U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000
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
TEKINSIGHT.COM, 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.)
18881 Von Karman Ave., Suite 250
Irvine, CA 92612
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 955-0078
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.0001 par value
(Title of Class)
Series A Preferred Stock, $.0001 par value
(Title of Class)
Check whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act OF 1934 DURING THE PRECEDING
12 MONTHS, AND (2) HAS BEEN SUBJECT TO SUCH FILINGS REQUIREMENTS FOR THE PAST 90
DAYS. YES X No __
Check if there is no disclosure of delinquent filers in response to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. X
The aggregate market value of the voting stock held by non-affiliates for the
issuer as of September 27, 2000 was approximately$ 31,400,00.
The number of shares outstanding of the issuer's Common Stock, $.0001 par value,
as of September 27, 2000 was 16,293,620.
Documents incorporated by reference: None
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PART I
ITEM 1. BUSINESS
PRIOR OPERATIONS
TekInsight.com, Inc. ("TekInsight") was initially incorporated in
Delaware on May 27, 1989 as Universal Self Care, Inc. Universal supplied and
distributed both prescription and non-prescription medications and durable
medical equipment and supplies principally to persons suffering from diabetes.
These businesses were sold in January 1998. The Company changed its name to
Tadeo Holdings, Inc. on February 2, 1998, and subsequently changed its name to
TekInsight in November 1999.
GENERAL
TekInsight is a holding company which, through its four active
subsidiaries, Astratek, Inc., or "Research", TekInsight Services, or "Services",
TekInsight e-Government, or "e-Government" and BugSolver.com, Inc., or
"BugSolver", is involved in the development of computer software products and
the provision of services for the management and support of distributed
client/server and Internet-based networks. We provide consulting, technical and
related services to clients for the development of electronic customer
interaction on the Internet, including consulting and development services for
the maintenance, design and enhancement of electronic commerce Internet sites
that interface with database systems.
In May 2000, the Company acquired Big Technologies, an Internet
professional service firm specializing in the development of e-government sites
with advanced transactional applications. Big Technologies enhances
communications between governments and constituents, saving both parties time
and money. Since 1995, Big Technologies has been creating transactional web
applications for municipal agencies. On June 30, 2000 Big Technologies changed
its name to TekInsight e-Government Services, Inc.
TekInsight e-Government Services offers States, Municipalities and
Government agencies products for designing and implementing custom e-government
internet presences utilizing a unique suite of customizable software modules,
each providing a different online service which can interface with existing
websites and integrated into existing databases. TekInsight e-Government
Services enables governments to process Tax Payments, Violation Payments,
Purchasing, Licensing, and Deeds online in real time.
As merger consideration, former Big Technologies shareholders received
380,091 shares of TekInsight common stock, $150,000 in cash and 3.5% of
TekInsight e-Government common stock. Such shareholders can also receive
additional shares of TekInsight with a value of $650,000 if TekInsight
e-Government attains specified revenue targets during the first year after the
acquisition. As part of the acquisition, through November 30, 2000 TekInsight
has the right to repurchase up to $100,000 value of the shares issued in the
acquisition at the average market price as quoted on the Nasdaq SmallCap Market
for the five consecutive trading days ending on the trading day that immediately
precedes the Closing Date of the acquisition. If TekInsight does not exercise
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this right of repurchase, the former Big Technologies shareholders have the
right to require TekInsight to repurchase up to $100,000 value of the shares
issued to them through December 2000, at the average market price as quoted on
The Nasdaq SmallCap Market for the five consecutive trading days ending on the
trading day that immediately precedes the Closing Date of the acquisition. In
connection with the acquisition, the former president and chief executive
officer of Big Technologies, before the acquisition, signed a three-year
employment agreement to continue as president and chief executive officer of
TekInsight e-Government.
In August 2000, TekInsight merged its Services division with Data
Systems Network Corporation. Data Systems provided computer network services and
products that allow companies to control their complex distributed computing
environments. Such services include the design, sale and service of LANs and
WANs. Data Systems generated revenues by providing consulting and network
installation services, selling add-on hardware components to existing clients
and providing after-installation service and support, training services and
network management services. Data Systems primarily served government customers
in five states.
The acquisition price was $12,500,000. The aggregate consideration paid
to Data Systems stockholders consists of approximately 2,185,755 shares of
TekInsight Series A Preferred Stock based on an aggregate of 5,575,906 shares of
common stock of Data Systems outstanding as of the effective time of the merger
and an exchange ratio of 0.392 of a share of TekInsight Preferred Stock for each
share of Data Systems common stock outstanding. In addition, TekInsight assumed
462,500 options and 50,000 warrants issued by Data Systems which were converted
into the right to acquire 181,300 and 19,600 shares of TekInsight Preferred
Stock, respectively. Finally, as a result of the merger, Services assumed, and
TekInsight agreed to guaranty, Data Systems' existing credit facility with
Foothill Capital Corporation. As of September 15, 2000, approximately $5,100,000
was outstanding under the credit facility, which is collateralized by Data
Systems' accounts receivable.
Research is primarily involved in developing web-based diagnostic
software agents and analysis tools (e.g., BugSolver product) and web-based
electronic commerce performance and analysis tools. TekInsight uses these tools
to create applications, which are both sold and rented to customers, and to
develop custom solutions for government and private sector enterprises.
Research has focused its efforts on developing a core methodology it
calls Streaming XML, to enable individuals and organizations to better handle
the flood of information generated by the new wave of Internet commerce. The
original Internet language--Hypertext markup language, or HTML, enables
universal methods for viewing data whereas only XML provides universal methods
for working directly with data. XML is believed to have the capability to
replace HTML as the platform for coding on the Internet.
Depending upon the context, the term TekInsight refers to either
TekInsight alone, or TekInsight and one or more of its subsidiaries.
TekInsight is the parent corporation for the following wholly owned
subsidiaries that have discontinued operations: Physicians Support Services,
Inc., a California corporation; Clinishare Diabetes Centers, Inc. d/b/a
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SugarFree Centers, Inc., USC-Michigan, Inc. a Michigan corporation and its
wholly-owned subsidiary, PCS, Inc.-West, a Michigan Corporation.
INDUSTRY OVERVIEW
SERVICES AND TEKINSIGHT E-GOVERNMENT SERVICES
The rapid growth in digital technology, the use of the Internet and
e-commerce has fundamentally changed the way in which companies conduct business
and interact with customers. Digital technology has created new business models,
new ways of sharing knowledge and experience, more efficient ways to transact
business and new channels through which to do so, direct ways of communicating
with customers and employees and dramatically enhanced efficiencies of scale and
scope. International Data Corporation estimates that the number of Internet
users will grow from 159 million in 1998 to 510 million in 2003, and as a
result, estimates e-commerce revenues to increase from approximately $50 billion
to more than $1.3 trillion over the same period. As companies face increasing
pressure to reinvent their business models for the digital economy, operate more
efficiently and better serve customer needs, information flow both inside and
outside an organization has become critical. However, the escalating cost and
complexity of information technology and the shortage of in-house technical
expertise required to implement technology-based solutions has led companies to
increasingly rely on external service providers. This trend toward outsourcing
and a focus by companies on their core business has driven the rapid growth of
the Internet services market. TekInsight's core competency is enabling
e-commerce sites by using its proprietary technology and leveraging XML
standards.
The need for the services of providers to this market, the Service
Provider market, is expanding at a rapid rate. International Data Corporation
estimates that the market for Internet professional services worldwide will grow
from $7.8 billion in 1998 to $78.6 billion in 2003, representing a compound
annual growth rate of 59%. Over the past several years, companies have been
increasingly engaging Internet professional service providers to capitalize on
opportunities with respect to the Internet. Companies require service providers
who can create and design an online identity and web site, develop web-based
content and applications and integrate front-end web-based applications.
Additionally, companies are no longer just seeking to be on the Internet or a
desktop environment. Companies are seeking to improve their business practices
through full service digital solutions that function across a multitude of
platforms. Due to this demand for Internet services, various types of service
providers have entered the market for digital solutions, including companies
focused solely on Internet services, technology consulting firms, technology
integrators and strategic consulting firms. TekInsight intends to address
specific segments of this market. The Company helps its clients incorporate
digital technologies including XML into their Internet business. This enables
the client to communicate and transact more effectively with its customers,
suppliers, employees and other business partners.
Within the Service Provider market, with its acquisitions of Big
Technologies and Data Systems, TekInsight focuses its service offerings
primarily toward the government markets and related institutional customers
through the activities of Services and TekInsight e-Government. The market for
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Internet services to and provided by governments, or the eGovernment Services
market, is in its infancy, but building quickly. An increasing number of local
governments are doing transactions over the web. Just like private sector
companies, governmental organizations are finding that when they adopt Internet
technologies they must develop new ways to handle the new flood of information.
The projected value of on-line government payments is $602 billion by 2006
(Forrester). Along with other services, the market for eGovernment Services is
projected to rise from $1.5 billion in 2000 to $4.7 billion in 2004 (Gartner).
TekInsight believes that it is positioned to benefit from providing a
significant share of these services.
BUGSOLVER.COM
The Help Desk Institute, a computer services industry research
group, estimates that up to 80% of technical support cost stems from the time it
takes to uncover and re-create the series of events leading to a computer
failure. BugSolver Developer, a product recently introduced by TekInsight's
BugSolver subsidiary, reduces this time significantly and generates information
regarding the condition of the computer at the time of failure, allowing for
more efficient problem solving.
Current industry estimates show software vendors spending $2.4 billion
annually on product support. This number is based on actual spending related to
the costs vendors incur running help desks, web sites and providing other
support services. It does not include any costs incurred by the user for loss of
productivity caused by software failure or time lost trying to resolve the
problem. In addition, there is "goodwill erosion" as customer satisfaction drops
due to downtime caused by software errors since the customer must sacrifice work
time to talk on the phone with a support desk. There is no one single reason to
explain why computers crash. The problem could range from faulty hardware to
software incompatibilities.
TekInsight has addressed the demand for cost-effective support by
developing its BugSolver product, which was created using Research's XML
expertise. In addition to help desk support, the BugSolver product also
addresses requirements for asset identification and hardware inventory
management for distributed systems.
TEKINSIGHT RESEARCH
Extensible Markup Language (XML) provides a significant advance in how
data is described and exchanged by Web-based applications using a simple,
flexible standards-based format. The original Internet language--Hypertext
markup language (HTML) enables universal methods for viewing data whereas only
XML provides universal methods for working directly with data.
Internet protocol (IP), Hypertext Markup Language (HTML) and the
Hypertext Transport Protocol (HTTP) have revolutionized the manner in which
information is distributed, displayed and searched for over the Internet.
Organizations have rapidly embraced browsers and search engines with the
creation of corporate intranets, and have extended these capabilities to their
customers, suppliers, and business partners via extranets. XML, which
complements HTML, promises to increase the benefits that can be derived from the
wealth of information found today on IP networks around the world. XML provides
users with a uniform method for describing and exchanging structured data. The
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ability to structure data in an open text-based format and deliver this data
using standard HTTP protocol is significant. Primarily, XML will facilitate more
precise descriptions of content and more meaningful search results across
multiple platforms and, once data is located, it will enable a new generation of
methods and products for viewing and manipulating the data.
The attractiveness of XML is that it maintains the separation of the
user interface from structured data, allowing the seamless integration of data
from diverse sources. Customer information, purchase orders, research results,
bill payments, medical records, catalog data and other information can be
converted to XML, allowing data to be exchanged online as easily as HTML pages
display data today. Moreover, data encoded in XML can then be delivered over the
Web to the desktop.
Once the data is delivered to the client desktop, it can be
manipulated, edited, and presented in multiple views, without return trips to
the server. Servers thus become more scalable, due to lower computational and
bandwidth loads. Also, since data is exchanged in XML format, it can be easily
merged from different sources. XML is valuable to the Internet as well as large
corporate intranet environments because it provides interoperability using a
flexible, open, standards-based format, with new ways of accessing legacy
databases and delivering data to Web clients. Applications can be built more
quickly, are easier to maintain, and can easily provide multiple views of the
structured data. TekInsight Research has been using its resources to develop the
technology and methodology, especially around XML, to build robust, scalable
e-commerce applications.
CURRENT OPERATIONS
E-GOVERNMENT SERVICES
TekInsight e-Government Services provides innovative, web-based
technology solutions that help governments better serve their constituents. The
company offers customizable applications that enable citizens to use the
convenience, speed and affordability of the Internet to interact with their
government. TekInsight e-Government Services has been providing state and local
governments with backbone infrastructure design and implementation, legacy
database connectivity and e-support services. Some successful implementations
include the City of Boston, the State of New York, the State of Florida and the
State of Louisiana. The e-Government subsidiary has developed software modules
for specific services, being introduced during TekInsight's second fiscal
quarter.
