U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended December 31, 1999
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 February 1, 2000 was 15,848,529.
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TEKINSIGHT.COM, INC. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION
Page
Number
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheet - December 31, 1999
and June 30, 1999 3
Consolidated Statement of Operations - For the three
and six months ended December 31, 1999 and 1998 4
Consolidated Statement of Cash Flows - For the
six months ended December 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 9
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 10 - 13
PART II - OTHER INFORMATION 13
SIGNATURE 14
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<TABLE>
<CAPTION>
TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
December 31, June 30,
ASSETS 1999 1999
--------------- --------------
CURRENT ASSETS:
<S> <C> <C>
Cash .............................................................................. $ 5,868,957 $ 7,618,259
Interest receivable .................................................................. -- 25,521
Accounts receivable, net of allowance for doubtful ................................... 339,633 45,750
accounts $111,500
Prepaid expenses and other assets ....................................................... 166,667 30,000
Note receivable - other ................................................................ 850,000 500,000
------------ ------------
TOTAL CURRENT ASSETS ......................................................... 7,225,257 8,219,530
LONG--TERM NOTE RECEIVABLE ................................................................ 1,490,766 1,528,167
INVESTMENTS - Marketable Securities ........................................................ 4,333,049 5,533,177
PROPERTY AND EQUIPMENT, net
net of accumulated depreciation of $62,701 and $49,254, respectively ................. 98,292 71,938
CAPITALIZED SOFTWARE COSTS, net ...............................................................1,237,814 1,091,793
DEPOSITS AND OTHER ASSETS .................................................................... 43,058 43,058
------------ ------------
$ 14,428,236 $ 16,487,663
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .....................................................................$ 196,499 $ 421,178
Accrued expenses .................................................................... 222,665 125,000
Income tax payable ................................................................... 326,480 628,000
State audit reserves ................................................................... 1,400,000 1,400,000
Accrued termination costs, short-term .................................................. 247,750 280,209
------------ ------------
TOTAL CURRENT LIABILITIES ..................................................... 2,393,395 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, 15,848,529 shares
issued and outstanding as of December 31, 1999 ..................................... 1,585 1,535
Additional paid-in capital .............................................................19,302,332 18,797,382
Unrealized gain on securities ......................................................... 1,033,049 2,446,509
Accumulated deficit ................................................................... (8,319,800) (8,134,826)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY ................................................. 12,017,166 13,615,600
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $ 14,428,236 $ 16,487,663
============ ============
</TABLE>
See notes to consolidated financial statements.
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TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended December 31, Six Months Ended December 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUES ............................................ $ 474,347 $ 603,634 $ 962,179 $ 967,228
COST OF GOODS SOLD .................................. 249,643 101,895 459,516 285,749
_________ __________ ___________ ___________
GROSS PROFIT .................................. 224,704 501,739 502,663 681,479
_________ __________ ___________ ___________
OPERATING EXPENSES:
Selling, general and administrative ........... 420,747 741,896 781,619 1,303,393
Research and development ...................... 38,630 31,248 174,474 62,496
Depreciation and amortization ................. 19,961 4,242 25,946 10,408
Settlement of employement contracts, (Non-cash) -- -- -- 327,501
TOTAL OPERATING EXPENSES ...................... 479,338 777,386 982,039 1,703,798
LOSS FROM OPERATIONS ................................ (254,633) (275,647) (479,375) (1,022,319)
GAIN ON SALE OF MARKETABLE SECURITIES ............... 93,439 -- 93,439 --
INTEREST INCOME, net ................................ 38,172 274,669 200,962 532,777
---------- ---------- ------- ----------
NET LOSS ............................................ $ (123,022) $ (978) $ (184,974) $ (489,542)
----------
PREFERRED STOCK DIVIDENDS ........................... -- -- -- (27,288)
---------- ---------- ------- ----------
COMMON SHARE HOLDERS .......................... $ (123,022) $ (978) $ (184,974) $ (516,830)
========== ========== ======= ==========
NET LOSS PER SHARE - basic and diluted $ (0.01) $ (0.00) $ (0.01) $ (0.04)
========== ========== ======= ==========
WEIGHTED AVERAGE NUMBER OF SHARES
USED IN COMPUTATION 15,848,529 12,694,699 15,808,455 12,459,027
========== ========== ========== ==========
NET LOSS $ (123,022) $ (978) $ (184,974) $ (516,830)
OTHER COMPREHENSIVE LOSS, NET OF TAX
Unrealized loss on available-for-sale
securities (928,479) - (1,413,460) -
---------- ------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $(1,051,501) $ (978) $ (1,598,434) $ (516,830)
========== ======= ========== ==========
</TABLE>
See notes to consolidated financial statements.
