated financial statements and
notes included in our Form 10-SB regist ration statement, as amended. The
following financial review is presented on a consolidated basis and is
intended to provide a comparison of our financial performance for the
nine-month periods ended September 30, 2000 and 1999.
OVERVIEW
TEK DigiTel Corporation, formerly known as Diversified Technologies, Inc.,
is a Wyoming corporation with a limited operating history. Our wholly-owned
Maryland operating subsidiary, ATC Inc., was incorporated in June 1998 to
facilitate the merger with and conversion of ATC LLC into a corporate
entity. We are a hardware technology equipment developer that provides
integrated communication solutions for the small to medium size enterprise
and small office/home marketplace. By integrating traditional PBX
technology with data routing, the latest advances in VoIP technology and
sophisticated Linux based server technology, we are producing Internet
access devices used by the new generation of service providers to deploy
integrated voice, fax and data services to their customers.
We have a limited operating history on which to base an evaluation of our
business and prospects. Similar to other companies in their early stages of
development, and particularly for companies in the rapidly evolving
technology industry, our prospects must be considered in light of the risks
frequently encountered. We set forth what we believe to be the risks in the
"Risk Factor" section of the Form 10-SB and 10-SB/A we filed with the
Commission, to which the reader is referred. To address these risks, we
must, among other things, successfully continue to develop and execute our
business and marketing plan, continue to expand and otherwise improve our
products, and increase our operating infrastructure. We can provide no
assurances that we will be successful in addressing the risks we face, and
the failure to do so could prevent us from being successful.
The following table lists in chronological order, some of the major
milestones we have accomplished during the evolution of our company and our
products. The table is not meant to be all-inclusive, but merely serves to
highlight our progress.
7
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DATE MAJOR MILESTONE
December 1995 Formed ATC LLC, the predecessor company to TEK DigiTel.
February 1998 Completed the prototype of our router product. Installed, for
evaluation and alpha field trial purposes, our first
V-Server iGATE product, in Mongolia.
July 1998 ATC LLC merged with Diversified Technologies, Inc., changed
its name to TEKDigiTel and became a public company listed
on the OTC BB.
February 1999 Completed our first prototype of the V-Server iGATE product.
Installed, for evaluation and field trial purposes, our
first V-Server iGATE product in Asia.
March 1999 First beta test of the iGATE product initiated in North
America, Canada and several European countries.
May 1999 Began sales of our V-Server products.
July 1999 Entered into a business relationship with ePHONE in which
ePHONE agreed to purchase 500 of our iGATE products.
October 1999 Launched the Pronto service package to help ISP's and CLEC's
deploying iGATE massively.
November 1999 Beta test initiated in Asia including Taiwan, Hong Kong,
China and New Zealand.
September 2000 Beta test completed in most of the countries participating.
Announced OfficeBuilder product with embedded PBX function.
July 2000 Latest software version released. Ready for mass deployment
of iGATE product.
August 2000 Filed SEC Form 10-SB in order to become an SEC-reporting
company and to regain our listing on the OTC BB.
August 2000 Delivered the last of the 500 iGATES ordered by ePHONE in
July 1999.
August 2000 ePHONE placed purchase order for 1,000 additional iGATES.
September 2000 Arelnet placed an order for 5,000 iGATES.
We incurred net operating losses in each period since our inception; and, we
expect to incur additional losses for the foreseeable future, primarily as a
result of our building the corporate infrastructure necessary for continued
product development and enhancement, for increased sales and marketing
efforts and for research activities. As of September 30, 2000, we had
accumulated a deficit of approximately $5,864,000.
We believe that our success depends, in large part, on our ability to create
market awareness and acceptance for our products, raise additional operating
capital to grow operations, build technology infrastructures and continue
product research and development.
Currently, our primary source of revenues is from the sale of our V-Server
products. We are also investigating other applications for the V-Server
products and marketing channels. The principal end-users of our products
and solutions are small and medium enterprise users. We strategically
partner with Internet service providers, including traditional and new
telecommunications carriers, in order to distribute our products to the
end-users.
8
<PAGE>
We also maintain a direct sales organization, OEM relationships and value
added resellers for sales targets other than service providers.
Since the introduction of our V-Server products to market, we have generated
a significant percentage of our revenues through several of our strategic
partners, including ePHONE, Centrecom and Arelnet. We are currently highly
dependent upon the sales of our products to a small number of customers.
Our sales to ePHONE, Centrecom and Arelnet, three of our major customers,
represented 80% of our product sales revenue during the nine months ended
September 30, 2000.
We believe that our current dependency on a few customers is due to the
recent introduction of our V-Server products to market. We are planning to
restructure and expand our direct sales force and develop an indirect sales
channel, targeting VARs and OEMs. We also plan to continue to expand our
global distribution channels. We currently have strategic alliances with
Centrecom, ePHONE, DialDigital and Centrepoint Technologies; and, we intend
to continue to pursue additional relationships with other companies in the
future.