In August 2000, TekInsight merged its Services subsidiary with Data
Systems Corporation. Data Systems provides systems integration services, or
computer network services and products that allow companies to control their
complex distributed computing environments. Such services include the design,
sale and service of LANs and WANs. Data Systems generated, and Services
continues to generate, revenues by providing consulting and network installation
services, selling add-on hardware components to existing clients and providing
after-installation service and support, training services and network management
services. Data Systems served, and Services continues to serve, primarily
government customers in five states. The acquisition price was $12,500,000,
which was paid by the issuance of TekInsight Series A Preferred Stock.
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The products developed by the e-Government division are designed to
serve the customers of the TekInsight Services division. We believe that
Service's existing customer relationships will serve to accelerate the planned
penetration of the market for e-Government services.
RESEARCH
The Research development team has produced TekInsight's BugSolver
product and continues to refine, enhance and provide support for BugSolver while
the product is being introduced to the market. In accordance with the product
plan, BugSolver marketing, support and development is being transitioned to
TekInsight's BugSolver.com, Inc. subsidiary.
TekInsight Research is currently pursuing development of additional
software products that will address the needs of complex networks and databases
that interface with the Internet. Research has created a core methodology called
Streaming XML, which enables individuals and organizations to better handle the
flood of information generated by the new wave of Internet commerce. The
original Internet language--Hypertext markup language (HTML) enables universal
methods for viewing data whereas only XML provides universal methods for working
directly with data. We believe that XML has the capability to replace HTML as
the platform for coding on the Internet. Products that are currently under
development may analyze Internet user activity and provide increased information
about website viewing and transactions.
The Research subsidiary also provides professional services to clients
encompassing all aspects of distributed systems applications, including
multi-tier client/servers, Internet-enabled applications, network security,
systems management and performance enhancement. It has performed these services
for several major software companies and financial institutions and has acted as
a development partner by assisting them in building their computer software
products.
Tekinsight entered into a consulting and professional services
agreement with Enuncia Communications, Inc. (formerly 4th Peripheral, Inc.)
pursuant to which it is engaged to provide executive advisory consulting
services, as requested, and on a fee schedule to be negotiated at the time an
assignment is made, intended to increase Enuncia's value and strategic position
in connection with its business as a developer of cyber extension technology to
provide remote access to data from handheld devices. In an effort to strengthen
its strategic relationships with Enuncia, TekInsight purchased, in a private
placement of securities, 250,000 shares of Enuncia common stock, par value
$.0001 per share, for $250,000.
BUGSOLVER
BugSolver provides technology and services to aid in the resolution of
computer hardware and software systems failures, as well as computer hardware
and software asset management. On April 14, 2000, BugSolver announced the public
availability of its first service, BugSolver Developer. BugSolver Developer is
capable of generating an in-depth profile of an operating failure experienced by
the user's personal computer or a profile of the hardware, software and
peripherals associated with a system. Using the BugSolver Developer service, the
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profile is sent automatically over the Internet to the BugSolver Web site, where
a support professional can access and review the profile, bypassing the need to
communicate with the user and cutting down greatly on the time needed to
diagnose and correct a computer failure or problem.
BugSolver has signed its first commercial agreement for deployment of
its products with LaborSoft, a company which provides labor relations
organizations the applications they need to manage their workforce and labor
related issues more effectively. In this agreement, BugSolver will supply both
help desk support and continuing software development as part of LaborSoft's
web-based service. We estimate that a revenue stream will develop from this
LaborSoft agreement by December 2000.
TekInsight has established a sales and marketing organization for the
BugSolver product, which has recently commenced sales activities. Sales revenues
are anticipated to commence during the second fiscal quarter of fiscal year
2001.
OTHER SERVICES
In November 1999, TekInsight entered into a web site design and
consulting Agreement to build a portal located at HealthyConnect.com for one of
its affiliated companies, Med-Emerg International. The HealthyConnect.com web
portal delivers a total end-to-end solution that offers the most complete
feature set of any e-Health company. HealthyConnect.com services physicians,
patients and other consumers with a complete solution, which includes
e-commerce, over 200 corporate affiliates, over 27 million pages of content from
over 300 sources, and a personalized health record. It supports a network of
over 150,000 physicians through its DocISP.com website. It also allows the
unique ability for physicians and patients to interact through secure web
messaging. Revenues from this project exceed $700,000 during the fiscal year.
In June 1999, TekInsight entered into both a Web Design and Consulting
Agreement and an Online Hosting Agreement with StyleSite Marketing, Inc.
("Style", formerly Diplomat Direct Marketing Corporation), a public company
engaged in the business of distributing women's and children's fashion apparel
and related accessories through catalogue sales, including the Lew Magam and
Brownstone studios catalogues, and over the Internet. TekInsight provided all
necessary consulting and development services to design, maintain and enhance
Style's electronic commerce Internet sites and other related electronic commerce
marketing vehicles, as well as to host those sites on behalf of Style. Due to
the Chapter 11 bankruptcy filing by Style, ongoing services were suspended in
January 2000. Also see ITEM 3. LEGAL PROCEEDINGS.
TekInsight recently entered into an agreement with Business Talk
Radio.Net, Inc. ("Business Talk") under which, for a payment of $250,000,
TekInsight obtained an assignable credit for the purchase of advertising time on
radio programs operated by Business Talk having a value of $1,200,000, and
shares of Series C Preferred Stock convertible into 5% of the currently
outstanding capital stock of Business Talk. As part of the transaction,
TekInsight obtained an option to acquire an equivalent number of shares of
Business Talk capital stock for an exercise price of $250,000, as well as the
right to "stream" the content of Business Talk programming on its and its
affiliates web sites during the course of a three-year period without an
additional payment to Business Talk. In January 2000, the option was exercised,
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with a payment of $250,000. Business Talk creates and distributes the content of
its business-oriented radio programming for broadcasting on third-party operated
radio stations in a variety of markets throughout the United States.
COMPETITION
The market for our products and services is highly competitive. We
anticipate that competition will continue to intensify as the use of computers
and the use of the Internet grows. The tremendous potential of the Internet has
attracted many companies from start-ups to well-established businesses.
Our Services and TekInsight e-Government Services business faces
competition from focused eGovernment companies, such as NIC Commerce (Nasdaq:
EGOV), Govconnect.com (Nasdaq: REGI), ezgov.com, GovWorks.com and simplegov.com,
and from full-line IT integrator organizations such as Andersen Consulting and
Price Waterhouse Coopers. We believe that the competitive advantage for our
Services and TekInsight e-Government Services subsidiaries result from our
extensive state and local contracts, our proven integration methodology and our
low cost solutions, using modular applications.
The BugSolver product will experience competition from companies
involved in knowledge bases, enterprise solutions and support portals. Due its
proprietary technology, however, which includes a resident agent that collects
crash information and delivers it to the BugSolver site, the product may become
a complement to the products of all three types of competitive companies as well
as a competitor in and of itself.
We believe that we will continue to create and offer innovative
products and professional services, and that we will continue to attract new
clients in need of our value-added electronic commerce services. However, there
is no assurance that our competitors will not introduce comparable products and
services at similar or more attractive prices in the future or that certain
companies may not create products that they can integrate directly into their
software and operating systems. Increased competition could erode the market for
our products and services and have a material adverse affect on our business,
financial condition and results of operations.
FUTURE STRATEGY
Our Company plans to expand the activities of its TekInsight
e-Government Services business by providing turnkey solutions for Internet
communications between government entities and their constituencies. With our
established systems integration business serving this market, we can leverage
our customer relationships to introduce our new software products and network
and Internet services. As a part of this strategy, we will seek acquisition
candidates that can further our expansion, and provide distribution channels for
our value-added products, although we have no contractual obligations with
respect to any such acquisition at this time.
We believe that our Research development team will continue to produce
proprietary software products, such as BugSolver, which can be incorporated into
the service offerings of our existing subsidiaries and/or separately marketed by
newly created subsidiaries.
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We believe that our Web-based products and services, along with our
diagnostic products, will give us greater exposure to the marketplace and will
help us to define and develop products that meet the needs of a greater
corporate and government user audience in the market for various diagnostic
tools and services.
PATENTS AND TRADEMARKS
All TekInsight employees are required to sign agreements which protect
TekInsight's rights in its intellectual property, and which assign to TekInsight
certain rights to intellectual property developed by such employees. TekInsight
is a party to a Software License Agreement with Viasoft through which it is has
granted Viasoft an exclusive license to use the name Visual Audit and Astratek.
TekInsight holds U.S. trademark registrations for Astratek and Visual Lan Probe,
and holds U.S. pending trademark applications for www.BugSolver.com, TekInsight
and BugSolver. TekInsight is currently in the process of determining whether
certain technologies developed by Research should become the subject of U.S.
patent applications.
EMPLOYEES
As of September 27, TekInsight and its subsidiaries had 193 employees,
three executive management, 32 sales & marketing, 127 development and technical
support and 31 in administration. TekInsight believes that its relationships
with its employees are good. TekInsight also employs 37 contract consultants for
research and technical support and six contract consultants in marketing and
executive administration.
INSURANCE COVERAGE
The Company maintains general liability insurance, which includes directors
and officers liability coverage, in amounts deemed adequate by the Board of
Directors.
ITEM 2. DESCRIPTION OF PROPERTIES
TekInsight's corporate headquarters is located in Irvine, California,
in a leased facility consisting of approximately 6,500 square fee of office
space rented under a lease expiring in October 2005. The Research subsidiary
leases a facility located in New York, New York, with approximately 6,700 square
feet rented under a lease expiring in November 2002. The former executive sales
and administrative offices located in Livonia, Michigan are rented under a lease
for approximately 6,600 square feet until September 2002, subject to a sublease
for approximately one-half of the space. The Company does not own any real
property.
TekInsight's Services subsidiary has an administrative office located
in Farmington Hills, Michigan, in a leased facility consisting of approximately
12,555 square feet of office space rented under a lease expiring in November
2002. Services also leases a technical facility located in Farmington Hills,
Michigan with approximately 7,000 square feet rented under a lease expiring in
March 2003. Services also has an 8,200 square feet telephone "help desk" center
located in a leased facility in Baton Rouge, Louisiana, which is part of its
State of Louisiana maintenance contract, which is currently rented on a
month-to-month basis.
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Services also leases 10 separate direct sales offices containing an
aggregate of approximately 25,000 square feet under leases with terms of one to
five years.
ITEM 3. LEGAL PROCEEDINGS
Azurel, Inc.
In May 1999, TekInsight entered a joint venture relationship with
Azurel, Ltd. to provide Internet marketing of cosmetic products. The venture
included a revenue sharing arrangement, with Azurel providing content and
TekInsight providing the e-commerce infrastructure. In connection with the
agreement, TekInsight lent to Azurel an aggregate of $1,528,166.67 under the
terms of a Credit Agreement, as amended, dated as of June 1, 1999 (with part of
the aggregate principal reflecting the restructuring of a March 31, 1999
short-term $500,000 promissory note made by Azurel to TekInsight), with interest
payable at the rate of 8% per annum, payable monthly, and with all principal and
accrued interest due on May 28, 2001 (the "Credit Agreement"). Repayment of
amounts outstanding under the Credit Agreement was secured by a pledge of
approximately 66.66% of the outstanding shares of certain Azurel operating
subsidiaries, Private Label Cosmetics, Inc. and Fashion Laboratories, Inc.,
under the terms of a Pledge Security Agreement, as amended, by and between
Azurel and TekInsight. In further consideration for its advances to Azurel under
the Credit Agreement, TekInsight received from Azurel warrants to acquire
500,000 shares of Azurel common stock, exercisable at $1.50 per share, with the
shares acquired upon exercise of such Warrants being subject to registration
rights provided under the terms of a Registration Rights Agreement, as amended,
dated as of June 1, 1999. On May 12, 1999, TekInsight had also extended a
$500,000 loan to Azurel, due August 1999, bearing interest at 20.8% (the
"Note"). The $500,000 Note was later amended on August 12, 1999 to (i) extend
the due date to June 2000, (ii) reduce the interest rate to 10%, and (iii)
increase the principal of the Note from $500,000 to $550,000 for accrued
interest of $26,580 and a premium of $23,420 for extending the maturity date and
lowering the interest rate. On November 25, 1999, TekInsight provided an
additional $200,000 to Azurel, Ltd. to secure computer equipment for increased
capacity for its operation by entering into a sale and leaseback transaction
with respect to this equipment under the terms of an Equipment Lease, which
terminates in November 2001.
