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 June 30, 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 June 30, 1999
----- ----------------------------
Common Stock, no par value 1,741,610
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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Technical Environment Solutions, Inc.
FORM 10-QSB INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheet at June 30, 1999 3
b. Consolidated Statements of Operations for the three-months
and six months ended June 30, 1999 and 1998 4
c. Consolidated Statements of Cash Flow for the three-months
and six months ended June 30, 1999 and 1998 5
d. Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 10
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
June 30, 1999 June 30, 1999
------------- -------------
(Unaudited) (Unaudited)
ASSETS
------
DM US $
Current assets:
Cash and cash equivalents 165,229 87,224
Accounts receivable, trade 3,792 2,003
Accounts receivable - related party 19,685 10,392
Note receivable - current portion 10,000 5,279
Prepaid expenses 3,200 1,689
---------- ----------
Total current assets 201,906 106,587
Property and equipment, at cost, net of
accumulated depreciation of DM 87,762 158,024 83,421
Investments 10,000 5,279
Note receivable - non-current 40,000 21,116
Other assets 526,500 277,939
---------- ----------
936,430 494,342
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable - bank 49,395 26,077
Notes payable - others 25,000 13,198
Accounts payable 73,752 38,933
Accounts payable - related party 15,862 8,374
Accrued expenses 314,378 165,960
---------- ----------
Total current liabilities 478,387 252,541
Loans from shareholders 430,900 227,472
Advances from affiliated company 640,200 337,961
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
1,741,610 shares issued and outstanding 2,322,834 1,226,223
Accumulated deficit (2,935,891) (1,549,855)
---------- ----------
(613,057) (323,633)
---------- ----------
936,430 494,342
---------- ----------
See accompanying notes to consolidated financial statements.
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
- 3 -
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<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -----------------------------------
1998 1999 1998 1999 1999
---- ---- ---- ---- ----
DM DM DM DM US $
<S> <C> <C> <C> <C> <C>
Sales 220,306 148,553 365,072 293,319 154,843
Sales to related party 13,821 13,821 44,430 44,430 23,455
---------- ---------- ---------- ---------- ----------
234,127 162,374 409,502 337,749 178,298
Cost of operations 54,506 20,176 99,472 65,142 34,388
---------- ---------- ---------- ---------- ----------
Gross profit 179,621 142,198 310,030 272,607 143,909
Other costs and expenses:
General and administrative 374,056 469,999 655,376 751,319 396,621
---------- ---------- ---------- ---------- ----------
(Loss) from operations (194,435) (327,801) (345,346) (478,712) (252,712)
Other income and (expense):
Interest income 2,889 4,022 3,127 4,260 2,249
Losses of unconsolidated subsidiary 7,504 0 (8,026) 0 0
Interest expense (9,413) (30,957) (15,023) (36,567) (19,304)
---------- ---------- ---------- ---------- ----------
980 (26,935) (19,922) (32,307) (17,055)
(Loss) before income taxes (193,455) (354,736) (365,268) (511,019) (269,767)
Provision for income taxes 946 (452) 1,621 223 118
---------- ---------- ---------- ---------- ----------
Net (loss) (194,401) (354,284) (366,889) (511,242) (269,884)
---------- ---------- ---------- ---------- ----------
Basic earnings (loss) per share:
Net income (loss) (0.11) (0.20) (0.21) (0.29) (0.15)
Weighted average shares outstanding 5,224,830 5,224,830 5,224,830 5,224,830 5,224,830
---------- ---------- ---------- ---------- ----------
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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</TABLE>
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<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended June 30,
----------------------------
1998 1999 1999
---- ---- ----
DM DM US $
<S> <C> <C> <C>
Net (loss) (366,889) (511,242) (269,884)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation 29,340 35,250 18,608
Losses of unconsolidated subsidiary 8,026 0 0
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 351,199 79,884 42,171
(Increase) decrease in prepaid expenses 12,954 18,804 9,927
(Increase) decrease in other assets (99,711) (226,500) (119,569)
Increase (decrease) in accounts payable and
accrued expenses (44,648) 168,659 89,035
-------- -------- --------
Total adjustments 257,160 76,097 40,172
-------- -------- --------
Net cash (used in) operating activities (109,729) (435,145) (229,713)
-------- -------- --------
