U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 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 (IRS Employer
of incorporation or organization) Identification No.)
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 September 30, 1999
----- ---------------------------------
Common Stock, no par value 16,692,804
<PAGE>
Technical Environment Solutions, Inc.
FORM 10-QSB INDEX
-----------------
Page
----
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
a. Consolidated Balance Sheet at September 30, 1999 ........... 3
b. Consolidated Statements of Operations
for the three months and nine months ended
September 30, 1999 and 1998 .............................. 4
c. Consolidated Statements of Cash Flow
for the three months and nine months ended
September 30, 1999 and 1998 .............................. 5
d. Notes to Unaudited Financial Statements .................... 6
Item 2. Management's Discussion and Analysis of Financial
Condiition and Results of Operations .................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................ 11
Item 2. Changes in Securities .................................... 11
Item 3. Defaults Upon Senior Securities .......................... 11
Item 4. Submission of Matters to a Vote of Security Holders ...... 11
Item 5. Other Information ........................................ 11
Item 6. Exhibits and Reports on Form 8-K ......................... 11
SIGNATURES ......................................................... 12
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- -----------------------------
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
September 3 September 30,
1999 1999
(Unaudited) (Unaudited)
ASSETS
------
DM US $
Current assets:
Cash and cash equivalents 496,405 270,329
Accounts receivable, trade 63,468 34,564
Accounts receivable - related party 0 0
Note receivable - current portion 10,000 5,446
Inventory 60,000 32,674
Prepaid expenses 113,064 61,572
---------- ----------
Total current assets 742,937 404,585
Property and equipment, at cost, net of
accumulated depreciation of DM 87,762 657,786 358,213
Investments 10,000 5,446
Note receivable - non-current 40,000 21,783
Intangible assets, net of
amortization of $357,500 997,500 543,212
Other assets 561,296 305,667
---------- ----------
3,009,519 1,638,905
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - others 100,000 54,458
Accounts payable 632,156 344,254
Accounts payable - related party 15,862 8,638
Accrued expenses - related party 28,425 15,479
Accrued expenses 752,812 409,961
---------- ----------
Total current liabilities 1,529,255 832,791
Loans from shareholders 430,900 234,657
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
16,692,804 shares issued and outstanding 7,696,090 4,191,085
Accumulated deficit (6,646,726) (3,619,630)
---------- ----------
1,049,364 571,456
---------- ----------
3,009,519 1,638,904
---------- ----------
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<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
1998 1999 1998 1999 1999
DM DM DM DM US $
-- -- -- -- ----
<S> <C> <C> <C> <C> <C>
Sales 266,455 360,488 631,527 850,872 463,362
Cost of operations 80,203 458,842 179,675 732,898 399,117
----------- ----------- ----------- ----------- -----------
Gross Profit 186,252 (98,354) 451,852 117,974 64,245
Other costs and expenses:
General and administrative (Loss)
from operations 729,355 1,407,441 1,907,511 2,582,681 1,406,459
----------- ----------- ----------- ----------- -----------
(543,103) (1,505,795) (1,455,659) (2,464,707) (1,342,214)
Other income and (expense):
Interest income 7,681 40,870 10,163 40,870 22,257
Losses of unconsolidated subsidiary (40,974) 0 (49,000) 0 0
Interest expense (11,041) (46,319) (14,759) (72,616) (39,545)
----------- ----------- ----------- ----------- -----------
(44,334) (5,449) (53,596) (31,746) (17,288)
(Loss) before income taxes (587,437) (1,511,244) (1,509,255) (2,496,453) (1,359,502)
Provision for income taxes 95 (1,347) 1,716 2,292 1,248
----------- ----------- ----------- ----------- -----------
Net (loss) (587,532) (1,512,591) (1,510,971) (2,498,745) (1,360,750)
----------- ----------- ----------- ----------- -----------
Basic earnings (loss) per share:
Net income (loss) (0.04) (0.09) (0.10) (0.15) (0.08)
Weighted average shares outstanding 15,481,104 16,692,804 14,752,657 16,497,465 16,497,465
----------- ----------- ----------- ----------- -----------
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<PAGE>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months
Ended September 30,
1998 1999 1999
DM DM US $
-- -- ----
Net (loss) (1,510,971) (2,498,745) (1,360,750)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation 50,263 126,312 68,786
Amortization 101,750 125,626 68,413
Interest added to loan balance (7,500) 0 0
Losses of unconsolidated subsidiary 49,000 0 0
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 236,963 42,123 22,939
(Increase) decrease in inventory 0 60,000 32,674
(Increase) decrease in prepaid expenses 23,953 (34,908) (19,010)
(Increase) decrease in other assets (89,383) (261,296) (142,295)
Increase (decrease) in accounts payable and
accrued expenses (234,072 652,789 355,491
---------- ---------- ----------
Total adjustments 130,974 710,646 386,999
---------- ---------- ----------
Net cash (used in) operating activities (1,379,997) (1,788,099) (973,751)
---------- ---------- ----------
Cash flows from investing activities:
Investment in unconsolidated subsidiary (49,000) 0 0
Purchase of fixed assets (262,286) (77,014) (41,940)
---------- ---------- ----------
Net cash provided by (used in) investing activities (311,286) (77,014) (41,940)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 2,589,854 1,835,109 999,351
Advances from shareholder 0 (24,100) (13,124)
Repayment of stockholder loans (241,645) 0 0
Repayment of notes payable - bank (197,798) (29,541) (16,087)
Proceeds from notes payable - other 0 100,000 0
---------- ---------- ----------
Repayment of notes payable - other (340,763) (80,000) (43,566)
---------- ---------- ----------
Net cash provided by financing activities 1,809,648 1,801,468 926,574
---------- ---------- ----------
Increase (decrease) in cash 118,365 (63,645) (89,117)
Cash and cash equivalents, beginning of period (937,787) 560,050 304,988
---------- ---------- ----------
Cash and cash equivalents, end of period 1,056,152 496,405 215,872
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
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</TABLE>
<PAGE>
Technical Environment Solutions, Inc.