The market for our products and solutions is in the early stages of
development and is characterized by rapid technological change, evolving
industry standards, changes in end-user requirements, intense competition by
more established industry participants and frequent new product
introductions and enhancements. As is typical in the case of new and
rapidly emerging technologies, demand and market acceptance are subject to a
high level of uncertainty. Broad acceptance of our products by customers
and end-users is critical to our success and ability to generate revenues.
RECENT DEVELOPMENTS
Our primary focus in the first nine months of 2000 was to finalize the
development of the manufacturing methods that enable us to achieve high
volume production (in excess of 5,000 units per month). In addition, we
significantly expanded our marketing effort on establishing the Pronto
brand awareness and reseller readiness. We anticipate incurring increasing
sales and marketing costs during the future. We have also conducted product
field trials in additional countries in Asia, Europe and South America.
This effort is time consuming, but necessary, since the local
telecommunication environment may be quite different from country to
country.
We developed the Pronto brand package, which includes all the essential
materials, such as a business plan and marketing collateral, to enable a
service provider to launch a telephony service. In addition, we established
agreements with telephone resellers like Centrecom and ePHONE to bundle
their services with our solution. We plan to work with our current
telephony service partners, Centrecom, NexBell, ePHONE, Spiritec and ACS
Compro to offer Pronto services to all ISPs interested in selling voice
services.
The first prototype of the PBX version of the product, OfficeBuilder, a
co-development with Centrepoint Technologies, is currently being tested. We
expect this product to move into commercial production in the fourth quarter
of 2000. Initial customer trials are scheduled in the fourth quarter of
2000.
In addition to minor enhancements to these platforms, we plan to undertake
the development of a new base platform which will be capable of supporting
up to 30 VoIP calls simultaneously. This development is targeted for the
fourth quarter of 2000.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2000 Compared with Nine Months Ended
September 30, 1999
We recorded revenues from product sales of $616,101 and $41,214 for the nine
month periods ended September 30, 2000 and 1999, respectively. Units
purchased during the nine months ended September 30, 1999 were purchased
primarily to evaluate our product.
9
<PAGE>
During the nine months ended September 30, 2000, the majority of our product
sales were generated through our direct sales organization. As discussed
above, we are in the process of expanding our sales and marketing efforts
and our global distribution channels through the development of indirect
sales channels and the expansion of our direct sales force.
Our cost of product sales for the nine months ended September 30, 2000 was
$465,762 and our gross margin for that period was $150,339. During the nine
months ended September 30, 1999, our cost of product sales exceeded our
sales revenue by $5,108. Our initial negative gross margin was due to an
immature production process which we have since corrected.
We use contract manufacturers for the assembly of our products. As such,
the focus of our employees and equipment is not on our manufacturing process
but on research and development and quality control. We have used several
manufacturers in the past and believe there are many manufacturers that can
assemble our products. We do not have any fixed or long-term agreements
for the assembly of our products. The contract manufacturer charges us on a
per unit basis for assembly and quality control functions, which we include
in our costs of sales.
During 2000, as we increased the number of units we produced, we recognized
cost savings from the purchase of larger quantities of component parts and
from a general maturing of the production process.
Our sales and marketing expenses for the nine months ended September 30,
2000 and 1999 were $746,060 and $331,274, respectively. The increase in
sales and marketing expenses in all periods was primarily due to the
expansion of the Company's sales and marketing staff related to the
introduction of our products to market. We anticipate that our sales and
marketing expenses will continue to increase in future periods as we
continues to build our direct sales force and expand our distribution
channels and marketing activities. In September 2000, we decided to
relocate our sales and marketing function from Canada to our Maryland office
and we terminated all of our sales and marketing consultants located in
Canada, including Mr. Rocco DiCarlo, our President. We do not believe that
the termination of these individuals will have an impact on our future sales
or marketing efforts.
Our general and administrative expenses for the nine months ended September
30, 2000 and 1999 were $976,241 and $466,448, respectively. The increase in
general and administrative expenses during 2000 was due to the expansion of
our corporate infrastructure primarily through the addition of personnel, as
well as increased legal and accounting fees incurred in preparation of our
Form 10-SB and amendments thereto. While we anticipate professional fees
will decrease in the future as a percent of revenue, we expect overall,
that our general and administrative costs will continue to increase in 2000
and beyond, as we implement our business plan and expand our employee base.
Following our costs related to payroll and related expenses, the greatest
costs we incurred during the nine months ended September 30, 2000, was
related to legal and accounting fees incurred in the preparation of the
necessary documentation to comply with the NASD's OTC BB eligibility rules
and the filing of our Form 10-SB and amendments thereto. We expect our
legal and accounting costs to decrease from those incurred in the first nine
months of 2000.