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TEKINSIGHT.COM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended December 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) .......................................................$ (184,974)$ (489,542)
Adjustments to reconcile net (loss) to net cash from
operating activities:
Depreciation ........................................... 25,946 10,408
Amortization of deferred finance costs and debt discount -- 37,853
Amortization of capitalized software costs ............. 157,890 244,989
Settlement of employment contracts,
(non-cash) ............................................. -- 327,501
Changes in operating assets and liabilities:
(Increase) in accounts receivable ........................... (293,883) (230,250)
Decrease (Increase) in interest receivable .................. 25,521 (5,992)
Additions to capitalize software costs ...................... (303,911) (1,147,367)
(Increase) in prepaid expenses .............................. (136,667) --
(Increase) in deferred finance costs ........................ -- (108,000)
(Decrease) in accounts payable .............................. (224,679) (35,581)
Increase (Decrease) in accrued expenses ..................... 97,665 (19,229)
(Decrease) in income tax payable ............................ (301,520) --
(Decrease) in accrued termination costs ..................... (32,459) (503,232)
Total adjustments ...................................... (986,096) (1,428,900)
--------- ---------
NET CASH (USED IN) OPERATING ACTIVITIES .................... (1,171,072) (1,918,443)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash proceeds from the sale of securities ........................ (180,107) --
Capital expenditures ............................................. (40,624) (120,002)
Redeemed convertible preferred stock ............................. (1,000,000) --
Amortization of Warrants ......................................... (12,499) --
Increase in note receivable ...................................... 250,000 --
--------- ---------
NET CASH (USED IN) INVESTING ACTIVITIES ..................... (983,230) (120,002)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in notes payable ...................................... -- (67,533)
(Issuance)/Repayment of related party loans ...................... (100,000) 162,627
Proceeds from debt financing ..................................... -- 818,567
(Repayment of) long-term debt .................................... -- (302,074)
Issunace of Common Stock, net of expenses ........................ 505,000 205,256
Dividends paid on Series A Preferred Stock ....................... -- (27,288)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ................... 405,000 789,555
--------- ---------
NET (DECREASE) IN CASH ................................................. (1,749,302) (1,248,890)
CASH AT BEGINNING OF PERIOD ............................................ 7,618,259 2,575,356
--------- ---------
CASH AT END OF PERIOD ..................................................$ 5,868,957 $ 1,326,467
========= ==========
</TABLE>
See notes to consolidated financial statements.
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TEKINSIGHT.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - December 31, 1999
(UNAUDITED)
1. Basis of Presentation
Reference is made to the annual report on form 10-K of Tadeo Holdings,
Inc. (the "Company") dated October 13, 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
between ViewCast.com inc. (VCST) and Tadeo (the "Purchase Agreement'). VCST
purchased $2,000,000 worth of restricted Tadeo common stock valued at $2,000,000
for $2,000,000 worth of VCST common stock. The Company issued 1,240,310 shares
of Tadeo common stock at the sale price of $1.6125 per share and received
1,000,000 shares of 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
November 16, 1999, the Company sold approximately 43,334 shares of VCST in the
open market for $4.15625 per share. The Company realized a net gain of $93,439
in this sale. The Company currently has 500,000 shares of VCST?s common stock
remaining in Investments--marketable securities as of December 31, 1999
On June 30, 1999, Tadeo E entered into an agreement with Business Talk
Radio.Net, Inc. ("Business Talk") 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 shall have a liquidation
preference of $.4432 until January 1, 2000, at which time the Class C Preferred
Stock preference shall become $.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
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"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. 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. 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 $.4432 per share.
StyleSite Marketing Inc., 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 StyleSite Marketing, Inc. in the amount of $111,500 as of
December 31, 1999. The Company is currently carrying on its balance sheet under
"Investments - marketable securities", 1,066,098 shares of common stock of
StyleSite at 54% below cost, or at $.438 per share. The Company also has 10,000
shares of Series G preferred stock of StyleSite at $100.00 per share. The
Company holds a personal guarantee from Robert Rubin, an affiliate of StyleSite
on the obligations with respect to the preferred stock, and the value has been
kept at cost.
