U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 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.)
5 Hanover Square - 24th Floor
New York, New York 10004
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (212) 271-8511
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 ___
The number of shares outstanding of the issuer's Common Stock, $.0001 par
value, as of May 1, 2000 was 15,913,529.
<PAGE>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet - March 31, 2000
and June 30, 1999 3
Consolidated Statement of Operations - For the three
and nine months ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flows - For the
nine months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6 - 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operation 10 - 13
PART II - OTHER INFORMATION 13 - 14
SIGNATURE 15
2
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TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(UNAUDITED)
March 31, June 30,
ASSETS 2000 1999
------
---------------- ---------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 5,497,845 $ 7,618,259
Interest receivable 106,050 25,521
Accounts receivable, net of allowance for doubtful 489,640 45,750
accounts $111,500 as of March 31, 2000
Prepaid expenses and other assets 150,000 30,000
Note receivable - other 764,700 500,000
-------------- ---------------
TOTAL CURRENT ASSETS 7,008,235 8,219,530
LONG--TERM NOTE RECEIVABLE 1,497,017 1,528,167
INVESTMENTS - Marketable Securities 4,435,763 5,533,177
PROPERTY AND EQUIPMENT, net
net of accumulated depreciation of $70,896 and $49,254, respectively 106,293 71,938
CAPITALIZED SOFTWARE COSTS, net 1,256,129 1,091,793
DEPOSITS AND OTHER ASSETS 43,058 43,058
---------------- ---------------
$ 14,346,495 $ 16,487,663
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 196,956 $ 421,178
Accrued expenses 158,969 125,000
Income tax payable 326,480 628,000
Deferred interest 14,700 -
State audit reserves 1,705,219 1,400,000
Accrued termination costs, short-term 230,904 280,209
---------------- ---------------
TOTAL CURRENT LIABILITIES 2,633,228 2,854,387
---------------- ---------------
LONG TERM NOTES PAYABLE, net of current portion 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,
15,913,529 shares and 15,348,528 issued and outstanding as of
March 31, 2000 and June 30, 1999, respectively 1,592 1,535
Additional paid-in capital 19,387,300 18,797,382
Unrealized gain on securities 885,763 2,446,509
Accumulated deficit (8,579,063) (8,134,826)
---------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 11,695,592 13,615,600
---------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,346,495 $ 16,487,663
================ ===============
</TABLE>
See notes to consolidated financial statements.
3
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TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31, Nine Months Ended March 31,
2000 1999 2000 1999
------------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 566,635 $ 336,082 $ 1,528,814 $ 1,303,310
COST OF GOODS SOLD 251,340 290,111 893,938 575,860
------------- ----------- ---------- -----------
GROSS PROFIT 315,295 45,971 634,876 727,450
------------- ----------- ---------- -----------
OPERATING EXPENSES:
Selling, general and administrative 880,239 539,606 1,661,858 1,805,866
Research and development - 37,133 - 99,629
Depreciation and amortization 4,304 5,177 21,642 15,585
Settlement of employement contracts, (Non-cash) - - - 327,501
------------- ----------- ---------- -----------
TOTAL OPERATING EXPENSES 884,543 581,916 1,683,500 2,248,581
------------- ----------- ---------- -----------
LOSS FROM OPERATIONS (569,247) (535,945) (1,048,624) (1,521,131)
GAIN ON SALE OF MARKETABLE SECURITIES - - 93,439 -
INTEREST INCOME, net 178,118 (12,687) 379,080 508,006
------------- ----------- ---------- -----------
LOSS FROM CONTINUING OPERATIONS (391,129) (548,632) (576,105) (1,013,125)
------------- ----------- ---------- -----------
DISCONTINUED OPERATIONS
Gain from discontinued operations 131,867 - 131,867 -
------------- ----------- ---------- -----------
TOTAL INCOME FROM DISCONTINUED OPERATIONS 131,867 - 131,867 -
------------- ----------- ---------- -----------
NET INCOME (LOSS) (259,262) (548,632) (444,238) (1,013,125)
PREFERRED STOCK DIVIDENDS - - - (27,288)
NET LOSS APPLICABLE TO --------------- -------------- -------------- -------------
COMMON SHARE HOLDERS $ (259,262) $ (548,632) $ (444,238) $ (1,040,413)
=============== ============== ============== =============
NET INCOME (LOSS) PER SHARE:
Continued $ (0.02)$ (0.04)$ (0.04)$ (0.07)