Cash flows from investing activities:
Advance to affiliate (49,000) 0 0
Deposit on building purchase 0 0 0
Purchase of fixed assets (89,846) (30,632) (16,171)
-------- -------- --------
Net cash provided by (used in) investing activities (138,846) (30,632) (16,171)
-------- -------- --------
Cash flows from financing activities:
Proceeds from sale of common stock 0 62,679 33,088
Advances from affiliated company 0 235,603 124,375
Advances from shareholder 0 200,900 106,055
Repayment of stockholder loans (3,400) 0 0
Proceeds from notes payable - banks 0 19,854 10,481
Repayment of notes payable - bank (197,798) 0 0
Repayment of notes payable - other (10,000) (55,000) (29,034)
-------- -------- --------
Net cash provided by
financing activities (211,198) 464,036 138,909
-------- -------- --------
Increase (decrease) in cash (459,773) (1,741) (106,974)
Cash and cash equivalents,
beginning of period 711,567 166,970 88,143
-------- -------- --------
Cash and cash equivalents,
end of period 251,794 165,229 (87,224)
-------- -------- --------
See accompanying notes to consolidated financial statements.
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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<PAGE>
Technical Environment Solutions, Inc.
Notes to Unaudited Financial Statements
June 30, 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 six months ended June 30, 1999, the Company borrowed DM 558,941
from a company controlled by the Company's principal shareholder. The loans are
due in 2009, and bear interest at 6% per annum.
In June 1999, the Company entered into an Agreement and Plan of Merger with
Environmental Technologies and Software Solutions, Inc. ("ENTECS"), which
provided that TES Acquisition Corp., a subsidiary of the Company would be merged
into ENTECS, subject to the approval of the ENTECS stockholders. Under the
Agreement and Plan of Merger which was approved by the ENTECS shareholders at a
Special Meeting on July 30, 1999, the shareholders of ENTECS will receive
approximately 11,467,974 shares of the Company's Common Stock at the time that
the merger is consummated. The Company expects that the merger will be effective
during August 1999. At June 30, 1999, ENTECS had extended credit to the Company
in the approximate amount of $548,686 (1,039,376 DM).
FORWARD-LOOKING STATEMENTS
Statements made in this Form 10-QSB that are not historical or current
facts are "forward-looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 ("The ACT") and Section
21E of the Securities Exchange Act of 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include adverse economic conditions, entry of new and
stronger competitors, inadequate capital, unexpected costs, failure to
successfully penetrate the Company's markets both in Germany and in foreign
countries, and failure to capitalize upon access to new markets. The Company
disclaims any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statement or to
reflect the occurrence of anticipated or unanticipated events.
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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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.
In June 1999, the Company entered into an Agreement and Plan of Merger with
Environmental Technologies and Software Solutions, Inc. ("ENTECS"), which
provided that TES Acquisition Corp., a subsidiary of the Company would be merged
into ENTECS, subject to the approval of the ENTECS stockholders. Under the
Agreement and Plan of Merger which was approved by the ENTECS shareholders at a
Special Meeting on July 30, 1999, the shareholders of ENTECS will receive
approximately 11,467,974 shares of the Company's Common Stock at the time that
the merger is consummated. The Company expects that the merger will be effective
during August 1999. At June 30, 1999, ENTECS had extended credit to the Company
in the approximate amount of $548,686 (1,039,376 DM). The Company has filed a
registration statement with the Securities and Exchange Commission in connection
with the anticipated merger, which was declared effective by the United States
Securities and Exchange Commission on June 25, 1999. 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").
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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<PAGE>
Results of Operations
Six months Ended June 30, 1999 Compared to Six months Ended June 30, 1998
Sales for the six-month period ended June 30, 1999 were DM 293,319, an
decrease of DM 71,753, or 19.65%, as compared to the six-month period ended June
30, 1998. The principal reason for this decrease in sales resulted from a
decline in business from certain customers.
