U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter 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 1-11568
TADEO HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-4228470
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
42705 Grand River Avenue - Suite 20
Novi, Michigan 48375
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (248) 344-9599
Check whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
The number of shares outstanding of the issuer's Common Stock, $.0001
par value, as of February 12, 1999 was 15,042,813.
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TADEO HOLDINGS, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet - December 31, 1998
and June 30, 1998 3
Consolidated Statement of Operations - For the three
and six months ended December 31, 1998 and 1997 4
Consolidated Statement of Cash Flows - For the
six months ended December 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6 - 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 11 - 14
- ----------------------------------
PART II - OTHER INFORMATION 14
SIGNATURE 15
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TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, June 30,
ASSETS 1998 1998
<S> <C> <C>
CURRENT ASSETS:
__________ ___________
Cash $ 1,326,467 $ 2,575,356
Accounts receivable 241,800 11,550
Interest receivable 281,997 276,005
Note receivable - officer 0 162,627
__________ ___________
TOTAL CURRENT ASSETS 1,850,264 3,025,538
LONG--TERM NOTE RECEIVABLE ( face value $17,000,000) 6,000,000 6,000,000
MARKETABLE SECURITIES 2,000,000 0
PROPERTY AND EQUIPMENT
net of accumulated depreciation of $36,383 and $25,976, respectively 83,619 79,966
CAPITALIZED SOFTWARE COSTS, net 902,378 696,871
DEFERRED FINANCE COSTS 52,075 67,079
DEPOSITS AND OTHER ASSETS 43,058 43,058
__________ ___________
$ 10,931,394 $ 9,912,512
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 415,525 $ 451,106
Accrued expenses 131,196 150,425
Notes payable - current portion 95,727 163,260
State audit reserves 700,000 700,000
Current portion of long-term debt 0 640,593
Accrued termination costs, short-term 336,030 784,053
__________ ___________
TOTAL CURRENT LIABILITIES 1,678,478 2,889,437
ACCRUED TERMINATION COSTS, long-term 225,000 280,209
LONG TERM NOTES PAYABLE, net of current portion 361,779 23,260
REDEEMABLE PREFERRED STOCK, Series A 0 1,219,141
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, Series B Cumulative Convertible, $.0001 par value,
10,000,000 shares authorized, 1,000,000 shares issued and outstanding 505,000 505,000
Common stock, $.0001 par value, 40,000,000 shares authorized, 15,042,813 shares
issued and outstanding as of December 31, 1998 1,504 972
Additional paid-in capital 17,797,413 14,115,443
Accumulated earnings/(deficit) (9,637,780) (9,120,950)
__________ ___________
TOTAL STOCKHOLDERS' EQUITY 8,666,137 5,500,465
__________ ___________
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 10,931,394 $ 9,912,512
========== ===========
See notes to consolidated financial statements.
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TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended December 31, Six Months Ended December 31,
------------------------------- -----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES 603,634 220,488 967,228 348,529
COST OF GOODS SOLD 101,895 71,126 285,749 171,758
--------- --------- --------- ---------
GROSS PROFIT 501,739 149,362 681,479 176,771
--------- --------- --------- ---------
OPERATING EXPENSES:
Selling, general and administrative 741,896 788,701 1,303,393 1,527,835
Research and development 31,248 14,460 62,496 29,460
Depreciation and amortization 4,242 3,760 10,408 6,988
--------- --------- --------- ---------
TOTAL OPERATING EXPENSES 777,386 806,921 1,376,297 1,564,283
--------- --------- --------- ---------
SETTLEMENT OF EMPLOYMENT CONTRACTS,
(NON-CASH) 0 0 327,501 0
--------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS (275,647) (657,559) (1,022,319) (1,387,512)
INTEREST INCOME, net 274,669 0 532,777 929
--------- --------- --------- ---------
NET LOSS (978) (657,559) (489,542) (1,386,583)
======== ========= ========= =========
NET LOSS PER SHARE - basic and diluted (0.0) (0.7) (0.4) (0.15)
======== ========= ========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 10,399,799 9,724,579 12,459,027 9,724,579
======== ========= ========= =========
See notes to consolidated financial statements.