Discontinued 0.00 0.00 0.01 0.00
--------------- -------------- -------------- -------------
NET LOSS PER SHARE - basic and diluted $ (0.02) $ (0.04)$ (0.03) $ (0.07)
=============== ============== ============== =============
WEIGHTED AVERAGE NUMBER OF SHARES =============== ============== ============== =============
USED IN COMPUTATION 15,855,750 15,042,813 15,823,825 13,918,005
=============== ============== ============== =============
NET LOSS $ (259,262) $ (548,632)$ (444,238)$ (1,040,413)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on available-for-sale securities (147,286) - (1,560,746) -
--------------- -------------- -------------- -------------
COMPREHENSIVE LOSS $ (406,548) $ (548,632)$ (2,004,984)$ (1,040,413)
=============== ============== ============== =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Nine Months Ended March 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES: --------------- ---------------
<S> <C> <C>
Net (loss) $ (444,237)$ (1,013,125)
Adjustments to reconcile net (loss) to net cash from --------------- ---------------
operating activities:
Depreciation 21,642 15,585
Amortization of deferred finance costs and debt discount - 62,972
Amortization of capitalized software costs 415,728 331,591
Amortization of debt premium (18,750) -
Settlement of employment contracts,
(non-cash) - 327,501
Changes in operating assets and liabilities:
(Increase) in accounts receivable (443,890) (146,582)
(Increase) Decrease in interest receivable (80,529) 276,005
Additions to capitalize software costs (401,171) (1,320,553)
(Increase) in prepaid expenses (120,000) (5,000)
(Increase) in deferred finance costs - (108,000)
(Decrease) Increase in accounts payable (224,222) 21,484
Increase in state audit reserve 305,219 -
Increase (Decrease) in accrued expenses 33,969 (10,060)
(Decrease) in income tax payable (301,520) -
(Decrease) in accrued termination costs (49,305) (543,419)
--------------- ---------------
Total adjustments (862,829) (1,098,477)
--------------- ---------------
NET CASH (USED IN) OPERATING ACTIVITIES (1,307,067) (2,111,602)
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from the sale of securities (180,107) -
Capital expenditures (73,215) (120,002)
Redeemed convertible preferred stock (1,000,000) -
Increase in note receivable (250,000) (500,000)
--------------- ---------------
NET DECREASE IN INVESTING ACTIVITIES (1,503,322) (620,002)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in notes payable - (79,585)
Repayment of related party loans 100,000 162,627
Proceeds from debt financing - 161,855
Net proceeds from long-term debt - 288,519
Issuance of Common Stock, net of expenses 589,975 205,256
Dividends paid on Series A Preferred Stock - (27,288)
--------------- ---------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 689,975 711,384
--------------- ---------------
NET (DECREASE) IN CASH (2,120,414) (2,020,220)
CASH AT BEGINNING OF PERIOD 7,618,259 2,575,356
============== ===============
CASH AT END OF PERIOD $ 5,497,845 $ 555,136
============== ===============
See notes to consolidated financial statements.
5
</TABLE>
<PAGE>
TEKINSIGHT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - March 31, 2000
(UNAUDITED)
1. Basis of Presentation
Reference is made to the annual report on Form 10-K of TekInsight.com, Inc.
(the "Company"), dated October 13, 1999, for the year ended June 30, 1999.
The accompanying financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of financial
position and the results of operations for the interim periods presented. Except
as otherwise disclosed, all such adjustments are of a normal and recurring
nature. The results of operations for any interim period are not necessarily
indicative of the results attainable for a full fiscal year.
2. Basic Loss Per Share
Loss Per Share is based on the weighted average number of common shares
outstanding during each period. Potential common shares are included in the
computation of diluted per share amounts outstanding during each period.
Potential common shares are not included for loss periods as such inclusion
would be anti-dilutive.
3. Marketable Securities
On September 24, 1998, the Company completed a Stock Purchase Agreement
with ViewCast.com, Inc. (VCST) and the Company (the "Purchase" Agreement"). VCST
purchased $2,000,000 worth of restricted Company common stock valued at
$2,000,000 for $2,000,000 worth of VCST common stock. The Company currently has
500,000 shares of VCST's common stock remaining in Investments-Marketable
Securities as of March 31, 2000.