Notes to Unaudited Financial Statements
September 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 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 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.
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.
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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, and one
wholly-owned subsidiary established under the laws of Colorado. Operations are
conducted through these subsidiaries: namely, Technical Environment Solutions
GmbH ("TES GmbH"), TES Oecon AG ("Oecon"), and Environmental Technologies and
Software Solutions, Inc. ("ENTECS"). Unless the context otherwise requires,
references to the Company 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 Company
has shifted these operations which were previously conducted in TES GmhH to TES
Oecon AG. All recycling activities (certified dismantling, marketing of valuable
products and components) are now concentrated in TES Oecon AG. Management
intends to significantly expand these operations in the future. Therefore TES
Oecon AG is currently offering electronic services, which includes maintenance
and repair services, and trading and brokerage of used computers and monitors.
Although there can be no assurance that the Company will be successful in doing
so, management plans to broaden its service offerings by providing high
qualified technical support and hosting of client-server-networks in combination
with system design services to business customers in the near future.
With respect to the merger with ENTECS management plans to merge the former
TES GmbH with ENTECS Software und Umweltmanagement GmbH and then conduct
operations under the name of TES Com GmbH. Management believes that this name
will be more descriptive of the Company's new activities. Although there can be
no assurance that the Company will be successful in doing so, management plans
to enter the world of e-commerce by offering a wide range of tested second hand
computers, components or software tools and software programs on the internet.
The Company plans to use the domain name "computerteile.com". These new
activities are expected to begin in the first quarter of 2000.
ENTECS is a non-operating holding company, which conducts operations
entirely in Germany through two wholly owned German subsidiaries - ENTECS
Umwelttechnik GmbH and ENTECS Software und Umweltmanagement GmbH. ENTECS is
active in the recycling of various waste products within the environmental
protection industry, which is expected to grow rapidly due to increasing
investments being made to comply with environmental regulation by both private
enterprises and public institutions. The environmental protection industry is
also expected to continually create new jobs because of the dynamic growth in
the area. Further, ENTECS holds the exclusive licensing rights to a new
recycling system for the capture and re-use of cement waste and waste water that
is generated by concrete mixing plants. The system, known as the "BRS-Compact,"
is in the process of being patented both as a technology and as a process.
Management is currently re-evaluating the cement recycling business in order to
determine the Company's strategic direction with respect to cement recycling.
ENTECS' subsidiary, ENTECS Umwelttechnik GmbH, owns a wood fiber production
system, which produces three grades of high-quality all-natural products as
substitutes for peat.
-7-
<PAGE>
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 received seven
shares of the Company in exchange for each share of ENTECS that they held. The
merger was effective in August 1999. The previous amounts owed by the Company to
ENTECS have been eliminated in consolidation since ENTECS is now a wholly-owned
subsidiary of TES.
The Company continues to use cash and operate at a loss (See "Liquidity and
Capital Resources").
Basic loss per share was computed using the weighted average number of
common shares outstanding and has been adjusted to reflect the merger described
above.
Results of Operations
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Sales for the nine month period ended September 30, 1999 were DM 850,872 an
increase of DM 219,345, or 34.73%, as compared to the nine month period ended
September 30, 1998. The principal reasons for this increase in sales were: (i)
increased sales to new clients of TES Oecon AG, and (ii) the fact that the
Company completed the first year of production of its peat substitute.