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TADEO HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
------------------------------------------
1998 1997
--------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/( loss) $ (489,542) $ (1,608,932)
--------------- ------------
Adjustments to reconcile net income/(loss) to net cash from
operating activities:
Depreciation 10,408 334,653
Amortization of deferred finance costs and debt dsicount 37,853 0
Amortization of Capitalized software costs 244,989 19,212
Settlement of employment contracts,
(non-cash) 327,501 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (230,250) 765,680
(Increase) in interest receivable (5,992) 0
Additions to capitalize software costs (1,147,367) (288,573)
Decrease in prepaid expenses 0 1,165
(Increase) in deferred finance costs (108,000) 0
Decrease in other assets 0 7,905
(Decrease) Increase in accounts payable (35,581) 151,048
(Decrease) Increase in accrued expenses (19,229) 422,935
(Decrease) in accrued termination costs (503,232) 0
--------------- ------------
Total adjustments (1,428,900) 1,414,025
--------------- ------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,918,443) (194,907)
--------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (120,002) (131,984)
--------------- ------------
NET CASH (USED IN) INVESTING ACTIVITIES (120,002) (131,984)
--------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (67,533) 0
Repayment/(Issuance) of related party loans 162,627 0
Proceeds from debt financing 818,567 343,306
Borrowing of revolving credit line 0 197,819
Net proceeds from (repayment of) long-term debt (302,074) (107,021)
Net proceeds from the sale of Common Stock 205,256 2,005
Dividends paid on Series A Preferred Stock (27,288) (98,228)
Redemption of Series A Preferred Stock 0 (240,103)
--------------- ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 789,555 97,778
--------------- ------------
NET INCREASE (DECREASE) IN CASH (1,248,889) (229,113)
CASH AT BEGINNING OF PERIOD 2,575,356 904,062
--------------- ------------
CASH AT END OF PERIOD $ 1,326,467 $ 674,949
=============== ============
See notes to consolidated financial statements.
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Six Months Ended December 31,
-------------------------------
1998 1997
------------- ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
<S> <C> <C>
Cash paid during the period for interest and finance charges $ 0 $ 260,119
During the six months ended December 31, 1998, the Company paid
approximately $390,000 in income taxes applicable to the year ended June 30,1998
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TADEO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - December 31, 1998
(UNAUDITED)
1. Basis of Presentation
Reference is made to the annual report on form 10-K of Tadeo Holdings,
Inc. (the "Company") dated October 13, 1998 for the year ended June 30, 1998.
The accompanying financial statements reflect all adjustments which, in
the opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented. Except
as otherwise disclosed, all such adjustments are of a normal and recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results attainable for a full fiscal year.
2. Loss Per Share
Loss Per Share is based on the weighted average number of common shares
outstanding during each period. Potential common shares are included in the
computation of diluted per share amounts outstanding during each period.
Potential common shares are not included for loss periods as such inclusion
would be anti-dilutive.
3. Marketable Securities
On September 24, 1998, the Company completed a Stock Purchase
Agreement, between Multimedia Access Corporation (MMAC) and Tadeo (the "Purchase
Agreement"). MMAC purchased $2,000,000 worth of Tadeo Common Stock for
$2,000,000 worth of MMAC Common Stock. The Company issued 1,240,310 shares of
Tadeo Common Stock at the sale price of $1.6125 per share and received 1,000,000
shares of MMAC's Common Stock for the purchase price of $2.00 per share. The
Company is carrying MMAC's Common Stock at cost, approximately the market value.
In the case of each corporation, the number of shares issued was less than 20%
of the outstanding Common Stock of the issuer on September 24, 1998. The Company
plans on retaining the 1,000,000 shares of MMAC for investment purposes.