On June 30, 1999, Tadeo E - Commerce Corporation ("Tadeo"), entered into an
agreement with Business Talk Radio.Net, Inc. ("Business Talk"), a privately held
Company, under which, an aggregate payment of $250,000 was made in July and
August 1999, Tadeo E 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, Tadeo E 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.
6
<PAGE>
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 $111,500 as of March 31, 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. The Company also has 10,000 shares of Series G
Preferred Stock of Style 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, and the value has been kept at cost.
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 September 1, 1999, Astratek entered into a Consulting and Professional
Service Agreement with 4th Peripheral Technologies, Inc. ("4th Peripheral"), a
privately held Company. In an effort to strengthen Astratek's strategic
relationships with 4th Peripheral, the Company purchased 250,000 shares of 4th
Peripheral 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"). Med-Emerg, the largest
physician management Company in Canada, committed to becoming the pre-eminent
provider of an Internet health network, through 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 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 which will feature HealthConnect.com's browser
software products called Professional Health Monitor 1.0 TM and clinic@home 1.0
TM. The Med-Emerg common stock is deliverable on June 5, 2000. These products
will offer such features as online EMR records, health library, personal health
library, health magazines, 24-hour online health help desk, secure pharmacy, and
physician locator.
The aforementioned marketable securities have been classified as available
for sale securities at March 31, 2000 and, accordingly, the unrealized gain
resulting from valuing such securities at market value is reflected as a
component of stockholders' equity.
7
<PAGE>
4. Note Receivable- Other
The Company provided a public cosmetic manufacturing and marketing company,
Azurel, Ltd, with $1,528,167 in loan financing bearing interest at 8% due in May
2001 (the "Credit Note"), and $550,000 in financing pursuant to a note (the
"Note") due June 30, 2000 bearing interest at 10%. In addition, the Company
received warrants to acquire 500,000 shares of common stock of such company at
an exercise price of $1.50 per share. Repayment of amounts outstanding under the
Credit Note was secured by a pledge of approximately 66.66% of the outstanding
shares of Azurel operating subsidiaries under the terms of the pledge security
agreement, but which pledge has since been released pending a sale of those
subsidiaries by Azurel and the restructure of the security arrangement with a
pledge to Tadeo E of part of the purchase price therefor when it becomes
available at closing. In consideration for its pledge release, the exercise
price on warrants to acquire 500,000 shares of Azurel Common Stock held by the
Company and Tadeo E was lowered to $.60 per share (the current market price of
Azurel common stock) from $1.50 per share. The Azurel warrants were received
from Azurel originally in further consideration for advances to Azurel under the
Credit Note. The shares acquired upon exercise of such Azurel warrants are
subject to registration rights provided under the terms of a registration rights
agreement, as amended, dated June 1, 1999.
Azurel is in default in its interest payments on the Credit Note and the
Note, and on lease payments under an equipment lease of computer hardware and
software terminating in November 2001, and defaults have been declared. Due to
the fact that the Company is currently negotiating to restructure all of such
obligations with Azurel, it has not accelerated repayment of such obligations,
attempted to foreclose on any available collateral, or sought to recover the
leased equipment. As of March 31, 2000, income of $106,050 has been recognized
for the three obligations mentioned above.
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.
5. Commitments and Contingencies
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 March 31, 2000, $365,434 in
accrued interest, or $1,705,219 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.
8
<PAGE>
See Note 4, "Note Receivable - Other" for information concerning
indebtedness and lease obligations of Azurel to the Company and Tadeo E and its
other collateralized obligations to Tadeo E.
6. Termination Agreements
The Company entered into the following contract subsequent to the disposal
of its business to Gainor in January 1998: 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 $230,904 at March 31, 2000. With
the prepayment of the Note from Gainor in April 1999, the termination agreement
calls for amounts owed under the termination contract to be prepaid. However,
the former operating officer informed the Company that he desires to continue to
receive monthly payments rather than the lump sum payment called for under the
contract. As a result, the Company continues to make monthly payment under this
obligation and is carrying the agreement as short-term liability.