Due to a rapid proliferation of cosmetic e-commerce sites in the
marketplace, the site under development for Azurel was not deemed economically
feasible. Concurrently, the financial condition of Azurel deteriorated. The
$550,000 Note remained unpaid on June 30, 2000 and is currently in default, the
Credit Agreement is currently in default, and the Equipment Lease is currently
in default. Azurel has been duly notified of the defaults and on August 2, 2000
TekInsight accelerated the amounts due under the $550,000 Note and the Credit
Agreement. Due to Azurel's extreme financial hardship, requiring a sale of two
of its principal operating subsidiaries, Private Label and Fashion Laboratories,
to remain solvent, in an amendment to the Azurel Pledge Security Agreement
TekInsight permitted a substitution of collateral. The shares of capital stock
of the former Azurel subsidiaries pledged to secure the Credit Agreement
obligations was replaced as collateral with a $1,800,000 subordinated note made
by Private Label and Fashion Laboratories payable to Azurel, due in a balloon
payment of all principal and accrued interest in May 2002. In consideration for
its pledge release, the exercise price on warrants to acquire 500,000 shares of
Azurel common stock held by TekInsight and TekInsight Services was lowered to
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$.60 per share (the then current market price of Azurel common stock) from $1.50
per share. TekInsight is currently in the process of foreclosing on this
substituted collateral securing the indebtedness evidenced by the accelerated
Credit Agreement obligations and taking such other action that is appropriate to
collect all of the accelerated obligations. TekInsight at this time has not
attempted to collect repayment of the unsecured $550,000 Note or to recover the
equipment subject to the Equipment Lease, in an effort to maintain the
possibility of full recovery under those instruments at a later date from a
stronger debtor.
StyleSite Marketing
In June 1999, TekInsight entered into a strategic relationship with
StyleSite Marketing, or Style to create an e-commerce website to feature and
sell women's and children's fashion apparel and related accessories. The
revenue-sharing agreement provided for Style to provide content and fulfillment
while TekInsight provided the e-commerce infrastructure. In connection with the
agreement, TekInsight (i) purchased, for $1,000,000, 10,000 shares of Style's
Series G Convertible Redeemable Preferred Stock (which is redeemable for the
$1,000,000 purchase price plus accrued and unpaid dividends out of the proceeds
of a secondary offering of Style common stock which has been filed with the
Securities and Exchange Commission) (the "Preferred Stock") and (ii) exchanged
$1,000,000 approximate market value of its common stock (285,715 shares) for
$1,000,000 approximate market value of Style common stock (1,066,098 shares),
under the terms of the Securities Purchase Agreement, dated as of June 30, 1999,
by and between TekInsight and Style. Contractual obligations of Styles to
TekInsight, including TekInsight's rights as a holder of the Preferred Stock
(e.g., redemption payments), are guaranteed under the terms of a personal
guarantee made in favor of TekInsight by Robert M. Rubin, the then Chairman of
Styles. In order to safisfy Styles's obligations to Tekinsight, Tekinsight has
engaged in settlement negotiation with Mr. Rubin with respect to his guarantee.
On April 20, 2000, TekInsight filed an action against Style and its
lender, First Source Financial LLP, in the United States Bankruptcy Court,
Southern District of New York, to establish a constructive trust in its favor
with respect to, and to request that the court order Style and First Source to
deliver to TekInsight, the $1,000,000 purchase price paid for 10,000 shares of
Style Series G Preferred Stock and shares of TekInsight common stock having a
$1,000,000 market value delivered to Style in exchange for an equal market value
of Style common stock under an agreement dated June 30, 1999. On June 6, 2000,
Style and First Source filed a motion to dismiss the Company's complaint against
them. On June 26, 2000, TekInsight filed its written submissions to vigorously
oppose the motion. On July 20, 2000, the Bankruptcy Court heard oral argument on
the motion and it is presently under consideration by the Bankruptcy Court.
On July 10, 2000, TekInsight was named as a nominal defendant in a
stockholder's derivative action brought on behalf of TekInsight by Paul
Miletich, an alleged shareholder of TekInsight, against Brian D. Bookmeier,
James Linesch, Damon D. Testaverde and Alexander Kalpaxis as directors of
TekInsight. The case was filed in the Supreme Court of New York, New York
County, Case No. 114972. In his suit, Mr. Miletich alleges that the directors of
TekInsight breached their fiduciary duties of care and/or loyalty to TekInsight
by permitting TekInsight to enter into, among other things, transactions with
StyleSite Marketing, Inc. and Azurel, Inc., resulting in a waste of corporate
assets of TekInsight. TekInsight intends to defend the suit vigorously.
As a result of the merger with Data Systems, the Company assumed the
12
<PAGE>
liability for a potential enforcement action undertaken by the SEC. The SEC
staff has advised Data Systems that following its merger with TekInsight
Services, resulting in Data Systems no longer having any public shareholders,
the SEC staff would make no recommendation for any enforcement proceedings
against Data Systems.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The principal market for trading TekInsight's securities is the Nasdaq
Small Cap Market ("Nasdaq"), although TekInsight's Common Stock and Class A
Warrants are also traded on the Boston Stock Exchange.
PRICE RANGE OF OUTSTANDING COMMON STOCK
On December 18, 1992, the Common Stock began trading on Nasdaq and has been
quoted on Nasdaq at all times since that date.
The following table sets forth the high and low bid prices for each fiscal
quarter during the fiscal years ended June 30, 1999 and 2000, as reported by
Nasdaq. Such quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission and do not necessarily represent actual transactions.
FISCAL YEAR ENDED JUNE 30, 1999 HIGH LOW
First quarter ended September 30, 1998 $1.44 $1.38
Second quarter ended December 31, 1998 1.06 1.00
Third quarter ended March 31, 1999 1.13 1.00
Fourth quarter ended June 30, 1999 4.00 3.81
FISCAL YEAR ENDED JUNE 30, 2000 HIGH LOW
First quarter ended September 30, 1999 $4.00 $2.50
Second quarter ended December 31, 1999 3.09 2.19
Third quarter ended March 31, 2000 6.69 2.38
Fourth quarter ended June 30, 2000 4.25 2.81
14
<PAGE>
On September 26, 2000, the last trade price for a share of Common Stock was
$2.06, as reported on Nasdaq, and TekInsight had 68 shareholders of record of
its Common Stock. TekInsight estimates it has in excess of 300 beneficial
holders of its Common Stock.
DIVIDEND POLICY
TekInsight has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future, but rather
intends to retain future earnings, if any, for reinvestment in its future
business. Any future determination to pay cash dividends will be in compliance
with TekInsight's contractual obligations, and otherwise at the discretion of
the Board of Directors and based upon TekInsight's financial condition, results
of operations, capital requirements and such other factors as the Board of
Directors deems relevant.
During the fiscal year end June 30, 1999, TekInsight had outstanding an
aggregate of one million (1,000,000) shares of Series B Redeemable Preferred
Stock, $.0001 par value per share (the "Series B Preferred Stock"). Subsequent
to the end of the fiscal year ended June 30, 1999, all shares of Series B
Redeemable Stock were converted into 500,000 shares of Common Stock.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended June 30, 2000, the Company issued the
following stock options and warrants in private offerings exempt from the
Securities Act of 1933 under Section 4(2) thereof:
o 300,000 warrants issued to Early Bird Capital on February 15, 2000 as
consideration for services rendered, at $4.063 per share until February 15,
2005
o 400,000 options granted to Steven Ross on February 1, 2000 as a sign-on
inducement to assume the President position, at $3.00 per share until
February 1, 2003. Subject to vesting based on the market price of the
Company's common stock.
o 120,000 options granted to the Exigo Group on June 1, 2000 as consideration
for services rendered, at $3.00 per share until June 1, 2005
o 100,000 options granted to Core Strategies on June 1, 2000 as consideration
for services rendered, at $3.00 per share until June 1, 2005
In addition, on May 17, 2000, we issued an aggregate of 380,091 shares
of TekInsight Common Stock to the former shareholders of Big Technologies, Inc.
in connection with TekInsight's acquisition of Big Technologies by merger, which
issuances were exempt from the registration requirements of the Securities Act
of 1933 pursuant to section 4(2) thereof and Regulation D promulgated
thereunder.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
TekInsight.Com, Inc.
Selected Financial Data
Years ended June 30,
in (000's)
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
----------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues ........................................ 1,962 1,514 997 455 0
Loss from continuing operations........... (3,947) (478) (1,153) (608) (1,381)
Income loss from continuing operations
per share .................................................. (0.25) (0.03) (0.11) (0.06) (0.23)
Total assets .............................................. 12,525 16,488 9,913 18,299 18,209
Long term debt ............................................ 18 18 664 4,628 2,316
Redeemable preferred stock ......................... 0 0 1,219 1,830 2,276
Dividends per share common stock ................. 0 0 0 0 0
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
FORWARD-LOOKING STATEMENTS
When used in the Form 10-K 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 speaks 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, such as
target markets for future customers and business emphasis. The Company has no
obligation to publicly release the results 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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales.
16
<PAGE>
YEAR ENDED JUNE 30,
--------------------------------
2000 1999 1998
---- ---- ----
Net sales.................................. 100% 100% 100%
COST OF SALES............................. 69 46 25
-- -- --
Gross profit............................... 31 54 75
Selling, general & administrative.......... 180 224 227
Research and development costs............. 14 11 7
PROVISION FOR STATE AUDITS................. 16 46 0
--- --- ---
Loss from operations....................... (166) (182) (1,153)
Interest income ........................... 22 39 45
Total income (loss) from discontinued operations. 6 98 213
NET INCOME/(LOSS).......................... (202)% 67% 187%
====== ====== ====
FISCAL YEARS ENDED JUNE 30, 2000 AND JUNE 30, 1999
Revenues for the year ended June 30, 2000 were $1,962,405, an increase
of $447,556, or 30%, from the year ended June 30, 1999. Several factors
contributed to this favorable increase. Revenue associated with several Internet
Web Agreements signed and the acquisition of Big technologies during the fiscal
year ended contributed approximately $1,000,000 and $137,000 of the increase,
respectively. Offsetting this increase was the decrease in revenues resulting
from the decline in sales of the Visual Audit product of approximately $440,000
for the year ended June 30, 2000. Revenue associated with professional services
decreased by approximately $310,000 or 31% for the year ended June 30, 2000.
Total cost of goods sold for the year ended June 30, 2000 was
approximately $1,373,000, representing 69% of revenues for the period, while
total cost of goods sold for the year ended June 30, 1999 were approximately
$700,000 or 46% of revenue. This 23% increase, as a percent of revenue, is in
part the result of increased utilization of outside consultants in completing
time sensitive, single occurrence professional services projects.
Selling, general and administrative expenses for the year ended June
30, 2000 increased to $3,528,376 from $3,387,874 for the year ended June 30,
1999. The increase was attributable increased consulting fees paid offset by a
decrease advertising and marketing expenses associated with services provided to
various Internet organizations to which TekInsight has determined it not to be
beneficial to market its products and services.
In connection with the Azurel notes receivable, TekInsight has
established reserves for the amounts due in excess of the $1,800,000 collateral
note (see ITEM 3. LEGAL PROCEEDINGS). This has caused a reserve of approximately
$476,000.
On January 31, 2000, Style declared bankruptcy under Chapter 11. As a
result, the value of the Style common stock held as marketable securities was
reduced to $.01 per share. The impairment of the stock value has resulted in a
loss on Marketable Securities in the amount of approximately $989,000, which has
been recorded as an offset to the valuation allowance that had previously been
17
<PAGE>
established as an unrealized loss on marketable securities (see ITEM 3. LEGAL
PROCEEDINGS). In addition, TekInsight reserved $500,000 against the decline in
the market value of the Style preferred stock. These losses have been partially
offset by gains in the sales of other Marketable Securities of approximately
$198,000.
Net interest income decreased for the year ended June 30, 2000 to
$432,983 from $590,092 for the year ended June 30, 1999. This decrease is
primarily due to decreased interest earned on certificates of deposit
investments, resulting from diminished working capital invested.
The net loss was $3,975,910 for the year ended June 30, 2000 compared
to net income of $1,013,412 for the year ended June 30, 1999. The loss, in
relation to the prior year, is primarily a result of losses from marketable
securities, as compared to a gain in the prior year, and to the gain from
disposal of operations recorded in fiscal 1999, in the amount of $1,491,923,
which is non-recurring.
FISCAL YEAR ENDED JUNE 30, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Revenues for the year ended June 30, 1999 were $1,514,849, an increase
of $517,416, or 52%, from the year ended June 30, 1998. Several factors
contributed to this increase. Revenue associated with the VisualAudit product
that is distributed by Viasoft on behalf of TekInsight increased by $57,988 for
the year ended June 30, 1999, or a 13% increase over the year ended June 30,
1998, and revenue associated with professional services provided to various
clients increased by $570,900 for the year ended June 30, 1999, or a 235%
increase over the year ended June 30, 1998.
Total cost of goods sold for the year ended June 30, 1999 was $700,254,
representing costs of approximately 46% of revenues for the period, while total
cost of goods sold for the year ended June 30, 1998 was $248,261 or
approximately 25% of revenue. This 21% unfavorable variance as a percent of
revenue is in part the result of increased utilization of outside consultants in
completing time sensitive, single occurrence professional services projects.
Selling, general and administrative expenses for the year ended June
30, 1999 increased to $3,387,874 from $2,259,349 for the year ended June 30,
1998. Contributing to the unfavorable variance is $1,250,000 in advertising and
marketing expenses associated with services provided by various Internet
organizations that TekInsight has determined to be beneficial to market its
products and services.