4. Business Acquisition
On October 27, 1998, the Company completed the acquisition of Astratek,
Inc., a New York corporation ("Astratek"). The Company acquired Astratek
pursuant to a merger (the "Merger") of Astratek Acquisition Corp. ("AAC"), a
wholly-owned subsidiary of the Company, with and into Astratek, with Astratek
becoming the wholly-owned subsidiary of the Company, as the surviving
corporation of the Merger. The Merger was effected in accordance with the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of October 23,
1998, among the Company, AAC, Astratek, and the shareholders of Astratek.
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Astratek develops software tools and related products for Internet and intranet
technology and provides consulting and professional services for several major
companies. As the Merger Consideration delivered to Astratek shareholders, the
Company issued 2,294,900 shares of the Company's common stock in exchange for
cancellation of all the issued and outstanding shares of the capital stock of
Astratek prior to the Merger and the issuance of 100 shares of Astratek common
stock to the Company post-Merger. The acquisition is accounted for as a pooling
of interests business combination.
5. Note Receivable - Officer
On November 25, 1998, the Note due from an Officer of the Company was
repaid, together with interest at 12% per annum.
6. Note Receivable - Other
On September 9, 1998, the Company loaned $250,000 to Azurel, LTD., a
Delaware corporation, in consideration for a $250,000 promissory Note from
Azurel, LTD with interest at 20.8% per annum. The Note was due on October 9,
1998, but was verbally extended until November 19, 1998. On November 19, 1998,
$200,000 of the Note due from Azurel, LTD was repaid together with interest at
20.8 per annum. On November 30, 1998, the Company loaned an additional $100,000
to Azurel, LTD in consideration for a $150,000 promissory Note from Azurel, LTD
with interest at 20.8% per annum. (which Note replaced the Note from Azurel, LTD
dated September 9, 1998).
7. Contingencies
Department of Health Services
The Company's wholly-owned subsidiary has undergone an audit by
representatives of the State of California, State Controller's Office, Division
of Audits. The purpose of the audit was to determine the level of the Company's
wholly-owned subsidiary's compliance with the guidelines of the California
Department of Health Services (Medi-Cal) and the California State Board of
Equalization. Representatives from the State Controller's Office have raised the
issue of whether the Company's wholly-owned subsidiary may have practiced
two-tier pricing policies in the charges to it's customers which are not in
conformance with Medi-Cal regulations. Under such regulations, a company may not
charge any customer prices less than those charged to the Medi-Cal program.
Based upon Management's independent review, the Company's wholly-owned
subsidiary maintains that it has conformed with pricing regulations because its
prices are consistent within each of its operating subsidiaries, Sugar Free and
Home Therapy, and because these two subsidiaries are offering different
services. The Company's Management further believes that the Medi-Cal program
was charged the "prevailing prices" charged for supplies, and that those charges
were in compliance with current regulations, and that the Representatives from
the Controller's Office compared prices for different services with different
delivery methods. The State Controller's Office contends that the reimbursement
was paid for products, and not for services, so the difference in pricing was
not warranted based upon the services rendered in conjunction with the products
delivered. In July 1994, the State Controller's Office issued
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an Auditor's Report with findings to the Department of Health Services ("DHS")
for the period beginning July 1, 1990 through June 30, 1993. The Report
recommends a recovery of approximately $1.3 million due to such alleged two-tier
pricing. In November 1994 the State Controller's Office issued Letter of Demand
for the recovery of such amounts due. In November 1994, the Company's
wholly-owned subsidiary appealed the audit determination made by the State
Controller's Office. In January 1996 a hearing was held before an Administrative
Law Judge. In July 1996 the Judge recommended that the overpayment determination
be upheld. In August 1996 the DHS adopted the recommendation of the Law Judge as
the final decision of the Director of DHS. In January 1997 the Company's
wholly-owned subsidiary filed an appeal to the decision with the Superior Court
for the County of Los Angeles. On January 4, 1999, the Superior Court held a
hearing on the issue and ruled at that time. On January 20, 1999, the Superior
Court recommended that the overpayment determination be upheld. In March 1999
the Company's wholly-owned subsidiary will file an appeal to the Superior
Court's decision with the California Court of Appeals. The Company's
wholly-owned subsidiary intends to vigorously contest any recovery by the State
with respect to such alleged improper pricing practices for services rendered.