Cost of operations for the six-month period ended June 30, 1999 was DM
65,142, a decrease of DM 34,330, or 34.51%, as compared to the six-month period
ended June 30, 1998. This decrease was due to decreased costs of operations and
the decline in sales.
As a result of the changes noted above, gross profit for the six-month
period ended June 30, 1999, was DM 180,382, an increase of DM 50,423, or 38.7%,
as compared to the six-month period ended June 30, 1998.
General and administrative expenses for the six-month period ended June 30,
1999, were DM 751,319, an increase of DM 95,943, or 14.64%, as compared to the
six-month period ended June 30, 1998. This increase was principally due to the
following:
o Increased payroll and payroll related expenses for employees in the
Landsberg facility;
o 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;
o Rent for additional storage ground at the Landsberg facility due to the
increased operating activity;
o Increased payroll and payroll related costs of sales personnel; and
o 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 six-month period
ended June 30, 1999, was DM 478,712, an increase in the operating loss of DM
133,366, or 38.62%, as compared to the six-month period ended June 30, 1998.
Other income and expenses for the six-month period ended June 30, 1999, involved
an expense of DM 32,307, an increase of DM 8,026, or 62.17%, as compared to the
six-month period ended June 30, 1998. The increase 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 six months ended June 30, 1999, and as a result of higher interest expense
resulting from an increase in the Company's borrowings. For the reasons noted
above, the net loss for the six-month period ended June 30, 1999, was DM
511,242, an increase in the net loss of DM 144,353, or 39.35%, as compared to
the six-month period ended June 30, 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 June 30, 1999 the Company had negative working capital of 276,481
DM and cash and cash equivalents of 165,229 DM. Further, the Company's net
deficit had increased to 2,935,891 DM at June 30, 1999.
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
- 8 -
<PAGE>
The Company has borrowed funds from ENTECS to meet its working capital
needs. At June 30, 1999, the Company had advances due to ENTECS of $337,961
(640,200 DM). Based upon sales of stock by ENTECS made earlier in 1999,
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
or private 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.
Management has no plans at this time to materially reduce the number of its
employees or dispose of any of the Company's assets.
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
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 and 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.
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
Not Applicable
Item 2. Changes in Securities
- -----------------------------
Not Applicable
Item 3. Defaults Upon Senior Securities
- ---------------------------------------
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
Not Applicable
Item 5. Other Information
- -------------------------
Not Applicable
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 June 30, 1999.
b) Reports on Form 8-K: There were no reports on Form 8-K filed during the
three months ended June 30, 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: August 18, 1999 TECHNICAL ENVIRONMENT SOLUTIONS, INC.
/s/ Gerd Behrens
----------------
Gerd Behrens
President and director
(Principal Executive Officer)
Technical Environment Solutions, Inc. 2nd Quarter Form 10-QSB
- 10 -
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTER ENDED 6/30/99 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> German Mark
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<EXCHANGE-RATE> 1.894
<CASH> 165,229 0
<SECURITIES> 0 0
<RECEIVABLES> 23,477 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 201,906 0
<PP&E> 245,786 0
<DEPRECIATION> 87,762 0
<TOTAL-ASSETS> 936,430 0
<CURRENT-LIABILITIES> 478,387 0
<BONDS> 1,071,100 0
0 0
0 0
<COMMON> 2,322,834 0
<OTHER-SE> (2,935,891) 0
<TOTAL-LIABILITY-AND-EQUITY> 936,430 0
<SALES> 148,553 220,306
<TOTAL-REVENUES> 162,374 234,127
<CGS> 20,176 54,506
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 469,999 374,056
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (26,935) (6,524)
<INCOME-PRETAX> (354,736) (193,455)
<INCOME-TAX> (452) 946
<INCOME-CONTINUING> (354,284) (194,401)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (354,284) (194,401)
<EPS-BASIC> 0.20 0.11
<EPS-DILUTED> 0 0
</TABLE>