Net interest income increased for the year ended June 30, 1999 to
$590,092 from $452,016 for the year ended June 30, 1998. This increase is
primarily due to quarterly interest from a promissory note made by Gainor
Medical Management LLC, which was paid in April 1999.
Net income decreased to $1,013,412 for the year ended June 30, 1999
from $1,865,288 for the year ended June 30, 1998. This decrease is primarily due
to the gain from the sale of the discontinued operations, which occurred in the
1998 fiscal year.
The sale of marketable securities resulted in a gain of $1,689,664 in
revenue for the year ended June 30, 1999, a 100% increase over the year ended
June 30, 1998.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, TekInsight had working capital of
$1,800,900, compared to working capital of $5,365,143 at June 30, 1999. This
decrease in working capital during the 2000 period is primarily due to losses
from operations during the 2000 period of $3,014,360.
TekInsight currently receives on average approximately $21,000
a month in interest from its various money market and certificate of deposit
accounts.
On June 30, 1999, TekInsight Services entered into an agreement with
Business Talk Radio, under which an aggregate payment of $250,000 was made in
July and August 1999 for stock and advertising credits (see CURRENT OPERATIONS -
Other Services). On January 3, 2000, TekInsight Services exercised its option
and, for a payment of $250,000, acquired an additional 564,056 shares of
Business Talk Series C preferred stock for $.4432 per share. TekInsight has been
informed that due to a pending recapitalization of Business Talk stock, the
number of Business Talk's shares held by TekInsight will increase.
In connection with a strategic relationship with Enuncia (see CURRENT
OPERATIONS - TekInsight Research), TekInsight purchased, in a private placement
of securities, 250,000 shares of Enuncia common stock, par value $.0001 per
share, for $250,000. At June 30, 2000, TekInsight also held 510,000 shares of
ViewCast.com inc. (VCST) common stock.
The default(s) by Azurel under credit agreements (see ITEM 3. LEGAL
PROCEEDINGS - Azurel, Inc.), have caused a restructuring of this debt. The
bankruptcy filing by StyleSite Marketing (see ITEM 3. LEGAL PROCEEDINGS -
StyleSite Marketing) has caused a loss from the value of the marketable
securities, as described above.
Department of Health Services - One of the Company's discontinued
wholly-owned subsidiaries underwent an audit by the California State
Controller's Office, Division of Audits, for the purpose of determining
compliance with guidelines of the California Department of Health Services
("Medi-Cal") and the California State Board of Equalization. The Controller's
Office issued a report to the effect that the subsidiary owed, and issued a
Letter of Demand for, $1.3 million, contending that for the period July 1, 1990
to June 30, 1993, the subsidiary practiced unfair pricing to its customers.
Additionally, accrued interest on the amount demanded is also sought by the
Controller's Office. On January 20, 1999, the Superior Court recommended that
the overpayment determination be upheld. The subsidiary has a pending appeal to
overturn the ruling, which has been upheld. In March 1999, the Company's
wholly-owned subsidiary filed an appeal to the Superior Court's decision with
the California Court of Appeals. On January 26, 2000, the Company lost its
appeal with the California Court of Appeals. The Company has provided a reserve
for the principal amount of $1,339,785 and as of June 30, 2000, $382,647 in
accrued interest, or $1,722,432.
19
<PAGE>
On August 27, 1998, J. Alan Moore filed suit in Mecklenburg County
Superior Court Division (Case No. 98-CvS-12286), North Carolina, against Data
Systems Network Corporation. The complaint alleges the Company did not act in
good faith and failed to pay commissions and expenses of which the plantiff
claims entitlement. On July 28, 2000 a judgement was entered in favor of the
plantiff for $572,469 plus legal fees and interest. Data Systems intends to
appeal the judgement. In order to proceed with the appeal, however, the Company
may be required to place a collateralized deposit of the amount due until the
appeal is completed.
In September 2000, the Company's BugSolver division raised
approximately $3 million for the market introduction costs of this product. The
Company is also currently investing in general marketing and sales costs for the
introduction of its eGovernment software modules developed by its Services
subsidiary. While the Company believes that such costs will result in profitable
sales, there are no assurances that the market penetration rates for these
products will materialize as expected.
At June 30, 2000, TekInsight had approximately $4.0 million available
in cash, and approximately $1.8 million in publicly traded common stock, among
the marketable securities. In September 2000, approximately 2.8 million was
raised in connection with the Bugsolver subsidiary. During the next three fiscal
quarters, we anticipate that the working capital requirements from operations
will diminish, as products are successfully introduced, producing operating
revenues. Additionally, a portion of the costs is variable, depending on the
success of product introductions. We believe that current working capital levels
are adequate to provide TekInsight with sustainable operations and growth during
the next year.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Not applicable.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
PAGE NUMBER
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED BALANCE SHEETS AS OF
JUNE 30, 2000 AND 1999 F-2
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 F-3
CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE YEARS ENDED
JUNE 30, 2000, 1999 AND 1998 F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997 F-5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7-20
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and
Board of Directors
Tadeo Holdings, Inc.
We have audited the accompanying consolidated balance sheets of TekInsight.com,
Inc. and Subsidiaries as of June 30, 2000 and 1999, and the related statements
of operations, changes in stockholders' equity and cash flows for the years
ended June 30, 2000, 1999 and 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TekInsight.com, Inc. and
Subsidiaries as of June 30,2000 and 1999 and the results of its operations and
its cash flows for the years ended June 30,2000, 1999 and 1998 in conformity
with generally accepted accounting principles.
/S/ FELDMAN SHERB & CO., P.C.
--------------------------
Feldman Sherb & Co., P.C.
Certified Public Accountants
September 15, 2000
New York, New York
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
---------------------------
ASSETS 2000 1999
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 3,960,963 $ 7,618,259
Interest receivable - 25,521
Accounts receivable, net of allowance for doubtful 348,835 45,750
accounts of $123,500 in 2000
Prepaid expenses and other assets 310,047 30,000
Refund receivable 70,000 -
Note receivable - other - 500,000
------------- -------------
TOTAL CURRENT ASSETS 4,689,845 8,219,530
LONG-TERM NOTE RECEIVABLE, net of reserve of $476,000 in 2000 1,800,000 1,528,167
INVESTMENTS - Marketable Securities 3,629,418 5,533,177
FURNITURE, FIXTURES, AND EQUIPMENT, net
net of accumulated depreciation of $79,721 and $49,254, respectively 111,635 71,938
INTANGIBLE ASSETS, net of accumulated 1,147,620 -
amortization of $12,786
CAPITALIZED SOFTWARE COSTS, net 1,100,977 1,091,793
DEPOSITS AND OTHER ASSETS 45,658 43,058
------------- -------------
$ 12,525,153 $ 16,487,663
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 769,566 $ 421,178
Accrued expenses 172,604 125,000
Income tax payable - 628,000
Deferred interest 10,710 -
State audit reserves 1,722,432 1,400,000
Accrued termination costs, short-term 213,633 280,209
------------- -------------
TOTAL CURRENT LIABILITIES 2,888,945 2,854,387
------------- -------------
LONG TERM NOTES PAYABLE 17,675 17,675
------------- -------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.0001 par value, 10,000,000 shares authorized - 505,000
Common stock, $.0001 par value, 100,000,000 shares authorized,
16,293,620 shares and 15,348,529 issued and outstanding as of
June 30, 2000 and June 30, 1999, respectively 1,630 1,535
Additional paid-in capital 20,763,576 18,797,382
Unrealized gain on securities 964,063 2,446,509
Accumulated deficit (12,110,736) (8,134,826)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 9,618,533 13,615,600
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,525,153 $ 16,487,663
============ ============
</TABLE>
See notes to consolidated financial statements.
F - 2
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
2000 1999 1998
-------------- ------------ --------------
<S> <C> <C> <C>
REVENUES $ 1,962,405 $ 1,514,849 $ 997,433
COST OF GOODS SOLD 1,373,351 700,254 248,261
-------------- ------------ --------------
GROSS PROFIT 589,054 814,595 749,172
-------------- ------------ --------------
OPERATING EXPENSES:
Selling, general and administrative 3,528,376 3,387,874 2,259,349
Research and development 275,805 161,709 71,424
Depreciation and amortization 43,362 23,279 23,716
-------------- ------------ --------------
TOTAL OPERATING EXPENSES 3,847,543 3,572,862 2,354,489
-------------- ------------ --------------
LOSS FROM OPERATIONS (3,258,489) (2,758,267) (1,605,317)
LOSS ON MARKETABLE SECURITIES (1,191,213) 1,689,664 -
RESERVE FOR UNCOLLECTABLE NOTE RECEIVABLE (476,000) - -
INTEREST INCOME, net 432,983 590,092 452,016
-------------- ------------ --------------
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (4,492,719) (478,511) (1,153,301)
INCOME TAX BENEFIT (545,480) - -
-------------- ------------ --------------
LOSS FROM CONTINUING OPERATIONS (3,947,239) (478,511) (1,153,301)
DISCONTINUED OPERATIONS
Loss from discontinued operations, net of applicable income ta (28,671) - (2,122,296)
of $149,000 in 2000
Gain from disposal, including operating lossess, through
disposal date, of $1,489,272 (less applicable income taxes of $1,104,000) - 1,491,923 5,140,885
-------------- ------------ --------------
TOTAL INCOME(LOSS) FROM DISCONTINUED OPERATIONS (28,671) 1,491,923 3,018,589
-------------- ------------ --------------
NET INCOME (LOSS) (3,975,910) 1,013,412 1,865,288
PREFERRED STOCK DIVIDENDS - (27,288) (186,150)
-------------- ------------ --------------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ (3,975,910) $ 986,124 $ 1,679,138
=============== ============= =============
NET INCOME (LOSS) PER SHARE:
Continued $ (0.25) $ (0.03) $ (0.11)
Discontinued (0.00) 0.10 0.25
-------------- ------------ --------------
NET LOSS PER SHARE - basic and diluted $ (0.25 ) $ 0.07 $ 0.14
=============== ============= =============
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 15,878,749 14,728,969 12,019,479
=============== ============= =============
NET INCOME (LOSS) $ (3,975,910) $ 1,013,412 $ 1,865,288
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
Unrealized (loss) gain on available-for-sale securities (1,482,446) 2,446,509 -
-------------- ------------ --------------
COMPREHENSIVE INCOME (LOSS) $ (5,458,356) $ 3,459,921 $ 1,865,288
=============== ============= =============
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
"B"
Preferred Stock Series Common Stock Additional Unrealized Total
------------------- ------------------ Paid-In Gain (Loss) Accumulated Stockholders'
Shares Amount Shares Amount Capital On Securitie Deficit Equity
-------- --------- ---------- ------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1997 1,000,000 $505,000 12,019,480$ 1,202 $ 14,115,213$ - (10,800,088 $3,821,327
Dividends paid on Preferred Stock Series A (186,150) (186,150)
Net lncome 1,865,288 1,865,288
-------- --------- ---------- ------ ---------- ---------- ----------- ------------
Balance - June 30, 1998 1,000,000 $505,000 12,019,480 $1,202 $14,115,213$ - (9,120,950) $5,500,465
Shares issued upon converting Redeemable
Series "A" Preferred Stock - - 1,363,163 136 1,149,609 - - 1,149,745
Shares issued in connection with private
offering - - 136,837 14 205,242 - - 205,256
Shares issued to employees in connection with
termination of Employment Agreements - - 168,334 17 168,317 - - 168,334
Shares issued to an employee in connection with
exercise of stock options - - 84,167 8 84,159 - - 84,167
Shares issued in connection with Stock Purchase
Agreement - - 30,523 3 74,997 - - 75,000
Shares of Common Stock exchanged with ViewCast - - 1,240,310 124 1,999,876 - - 2,000,000
Changes in unrealized gain (loss) on securities
available-for-sale - - - - - 2,446,509 - 2,446,509
Shares issued in connection with Repayment
of Promissary Note 20,000 2 (2) - -
Shares of Common Stock exchanged with Diplomat 285,715 29 999,971 1,000,000
Dividends paid on Preferred Stock Series A (27,288) (27,288)
Net lncome 1,013,412 1,013,412
-------- --------- ---------- ------ ---------- ---------- ----------- ------------
Balance - June 30, 1999 1,000,00 $505,000 15,348,529 $1,535 $18,797,382 $2,446,509 $8,134,826) $13,615,600
Shares issued upon converting Redeemable
Series "B" Preferred Stock (1,000,000 (505,000) 500,000 50 504,950 - - -
Options exercised for cash - - 65,000 7 84,668 - - 84,675
Shares issued in connection with acquisition
of Big Technologies, Inc. - - 380,091 38 1,049,962 - - 1,050,000
Changes in unrealized gain (loss) on securities
available-for-sale - - - - - (1,482,446) - (1,482,446)
Options issued in connection with
consulting agreements - - - - - - - 326,614
Net Loss - - - - - - (3,975,910) (3,975,910)
-------- --------- ---------- ------ ---------- ---------- ----------- ------------
Balance - June 30, 2000 - $ - 16,293,620 $1,630 $ 20,763,576 $ 964,063 $(12,110,736) $9,618,533
======== ========= ========== ====== ========== ========== =========== ============
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES: -------------- ------------ --------------
<S> <C> <C> <C>
Net income (loss) $ (3,975,910) $ 1,013,412 $ 1,865,288
Adjustments to reconcile net income (loss) to net cash used in -------------- ------------ --------------
operating activities:
Depreciation and amortization 43,362 23,279 244,443
Amortization of deferred finance costs and debt discount - 105,993 84,507
Amortization of capitalized software costs 315,779 312,966 82,674
Write-down of capitalized software costs 265,805 - -
Reserve for uncollectable note receivable 476,000 - -
Other non-cash - 327,501 -
Non-cash imputted compensation exepense 326,614 - -
Loss on marketable securities 1,191,213 (1,689,664) -
Gain on sale of operations - - (5,140,885)
Gain on sale of note - (3,300,000) -
Changes in operating assets and liabilities:
(Increase) in accounts receivable (303,085) (34,200) 132,884
Decrease (Increase) in interest receivable 25,521 250,484 (276,005)
(Increase) in refund receivable (70,000) - -
Additions to capitalize software costs (590,769) - (654,660)
(Increase) in prepaid expenses (280,047) (30,000) -
(Increase) in deferred finance costs - (108,000) (105,000)
Increase (Decrease) in other assets 2,600 - (18,224)
Increase (Decrease) in accounts payable 348,388 (29,928) 325,244
Increase (Decrease) in deferred interest 10,710 - -
Increase in state audit reserve 322,432 700,000 -
Increase (Decrease) in accrued expenses 47,603 (25,425) 46,628
Increase(Decrease) in income tax payable (628,000) 628,000 -
Changes in operating assets and liabilities of discontinued
operations - - 2,002,440
(Decrease) in accrued termination costs (66,576) (784,053) -
-------------- ------------ --------------
Total adjustments 1,437,550 (3,653,047) (3,275,954)
-------------- ------------ --------------
NET CASH USED IN OPERATING ACTIVITIES (2,538,360) (2,639,635) (1,410,666)
-------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from the sale of operations - - 8,065,336
Cash proceeds from the sale of securities 519,073 2,739,996 -
Cash disbursements for the purchase of securities (1,254,687) - -
Capital expenditures (70,164) (718,424) (730,148)
Net cash paid for acquisition (150,000) - -
Collection on note receivable - 9,300,000 -
Redeemed convertible preferred stock - (1,000,000) -
Decrease in note receivable (247,833) (2,028,167) -
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,203,611) 8,293,405 7,335,188
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) in notes payable - (145,585) 488,149
Issuance of related party loans - (162,627) -
Proceeds from debt financing - 183,230 658,351
Repayment of revolving credit line - - (4,365,410)
Repayment of long-term debt - (663,853) (239,656)
Issuance of Common Stock, net of expenses 84,675 205,256 2,005
Dividends paid on Series A Preferred Stock - (27,288) (186,150)
Redemption of Series A Preferred Stock - - (610,517)
-------------- ------------ --------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 84,675 (610,867) (4,253,228)
-------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH (3,657,296) 5,042,903 1,671,294
CASH AT BEGINNING OF YEAR 7,618,259 2,575,356 904,062
-------------- ------------ --------------
CASH AT END OF YEAR $ 3,960,963 $ 7,618,259 $ 2,575,356
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------------
2000 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ - $ 84,507 $ 550,201
============ ============= ============
Cash paid for income taxes $ 313,520 $ 476,269 $ -
============ ============= ============
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
Convertible notes converted to common stock $ - $ 20,000 $ -
Redeemable preferred stock converted to common stock $ 505,000 $ 1,149,745 $ -
Private offering of common stock $ - $ 205,256 $ -
Issuance of common stock in conjuction with termination of emplo$ment contracts $ - $ 252,501 $ -
Issuance of common stock in conjuction with retirement of debt $ - $ 75,000 $ -
============ ============= ============
Issuance of common stock in conjuction with acquisition of company $ 1,050,000 $ 2,294,900 $ -
============ ============= ============
Exchange of common stock with another company's common stock $ - $ 2,000,000 $ -
============ ============= ============
Exchange of common stock with another company's common stock $ - $ 1,000,000 $ -
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
TekInsight.com, Inc. ("TekInsight") was initially incorporated in
Delaware on May 27, 1989 as Universal Self Care, Inc. and changed its
name to Tadeo Holdings, Inc. ("Tadeo") on February 2, 1998. Tadeo
changed its name to TekInsight in November 1999. Prior to that time,
TekInsight supplied and distributed both prescription and
non-prescription medications and durable medical equipment and supplies
principally to persons suffering from diabetes. These businesses were
sold in January 1998.
TekInsight is a holding company which, through its four active
subsidiaries, Astratek ("Research"), TekInsight Services ("Services")
TekInsight e-Government Services ("e-Government") and BugSolver.com,
Inc. ("BugSolver"), is involved in the development of computer software
products and the provisions of computer network related services for
the management and support of distributed client/server networks and
their interface with Internet applications. TekInsight provides
applications, consulting, technical and related services to government,
institutional, and commercial customers, including consulting and
development services for the maintenance, design and enhancement of
electronic commerce Internet sites that interface with databased
systems.
On October 27, 1998, the Company acquired Astratek, Inc., a New York
corporation, pursuant to a merger of a wholly-owned subsidiary of the
Company into Astratek, with Astratek being the surviving corporation
and becoming a wholly-owned subsidiary of TekInsight. The accompanying
financial statements and footnotes are presented to reflect the
acquisition under the pooling of interests accounting, which requires
the restatement of prior years' financial statements as if the
acquisition was consummated at the beginning of all periods presented.
In May 1999, the Company incorporated Tadeo E - Commerce Corporation
(now TekInsight Services) in Delaware as a wholly-owned subsidiary of
TekInsight to be active in the electronic commerce industry. The name
was subsequently changed to TekInsight eGovernment Services to reflect
the shift in focus to the government services market. During May 2000,
TekInsight acquired Big Technologies, Inc., an Internet firm
specializing in the development of government sites with advanced
transactional applications. Since 1995 Big Technologies has enhanced
communication between governments and constituents, saving both parties
time and money, by creating transactional Web applications for
municipal agencies.
In August 2000, TekInsight Services was merged with Data Systems
Corporation (See Note 5 - ASSET PURCHASE AGREEMENT). Data Systems has
been involved in providing network and e-commerce integration services
for government customers.
F-7
<PAGE>
In November 1999, the Company incorporated BugSolver Corporation in
Delaware as a wholly-owned subsidiary of TekInsight to be active in
Internet-based application failure detection services that provide IT
departments with virtually instant, accurate answers and assistance to
users when a computer or network failure occurs.
Depending upon the context, the term "Company" refers to either
TekInsight alone, or TekInsight and one or more of its subsidiaries.
TekInsight is the parent corporation for the following wholly
owned subsidiaries that have discontinued operations: Physicians
Support Services, Inc., a California corporation ("PSS"); Clinishare
Diabetes Centers, Inc. d/b/a SugarFree Centers, Inc. ("SugarFree"),
USC-Michigan, Inc. a Michigan corporation and its wholly-owned
subsidiary, PCS, Inc.-West (collectively identified as "Patient Care
Services"), a Michigan Corporation.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant inter-company transactions have been eliminated.
B. Revenue Recognition - The Company licenses software to end users
under license agreements. The Company has recognized revenues in
accordance with Statement of Position 97-2 entitled "Software Revenue
Recognition" ("SOP 97-2), issued by the American Institute of Certified
Public Accountants ("AICPA").
C. Property and Equipment - Property and equipment is stated at cost
and is depreciated on a straight-line basis over the estimated useful
lives of the assets. Leasehold improvements are amortized over the term
of their respective leases or service lives of the improvements,
whichever is shorter.
D. Income (loss) per Common Share - Basic earnings per share has been
calculated based upon the weighted average number of common shares
outstanding. Convertible preferred stock has been excluded as common
stock equivalents in the diluted earnings per share because they are
either antidilutive, or their effect is not material.
E. Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
F. Cash and Cash Equivalents - The Company considers all highly liquid
temporary cash investments with an original maturity of three months or
less when purchased, to be cash equivalents.
G. Stock Based Compensation - The Company accounts for employee stock
transactions in accordance with APB Opinion No. 25, "Accounting For
F-8
<PAGE>
Stock Issued To Employees." The Company has adopted the proforma
disclosure requirements of Statement of Financial Accounting Standards
No. 123, "Accounting For Stock-Based Compensation."
H. Fair Value of Financial Instruments - The carrying amounts reported
in the balance sheet for cash, trade receivables, accounts payable and
accrued expenses approximate fair value based on the short-term
maturity of these instruments.
I. Impairment of Long-Lived Assets - The Company reviews long-lived
assets for impairment whenever circumstances and situations change such
that there is an indication that the carrying amounts may not be
recovered. At June 30, 2000, the Company believes that there has been
no impairment of its long-lived assets.
J. Capitalized Software Costs - The Company accounts for costs of
developing computer software for sale in accordance with Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed", under
which costs incurred prior to the establishment of a product's
technological feasibility are expensed as research and development and
costs incurred from the point of technological feasibility through the
point that a product is ready for market are capitalized and amortized
in the greater of the relations that revenues earned bear to total
expected revenues over the life of the product or straight-line over
the life of the product. Capitalized software costs are evaluated
periodically and written down to net realizable value when necessary.
Amortization of capitalized software costs for the periods ended June
30, 2000, 1999, and 1998 were $551,786, $312,966, and $82,674,
respectively.
K. Comprehensive Income - The Company has adopted Statement of
Financial Accounting Standards No. 130 ("SFAS 130) "Reporting
Comprehensive Income". Comprehensive income is comprised of net income
(loss) and all changes to the statements of stockholders' equity,except
those due to investments by stockholders, changes in paid-in capital
and distribution to stockholders.
2. DISCONTINUED OPERATIONS
On January 28, 1998, the Company sold its operating assets and the
stock of its two principal operating subsidiaries, Diabetes Self Care,
Inc. ("Diabetes") and USCI Healthcare Management Solutions, Inc.
("HMS"), to Gainor Medical Management, LLC, a privately held Georgia
company ("Gainor"), for a gross purchase price of $34 million in cash,
as reduced by $8.7million of specified liabilities of the Company, and
$17million by the delivery of a Gainor convertible subordinated
promissory note (the "Note").
In addition to offsets for customary indemnification's under the Asset
Purchase Agreement among the parties, dated November 14, 1997, the
principal amount of the Note was subject to reduction under certain
conditions. As a result of Gainor's assertions of conditions, the
Company reduced the carrying basis of the Note to $6 million at June
30, 1999 based on what management believed would be the value of the
Note if it were to be sold to an unrelated third party in an
arms-length transaction. Accordingly, the Company reduced the gain on
F-9
<PAGE>
the disposal of the discontinued business by $11million. In April 1999,
the Note was prepaid by Gainor in the amount $9.3 million and the
Company recognized a gain of $3.3million on the collection of such
Note.
In connection with the Company's sale of its Diabetes supply business,
the accompanying financial statements have been restated to present
such businesses as discontinued operations.
The revenue of the discontinued businesses was $19,136,465 for the year
ended June 30, 1998.
3. 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.
Astratek develops software tools and related products for Internet and
intranet technology and provides consulting and professional services
for several major companies. As per the Merger Agreement 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. Accordingly, the Company's prior years'
financial statements are restated as if the acquisition was consummated
at the beginning of all periods presented. The revenue and net income
for TekInsight and Astratek from July 1, 1998 through October 27, 1998,
and the fiscal year ended June 30, 1998 are as follows:
July 1, 1998 through Year Ended June 30,
--------------------
October 27, 1998 1998
-------------------------- --------------------
Tadeo Astratek Tadeo Astratek
------------ ------------ --------- ---------
Revenue $ - $ 363,594 $ - $ 996,473
Net income (loss) (461,879) (211,116) 2,394,351 (529,063)
On May 17, 2000 TekInsight acquired Big Technologies, Inc., an Internet
firm specializing in the development of government sites with advanced
transactional Applications, (which has since changed its name to
"TekInsight e-Government Services, Inc."). Since 1995 TekInsight
e-Government Services has created transactional Web applications for
municipal agencies. As merger consideration, former Big Technologies
shareholders received 380,091 shares of TekInsight common stock,
$150,000 in cash and 3.5% of TekInsight e-Government common stock. Such
F-10
<PAGE>
shareholders can also receive additional shares of TekInsight with a
value of $650,000 if TekInsight e-Government attains specified revenue
targets during the first year after the acquisition. As part of the
acquisition, through November 30, 2000 TekInsight has the right to
repurchase up to $100,000 value of the shares issued in the acquisition
at the average market price as quoted on the Nasdaq SmallCap Market for
the five consecutive trading days ending on the trading day that
immediately precedes the Closing Date of the acquisition. If TekInsight
does not exercise this right of repurchase, the former Big Technologies
shareholders have the right to require TekInsight to repurchase up to
$100,000 value of the shares issued to them through December 2000, at
the average market price as quoted on The Nasdaq SmallCap Market for
the five consecutive trading days ending on the trading day that
immediately precedes the Closing Date of the acquisition. In connection
with the acquisition, the former president and chief executive officer
of Big Technologies, before the acquisition, signed a three-year
employment agreement to continue as president and chief executive
officer of TekInsight e-Government.