Based upon the above contingency, the Company's wholly-owned subsidiary
has provided a reserve, in the event that a defense of its position does not
prevail, of $700,000. Management believes that a total estimated settlement
amount of $700,000, or 54% of the maximum amount demanded, is reasonable under
the circumstances with respect to this matter. Unless the California two-tier
pricing controversy is either settled or the related claims made by the State of
California otherwise released prior to the maturity date of the Note delivered
to the Company in partial consideration for the sale of assets pursuant to the
terms of the Transaction (see Note 1 above), then the principal of the Note
payable to the Company will be reduced by the amount then alleged to be owed to
the State of California with respect to such controversy.
On December 18, 1997, the Company's wholly-owned subsidiary underwent
an audit by the Medi-Cal program. The purpose and scope of the audit was to
determine if the Company's wholly-owned subsidiary's documentation supported
reimbursement of the $653,990 in various sizes of disposable insulin syringes
and $1,975,588 for blood glucose test strips that Medi-Cal had made to the
Company's wholly-owned subsidiary from November 1, 1994 to April 30, 1996. As of
June 9, 1998, DHS reported that its audit disputed reimbursement for an
aggregate of $75,356. The Company's wholly-owned subsidiary has made a
counteroffer of $50,000 to settle the case, but the DHS has rejected that offer.
The formal hearing on this matter has been scheduled for December 8, 1998. The
Company withdrew its appeal prior to the hearing based upon the settlement
amount, and has accepted the $75,356 as the final administrative decision.
Medicare Part B
The Company's wholly-owned subsidiary has undergone an audit by
Medicare covering the charges submitted for reimbursement in the Western region
(Region D) during the period January 1, 1994 through December 31, 1995. Medicare
determined that an overpayment to the Company's wholly-owned subsidiary may have
occurred as a result of the use of a superseded diagnosis code on claims
submitted. The claims in question were
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originally submitted to Medicare in order to gain a denial of charges so that an
alternative carrier could be validly billed, since a denial is required by
certain intermediaries prior to billing for certain charges. Medicare may have
inappropriately made reimbursements on these charges. In November 1996 Medicare
issued a demand for refund of $795,702 plus interest of $35,475. As of January
28, 1998 Medicare offset a total of $ 630,918 of the Company's claims for
payment. In the most recent correspondence from Medicare on this subject, it was
claimed that on March 31, 1997 the Company's wholly-owned subsidiary owed a
refund of $808,887, of which $795,701 was principal and $22,290 was accrued
interest. The Company rebilled Medi-Cal $732,853 in February 1997 and $62,849 in
March 1997.
The Company's wholly-owned subsidiary was previously the subject of an
investigation by Medicare for (I) Medicare's alleged overpayment for products
and services provided by the wholly-owned subsidiary and (ii) Medicare's payment
to the Company's wholly-owned subsidiary for claims which were allegedly not
properly subject to Medicare reimbursement. During fiscal 1995, Medicare
withheld $300,766 of payments due for claims reimbursement to cover previously
estimated liabilities resulting from this investigation. A further assessment
in the amount of $78,500 resulting from a continuation of this investigation has
been made, and that amount withheld in July 1996. The Company's wholly-owned
subsidiary went through an in-person hearing on May 28, 1997 to contest
Medicare's aggregate $379,000 of withheld reimbursements, and on July 28, 1997
the Company received a partially favorable Hearing Decision. The Company's
wholly-owned subsidiary received a refund on October 31, 1997, for $30,314 from
Medicare Part B based upon the partially favorable Hearing Decision. The
Company's wholly-owned subsidiary intends to appeal the partially unfavorable
amount of $348,686 from the Hearing Officer's decision and has retained counsel
to contest the decision in proceedings before an administrative law judge, where
it is now pending.
8. Termination Agreements
The Company entered into the following contracts subsequent to the
disposal of its business:
A. With a former operating officer commencing March 1998, aggregating
$485,000, payable in monthly installments of $7,633 through March 2003.
The Company has recorded the present value of this contract at
$359,265, with the balance being $311,092 at December 31, 1998.
