TouchStone Software Reports 1999 Year-End Results - Company Financial Information

Edge: Work-Group Computing Report, March 27, 2000

TouchStone Software Corp. (OTC BB:TSSW) Wednesday announced its financial results for its fiscal year ended Dec. 31, 1999.

The company reported total revenues of $6,739,355, compared with total revenues of $4,835,823 for the year prior, representing a 39 percent increase in total revenues. The company stated the increase in revenues was attributable to the acquisition of Unicore Software, a world leader in the development of BIOS Upgrades, which effectively contributed to the increase in sales.

The company reported a loss for the year ended Dec. 31, 1999, of $2,326,107, or $0.25 per share, compared with a loss of $3,096,916 or $0.39 per share for the year prior. Before the one-time merger-related charges and amortization expense, the company reported net income for the year ended Dec. 31, 1999, of $961,062, or $0.10 per share.

Gross profit as a percentage of total revenue improved from 71.7 percent in 1998 to 83.4 percent for 1999, based on lower royalty expenses and an increase in the sales of the company's higher priced, high gross margin products.

The one-time merger-related charges recorded in the first quarter, along with the amortization expense related to the goodwill and capitalized purchased software, were adjusted in the fourth quarter resulting in a reduction to the overall expense originally recorded.

Subsequent to the end of the last fiscal year, the company has made several fundamental changes to its operations, including the proposed sale of its PC diagnostics and upgrade technology unit to Phoenix Technologies Ltd. (Nasdaq:PTEC) and is in the process of a corporate name change to TouchStone Capital Group Inc., to reflect its new business model.

The company has repositioned itself as a Business to Business (B2B) Internet incubator dedicated to the task of nurturing new business entities through the early stages of development by providing management guidance, promoting financing and lending necessary business support such as legal counsel, accounting assistance and marketing advice.

"During the 1999 fiscal year we restructured our business model to become more focused in the new Internet economy and we believe we have taken the appropriate steps to ensure the long-term value proposition we established for our company and our shareholders," said Pierre Narath, CEO of TouchStone.

"The company believes the proceeds from the sale of its PC diagnostics and upgrade technology unit will provide additional capital to strengthen its new business incubator strategy and help the company establish favorable equity investments in early and mid-stage technology companies."

With headquarters in North Andover, TouchStone Software is recognized as a major force in the utility software market focusing on PC system diagnostics and utilities. Founded in 1982, TouchStone designs, develops and markets a comprehensive line of utility programs, highlighted by the CheckIt Family of system diagnostics.

The CheckIt Family consists of WinCheckIt 6.5, FastMove! 2000 and CheckIt NetOptimizer. TouchStone sells and distributes its product throughout the retail, direct and OEM sales channels. In March 1999, TouchStone acquired Unicore Software Inc., which was previously a wholly owned subsidiary of Phoenix Technologies.

Unicore is a full-service computer engineering company that is also the world's oldest and largest supplier of BIOS upgrades. The company also provides diagnostics, hard drive installation utilities and drivers to many leading manufacturers in the PC industry.

TouchStone is looking forward to implementing its new B2B Internet business model by the proposed sale of its PC diagnostics and upgrade technology unit to Phoenix Technologies and by making strategic minority investments and managing a portfolio comprised of well managed, early- to late-stage technology companies with market presence in e-commerce, content and community and enabling technologies.

TouchStone believes that its expertise in identifying opportunities, and its targeted strategic focus on unique and successful business models, creates both short-term growth potential for investors and long-term value for shareholders.

TouchStone's operating model combines the talents of its management team with those of its portfolio of companies. Each of these companies hold niche positions with the promise of leadership in proven Internet sectors. With a strong cash position, minimal debt and millions of dollars in marketable securities, TouchStone is in a position to swiftly act on opportunities as they present themselves.

FMI: www.touchstonesoftware.com or www.tscgi.com.

                       TouchStone Software Corp.
                 Consolidated Statement of Operations
                  Years ended Dec. 31, 1999 and 1998
                             (Unaudited)

                                           1999           1998

Revenues:
  Product sales                        $ 6,627,911    $ 4,729,240
  Royalty income                           111,444        106,583
    Total revenues                       6,739,355      4,835,823
Cost of revenues                         1,116,767      1,367,196
  Gross profit                           5,622,588      3,468,627

Operating expenses:
  Sales and marketing                    2,327,518      2,380,787
  General and administrative             1,969,555      1,956,603
  Research and development               1,571,520      1,721,716
  Amortization of goodwill and
   acquired intangible assets            2,112,439             --
  Merger, acquisition and
   restructuring charges                 1,174,730      1,075,253
    Total operating expenses             9,155,762      7,134,359
Loss from operations                    (3,533,174)    (3,665,732)

Other income, net                          280,867        569,616
Loss before provision for
 (benefit) from income taxes            (3,252,307)    (3,096,116)
Provision for (benefit) from
 income taxes                             (926,200)           800
Net loss                               $(2,326,107)   $(3,096,916)

Loss per share, basic and
 diluted                               $     (0.25)   $     (0.39)

Weighted average shares
 outstanding, basic and diluted          9,239,852      7,930,000

                       TouchStone Software Corp.
                      Consolidated Balance Sheet
                        Dec. 31, 1999 and 1998
                              (Unaudited)

                                            1999            1998

ASSETS
Current assets:
  Cash and cash equivalents             $ 2,157,904     $   825,255
  Investments, marketable securities        857,906       5,897,469
  Restricted cash                           720,000         500,000
  Accounts receivable, net                  963,636       1,193,528
  Inventories, net                          199,201         185,287
  Note receivable                           250,000              --
  Deferred tax asset, net                    68,666              --
  Prepaid expenses and other
   current assets                           221,606         166,987
    Total current assets                  5,438,919       8,768,526

Investments, marketable securities           69,363       1,364,797
Investments, other                          738,000              --
Property, net                               132,233         134,888
Goodwill and other intangibles, net       3,067,342              --
Other assets                                 64,274          58,458
                                        $ 9,510,131     $10,326,669

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Current maturities of long-term debt  $    89,286     $        --
  Accounts payable                          383,649         631,646
  Accrued payroll and related expenses      411,969         152,336
  Deferred revenues                         325,757       1,243,034
  Other accrued liabilities                 828,447       1,097,541
    Total current liabilities             2,039,108       3,124,557

Long-term debt, net of current
 maturities                                 438,905              --
Deferred income taxes                       192,266              --

Other liabilities                                --         189,893
    Total liabilities                     2,670,279       3,314,450

Commitments and contingencies

Shareholders' equity:
  Preferred stock, $.001
   par value, 3 million shares
   Authorized; none issued or
   outstanding
  Common stock, $.001 par value,
   20 million shares Authorized;
   issued and outstanding,
   11,346,060  (1999)
    7,963,060  (1998)                        11,346           7,963

Additional paid-in capital               20,952,873      18,754,516
Deferred compensation                       (48,000)             --
Accumulated deficit                    (14,076,367)    (11,750,260)
    Total shareholders' equity            6,839,852       7,012,219
                                        $ 9,510,131     $10,326,669