U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
-------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ____________ to ____________
Commission file number 0-23779
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
-------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 98-0149351
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
C/O TES GmbH, 25 Impler Strasse, 81371, Munich, Germany
-------------------------------------------------------
(Address of principal executive office)
011 49 89 720 15 100
--------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No ________
Number of shares outstanding of the issuer's Common Stock:
Class Outstanding at March 31, 1999
----- -----------------------------
Common Stock, no par value 5,224,330
- -------------------------- ---------
<PAGE>
Technical Environment Solutions, Inc.
INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1999 3
Consolidated Statements of Operations
for the three-months ended March 31, 1998 and 1999 4
Consolidated Statements of Cash Flow
for the three months ended March 31, 1998 and 1999 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
March 31, 1999
(Unaudited)
ASSETS
------
DM US $
-- ----
Current assets:
Cash and cash equivalents 215,467 128,254
Accounts receivable, trade 125,193 74,520
Prepaid expenses 20,619 12,273
---------- ----------
Total current assets 361,279 215,047
Property and equipment, at cost, net of
accumulated depreciation of DM 75,675 155,098 92,320
Investments 10,000 5,952
Note receivable - related party 50,000 29,762
Other assets 398,176 237,010
---------- ----------
974,553 580,091
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - banks 32,059 19,084
Notes payable - others 80,000 47,619
Accounts payable 98,843 58,834
Accounts payable - related party 15,862 9,442
Accrued expenses 228,047 135,742
---------- ----------
Total current liabilities 454,811 270,721
Loans from shareholders 230,000 136,905
Advances from affiliated company 645,659 384,321
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
5,224,830 shares issued and outstanding 2,260,155 1,345,330
Accumulated deficit (2,616,072) (1,557,186)
---------- ----------
(355,917) (211,856)
---------- ----------
974,553 580,091
========== ==========
See accompanying notes to consolidated financial statements.
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<PAGE>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three-months Ended March 31,
1998 1999 1999
DM DM US $
-- -- ----
Sales 144,766 231,215 137,628
Sales to related party 30,609 -- --
---------- ---------- ----------
175,375 231,215 137,628
Cost of operations 44,966 50,383 29,990
---------- ---------- ----------
Gross profit 130,409 180,832 107,638
Other costs and expenses:
General and administrative 281,995 364,613 217,032
---------- ---------- ----------
(Loss) from operations (151,586) (183,781) (109,393)
Other income and (expense):
Interest income 238 5,453 3,246
Losses of unconsolidated subsidiary (15,530) -- --
Interest expense (5,610) (13,095) (7,795)
---------- ---------- ----------
(20,902) (7,642) (4,549)
(Loss) before income taxes (172,488) (191,423) (113,942)
Provision for income taxes -- -- --
---------- ---------- ----------
Net (loss) (172,488) (191,423) (113,942)
========== ========== ==========
Earnings (loss) per share:
Net income (loss) (0.03) (0.04) (0.02)
========== ========== ==========
Weighted average shares outstanding 5,224,830 5,224,830 5,224,830
========== ========== ==========
See accompanying notes to consolidated financial statements.
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<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
1998 1999 1999
DM DM US $
-- -- ----
<S> <C> <C> <C>
Net (loss) (172,488) (191,423) (113,942)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation 17,253 11,026 6,563
Losses of unconsolidated subsidiary 15,530 -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 346,003 (21,832) (12,995)
(Increase) decrease in prepaid expenses 12,414 1,385 824
(Increase) decrease in other assets (220,922) (98,176) (58,438)
Increase (decrease) in accounts payable and
accrued expenses (31,643) (5,991) (3,566)
-------- -------- --------
Total adjustments 138,635 (113,588) (67,612)
-------- -------- --------
Net cash (used in) operating activities (33,853) (305,011) (181,554)
-------- -------- --------
Cash flows from investing activities:
Advance to affiliate (49,000) -- --
Purchase of fixed assets (65,154) (3,482) (2,073)
-------- -------- --------
Net cash provided by (used in) investing activities (114,154) (3,482) (2,073)
-------- -------- --------
Cash flows from financing activities:
Advances from affiliated company -- 356,990 212,494
Repayment of notes payable - bank (166,785) -- --
Repayment of notes payable - other (10,000) -- --
-------- -------- --------
Net cash provided by
financing activities (176,785) 356,990 212,494
-------- -------- --------
Increase (decrease) in cash (324,792) 48,497 28,867
Cash and cash equivalents,
beginning of period 711,567 166,970 99,387
-------- -------- --------
Cash and cash equivalents,
end of period 386,775 215,467 128,254
======== ======== ========
See accompanying notes to consolidated financial statements.
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</TABLE>
<PAGE>
Technical Environment Solutions, Inc.