B. With a former operating officer commencing March 1998, aggregating
$151,000, payable in monthly installments of $12,625 through February
1999. The Company has recorded the present value of this contract at
$143,603, with the balance being $24,938 at December 31, 1998.
C. With three former officers dated July 1998, aggregating
consideration of $862,498, with $385,000 paid in August 1998, $225,000
settled through the issuance of notes payable due January 2000, bearing
interest at 7% per annum and the $252,490 balance settled by exchanging
cash severance payments for the direct
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issuance of 168,332 shares of Common Stock (at $1.00 value per share)
and the exercise price of concurrently granted options to acquire
84,167 shares of Common Stock at $1 per share. The Company has accrued
the amounts related to theses contracts as of September 30, 1998.
9. Note Receivable
The Note is due from Gainor in connection with the sale of the
Company's business in January 1998. The Note has a face amount of $17,000,000
and is due in January 2003. The Note bears interest at the rate of 7% for the
first year and 8% per annum thereafter, with interest payable quarterly.
The Asset Purchase Agreement states that the Note is subject to
reduction by Gainor under each of the following circumstances:
A) A failure to obtain the requisite number of assignments of benefits
form former patients, with a maximum adjustment of $2,000,000.
B) The failure of Gainor to collect a minimum of $5.75 million of
purchased accounts receivable with the principal on the Note reduced by
any short-fall.
C) If 75% of the revenues achieved by the acquired business for the
year subsequent to closing (the "Post Closing Revenue") does not equal
at least $17,000,000 (the "Minimum Post Closing Revenues"), the
principal of the Note will be reduced by any short-fall between Post
Closing Revenue and the Minimum Post Closing Revenue.
In September 1998, Gainor notified the Company that the assignment of
benefits provision is currently at the maximum adjustment level of $2,000,000.
Gainor made a $559,800 downward adjustment to the Note principal, and granted an
extension until November 21, 1998 of the time for a sufficient number of
assignments of benefits to be received by Gainor in order to avoid further
downward adjustment to the Note principal. Gainor had previously reduced the
Note balance by approximately $145,000, for what were claimed to be unrecorded
purchase date accruals, as an adjustment to the closing balance sheet under the
Asset Purchase Agreement. In addition, Gainor notified the Company that as of
August 31, 1998, (I) its collection of receivables purchased from the Company
pursuant to the Asset Purchase Agreement were behind schedule such that, on an
annualized basis, collection would result in less than $5.75 million for such
account, and (ii) its generation of revenues from operation of the purchased
business was not as anticipated, both of which resulted in additional downward
adjustments to the Note principal under the terms of the Asset Purchase
Agreement.
As a result of the aforementioned, the Company has reduced the carrying
basis of the Note to $6,000,000 based on what management believes would be the
value of the Note if it were to be sold to an unrelated third party in an
arms-length transaction. The Company has therefore reduced the gain on the
disposal of the discontinued business by $11,000,000. However, the Company will
continue to vigorously pursue the full collection of the face amount of the Note
as well as all interest accrued.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Year 2000
The Company had no going operations during the first quarter of the
fiscal year. In October 1998, the Company acquired Astratek, Inc. ("Astratek").
Astratek, a wholly-owned subsidiary of the Company, develops software tools and
related products for Internet and Intranet technology and provides consulting
and professional services for several major companies. The Company will jointly
develop a business plan with Astratek's management to address potential problems
relating to year 2000 issues. The Company plans to work with its customers,
suppliers and third party service providers to identify external and internal
weaknesses and provide solutions which will prevent the disruption of Astratek's
business operations. Astratek is currently implementing a new accounting system
which is year 2000 compliant. The Company does not expect the cost of
implementation to have a material adverse effect on its future results of
operations, liquidity or capital resources.
Forward-Looking Statements
When used in the Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, the words or phrases "will likely
result" and "the Company expects," "will continue," "is anticipated,"
"estimated," "project," or "outlook" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, each of
which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. The
Company has no obligation to publicly release the result of any revisions which
may be made to any forward-looking statements to reflect anticipated or
unanticipated events or circumstances occurring after the date of such
statements.