On September 1, 1999, Astratek entered into a Consulting and
Professional Service Agreement with 4th Peripheral Technologies, Inc. ("4th
Peripheral"), pursuant to which Astratek 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 4th
Peripheral'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 Astratek?s strategic relationships
with 4th Peripheral, the Company purchased in a private placement of securities
250,000 shares of 4th Peripheral Common Stock, par value $.001 per share, for
$250,000.
The aforementioned marketable securities have been classified as
available for sale securities at December 31, 1999 and accordingly, the
unrealized gain resulting from valuing such securities at market value is
reflected as a component of stockholders? equity.
4. Note Receivable- Other
The Company provided a cosmetic manufacturing and marketing company
with $1,528,167 in loan financing through the issuance of one note bearing
interest at 8% due in May 2001, and $500,000 through the issuance of a note
bearing interest at 20.8% due in August 1999. 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 lowering the interest rate. 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. On November 25, 1999, the Company provided an additional
$200,000 to the cosmetic manufacturer and marketing company to secure computer
equipment for increased capacity for its operation. The $200,000 note bears
10.5% interest on the unpaid principal, matures on November 25, 2001 an has
principal and interest payments made monthly. The cosmetic manufacturer
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and marketing company is behind in its interest and principal payments but a
default letter has not been declared.
On November 22, 1999, the Company loaned Seven Sons, Inc., a golf and
tennis equipment store, of which Brian Bookmeier, Chief Executive Officer of the
Company is a principal, $100,000 for its operations. The $100,000 secured note
bears interest at 10% and is to be paid off by December 30, 1999. The Company
has extended the note until March 31, 2000. In consideration for the extension,
the interest rate has been increased to 11% per annum.
5. Commitments, Contingencies, and other Agreements
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 $60,215 in accrued interest, or $1,400,000.
The Company has until February 25, 2000 to appeal this finding before a demand
for payment is made.
On May 28, 1999 as amended by agreements dated as of June 1, 1999,
Tadeo E entered into a Web Design and Consulting Agreement with Azurel, Ltd.
("Azurel"), a public company engaged in the business of manufacturing and
distributing cosmetics and other related products (the "Azurel Web Agreement").
Under the terms of the Azurel Web Agreement, based upon the fee schedule to be
included in that agreement, Tadeo E agreed to provide all necessary consulting
and development services to design, maintain and enhance Azurel's electronic
commerce Internet sites and other related electronic commerce marketing
vehicles. Tadeo E paid Azurel $500,000 for Azurel's provision of content and
marketing consulting services in connection with assistance provided to Tadeo
E?s electronic commerce development activities for Azurel and other clients. At
the same time, to enhance the strategic relationship between Azurel, Tadeo and
Tadeo E, Tadeo E lent to Azurel an aggregate of $1,528,167 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), 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 is secured by a pledge of approximately 66.66% of the outstanding
shares of certain Azurel operating subsidiaries, under the terms of a Pledge
Security Agreement, as amended, by and between Azurel, Tadeo and Tadeo E. In
further consideration for its advances to Azurel under the CreditAgreement,
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Tadeo E received from Azurel warrants to acquire 200,000 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.
Under agreements dated as of June 30, 1999, Tadeo E 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
("Style Web Agreements"). Under the terms of the Style Web Agreements, based
upon the fee schedules provided in those agreements, Tadeo E is providing 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. Tadeo E
paid Style $500,000 for Style's provision of content and marketing consulting
services in connection with assistance provided to Tadeo E's electronic commerce
development activities for Style and other clients. In addition to payments by
Style for the services provided under the Style Web Agreements, in further
consideration for its services to Style under the Web Agreements Tadeo E will
receive royalties from Style based upon Style?s ongoing electronic commerce
businesses (the "Royalties"). The Royalties are equal to 5% of Styl's electronic
commerce revenues, until $500,000 has been paid to Tadeo E, and thereafter 20%
of certain Style electronic commerce net income in perpetuity. Style 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 for its receivables from Style in the amount of
$111,500. At this time, due to the Chapter 11 filing , it is uncertain as to
whether the Company will be able to enforce Style's obligation to pay Royalties
under the Web Agreement. See Note 3, "Marketable Securities" for information
concerning the value of the Company's holding in Style securities.