7. Gain from Discontinued Operations
The Company's wholly-owned subsidiary, Patient Care Services, was
previously the subject of an investigation by Medicare for (i) Medicare's
alleged overpayment for products and services by Patient Care Services and (ii)
Medicare's payment to patient Care Services for claims which were allegedly not
properly subject to Medicare's reimbursement. During fiscal year 1995, Medicare
withheld $300,766 of payments due for claims reimbursement to cover previously
estimated liabilities resulting from this investigation. A further assessment in
the amount of $78,500 resulting from continuation of this investigation was
made, and that amount withheld in July 1996. The Company went through an
in-person hearing on May 28, 1997 to contest Medicare's aggregate $379,200 of
withheld reimbursement, and on July 28, 1997 the Company received a partially
favorable Hearing Decision. The Company received a refund on October 31, 1997,
for $30,314 from Medicare Part B based upon the partially favorable Hearing
Decision. In September 1999, an Administrative Law Judge ruled in favor of the
Company and the Company received $437,086 in April 2000, which includes
interest. Offsetting this amount was $305,219 in additional interest reserved as
of March 31, 2000 which is associated with a decision in favor of the California
Department of Health Services which decision is not being further appealed. For
more information see Note 5, "Commitments and Contingencies."
8. Potential Acquisitions
On February 28, 2000, TekInsight and Data Systems entered into an agreement
and plan of merger pursuant to which Data Systems will be merged into TekInsight
Services, Inc., a wholly-owned and operating subsidiary of TekInsight. In
consideration for the merger, shareholders of Data Systems' will receive a
varying purchase price which will equal $12,500,000 if the market price of
TekInsight's common stock at the time of closing is less than $5.00 per share,
$16,000,000 if the market price is between $5.00 and
9
<PAGE>
$7.00 per share, and $18,000,000 if the market price is over $7.00 per share.
The merger price will be delivered to shareholders of Data Systems through a
distribution of a number of shares of a new class of TekInsight convertible
preferred stock proposed to be listed on the Nasdaq SmallCap Market, with the
number of such shares to be found by dividing the applicable merger price by the
market price. Completion of the merger is subject to a number of conditions,
including receipt of TekInsight and Data Systems shareholder approval,
acceptance by Nasdaq for the listing of the convertible preferred stock and
other customary closing conditions. There can be no assurance the Nasdaq listing
will be obtained for the newly issued convertible preferred stock, or that any
of the closing conditions will be satisfied. Although no assurances can be
given, the parties intend to close the merger no later than June 30, 2000.
On April 4, 2000 the Company announced that it signed a letter of intent to
acquire Big Technologies, Inc. for $1.2 million in market value of the Company
common stock and an incentive plan which could earn an additional $650,000 in
market value of Company common stock. Big Technologies is an Internet-solutions
firm specializing in the development of 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. The firm's most notable municipal sites are the City of Boston
(www.cityofboston.com) and Suffolk County Registry of Deeds
(www.suffolkdeeds.com).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION
Forward-Looking Statements
When used in the Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission, the words or phrases "will likely result"
and "the Company expects," "will continue," "is anticipated," "estimated,"
"project," or "outlook" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to caution readers not to
place undue reliance on any such forward-looking statements, each of which
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 demand
for our products, size and timing of significant orders and their fulfillment,
the Company's ability to develop and upgrade its technology, the Company's
ability to compete in a highly competitive market and undetected software errors
and other product quality problems, and the Company's ability to recover its
investments in certain marketable securities . 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.
10
<PAGE>
General
For information concerning the Company's potential acquisitions of Data
Systems and Big Technologies, see Part I, Item 1, Consolidated Financial
Statements, Note 8, "Potential Acquisitions".
Bugsolver.com, Inc., a wholly-owned subsidiary, formed in November 1999, of
the Company, provides technology and services for the resolution of computer
hardware and software system failures. 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. Using the Bugsolver Developer
service, the profile is sent automatically via the Internet to the Bugsolver Web
site where a professional reviews 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.
The Help Desk Institute, a computer service industry research group
estimates that up to 80% of technical support costs stem from the time it takes
to uncover and re-create the series of events leading to a computer failure,
Bugsolver Developer reduces this time significantly and generates information
regarding the condition of the computer at the time of failure of problem.
Results of Operations
The three months ended March 31, 2000 (the "2000 Three Month Period") as
compared to the three months ended March 31, 1999 (the " 1999 Three Month
Period")
Revenues for the 2000 Three Month Period were $566,635, an increase of
$230,553, or 69%, from the 1999 Three Month Period. Several factors contributed
to this increase. Revenue associated with the Med-Emerg Internet Web Agreement
of $485,714 for the 2000 Three Month Period did not exist during the 1999 Three
Month Period. The Company has recognized five months of the $400,000 due the
Company from Med-Emerg this quarter. For more information, see Part I, Item 1,
Consolidated Financial Statements Note 5, "Commitments, and Contingencies" .