The following unaudited pro-forma information reflects the results of
operations of the Company as though the acquisition had been
consummated as of July 1, 1997.
The following unaudited pro - forma information reflects the results of the
operations of the Company as though the acquisition had been consumated as of
July 1, 1997.
Year ended June 30,
------------------------------------------------
2000 1999 1998
------------- ------------- --------------
Revenue $ 2,364,328 $ 1,554,368 $ 1,037,433
============= =============== ==============
Net Income (Loss) $(3,900,723) $ 1,016,016 $ 1,868,850
============= =============== ==============
Net income (loss) per share $ (0.24) $ 0.07 $ 0.15
============= =============== ==============
4. MARKETABLE SECURITIES
On September 24, 1998, the Company completed a Stock Purchase Agreement
between ViewCast.com inc. (VCST) and TekInsight (the "Purchase"
Agreement"). VCST purchased $2,000,000 worth of restricted TekInsight
common stock valued at $2,000,000 for $2,000,000 worth of VCST common
stock. The Company issued 1,240,310 shares of TekInsight common stock
at the sale price of $1.6125 per share and received 1,000,000 shares of
VCST's common stock for the purchase price of $2.00 per share. 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. On
April 23, 1999, the Company sold approximately 460,000 shares of VCST,
realizing a net gain of approximately $1.7 million. During the year
ended June 30, 2000, TekInsight has made sales, net of purchases, of
30,000 shares. At June 30, 2000, TekInsight holds 510,000 shares.
In June 1999, the Company exchanged $1,000,000 market value of its
common stock, $.0001 par value, for $1,000,000 market value of shares
of common stock, $.0001 par value, of StyleSite Marketing Inc. under
the terms of a Securities Purchase Agreement. In addition, the Company
purchased 10,000 shares of convertible preferred stock at 100.00 per
share from the same direct marketing company. StyleSite Marketing Inc.
("Style" a public company engaged in the business of distributing
women's and children's fashion apparel related accessories through
catalogs sales announced on January 21, 2000 that it has filed a
Chapter 11 Petition in the New York Southern District for itself and
its subsidiaries. The Company has set up an allowance for doubtful
accounts on its receivables from Style in the amount of $123,500 as of
June 30, 2000. The Company is currently carrying on its balance sheet
under "Investments - Marketable Securities", 1,066,098 shares of common
stock of Style at 99% below cost, or at $.01 per share. Due to the
F-11
<PAGE>
impairment of the value of the common stock, as a result of the
bankruptcy, a loss of approximately $989,000 was recognized from the
unrealized losses that had been recorded for these securities. The
Company also has 10,000 shares of Series G Preferred Stock of Style
purchased at $100 per share. The Company holds a personal guarantee
from Robert Rubin, an affiliate of StyleSite on obligations with
respect to the Preferred Stock. A 50% reserve has been established on
the carrying value of this investment. In order to safisfy Styles's
obligations to Tekinsight, Tekinsight has engaged in settlement
negotiation with Mr. Rubin with respect to his guarantee. On April 20,
2000, the Company filed an action against Style and its lender, First
Source Financial, LLP, in the United State Bankruptcy Court, Southern
District of New York, to establish a constructive trust in its favor
with respect to, and to request that the court order Style and First
Source to deliver to the Company, the $1,000,000 purchase price paid
for 10,000 shares of Style Series G Preferred Stock and the shares of
Company Common Stock having a then $1,000,000 market value delivered
to Style in exchange for an equal market value of Style Common Stock
under an agreement dated June 30, 1999.
On June 30, 1999, TekInsight Services entered into an agreement with
Business Talk Radio.Net, Inc. ("Business Talk"), a private held
Company, under which, an aggregate payment of $250,000 was made in July
and August 1999, TekInsight Services obtained an assignable credit for
the purchase of advertising time on radio programs operated by Business
Talk having a value of $1,200,000, and 564,056 shares of Series C
Preferred Stock, par value $.0001 per share, convertible into 5% of the
current outstanding capital stock of Business Talk. Each share of Class
C Preferred Stock has a liquidation preference of $.2217. As part of
the transaction, TekInsight Services obtained an option to acquire an
equivalent number of shares of Business Talk capital stock for an
exercise price of $250,000, as well as the right to "stream" the
content of Business Talk programming on its and its affiliates web
sites during the course of a three-year period without an additional
payment to Business Talk. On January 3, 2000, the Company exercised its
option and, for a payment of $250,000, acquired an additional 564,056
shares of Business Talk Series C Preferred stock for $.2217 per share.
On September 1, 1999, Astratek entered into a Consulting and
Professional Service Agreement with Enuncia Communications, INC.
(FORMERLY 4TH Peripheral, Inc.), a privately held Company. In an effort
to strengthen Astratek's strategic relationships with Enuncia, the
Company purchased 250,000 shares of Enuncia Common Stock, par value
$.001 per share, for $250,000 in a private placement of securities.
On November 5, 1999, the Company signed a web site design and
development agreement with Med-Emerg International ("MED-EMERG") to
provide a health care portal for its subsidiary, HEALTHCONNECT.COM,
INC., (www.healtyconnect.com), an Internet information technology
company that uses enabling technology to link patients, physicians and
service providers. Pursuant to the agreement, the Company will receive,
measured as of the date of the Agreement, a total of $775,000, $150,000
in three equal monthly payments of $50,000, $225,000 in three equal
monthly payments of $75,000, and has received 320,000 shares of
Med-Emerg common stock having a fair market value of $1.25 per share on
the date of the Agreement ($400,000), for the joint development of the
health portal. The Med-Emerg common stock was delivered in May 2000.
F-12
<PAGE>
The aforementioned marketable securities have been classified as
available for sale securities at June 30, 2000 and accordingly, the
unrealized gain resulting from valuing such securities at market value
is reflected as a component of stockholders' equity.
5. ASSET PURCHASE AGREEMENT
In August 2000, the Company merged its Services division with Data
Systems Corporation. Data Systems provides computer network services
and products that allow companies to control their complex distributed
computing environments. Such services include the design, sale and
service of LANs and WANs. Data Systems generates revenues by providing
consulting and network installation services, selling add-on hardware
components to existing clients and providing after-installation service
and support, training services and network management services. Data
Systems serves primarily government customers in five states.
The acquisition price was $12,500,000. The aggregate consideration paid
to Data Systems stockholders consisted of approximately 2,185,755
shares of TekInsight preferred stock based on an aggregate of 5,575,906
shares of common stock of Data Systems outstanding as of the effective
time of the merger and an exchange ratio of 0.392 of a share of
TekInsight preferred stock for each share of Data Systems common stock
outstanding. In addition, the Company assumed 462,500 options and
50,000 warrants issued by Data Systems which were converted into the
right to acquire 181,300 and 19,600 shares of TekInsight preferred
stock, respectively. Finally, as a result of the merger, TekInsight
Services assumed, and TekInsight agreed to guaranty, Data Systems'
existing credit facility with Foothill Capital Corporation. As of
September 15, 2000, approximately $5,100,000 was outstanding under the
credit facility which is collateralized by Data Systems' accounts
receivable.
6. NOTE RECEIVABLE
In May 1999, TekInsight entered a joint venture relationship with
Azurel, Ltd., a cosmetic manufacturing and marketing company, to
provide Internet marketing of cosmetic products. The venture included a
revenue sharing arrangement, with Azurel providing content and
TekInsight providing the e-commerce infrastructure. In connection with
the agreement, TekInsight lent to Azurel an aggregate of $1,528,166.67
under the terms of a Credit Agreement, as amended, dated as of June 1,
1999 (with part of the aggregate principal reflecting the restructuring
of a March 31, 1999 short-term $500,000 promissory note made by Azurel
to TekInsight), with interest payable at the rate of 8% per annum,
payable monthly, and with all principal and accrued interest due on May
28, 2001 (the "Credit Agreement"). Repayment of amounts outstanding
under the Credit Agreement was secured by a pledge of approximately
66.66% of the outstanding shares of certain Azurel operating
subsidiaries, Private Label Cosmetics, Inc. and Fashion Laboratories,
Inc., under the terms of a Pledge Security Agreement, as amended, by
and between Azurel and TekInsight. In further consideration for its
advances to Azurel under the Credit Agreement, TekInsight received from
Azurel warrants to acquire 500,000 shares of Azurel common stock,
F-13
<PAGE>
exercisable at $1.50 per share, with the shares acquired upon exercise
of such Warrants being subject to registration rights provided under
the terms of a Registration Rights Agreement, as amended, dated as of
June 1, 1999. On May 12, 1999, TekInsight had also extended a $500,000
loan to Azurel, due August 1999, bearing interest at 20.8% (the
"Note"). The $500,000 Note was later amended on August 12, 1999 to (i)
extend the due date to June 2000, (ii) reduce the interest rate to 10%,
and (iii) increase the principal of the Note from $500,000 to $550,000
for accrued interest of $26,580 and a premium of $23,420 for extending
the maturity date and lowering the interest rate. On November 25, 1999,
TekInsight provided an additional $200,000 to Azurel, Ltd. to secure
computer equipment for increased capacity for its operation by entering
into a sale and leaseback transaction with respect to this equipment
under the terms of an Equipment Lease, which terminates in November
2001.
Due to a rapid proliferation of cosmetic e-commerce sites in the
marketplace, the site under development for Azurel was not deemed
economically feasible. Concurrently, the financial condition of Azurel
deteriorated. The $550,000 Note remained unpaid on June 30, 2000 and is
currently in default, the Credit Agreement is currently in default, and
the Equipment Lease is currently in default. Azurel has been duly
notified of the defaults and on August 2, 2000 TekInsight accelerated
the amounts due under the $550,000 Note and the Credit Agreement. Due
to Azurel's extreme financial hardship, requiring a sale of two of its
principal operating subsidiaries, Private Label and Fashion
Laboratories, to remain solvent, in an amendment to the Azurel Pledge
Security Agreement TekInsight permitted a substitution of collateral.
The shares of capital stock of the former Azurel subsidiaries pledged
to secure the Credit Agreement obligations was replaced as collateral
with a $1,800,000 subordinated note made by Private Label and Fashion
Laboratories payable to Azurel, due in a balloon payment of all
principal and accrued interest in May 2002. In consideration for its
pledge release, the exercise price on warrants to acquire 500,000
shares of Azurel common stock held by TekInsight and TekInsight
Services was lowered to $.60 per share (the then current market price
of Azurel common stock) from $1.50 per share. TekInsight is currently
in the process of foreclosing on this substituted collateral securing
the indebtedness evidenced by the accelerated Credit Agreement
obligations and taking such other action that is appropriate to collect
all of the accelerated obligations. TekInsight at this time has not
attempted to collect repayment of the unsecured $550,000 Note or to
recover the equipment subject to the Equipment Lease, in an effort to
maintain the possibility of full recovery under those instruments at a
later date from a stronger debtor. In connection with the Azurel notes
receivable, TekInsight has established reserves for the amounts due in
excess of the $1,800,000 collateral note. This has caused a reserve of
approximately $476,000.
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<PAGE>
7. FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment are as follows:
June 30,
------------------------------------
2000 1999
------------------ --------------
Furniture and fixtures $ 20,905 $ 20,905
Computer software 9,447 7,862
Computer equipment 148,628 92,425
Machinery and equipment 3,227 -
Leasehold improvements 9,149 -
------------------ --------------
191,356 121,192
Less: accumulated depreciation (79,721) (49,254)
------------------ --------------
$ 111,635 $ 71,938
================== ==============
8. NOTES PAYABLE
Note payable at June 30, 2000 and June 30, 1999 of $17,675 consist of a
loan payable to an officer without interest.
9. CONCENTRATION OF CREDIT RISK
The Company maintains cash balances at a financial institutions located
in New York. Accounts at the institution are insured by Federal Deposit
Insurance Corporation up to $100,000. The Company's cash balances
exceeded such insured limits.
10. COMMITMENTS, CONTINGENCIES, AND OTHER AGREEMENTS
The Company is obligated under two leases for base annual rent of
approximately $114,000 (Michigan) and $126,000 (New York City) through
September 2002 and November 2002, respectively. A portion of the
Michigan location has been subleased for rent of $47,592 annually, plus
an allocation of 42.5% of common area expenses under the master lease.