General
On October 27, 1998, the Company completed the acquisition of Astratek,
Inc., a New York corporation ("Astratek"). The Company acquired Astratek
pursuant to a merger (the "Merger") of Astratek Acquisition Corp. ("AAC"), a
wholly-owned subsidiary of the Company, with and into Astratek, with Astratek
becoming the wholly-owned subsidiary of the Company, as the surviving
corporation of the Merger. The Merger was effected in accordance with the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of October 23,
1998, among the Company, AAC, Astratek, and the shareholders of Astratek.
Astratek develops software tools and related products for Internet and intranet
technology and provides consulting and professional services for several major
companies. As the Merger Consideration delivered to Astratek shareholders, the
Company issued 2,294,900 shares of the Company's common stock in exchange for
cancellation of all the issued and outstanding shares of the capital stock of
Astratek prior to the Merger and the issuance of 100 shares of Astratek common
stock to the Company post-Merger.
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As a result of the Astratek acquisition being accounted for as a
pooling of interest business combination, the historical pre-acquisition
financial results of Astratek are compared below with the Company's results of
operations for the three and six month periods ended December 31, 1998.
Results of Operations
The three months ended December 31, 1998 (the "1998 Three Month
Period") as compared to the three months ended December 31, 1997 (the "1997
Three Month Period")
Revenue for the 1998 Three Month Period was $603,634, an increase of
$383,146, or 173%, from the 1997 Three Month Period. Several factors are
contributing to this increase. Revenue associated with the Visual Audit product
that is sold by Viasoft increased $121,834 during the 1998 Three Month Period,
or a 100% increase over the 1997 Three Month Period, and revenue associated with
professional services provided to various clients increased by $261,313 during
the 1998 Three Month Period, or a 260% increase over the 1997 Three Month
Period.
Total cost of goods sold during the 1998 Three Month Period were
$101,895, representing costs of approximately 17% of revenue for the period,
while total cost of goods sold for the 1997 Three Month Period were $71,126 or
approximately 32% of revenue. This 15% favorable variance as a percent of
revenue is in part the result of increased Visual Audit product sales by Viasoft
and an increased operational awareness of recognizing capitalized software costs
and improving the process by which costs are tracked.
Selling, general and administrative expenses during the 1998 Three
Month Period decreased to $ 741,896, as compared to $788,701 during the 1997
Three Month Period. Contributing to the Company's favorable variance is the
capturing of capitalized software costs that were once recognized as expenses
aggregating $83,000.
Other income and expenses include interest income aggregating $293,213
and interest expense totaling $18,544, during the 1998 Three Month Period as
compared to the 1997 Three Month Period in which these items did not exist.
Net loss for the 1998 Three Month Period of $978 is primarily
attributable to the existence of total operating expenses without the increased
generation of operating revenues to offset such expenses.
The six months ended December 31, 1998 (the "1998 Six Month Period") as compared
to the six months ended December 31, 1997 (the "1997 Six Month Period")
Revenue for the 1998 Six Month Period was $967,228, an increase of
$618,699, or 178 percent from the 1997 Six Month Period. Several contributing
factors favorably impacted revenue: an increase of $178,835 in revenue during
the 1998 Six Month Period, or 149% increase from the 1997 Six Month Period from
Visual Audit sales and an increase of $439,864 in professional services fees
from clients during the 1998 Six Month Period.(a
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192% increase from the 1997 Six Month Period)
Total cost of goods sold during the 1998 Six Month Period were
$285,749, representing costs of approximately 30% of revenue for the period,
while total cost of goods sold for the 1997 Six Month Period were $171,758 or
approximately 49% of revenue. A contributing factor relates to the improved
process by which operations record and capture capitalized software costs as it
relates to consultants expenses during the 1998 Six Month Period. Additionally,
the favorable revenue realized during the 1998 Six Month Period as mentioned
above, contributes to lowering cost of goods sold by 3% for every $100,000 above
the revenue generated during the 1997 Six Month Period.