Offsetting this increase was a decrease in revenues from sales of the Visual
Audit product that is distributed by Viasoft on behalf of the Company, of
$154,467 for the 2000 Three Month Period, due to the fact that the product is
principally used in connection with Year 2000 computer "bug" problems, the
importance of which is significantly diminished. Revenue associated with
professional services provided to various clients decreased by $143,214 for the
2000 Three Month Period, or a 95% decrease over the 1999 Three Month Period.
Staff was shifted to complete work on the Internet web sites.
Total cost of goods sold for the 2000 Three Month Period was $251,340,
representing costs of approximately 44% of revenues for the period, while total
cost of goods sold for the 1999 Three Month Period were $290,111 or
approximately 86% of revenue. This 42% favorable variance as a percentage of
revenue is the result of increased revenue as mentioned above, without a
corresponding increase in related labor or other costs necessary to produce the
revenues.
Selling, general and administrative expenses for the 2000 Three Month
Period increased by 39%, or $340,633, from the 1999 Three Month Period. This
increase is primarily due to the launching of the new product line, BugSolver
11
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Developer, and increases in professional and consultant services for the 2000
Three Month Period of 807%, or $252,338, from the 1999 Three Month Period. Legal
services for the 2000 Three Month Period increased by 497%, or $153,459, from
the 1999 Three Month Period, related to the development of the Company's
increased new Internet Web Agreement activities, and activities related to: the
negotiation, investigation and execution of the Merger Agreement with Data
Systems; activities related to the preparation of registration statements to be
filed with the Securities and Exchange Commission for distribution of securities
by public warrants holders and selling stockholders and for distribution of
securities to Data Systems shareholders in connection with the Merger; and the
investigation, preparation and filing of pleadings in the Company's legal
proceedings against Style for recovery of $1,000,000 in cash and $1,000,000
original value of Company securities delivered to Style under securities
purchase agreement dated June 1,1999. Partially offsetting this increase was
Internet Web Agreement work which has been absorbed with minor increases in
staffing levels. The Company has been able to avoid approximately $101,791 in
expenses by absorbing additional services work without hiring additional staff.
Net interest income increased for the 2000 Three Month Period to $178,118
from ($12,687) for the 1999 Three Month Period. This increase is primarily due
to the recognition of $106,050 in income from outstanding Notes and lease
obligations with Azurel. See Part I, Item 1, Notes to Consolidated Financial
Statements, Note 4, "Note Receivable - Other" for information concerning the
Company's recent agreements with Azurel.
Net loss of $259,262 reflects a decrease in loss of $289,370 for the 2000
Three Month Period. Contributing factors include 1) increased revenue associated
with the Med-Emerg web design and development project, 2) the gain from
discontinued operations and 3) the income associated with various obligations as
mentioned above.
The nine months ended March 31, 2000 (the "2000 Nine Month Period") as compared
to the nine months ended March 31, 1999 (the "1999 Nine Month Period")
Revenue for the 2000 Nine Month Period was $1,528,814, an increase of
$225,504, or 17 % from the 1999 Nine Month Period. Several factors contributed
to this favorable variance: $585,714 in revenue associated with the Internet Web
design and development activities for Med-Emerg and $89,000 in revenue
associated with various web design projects for the 2000 Nine Month Period which
did not exist during the 1999 Nine Month Period. Offsetting such revenue
increases was the sales decrease of $394,689 for the Visual Audit product during
the 2000 Nine Month Period. See "Results of Operations for the Three Months
ended March 31, 2000 as compared to the Three Months ended March 31, 1999", for
additional information concerning such revenue.
12
<PAGE>
Total cost of goods sold during the 2000 Nine Month Period was $893,938,
representing costs of approximately 58% of revenue for the period, while total
cost of goods sold for the 1999 Nine Month Period was $575,860, or approximately
44% of revenue. This 14% unfavorable variance as a percentage of revenue is in
part the result of an increase of $154,604 in cost of goods sold associated with
the increase in internet Web design and development for Med-Emerg and work
associated with various other web design projects for the 2000 Nine Month Period
which did not exist during the 1999 Nine Month Period.
