Tech Squared Inc. Reports First Quarter Results
Company Also Discloses Possibility of Cashless Exercise of Option to Acquire 3 Million Shares of Digital River Stock
Wednesday May 5, 6:20 pm Eastern Time
MINNEAPOLIS, May 5 /PRNewswire/-- Tech Squared Inc. (OTC Bulletin Board: TSQD - news) today reported net sales of $11,103,000 for the first quarter ended March 31, 1999, a 29-percent increase from $8,593,000 in the first quarter of 1998.
The company reported a consolidated net loss of $179,000, or 2 cents per share, for this year's first quarter vs. a consolidated net loss of $505,000, or 5 cents per share, for the comparable period last year. Last year's first quarter included a $550,000 share of the losses of Digital River, Inc., in which Tech Squared's effective ownership was then approximately 26 percent. Excluding the Digital River loss, Tech Squared recorded net income of $45,000 in the first quarter of 1998.
Chuck Reese, president and chief executive officer of Tech Squared, said that the sharp first-quarter sales improvement was led by a 32-percent increase in sales to the company's DTP Direct catalog customers, coupled with the contribution of the Net Direct catalog, which was launched in May 1998, and which produced sales of $661,000 in the first quarter this year. First- quarter sales to the company's distribution customers declined 2.4 percent from a year earlier.
Reese said the growth in sales to DTP Direct catalog customers reflected an increase in the number of outbound sales reps and a resulting increase in sales of computer systems, printers, hard drives and software.
Selling and marketing expenses increased to 6.8 percent of sales in the first quarter from 6.1 percent in the same period last year, chiefly because of the costs associated with the Net Direct catalog. Net Direct is targeted at developers of internal corporate intranet and external Internet sites, and managers of LANs and WANs -- a target market that the company believes is substantially larger than that of its established DTP Direct catalog. However, the costs and challenges of launching Net Direct have had a negative impact on profitability and are expected to do so in 1999 and possibly beyond.
General and administrative expenses also rose sharply in the quarter, reflecting increases in transaction-processing fees, payroll and employee related expenses and legal fees.
As previously disclosed, the board of directors of Tech Squared authorized management to make investigations and, if appropriate, enter into preliminary negotiations regarding possible changes in the company's business, including, but not limited to, strategic alliances, joint ventures, mergers, sale of the company's operating business and other alternatives. In April, the company retained Bayview Capital Group, Inc., to act as its exclusive advisor to locate one or more potential purchasers of certain operating assets and businesses of the company. The process is at a preliminary stage and no prediction can be made as to what, if any, transaction or changes will transpire.
Tech Squared currently holds an option to acquire 3,000,000 shares of Digital River common stock for total consideration of 93 cents. Such shares represent beneficial ownership of approximately 15 percent of Digital River's outstanding common stock. Tech Squared is accounting for this holding as available-for-sale securities. The investment is shown on the balance sheet at a value of $120,000,000 based on a closing market price for Digital River common stock of $40 per share on March 31, 1999.
Tech Squared has been exploring the possibility of performing a cashless exercise of this option by surrender of the right to acquire one share in lieu of payment of the exercise price for the remaining shares. In connection therewith, Tech Squared has recently received a no- action letter from the Securities and Exchange Commission concurring with the company's opinion that such a cashless exercise would not lead to a restart of the Rule 144 holding period for the shares acquired. Under this no action letter, Tech Squared could perform a cashless exercise and the shares received would be immediately eligible for resale by Tech Squared under Rule 144, assuming compliance with the other requirements thereof, including the volume limitations. Tech Squared is continuing to explore the other aspects of such an exercise and resale.
Tech Squared, based in Minneapolis, is a national marketer and distributor of mid- to high-end microcomputer hardware, software and peripherals primarily to businesses in the desktop publishing, graphic arts and pre-press industries, as well as an emerging customer base of Internet and intranet site developers.
Except for historical financial information, the information contained in this release is forward-looking and subject to certain risks as described in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended Dec. 31, 1998. Actual results may differ significantly based on such risks.
See next post for numbers
For more information, contact Tom Langenfeld of Swenson NHB Investor Relations, 612-371-0000, for Tech Squared Inc., or Jeffrey F. Martin of Tech Squared Inc., 612-832-5622.
SOURCE: Tech-Squared, Inc. |