Department of Health Services - One of the Company's discontinued
wholly-owned subsidiaries underwent an audit by the California State
Controller's Office, Division of Audits, for the purpose of determining
compliance with guidelines of the California Department of Health
Services ("Medi-Cal") and the California State Board of Equalization.
The Controller's Office issued a report to the effect that the
subsidiary owed, and issued a Letter of Demand for, $1.3 million,
contending that for the period July 1, 1990 to June 30, 1993, the
subsidiary practiced unfair pricing to its customers. Additionally,
accrued interest on the amount demanded is also sought by the
Controller's Office. On January 20, 1999, the Superior Court
recommended that the overpayment determination be upheld. The
subsidiary has a pending appeal to overturn the ruling, which has been
upheld. In March 1999, the Company's wholly-owned subsidiary filed an
appeal to the Superior Court's decision with the California Court of
Appeals. On January 26, 2000, the Company lost its appeal with the
F-15
<PAGE>
California Court of Appeals. The Company has provided a reserve for the
principal amount of $1,339,785 and as of June 30, 2000, $382,647 in
accrued interest, or $1,722,432 in total. The Company has decided not
to appeal the decision. A demand for payment has not yet been made by
the Controller's Office.
In June 1999, TekInsight entered into a strategic relationship with
StyleSite Marketing, or Style to create an e-commerce website to
feature and sell women's and children's fashion apparel and related
accessories. The revenue-sharing agreement provided for Style to
provide content and fulfillment while TekInsight provided the
e-commerce infrastructure. In connection with the agreement, TekInsight
(i) purchased, for $1,000,000, 10,000 shares of Style's Series G
Convertible Redeemable Preferred Stock (which is redeemable for the
$1,000,000 purchase price plus accrued and unpaid dividends out of the
proceeds of a secondary offering of Style common stock which has been
filed with the Securities and Exchange Commission) (the "Preferred
Stock") and (ii) exchanged $1,000,000 approximate market value of its
common stock (285,715 shares) for $1,000,000 approximate market value
of Style common stock (1,066,098 shares), under the terms of the
Securities Purchase Agreement, dated as of June 30, 1999, by and
between TekInsight and Style. Contractual obligations of Styles to
TekInsight, including TekInsight's rights as a holder of the Preferred
Stock (e.g., redemption payments), are guaranteed under the terms of a
personal guarantee made in favor of TekInsight by Robert M. Rubin, the
then Chairman of Styles. In order to safisfy Styles's obligations to
Tekinsight, Tekinsight has engaged in settlement negotiation with Mr.
Rubin with respect to his guarantee.
On April 20, 2000, TekInsight filed an action against Style and its
lender, First Source Financial LLP, in the United States Bankruptcy
Court, Southern District of New York, to establish a constructive trust
in its favor with respect to, and to request that the court order Style
and First Source to deliver to TekInsight, the $1,000,000 purchase
price paid for 10,000 shares of Style Series G Preferred Stock and
shares of TekInsight common stock having a $1,000,000 market value
delivered to Style in exchange for an equal market value of Style
common stock under an agreement dated June 30, 1999. On June 6, 2000,
Style and First Source filed a motion to dismiss the Company's
complaint against them. On June 26, 2000, TekInsight filed its written
submissions to vigorously oppose the motion. On July 20, 2000, the
Bankruptcy Court heard oral argument on the motion and it is presently
under consideration by the Bankruptcy Court.
On July 10, 2000, TekInsight was named as a nominal defendant in a
stockholder's derivative action brought on behalf of TekInsight by Paul
Miletich, an alleged shareholder of TekInsight, against Brian D.
Bookmeier, James Linesch, Damon D. Testaverde and Alexander Kalpaxis as
directors of TekInsight. The case was filed in the Supreme Court of New
York, New York County, Case No. 114972. In his suit, Mr. Miletich
alleges that the directors of TekInsight breached their fiduciary
duties of care and/or loyalty to TekInsight by permitting TekInsight to
enter into, among other things, transactions with StyleSite Marketing,
Inc. and Azurel, Inc., resulting in a waste of corporate assets of
TekInsight. TekInsight intends to defend the suit vigorously.
As a result of the merger with Data Systems, the Company assumed the
liability for a potential enforcement action undertaken by the SEC. The
SEC staff has advised Data Systems that following its merger with
F-16
<PAGE>
TekInsight Services, resulting in Data Systems no longer having any
public shareholders, the SEC staff would make no recommendation for any
enforcement proceedings against Data Systems.
On August 27, 1998, J. Alan Moore filed suit in Mecklenburg County
Superior Court Division (Case No. 98-CvS-12286), North Carolina,
against Data Systems Network Corporation. The complaint alleges the
Company did not act in good faith and failed to pay commissions and
expenses of which the plantiff claims entitlement. On July 28, 2000 a
judgement was entered in favor of the plantiff for $572,469 plus legal
fees and interest. Telinsight intends to appeal the judgement. In
order to proceed with the appeal, however, the Company may be required
to place a collateralized deposit of the amount due until the appeal is
completed.
On May 15, 2000 the Company entered into a consulting agreement with
its President who is also a director. The agreement expires in
February 2002 and automatically renews for successive 90 day periods
unless terminated by either party. The agreement provides for a
monthly consulting fee of $23,000 and options to purchase 400,000
shares of the Company at $3.00 per share. Of the options granted,
options for 200,000 shares vested and were exercisable as of February
1, 2000. The remaining 200,000 options vest and are exercisable,
100,000 each when the average closing price for one share of common
stock for the five trading days immediately prior to such date attains
$6.00 and $8.00 per share, respectively. In addition, the President
also received options to purchase 30,000 shares of the common stock
of BugSolver.com, Inc. for $1.50 and may be granted additional
options if certain funding transactions are arranged.
The Company entered into a consulting agreement with The Exigo Group
dated June 1, 2000 for the provision of sales and marketing consultant
services to TekInsight and its affiliates by The Exigo Group. Subject
to the Company's approval, The Exigo Group shall select a single
employee to provide services at locations as directed by the Company.
The consulting agreement terminates on September 30, 2000 and
automatically renews for successive 90-day periods unless either party
gives notice of termination. For its services, The Exigo Group shall
receive (i) a consulting fee of $12,500 a month and (ii) options to
purchase 120,000 shares of common stock at an exercise price of $3.00
per share. This option vests in allocations of 30,000 shares each when
the five-day average closing price for one share of common stock is
$4.00, $5.00, $7.00 and $9.00, respectively.
On May 24, 2000, the Company entered into a consulting agreement with
Core Strategies, LLC for the provision of strategic marketing, planning
and counseling services to TekInsight. The Executive Vice President -
Marketing of TekInsight, is also the Chief Executive Officer of Core
Strategies and shall directly manage the services to be provided to the
Company. The agreement is effective as of March 1, 2000 and continues
indefinitely unless either party gives 30 days written notice of
termination. In exchange for its services, Core Strategies shall
receive (i) a consulting fee of $12,000 a month and (ii) an option to
purchase 100,000 shares of common stock at an exercise price of $3.00
per share. This option vests in allocations of 25,000 shares each
unless the five day average closing price for one share of common stock
is $3.00, $5.00, $6.00 and $8.00, respectively. Core Strategies shall
also receive a monthly communications fee equal to 2% percent of its
consulting fees for expenses incurred for telephone calls, postage,
delivery and similar charges.
In February 2000, the Company entered into a two-year financial
advisory agreement with Earlybird Capital, pursuant to which the
Company issued warrants for 300,000 shares of common stock at an
exercise price of $4.06.
F-17
<PAGE>
11. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). SFAS No. 109 requires the recognition of deferred tax assets and
liabilities for both the expected impact of differences between the
financial statements and tax basis of assets and liabilities, and for
the expected future tax benefit to be derived from tax loss and tax
credit carry forwards. SFAS No. 109 additionally requires the
establishment of a valuation allowance to reflect the likelihood of
realization of deferred tax assets. At June 30, 2000, the Company had
deferred the tax effects of approximately $900,000 due to expenses not
currently deductible.
The benefit for income taxes from continuing operations differs from
the amount computed applying the statutory federal income tax rate to
loss before income taxes as follows:
Year Ended June 30,
-----------------------------------
2000 1999 1998
---------- ----------- ----------
Income tax benefit computed $1,528,000 $ (248,000) $(392,000)
at statutory rate
Income tax benefit not recognized (983,000) 248,000 392,000
---------- ----------- ----------
Income tax benefit $ 545,000 $ - $ -
========== =========== ==========
During the year ended June 30, 2000, the Company carried back
approximately $1,700,000 of available net operating loss carrybacks.
12. STOCKHOLDERS' EQUITY
A. Preferred Stock - The Certificate of Incorporation of the
Company authorizes the issuance of a maximum of 10,000,000 shares of
preferred stock. The Company's Board of Directors is vested with the
authority to divide the class of preferred shares into series and to
fix and determine the relative rights and preferences of shares of any
such series to the extent permitted by the laws of the State of
Delaware and the Articles of Incorporation.
B. In connection with its December 1992 public offering, the
Company has 1,143,800 Class A warrants outstanding to purchase Common
Stock at $3.30 per share, which expire on December 17, 2000.
13. STOCK OPTION PLAN
A. The Employee Stock Option Plan was adopted by the Board of
Directors in 1992. 500,000 shares of common stock were initially
reserved for issuance under the plan. Options granted under the 1992
F-18
<PAGE>
plan may be either incentive options within the meaning of Section 422
of the Internal Revenue Service Code of 1986, non-qualified options,
or options not intended to be incentive options.
The 1992 plan provides for the grant of options that are intended to
qualify as incentive stock options, or ISOs, under Section 422 of the
Internal Revenue Code to employees of the Company, as well as the
grant of non-qualifying options, or NSOs, to officers, directors or
key employees of TekInsight or other individuals whose participation
in the 1992 plan is determined to be in the best interest of
TekInsight by the compensation committee. In August 2000, Directors
and Shareholders approved an increase in the number of shares
authorized under the Plan from 500,000 to 2,000,000. As of June 30,
2000, 482,000 options were granted under the plan, net of forfeitures.
B. In November 1997, the Company established the 1997 Stock Option
Plan for Non-employee Directors, which authorizes the issuance of up
to 300,000 options to purchase Common Stock at an exercise price of
100% of the Common Stock's market price. Subsequent to its adoption at
the annual meeting in February 1998, 140,000 options have been issued
under the Plan at prices between $0.97 and $3.78.
14. ACCOUNTING FOR STOCK OPTIONS
The Company accounts for stock options issued to employees under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", under
which no compensation expense is recognized if the exercise price
equals the stock market value on the measurement date (generally the
grant date). The Company has adopted the pro forma disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
For disclosure purposes, the fair value of each option is measured an
the grant date using the Black-Scholes option-pricing model with the
following weighted average assumptions used for stock options granted
during the years ended June 30, 2000, 1999 and 1998, respectively;
annual dividends of $0.00 for all years; expected volatility of 50%
for the year ended June 30, 2000, and 86.3% for the years ended June
30, 1999 and 1998; risk free interest rate of 6.3% for the year ended
June 30, 2000, and 5.7% for the years ended June 30, 1999 and 1998,
and expected life of five years for all years.
If the company had recognized compensation cost in accordance with
SFAS No. 123, the Company's pro forma net loss and loss per share
would have been $4.6 million and $.29 for the year ended June 30, 2000
and $3.1 million and $.30 for the year ended June 30, 1998. The effect
for fiscal 1999 would not be material.
Since 1992, the Company has issued options outside the stock option
Plans in the aggregate amount of 2,644,167 shares, at prices between
$1.00 and $4.06 per share. These options were issued in connection
with employment agreements, consulting agreements and in the course of
raising capital. During fiscal 2000, 927,500 options were granted, at
prices between $3.00 and $4.06 per share. The term of these options is
F-19
<PAGE>
between five and ten years. None of the options have been exercised or
forfeited.
The following table summarizes the changes in options and warrants
outstanding and the related exercise prices for the shares of the
Company common stock:
<TABLE>
<CAPTION>
Stock Options Under Plans Other Options and Warrants
--------------------------------------------- ---------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Exercisable Shares Price Exercisable
-------------- ----------------------------------------------------------- -----------------
Outstanding at
<S> <C> <C> <C> <C> <C> <C>
-------------
June 30, 1997 340,000 1.50 340,000 1,616,667 1.76 1,616,667
=============== =================
Granted 45,000 0.97 -
-------------- ------------ --------------
Outstanding at 385,000 1.46 385,000 1,616,667 1.76 1,616,667
=============== =================
June 30, 1998
Granted 222,000 0.95 100,000 1.35
--------------
--------------
Outstanding at
June 30, 1999 607,000 1.35 607,000 1,716,667 1.74 1,716,667
-------------- =============== =================
Granted 40,000 3.78 927,500 3.00
Canceled (65,000) 0.93 -
Exercised (65,000) 1.88 -
-------------- ----------- -------------- ------------
Outstanding at
June 30, 2000 517,000 1.56 517,000 2,644,167 2.30 2,084,167
============== ============ =============== ============= ============ =================
</TABLE>
In connection with the separate capitalization of the Company's
BugSolver subsidiary, 560,000 options to purchase Bugsolver common
stock were granted to key persons involved in the development, funding
and market introduction of BugSolver products. These options are
exercisable at $1.50 per share for a period of five years. The
BugSolver subsidiary has been capitalized with 3,500,000 shares, which
are 100% held by TekInsight at June 30, 2000.