Total operating expenses during the 1998 Six Month Period decreased to
$1,376,297, or 142% of revenue, as compared to $1,564,283, or 449% of revenue,
during the 1997 Six Month Period. As mentioned above, a contributing factor
relates to the improved process by which operations record and capture
capitalized software costs as it relates to salary expenses during the 1998 Six
Month Period.
Other income and expenses include interest income of $570,630 during
the 1998 Six Month Period compared to $929 during the 1997 Six Month Period.
Interest expense was $37,853 during the 1998 Six Month Period and during the
1997 Six Month Period the expense did not exist.
Net loss for the 1998 Six Month Period of $489,542 is primarily
attributable to the losses from operations, in the amount of $694,818, and the
non-cash transaction of $327,501.
Liquidity and Capital Resources
As of December 31, 1998, the Company had working capital of $171,786,
compared to working capital of $136,101 at June 30, 1998. The increase in
working capital during the 1998 Six Month Period is primarily due to an increase
in interest receivable and accounts receivable.
Cash used in operations during the 1998 Six Month Period was $1,918,443
as compared to cash used by operations of $194,907 during the 1997 Six Month
Period. This increase is partially attributable to a combination of: a lump sum
payment aggregating $385,000, a $252,490 balance settled by exchanging cash
severance payments for the direct issuance of 168,332 shares of Common Stock (at
$1.00 value per share) and the exercise price of concurrently granted options to
acquire 84,167 shares of Common Stock at $1 per share to Messrs. Brian
Bookmeier, Alan Korby and Matthew B. Gietzen; and severance payments aggregating
$53,433 to Edward Buchholz and $75,750 to Tod Robinson during the 1998 Six Month
Period.
An aggregate sum of 229,950 shares of Series A Redeemable Preferred
Stock, $.0001 par value per share (the "Series A Preferred Stock") was redeemed,
evidencing all outstanding shares of Series A preferred Stock during the 1998
Six Month Period. The Company was able to redeem the outstanding Series A
Preferred Stock due to an amendment
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<PAGE>
of its certificate of designations relating to the Series A Preferred Stock,
which outstanding shares without redemption would have obligated the Company to
pay $1,149,745 in aggregate redemption payments through March 2001. This
redemption has improved the Company's cash flow during the 1998 Six Month
Period.
The Company acquired Astratek, Inc. by merger on October 27, 1998.
Prior to consummation of this acquisition, the Company advanced working capital
funds to Astratek in the form of loans. The Company anticipates that it will
continue to supply working capital funding to Astratek in the future. Although
the Company and Astratek management are currently working to develop operating
budgets with respect to Astratek's future operations and its financing
requirements, at this time the amount and the timing of any future financing of
Astratek by the Company has not been finally determined.
PART II - OTHER INFORMATION
Item. 5. Other Information
On October 27, 1998, the Company completed the acquisition of Astratek,
Inc., a New York corporation ("Astratek"). The Company acquired Astratek
pursuant to a merger (the "Merger") of Astratek Acquisition Corp. ("AAC"), a
wholly-owned subsidiary of the Company, with and into Astratek, with Astratek
becoming the wholly-owned subsidiary of the Company, as the surviving
corporation of the Merger. The Merger was effected in accordance with the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of October 23,
1998, among the Company, AAC, Astratek, and the shareholders of Astratek.
Astratek develops software tools and related products for Internet and intranet
technology and provides consulting and professional services for several major
companies. As the Merger Consideration delivered to Astratek shareholders, the
Company issued 2,294,900 shares of the Company's common stock in exchange for
cancellation of all the issued and outstanding shares of the capital stock of
Astratek prior to the Merger and the issuance of 100 shares of Astratek common
stock to the Company post-Merger. The acquisition is accounted for as a pooling
of interests business combination.
Item. 6. Exhibits and reports on form 8-K
(a) Exhibits
27.0 Financial data schedule.
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<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
it's behalf by the undersigned, thereunto duly authorized.
TADEO HOLDINGS, INC.
By:/s/Mike Niles
Mike Niles
Corporate Controller
Date: February 16, 1999
15 of 15
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