Cost of operations for the nine month period ended September 30, 1999 was
DM 732,898, an increase of DM 553,223, or 307.90%, as compared to the nine month
period ended September 30, 1998. This increase was due primarily to: (i) an
increase in construction and repair costs for the BRS-Compact cement recyclying
system at ENTECS Umwelttechnik GmbH, and (ii) increased costs associated with
the Company's wood fiber-production operation.
As a result of the changes noted above, gross profit for the nine month
period ended September 30, 1999, was DM 117,974, a decrease of DM 333,878, or
73.89%, as compared to the nine month period ended September 30, 1998.
General and administrative expenses for the nine month period ended
September 30, 1999, were DM 2,582,681, an increase of DM 675,170, or 35.40%, as
compared to the nine month period ended September 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; and
o Legal and accounting expenses related to the merger of the Company with
ENTECS.
As a result of these factors, the operating loss for the nine month period
ended September 30, 1999, was DM 2,464,707, an increase in the operating loss of
DM 1,009,048, or 69.32%, as compared to the nine-month period ended September
30, 1998. Other income and expenses for the nine month period ended September
30, 1999, involved an expense of DM 31,746, a decrease of DM 21,850 or 40.77%,
-8-
<PAGE>
as compared to the nine month period ended September 30, 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 nine months ended September 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 nine month period
ended September 30, 1999, was DM 2,498,745, an increase in the net loss of DM
987,774, or 65.37%, as compared to the nine-month period ended September 30,
1998.
Liquidity and Capital Resources
The Company is currently experiencing a severe liquidity crisis and must
raise additional capital. Further, the Company has not generated sufficient cash
flow to fund its operations and activities. Historically, the Company has relied
upon internally generated funds, funds from the sale of shares of stock and
loans from its principal shareholder and his wife to finance its operations and
growth. Management intends to raise additional capital through further public or
private offerings of its stock and through bank loans or loans from private
investors, although there can be no assurance that the Company will be able to
obtain such financing. The Company's future success and viability are entirely
dependent upon the Company's ability to raise additional capital. Management is
optimistic that the Company will be successful in its capital raising efforts;
however, there can be no assurance that the Company will be successful in
raising additional capital. The failure to raise additional capital will have a
material and adverse affect upon the Company and its shareholders.
At September 30, 1999 the Company had negative working capital of (786,318
DM) and cash and cash equivalents of 496,405 DM. Further, the Company's net
deficit had increased to 6,646,726 DM at September 30, 1999.
Management has taken certain steps to reduce its overhead, including
reducing the number of its employees, and is considering other cost cutting
measures.
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
-9-
<PAGE>
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.
-10-
<PAGE>
PART II. OTHER INFORMATION
--------------------------
Item 1. Legal Proceedings
- -------------------------
Not Applicable
Item 2. Changes in Securities
- -----------------------------
With the exception of the common stock issued to the ENTECS shareholders in
connection with the acquisition of ENTECS, the Company has not issued any other
securities required to be disclosed in this report. The shares of the Company's
Common Stock issued to the former ENTECS shareholders were registered with the
United States Securities and Exchange Commission under the Act.
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 September 30, 1999.
b) Reports on Form 8-K: In connection with the acquisition of ENTECS, the
Company filed two Form 8-K's during the quarter ended September 30, 1999.
Date Filed Item Number(s)
August 23, 1999 Item 2 and Item 7
September 27, 1999 Item 2 and Item 7
-11-
<PAGE>
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: December 10, 1999
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
/s/ Gerd Behrens
-------------------------------------
Gerd Behrens
President and director
(Principal Executive Officer)
-12-
<PAGE>
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: December 10, 1999
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
Gerd Behrens
President and director
(Principal Executive Officer)
-13-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 10-QSB AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 270,329
<SECURITIES> 0
<RECEIVABLES> 40,010
<ALLOWANCES> 0
<INVENTORY> 32,674
<CURRENT-ASSETS> 404,585
<PP&E> 406,006
<DEPRECIATION> 47,793
<TOTAL-ASSETS> 1,638,905
<CURRENT-LIABILITIES> 832,791
<BONDS> 234,657
0
0
<COMMON> 4,191,085
<OTHER-SE> (3,619,630)
<TOTAL-LIABILITY-AND-EQUITY> 1,638,905
<SALES> 463,362
<TOTAL-REVENUES> 463,362
<CGS> 0
<TOTAL-COSTS> 399,117
<OTHER-EXPENSES> 1,406,459
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (17,288)
<INCOME-PRETAX> (1,359,502)
<INCOME-TAX> 1,248
<INCOME-CONTINUING> (1,360,750)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,360,750)
<EPS-BASIC> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