Total operating expenses during the 2000 Nine Month Period decreased to
$1,683,500, or 110% of revenue, as compared to $2,248,581, or 173% of revenue,
during the 1999 Nine Month Period. A contributing factor relates to the improved
process by which operations record and capture capitalized software costs as it
relates to salary expenses during the 2000 Nine Month Period, and a reduction in
the Company's full-time equivalent head count.
Other income and expenses include interest income of $379,080 during the
2000 Nine Month Period compared to $508,006 during the 1999 Nine Month Period.
The 25% decrease is primarily related to the Gainor Note and the quarterly
interest payments, which note was paid in full during the 1999 Nine Month
Period.
Net loss for the 2000 Nine Month Period of $444,237 is primarily
attributable to the losses from operations, in the amount of $1,048,623.
Liquidity and Capital Resources
As of March 31, 2000 the Company had working capital of $4,375,007,
compared to working capital of $5,365,143 at June 30, 1999. This decrease in
working capital is primarily due to losses in operations during the 2000 Nine
Month Period of $1,048,623.
The Company currently receives on average $19,348 a month in interest from
its various money market and certificate of deposit accounts. For information
concerning the status of the Company's loans and other financial transactions
with Style and Azurel, including the Company's effort to recover amounts in
default under separate obligations, see Part I, Item 1, Consolidated Financial
Statements, Note 3 "Marketable Securities" and Note 4, "Note Receivable -
Other".
Cash proceeds from the sale of the Company's operating assets and the stock
of its two former 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"), along with
the proceeds from the $9,300,000 prepayment in April 1999 of the Note, has been
partially used in operations and for the investment in and loans to strategic
partners. The resulting financial transactions have reduced the Company's cash
reserves and reduced the Company's monthly interest received on those reserves.
See Part I, Item 1, Consolidated Financial Statements, Note 3 "Marketable
Securities" and Note 4, "Note Receivable - Other", and Note 5, "Commitment and
Contingencies".
13
<PAGE>
The Company currently has sufficient cash resources and liquidity to meet
its short-term and long-term capital needs.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
For information concerning the Company's decision not to further appeal an
adverse decision in the Company's litigation with the California State
Controller's Office, see Part I, Item 1, Consolidated Financial Statements, Note
5 "Commitments and Contingencies.
Item 2. Changes in Securities and Use of Proceeds
On February 15, 2000, in a transaction exempt from registration under
Section 4(2) of the Securities Act of 1933 (the "1933 Act"), as part of the
compensation granted to an investment banking firm in connection with a
consulting agreement pursuant to which that firm has agreed to provide business
development, investment banking and financial advisory services to the Company,
the Company issued two (2) Warrants exercisable through February 15,2000 to
acquire an aggregate of 300,000 shares of Company Common Stock at $4.0625 per
share (the closing price for a share of Company Common Stock on February 14,
2000). One of the Warrants to acquire 100,000 shares, is exercisable only after
February 15, 2001 in the event that the Company has not previously exercised its
right to terminate such agreement.
On February 1, 2000, in a transaction exempt from registration under
Section 4(2) of the 1933 Act, the Company granted to Steven Ross, a consultant
to the Company (but who has since become the President and Chief Executive
Officer of the Company), options to acquire 400,000 shares of the Company's
Common Stock at an exercise price of $3.00 per share (the fair market value at
that time), expiring on February 1, 2003. This option vests as follows: 100,000
shares upon the date of grant; 100,000 shares upon the closing market price for
Company Common Stock equaling or exceeding $5.00 per share for five trading
days; 100,000 shares upon the closing market price for Company Common Stock
equaling or exceeding $6.00 per share for five trading days; and 100,000 shares
upon the closing market price for Company Common Stock equaling or exceeding
$8.00 per share for five trading days. To date, options to acquire 200,000
shares of Company Common Stock have vested.
Item. 6. Exhibits and reports on form 8-K
(a) Exhibits
27.0 Financial data schedule.
(b) Reports on form 8-K
During the quarter ended March 31, 2000, the Company
made the following filings on Form 8-K/A: (i) Report on Form
8-K on January 26, 2000 with respect to Item 5, "Other
Information", and (ii) Report on Form 8-K on February 29,
2000, with respect to Item 5, "Other Information".
14
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
it's behalf by the undersigned, thereunto duly authorized.
TEKINSIGHT.COM, INC.
By:/s/Michael F. Niles
----------------------
Michael F. Niles
Secretary
Date: May 15, 2000
15
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