Notes to Unaudited Financial Statements
March 31, 1999
(Unaudited)
Basis of presentation:
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions incorporated in Regulation 10-SB of the Securities and
Exchange Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments and accruals) considered necessary for a fair
presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's financial
statements for the year ended December 31, 1998.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
During the quarter ended March 31, 1999, the Company borrowed DM 356,990 from a
company controlled by the Company's principal shareholder. The loans are due in
2009, and bear interest at 6% per annum.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations
- --------------------------------------------------------------------------------
The following information should be read in conjunction with the financial
statements and the notes thereto and in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998.
General
- -------
Technical Environment Solutions, Inc. ("TES") was incorporated under the
laws of Colorado in June 1994. It is a non-operating holding company. TES'
operations are conducted entirely in Germany. It has two wholly-owned
subsidiaries that have been established under the laws of Germany. Operations
are conducted through these subsidiaries: namely, Technical Environment
Solutions GmbH ("TES GmbH") and TES Oecon AG ("Oecon"). TES GmbH was formed in
May, 1992 and TES Oecon AG was formed in July, 1997 and commenced operations in
October, 1997. Unless the context otherwise requires, references to TES include
its subsidiaries.
Since 1994, TES has been engaged in the marketing of recycling services on
a contract basis primarily for electronic scrap and other valuable waste
materials in cooperation with specialist waste disposal companies. The recycling
activities are conducted principally within the TES GmbH subsidiary. Management
intends to significantly expand this operation in the future. Management also
intends to develop a job training school, the Oecon Institute, to provide
training and education for positions in the recycling industry. Management
intends to focus TES' job training programs upon providing job education and
training for the long-term unemployed and disadvantaged. The training programs
are conducted within the TES Oecon AG subsidiary.
The board of directors of the Company has agreed to a merger of the Company
with Environmental Technologies and Software Solutions, Inc.("ENTECS"). The
Company has filed a registration statement with the Securities and Exchange
Commission in connection with the anticipated merger. Upon consummation of the
merger, ENTECS will become a wholly owned subsidiary of the Company.
The Company continues to use cash and operate at a loss (See "Liquidity and
Capital Resources").
Three-months Ended March 31, 1999 Compared to Three-months Ended March 31, 1998
- -------------------------------------------------------------------------------
Sales for the three-month period ended March 31, 1999 were DM 231,215, an
increase of DM 55,840, or 31.8%, as compared to the three-month period ended
March 31, 1998. The principal reason for this increase in sales was increased
recycling activity at the Company's new Landsberg facility.
Cost of operations for the three-month period ended March 31, 1999 was DM
50,383, an increase of DM 5,417, or 12.1%, as compared to the three-month period
ended March 31, 1998. This increase was due to increased costs of operations
directly attributable to the increase in sales.
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<PAGE>
As a result of the changes noted above, gross profit for the three-month
period ended March 31, 1999, was DM 180,382, an increase of DM 50,423, or 38.7%,
as compared to the three-month period ended March 31, 1998.
General and administrative expenses for the three-month period ended March
31, 1999, were DM 364,613, an increase of DM 82,618, or 29.3%, as compared to
the three-month period ended March 31, 1998. This increase was principally due
to the following:
* Increased payroll and payroll related expenses for employees in the
Landsberg facility.
* A reduction in the state-subsidies which the Company receives for each
new position created in the recycling component of the Company's
business. These subsidies are treated as an offset to general and
administrative expenses. The subsidies which the Company receives from
the state end after each new employee's first complete year of
employment. Thereafter, the Company must bear the full cost of such
employees salary and benefits.
* Rent for additional storage-ground at the Landsberg facility due to
the increased operating activity.
* Increased payroll and payroll related costs of sales personnel. And,
* Legal and accounting expenses related to the proposed merger of the
Company with ENTECS.
As a result of these factors, the operating loss for the three-month period
ended March 31, 1999, was DM 183,781, an increase in the operating loss of DM
32,195, or 21.2%, as compared to the three-month period ended March 31, 1998.
Other income and expenses for the three-month period ended March 31, 1999, was
an expense of DM 7,642, a decrease of DM 13,260, or 63.4%, as compared to the
three-month period ended March 31, 1998. The decrease in other expenses was
primarily due to the fact that the Company had written off its investment in an
unconsolidated subsidiary in 1998 and, as a result, had no such loss recorded in
the three-months ended March 31, 1999. For the reasons noted above, the net loss
for the three-month period ended March 31, 1999, was DM 191,423, an increase in
the net loss of DM 18,935, or 11.0%, as compared to the three-month period ended
March 31, 1998.
Liquidity and Capital Resources
- -------------------------------
The Company is currently experiencing a liquidity crisis and must raise
additional funds. Further, the Company has not generated sufficient cash flow to
fund its operations and activities. The Company historically relied upon
internally generated funds and loans from its principal shareholder and his wife
to finance its operations and growth.