Our research and development expenses for the nine months ended September
30, 2000 and 1999 were $925,948 and $823,881, respectively. We are
continuing to expend efforts on the development efforts on our V-Server
products. We anticipate that research and development expenses will
increase in future periods as we expand our existing research and
development programs in order to enhance our products and develop new
products.
We did not make any provision for federal or state income taxes for the
period from our inception due to our operating losses. At September 30,
2000 and 1999, we had net operating loss carry forward for income tax
purposes. A valuation allowance has been established and, accordingly, no
benefit has been recognized for our net operating losses and other deferred
tax assets.
10
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LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the sales of
equity securities in private placements; and, since that date through
September 30, 2000, we have raised approximately $4,700,000. During the
nine months ended September 30, 2000, we sold 4,005,000 shares of our
common stock for $2,200,500. As of September 30, 2000, we had $323,081 in
cash. We currently have no bank loans or any available lines of credit for
our use.
Net cash used in operating activities during the nine months ended September
30, 2000 and 1999 was $2,306,000 and $931,935, respectively. The net cash
used in operating activities was related to our expansion and funding of our
research and development and sales and marketing activities as well as our
corporate infrastructure.
Net cash used in investing activities during the years ended September 30,
2000 and 1999 was $49,101 and $15,119, respectively, for the purchase of
computer and test equipment and office furniture.
Net cash provided by financing activities for the nine months ended
September 31, 2000 was $2,200,500. The proceeds during this period resulted
from an individual who exercised the Class E and F warrants for 4,000,000
shares and the exercise of stock options by employees for the purchase of
5,000 shares of common stock for $500.
Net cash provided by financing activities for the nine months ended
September 30, 1999 was $965,172. The proceeds during this period resulted
from (i) the sale of 1,125,000 common stock for $548,127, (ii) the exercise
of stock options by employees for the purchase of 32,500 shares of common
stock for $3,250, and (iii) the exercise of previously issued common stock
purchase warrants for 2,377,024 shares of our common stock for $413,795.
We have no material commitments other than those under office and equipment
operating leases. As a result of the expansion of our research and
development and sales and marketing activities, capital expenditures may
increase in future periods primarily due to the purchase of computer and
test related equipment. Based on our present plans and assumptions, our
current cash balances will not be sufficient to enable us to sustain our
current and planned operations for the next 12 months. As such, we will
require additional funding to continue operations at planned levels for the
next 12 months. Additional funding, whether obtained through public or
private debt or equity financing or from strategic alliances, may not be
available when needed or may not be available on terms acceptable to us.
Failure to secure additional financing, if and when needed, may have a
material adverse effect on our business, financial condition and results of
operations.
We may, until we become financially self-sufficient, need to moderate our
activities to fit the funds we have available. We anticipate the proceeds
from the sale of the currently outstanding warrants will be sufficient to
fund all of our equipment purchases and operating capital requirements for
at least the next year.
We are currently generating positive cash flow from the sale of our iGATE
products before overhead allocation. As we expand our sales and marketing
efforts to sell our V-Server family of products and services, we have begun
to generate additional revenues and believe that our revenues will continue
to increase as we implement our business plan.
We currently lease, and plan to continue to lease, all facilities. During
the remainder of 2000, we anticipate that our capital expenditures for
laboratory and diagnostic equipment, software licenses and prototypes of our
products under development will be approximately $370,000.
11
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NEW ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities", or SFAS 133. SFAS 133 requires us to
recognize all derivatives on the balance sheet at fair value. Derivatives
that are not hedges must be adjusted to fair value through net income. If
the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of the derivative are either offset against the change in
fair value of assets, liabilities, or firm commitments through earnings or
recognized in the other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of the derivative's change
in fair value will be immediately recognized in earnings. SFAS 133 is
effective for our fiscal year ending December 31, 2001. We do not currently
hold any derivatives and do not expect this pronouncement to materially
impact our results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". The SAB expresses the SEC's views on applying generally
accepted accounting principles to revenue recognition in financial
statements. The application of the SAB did not have a material impact on
our financial statements, however, certain SEC staff interpretations of the
SAB have not been published and may have an effect on the applicability of
the SAB in relation to our consolidated financial statements.
In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25". With the exception
of certain provisions that required earlier application, this interpretation
is effective for all applicable transactions beginning July 1, 2000. We do
not expect that the adoption of this interpretation will have a material
impact on our financial statements.
12
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PART II - OTHER INFORMATION
Item 1. Legal proceedings - None.
Item 2. Changes in securities and use of proceeds - None.
Item 3. Defaults upon senior securities - None.
Item 4. Submission of matters to a vote of security holders - None.
Item 5. Other information - None.
Item 6. Exhibits and reports on Form 8-K
A. Exhibits
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule (filed herewith).
B. Reports on Form 8-K:
None
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TEK DigiTel Corporation
(Registrant)
By: /s/ Enghe Chimood Date: November 14, 2000
---------------------------
Enghe Chimood, President
and Chief Executive Officer
13
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