For information concerning the Company?s recent agreements with Azurel,
Ltd. ("Azurel"), StyleSite Marketing, Inc. ("Style", formerly Diplomat Direct
Marketing Corporation), Business Talk Radio.Net, Inc. ("Business Talk"), and 4th
Peripheral Technologies, Inc. ("4th Peripheral") (collectively the
"Agreements"), see Note 3. "Marketable Securities".
Termination Agreements
The Company entered into the following contract subsequent to the
disposal of its business:
A. With a former operating officer commencing March 1998,
aggregating $485,000, payable in monthly installments of $7,633 through March
2003. The Company has recorded the present value of this contract at $359,265,
with the balance being $247,750 at December 31, 1999. 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
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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.
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. 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.
General
On October 27, 1998, the Company completed the acquisition of Astratek,
Inc., a New York corporation ("Astratek"). The Company acquired Astratek
pursuant to a merger (the "Merger") of Astratek Acquisition Corp. ("AAC"), a
wholly-owned subsidiary of the Company, with and into Astratek, with Astratek
becoming the wholly-owned subsidiary of the Company, as the surviving
corporation of the Merger. The Merger was effected in accordance with the
Agreement and Plan of Merger (the "Merger Agreement"), dated as of October 23,
1998, among the Company, AAC, Astratek, and the shareholders of Astratek.
Astratek develops software tools and related products for Internet and intranet
technology and provides consulting and professional services for several major
companies. As the Merger Consideration delivered to Astratek shareholders, the
Company issued 2,294,900 shares of the Company's common stock in exchange for
cancellation of all the issued and outstanding shares of the capital stock of
Astratek prior to the Merger and the issuance of 100 shares of Astratek common
stock to the Company post-Merger.
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As a result of the Astratek acquisition being accounted for as a
pooling of interest business combination, the historical pre-acquisition
financial results of Astratek are compared below with the Company's results of
operations for the three and six month periods ended December 31, 1999.
On January 20, 2000, the Company signed a non-binding letter of intent
to acquire Data Systems Network Corporation, ("DSNC"). In consideration for the
acquisition, DSNC shareholders will receive a number of shares of Series A
Convertible Preferred Stock of the Company, with such value of the consideration
and the number of shares issued to be based upon the market price of the
Company's Common Stock at the time of the closing.
Results of Operations
The three months ended December 31, 1999 (the "1999 Three Month
Period") as compared to the three months ended December 31, 1998 (the "1998
Three Month Period")
Revenues for the 1999 Three Month Period were $474,347, a decrease of
$129,287, or 27%, from the 1998 Three Month Period. Several factors contributed
to this decrease. Revenue associated with the Visual Audit product that is
distributed by Viasoft on behalf of the Company decreased by $226,000 for the
1999 Three Month Period. Revenue associated with professional services provided
to various clients decreased by $75,000 for the 1999 Three Month Period, or a
25% decrease over the 1998 Three Month Period. Offsetting the decrease was an
increase in internet Web Agreement revenue of $157,000 for the 1999 Three Month
Period which did not exist during the 1998 Three Month Period. Due to the
Chapter 11 filed by Style, the Company has set up for the 1999 Three Month
Period a $71,500 allowance for doubtful accounts with respect to the service
agreements with Style .
Total cost of goods sold for the 1999 Three Month Period were $249,643,
representing costs of approximately 52% of revenues for the period, while total
cost of goods sold for the 1998 Three Month Period were $101,895 or
approximately 17% of revenue. This 35% unfavorable variance as a percentage of
revenue is in part the result of decreased revenue as mention above and an
increase of $100,000 in cost of goods sold associated with the increase in
internet Web Agreement work for the 1999 Three Month Period which did not exist
during the 1998 Three Month Period.
Selling, general and administrative expenses for the 1999 Three Month
Period decreased by 38%, or $298,048, from the 1998 Three Month Period. The
increased internet Web Agreement work has been absorbed with minor increases in
staffing levels. The Company has been able to avoid approximately $61,000 in
expenses.
Net interest income decreased for the 1999 Three Month Period to
$38,172 from $274,669 for the 1998 Three Month Period. This decrease is
primarily due to the absence of quarterly interest from the Gainor convertible
subordinated promissory note (the ?Note?) in the 1999 Three Month Period. The
Note bore interest at a simple rate of 7% per annum through December 31, 1998
and 8% thereafter. Prior to the Note?s maturity, in April 1999 the Note was
prepaid by Gainor for a cash payment of $9,300,000.
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Net loss increased by $122,044 for the 1999 Three Month Period.