15. NOTE RECEIVABLE - OFFICER
On March 31, 2000, the Company, received repayment in full of principal
and interest under its $100,000 loan from the Company to Seven Sons,
Inc., a golf and tennis equipment store affiliated with a director of
the Company.
16. TERMINATION AGREEMENTS
The Company entered into a contract, subsequent to the disposal of
its business, 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 $213,633 at June 30, 2000. With the
prepayment of the Note from Gainor, the termination agreement calls for
the prepayment of the termination contract; therefore, the balance is
being carried as short term.
17. SUBSEQUENT EVENT
In September 2000, the Company received an equity investment of
$3,000,000 for 1,000,000 shares of preferred stock issued by its
BugSolver subsidiary. For two years, the shares are convertible into
either (i) common shares of BugSolver at a ratio of 1:1 or (ii) 750,000
shares of TekInsight common stock. In the event that BugSolver merges
with another company, the preferred shares automatically become
converted into BugSolver common shares at a ratio of 1:1. In the event
that TekInsight issues additional BugSolver securities at a lower price
during the following six months, the equity holdings of the BugSolver
preferred shareholders will be adjusted to reflect the price of the
securities issued by BugSolver in its next offering only. In connection
with this financing, a finder's fee was paid to a related party of
$150,000 plus options to purchase 50,000 shares of BugSolver common
stock at $3.00 during the next five years.
F-20
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Pursuant to authority granted in Paragraph G. (3) to the General
Instructions to Form 10-K, the information required to be included as Part III
to this Report on Form 10-K is omitted from this filing and will be incorporated
by reference from TekInsight's definitive proxy statement or definitive
information statement which involves the election of directors, if such
definitive proxy statement or information statement is filed with the Commission
not later than October 28, 2000. If such Part III information is not so
incorporated by reference, such Part III information shall be filed as part of
an amendment to TekInsight's Report on Form 10-K for the fiscal year ended June
30, 2000 not later than October 28, 2000.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and reports on Form 8-K
(a) SEE, ITEM 8.
"FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA."
(b) LIST OF REPORTS ON FORM 8-K
On May 19, 2000, the Company filed Form 8-K covering the acquisition of Big
Technologies, Inc
( c) EXHIBITS
NUMBER DESCRIPTION OF EXHIBIT
2.1 Agreement and Plan of Merger, as amended, dated February 18, 2000
between TekInsight.com, TekInsight Services, Inc. and Data Systems
Network Corporation (14)
2.2 Second Amendment to the Agreement and Plan of Merger dated as of June
28, 2000 between TekInsight.com, Inc. TekInsight Services, Inc. and
Data Systems Network Corporation (17)
3.1(a) Certificate of Incorporation of the Company. (1)
3.1(b) Certificate of Renewal of Charter of the Company. (1)
3.1(c) Certificate of Amendment of Charter of the Company. (3)
3.1(d) Certificate of Amendment of Charter of the Company. (12)
21
<PAGE>
3.1(e) Certificate of Amendment to Certificate of Designations of Charter of
the Company. (12)
3.1(f) Certificate of Amendment to Charter of the Company (13)
3.2 By-Laws of the Company. (3)
3.3 Certificate of Designations, Preferences and Relative, Participating,
Optional or other special rights of Series A Redeemable Preferred
Stock. (9)
3.4 Certificate of Designations, Preferences and Relative, Participating,
Optional or other special rights of Series B Convertible Preferred
Stock. (9)
4.1(a) Specimen Certificate of the Company's Common Stock. (2)
4.1(b) Specimen of Redeemable Common Stock Purchase Warrant. (4)
4.2 Form of Warrant Agent Agreement between the Company and American Stock
Transfer and Trust Company. (2)
4.3 Amended Warrant Agreement between the Company and American Stock
Transfer and Trust Company, dated November 30, 1999 (13)
4.3 Form of Underwriter's Warrant Agreement. (5)
4.4 1992 Employee Incentive Stock Option Plan, including form of Incentive
Stock Option Agreement. (2)
4.5 1998 Non-Employee Director Stock Option Plan. (9)
4.6 Form of Amendment to 1992 Employee Incentive Stock Option Plan. (16)
4.7 Form of certificate of designations for Series A preferred stock. (16)
10.1 Warrant Agreement, dated April 28, 1995, by and between the Company
and Fred Kassner ("Lender"). (7)
10.2 Registration Rights Agreement, dated April 28,1995, by and between the
Company and Lender. (7)
10.3 Warrant Agreement, dated July 14, 1995, by and between the Company and
Lender. (6)
10.4 Registration Rights Agreement, dated July 14, 1995, by and between the
Company and Lender. (6)
10.5 Agreement and Plan of Merger between the Company and Gainor Medical
Management, LLC, as amended, dated November 14, 1997.(8)
22
<PAGE>
10.6 Closing Agreement dated January 28, 1998. (9)
10.7 Termination Agreement of Edward Buchholz, dated January 28, 1998. (9)
10.8 Employment Termination Agreement, dated July 10, 1998, by and among
the Company and Messrs. Alan Korby. (10)
10.9 Employment Termination Agreement,dated July 10, 1998, by and among the
Company and Messrs. Matthew Gietzen. (10)
10.10 Employment Termination Agreement, dated July 10, 1998, by and among
the Company and Messrs. Brian Bookmeier. (10)
10.11 CONSULTING AND PROFESSIONAL SERVICES AGREEMENT WITH 4TH Peripheral,
Inc. (12)
10.12 Form of Web Site Design and Consulting Agreement, dated as of June 1,
1999, by and between Azurel, E Commerce Corp. (12)
10.13 Credit Note, dated May 28, 1999 made by Azurel in favor of Tadeo
Holdings, Inc. ("Tadeo") (the "Credit Note").(11)
10.14 First Allonge to Credit Note, made by Azurel in favor of Tadeo E,
dated June 1, 1999. (11)
10.15 Credit Agreement, dated May 28, 1999, by and between Tadeo and Azurel.
(11)
10.16 Pledge Security Agreement, dated May 28, 1999, by and between Tadeo
and Azurel. (11)
10.17 Warrants, to acquire 300,000 shares of Azurel common stock, dated May
28, 1999. (11)
10.18 First Amendment to Credit Agreement, dated June 1, 1999, by and
between Tadeo, Tadeo E and Azurel. (11)
10.19 Registration Rights Agreement, dated May 28, 1999, by and between
Tadeo and Azurel. (11)
10.20 Warrants, to acquire 200,000 shares of Azurel common stock, dated June
1, 1999. (11)
10.21 Form of On-Line Hosting Agreement, dated as of June 30, 1999, by and
between Tadeo E and Style Site Marketing Inc.("Style"). (11)
10.22 Web Site and Consulting Agreement, dated as of June 30, 1999, by and
between Tadeo E and Style. (11)
23
<PAGE>
10.23 Security Purchase Agreement, dated June 30, 1999, by and between
Tadeo, Tadeo E and Style. (11)
10.24 Registration Rights Agreement, dated June 30, 1999, by and between
Tadeo E and Style.
(11)
10.25 Pledge Security Agreement, dated June 30, 1999, by and between Tadeo
E, The Rubin Family Irrevocable Trust and Style. (11)
10.26 Agreement dated June 30, 1999, between Tadeo and
BusinessTalkRadio.Net, Inc. (12)
10.27 Guarantee of Robert M. Rubin for certain liabilities of Style to Tadeo
E. (12)
10.28 Form of indemnity agreement between TekInsight and its officers and
directors (16)
10.29 Affiliate agreement dated as of February 18, 2000 between Michael W.
Grieves and Gregory Cocke, as principal shareholders, and Data
Systems, TekInsight Services and TekInsight, as parties to the
merger(16)
10.30 Consulting Agreement between Steven J. Ross and BugSolver.Com, Inc.
dated as of December 10, 1999(16)
10.31 Consulting Agreement between Steven J. Ross, TekInsight.com, Inc. and
BugSolver.Com, Inc., dated as of May 15, 2000 (17)
10.32 Letter Agreement between Core Strategies, LLC and TekInsight.com,
Inc., dated May 24, 2000 (17)
10.33 Form of Consulting Agreement between The Exigo Group and
TekInsight.com, Inc., dated June 1, 2000 (17)
10.34 Agreement and Plan of Merger, dated May 17, 2000, between
TekInsight.com, Inc., Big Tech Acquisition Corp. and Big Technologies,
Inc. (15)
10.35 Form of Non-Competitive, Confidentiality and Inventions Agreement
between Big Technologies, Inc. and Employees (15)
10.36 Guaranty, dated as of August 11, 2000, made by TekInsight.com, Inc.in
favor of Foothill Capital Corporation (18)
10.37 Amendment No. 6 and Waiver to loan and Security agreement, dated as of
august 11, 2000, among Foothill Capital corporation, TekInsight
Services, Inc. and Data Systems Network Corporation (18)
24
<PAGE>
10.38 Loan and Security Agreement, dated as of September 30, 1998, between
TekInsight Services, Inc.(as successor to Data Systems Network
Corporation) and Foothill Capital Corporation (19)
21 TekInsight subsidiaries(17)
99.1 Form of amendment to 1992 employee stock option plan (16)
99.2 Form of Series A convertible preferred stock certificate of
TekInsight.com, Inc. (17)
27. Financial Data Schedule
----------------
1. Incorporated by reference, filed as an exhibit to the Registrant's
Registration Statement on Form S-1 filed on August 3, 1992, SEC File
No. 33-50426.
2. Incorporated by reference, filed as an exhibit to Amendment No. 1 to
the Registrant's Registration Statement on Form S-1 filed on October
13, 1992.
3. Incorporated by reference, filed as an exhibit to Amendment No. 2 to
the Registrant's Registration Statement on Form S-1 filed on November
10, 1992.
4. Incorporated by reference, filed as an exhibit to Amendment No. 4 to
the Registrant's Registration Statement on Form S-1 filed on December
4, 1992.
5. Incorporated by reference, filed as an exhibit to Amendment No. 5 to
the Registrant's Registration Statement on Form S-1 filed on December
8, 1992.
6. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on July 26, 1995.
7. Incorporated by reference, filed as an exhibit to the Registrant's
Registration Statement on Form SB-2, filed on July 31, 1995, SEC File
No. 33-95222.
8. Incorporated by reference, filed as an exhibit to the Company's
definitive Proxy Statement, filed on December 24, 1998.
9. Incorporated by reference, filed as an exhibit to the Company's Report
on Form 10-Q, filed on December 24, 1998.
25
<PAGE>
10. Incorporated by reference, filed as an Exhibit to the Company's Annual
Report on Form 10-K, filed on October 13, 1998.
11. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on July 30, 1999.
12. Incorporated by reference, filed as an Exhibit to the Company's Annual
Report on Form 10-K, filed on October 13, 1999.
13. Incorporated by reference, filed as an Exhibit to the Company Current
Report on Form 8-K, filed on December 6, 1999
14. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on February 29, 2000.
15. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on May 19, 2000
16. Incorporated by reference, filed as an Exhibit to the Company's
Registration Statement on Form S-4, filed on May 1, 2000 (File No.
333-36044).
17. Incorporated by reference, filed as an Exhibit to the Company's
Amendment No. 1 to Registration Statement on Form S-4, filed on July
13, 2000 (File No. 333-36044).
18. Incorporated by reference, filed as an Exhibit to the Company's
Current Report on Form 8-K, filed on August 24, 2000.
19. Incorporated by reference, filed as an Exhibit to the quarterly report
on Form 10-Q of Data Systems Network Corporation for the quarter ended
September 30, 1998.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED: October 11, 2000
TEKINSIGHT.COM, INC.
BY:\S\STEVEN J. ROSS
Steven J. Ross, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated
SIGNATURES TITLE DATE
/S/STEVEN J. ROSS President, Chief October 11, 2000
-----------------
Steven J Ross Executive Officer
and Director
/S/ALEXANDER KALPAXIS Chairman of the Board, October 11, 2000
----------------------- and Director
Alexander Kalpaxis
Chief Technology Officer
/S/JAMES LINESCH Chief Financial and October 11, 2000
-------------------------
James Linesch Chief Accounting Officer,
Executive Vice President,
Director and Secretary
/S/DAMON TESTAVERDE Director October 11, 2000
-------------------
Damon Testaverde
/S/BRIAN D. BOOKMEIER Director October 11, 2000
---------------------
Brian D. Bookmeier
/S/MICHAEL GRIEVES Director October 11, 2000
------------------
Michael Grieves
/S/WALTER J. ASPATORE Director October 11, 2000
---------------------
Walter J. Aspatore