During the six months ended June 30, 1997, the Company received 2,208,550
DM from an offering of its common stock conducted solely in Germany to German
citizens. At March 31, 1998, the Company had working capital of 179,215 DM and
cash of 386,775 DM. At March 31, 1999 the Company had negative working capital
of 93,532 DM and cash and cash equivalents of 215,467 DM. Further, the Company's
net deficit had increased to 355,917 DM at March 31, 1999 from a net deficit of
164,494 DM at December 31, 1998.
Currently, the Company is borrowing funds from ENTECS to meet its working
capital needs. At March 31, 1999, the Company had advances due to ENTECS of
645,659 DM. Based upon recent sales of stock by ENTECS, management believes that
it will have sufficient funds to satisfy its cash requirements until December
31, 1999 through additional borrowings from ENTECS. Management intends to raise
additional funds as necessary through further public offerings of its stock in
the second half of the current fiscal year and through bank loans or loans from
private investors, if necessary, although there can be no assurance that the
Company will be able to obtain such financing.
- 8 -
<PAGE>
Management has no plans at this time to materially reduce the number of its
employees or dispose of any of the Company's assets. The Company has future
minimum lease obligations totaling 1,066,560 DM through 2003.
Year 2000 Compliance
- --------------------
The Year 2000 ("Y2K") computer problem refers to the potential for system
and processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
ENTECS has the exclusive distribution rights to Fabius, which is a software
product designed to assist companies with environmental compliance. The Company
has been advised by the developer of Fabius that it is Y2K compliant. In
addition, the Company has tested Fabius for Y2K compliance, and based upon the
results of those tests, management believes that Fabius is Y2K compliant.
However, TES' testing of Fabius does not cover every possible computing
environment. Accordingly, some customers may have Y2K problems with products
that the Company believes are Y2K compliant. For instance, users of Fabius may
be operating on older versions of hardware platforms than the hardware platforms
tested.
The Company also may be affected by Y2K issues related to non-compliant
internal systems developed by TES or by third-party vendors. The Company has
reviewed its internal systems, including its accounting system, and has found
them to be Y2K compliant. The Company is not currently aware of any Y2K problem
relating to any of its internal, material systems and management does not
believe that it has any material systems that contain embedded chips that are
not Y2K compliant.
The Company's internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. Management believes that absent a systemic failure outside
the control of the Company, such as a prolonged loss of electrical or telephone
service, Y2K problems at such third parties will not have a material impact on
the Company. The Company has no contingency plan for systemic failures such as
loss of electrical or telephone services. The Company's contingency plan in the
event of a non-systemic failure is to establish relationships with alternative
suppliers or vendors to replace failed suppliers or vendors. Other than the
previously described testing, and remedying problems identified by testing or
from external sources, the Company has no other contingency plans or intention
to create other contingency plans.
Any failure by the Company or its licensor to make Fabius Y2K compliant
could result in a decrease in sales of Fabius, an increase in allocation of
resources to address Y2K problems of its customers without additional revenue
- 9 -
<PAGE>
commensurate with such dedication of resources, or an increase in litigation
costs relating to losses suffered by Fabius' customers due to such year 2000
problems. Failures of TES' internal systems could temporarily prevent it from
processing orders, issuing invoices, and could require it to devote significant
resources to correcting such problems. But to management's knowledge, the
internal accounting systems have been attested by the supplier as Y2K compliant.
Due to the general uncertainty inherent in the year 2000 computer problem,
resulting from the uncertainty of the year 2000 readiness of third-party
suppliers and vendors, the Company is unable to determine at this time whether
the consequences of Y2K failures will have a material impact on its business,
results of operations, and financial condition.
- 10 -
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
a) Exhibits: No exhibits are filed with this Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1999.
b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
three months ended March 31, 1999.
SIGNATURES
Pursuant to the requirements 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.
Date: May 19, 1999
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
/s/ Gerd Behrens
----------------
Gerd Behrens
President and director
(Principal Executive Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 128,254
<SECURITIES> 0
<RECEIVABLES> 74,520
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 215,047
<PP&E> 92,320
<DEPRECIATION> 75,675
<TOTAL-ASSETS> 580,091
<CURRENT-LIABILITIES> 270,721
<BONDS> 0
0
0
<COMMON> 1,345,330
<OTHER-SE> (1,557,186)
<TOTAL-LIABILITY-AND-EQUITY> 580,091
<SALES> 137,628
<TOTAL-REVENUES> 137,628
<CGS> 29,990
<TOTAL-COSTS> 29,990
<OTHER-EXPENSES> 217,032
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,549
<INCOME-PRETAX> (113,942)
<INCOME-TAX> 0
<INCOME-CONTINUING> (113,942)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (113,942)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> 0
</TABLE>