Contributing to the increase is 1) decreased revenues and 2) absence of
quarterly interest payment on the Ganior Note for the 1999 Three Month Period.
The six months ended December 31, 1999 (the "1999 Six Month Period") as compared
to the six months ended December 31, 1998 (the "1998 Six Month Period")
Revenue for the 1999 Six Month Period was $962,179, a decrease of
$5,000, or less than 1 percent from the 1998 Six Month Period. Several
offsetting factors contributed to this variance: creation of a $111,500
allowance for doubtful account for the 1999 Six Month Period due to the Chapter
11 filed by StyleSite Marketing, Inc. A net increase of $189,000 in revenue
during the 1999 Six Month Period , Visual Audit sales decrease of $240,000 for
the 1999 Six Month Period and a decrease of $65,000 in professional services
fees from clients during the 1999 Six Month Period (a 6% decrease from the 1998
Six Month Period).
Total cost of goods sold during the 1999 Six Month Period were
$459,516, representing costs of approximately 47% of revenue for the period,
while total cost of goods sold for the 1998 Six Month Period were $285,749 or
approximately 30% of revenue. The increased labor, both time and effort
associated with the various projects, has driven up the cost of goods sold
during the 1999 Six Month Period as compared to the 1998 Six Month Period.
Total operating expenses during the 1999 Six Month Period decreased to
$982,039, or 102% of revenue, as compared to $1,703,798, or 176% of revenue,
during the 1998 Six 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 1999 Six Month Period.
Other income and expenses include interest income of $200,962 during
the 1999 Six Month Period compared to $532,777 during the 1998 Six Month Period.
Interest expense was $11,184 during the 1999 Six Month Period and during the
1998 Six Month Period the expense did not exist.
Net loss for the 1999 Six Month Period of $184,974 is primarily
attributable to the losses from operations, in the amount of $479,375.
Liquidity and Capital Resources
As of December 31, 1999 the Company had working capital of $4,831,862,
compared to working capital of $5,365,143 at June 30, 1999. This decrease in
working capital during the 1999 Three Month Period is primarily due to a
combination of payment of trade accounts payable of $224,679 and income tax
payable of $301,520.
The Company currently receives on average $22,763 a month in interest
from its various money market and certificate of deposit accounts. Additionally,
Tadeo E Commerce lent to Azurel, Ltd. 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
12
<PAGE>
the aggregate principal reflecting the restructuring of a March 31, 1999
short-term $500,000 promissory note), 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"). Interest received on the amount
outstanding under this Credit Agreement for the 1999 Three Month Period was
$31,242. Additionally, with respect to the restructured Note of $500,000, see
Note 4. "Note Receivable", for information regarding Note increase to $550,000.
Accrued interest during the 1999 Three Month Period was $11,763 on this Note.
The cosmetic manufacturer and marketing company is behind in its interest and
principal payments but a default letter has not been declared.
For information concerning the Company's recent agreements with Azurel,
Ltd. ("Azurel"), StyleSite Marketing, Inc. ("Style", formerly Diplomat Direct
Marketing Corporation), Business Talk Radio.Net, Inc. ("Business Talk"), and 4th
Peripheral Technologies, Inc. ("4th Peripheral") (collectively the
"Agreements"), see Note 3. "Marketable Securities" and 5. "Commitments,
Contingencies, and other Agreements", to the Company's unaudited financial
statements for the period ended December 31, 1999 included in Part 1., Item 1.,
Financial Statements. These Agreements with strategic partners have not improved
the Company?s liquidity position.
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 the strategic partners described above. In connection with these Agreements,
as part of the Company's provision of professional services to strategic
partners, the Company has either made loans to or equity investments in these
strategic partners. The resulting financial transactions have reduced the
Company's cash reserves and reduced the Company's monthly interest received on
those reserves.
The Company's material ongoing fixed expenses are as follows:
1) monthly rent expense net of sublease of approximately $20,139, 2) $ 7,633 a
month to Mr. Buchholz's under his employment termination agreement, an aggregate
of $ 247,750 remaining as of December 31,1999, and 3) approximately $21,657
monthly for employee salaries and benefits.
PART II - OTHER INFORMATION
Item. 6. Exhibits and reports on form 8-K
(a) Exhibits
27.0 Financial data schedule.
13
<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
its behalf by the undersigned, thereunto duly authorized.
TEKINSIGHT.COM, INC.
By:/s/Michael F. Niles
Michael F. Niles
Secretary
Date: February 14, 2000
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<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-30-1999
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