UNITED STATES
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, 2000
[ ] 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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
C/O TES Com GmbH, 25 Impler Strasse, 81371, Munich, Germany
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(Address of principal executive offices)
011 49 89 720 15 100
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(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Class Outstanding at March 31, 2000
----- -----------------------------
Common Stock, no par value 16,638,075
<PAGE>
Technical Environment Solutions, Inc.
INDEX
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Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 2000 3
Consolidated Statements of Operations
for the three-months ended March 31, 1999 and 2000 4
Consolidated Statements of Cash Flow
for the three months ended March 31, 1999 and 2000 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
- 2 -
<PAGE>
PART I. FINANCIAL INFORMATION
As a result of the merger in August 1999 between the Company and
Environmental Technologies and Software Solutions, Inc. ("ENTECS"), the
financial statement items for the period ended March 31, 1999 set forth below
and under Item 2, "Management's Discussion and Analysis or Plan of Operation"
have been restated to include the operations of ENTECS.
Item 1. Financial Statements.
- -----------------------------
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Balance Sheet
March 31, 2000
(Unaudited)
ASSETS
------
DM US $
Current assets:
<S> <C> <C>
Cash and cash equivalents 175,796 86,374
Accounts receivable, trade 182,411 89,624
Inventory 60,000 29,480
Prepaid expenses 110,503 54,293
---------- ----------
Total current assets 528,710 259,770
Property and equipment, at cost, net of
accumulated depreciation of DM310,751 588,349 289,072
Investments 10,000 4,913
Note receivable - related party 50,000 24,566
Intangible assets, net of amortization 466,489 229,199
Other assets 314,926 154,732
---------- ----------
1,958,474 962,253
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable - banks 60,405 29,680
Notes payable - others 200,000 98,266
Accounts payable 560,555 275,415
Accounts payable and accrued expenses - related parties 140,530 69,046
Accrued expenses 234,492 115,212
---------- ----------
Total current liabilities 1,195,982 587,620
Loans from shareholders 430,000 211,271
Stockholders' equity:
Common stock, no par value,
20,000,000 shares authorized,
17,011,875 shares issued and outstanding 7,885,093 3,874,167
Accumulated deficit (7,552,601) (3,710,805)
---------- ----------
332,492 163,363
---------- ----------
1,958,474 962,253
========== ==========
See accompanying notes to consolidated financial statements.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Operations
(Unaudited)
Three months ended
March 31,
-----------------------------------------
1999 2000 2000
DM DM US $
<S> <C> <C> <C>
Sales 321,506 311,492 153,045
Cost of operations 256,372 131,018 64,373
----------- ----------- -----------
Gross profit 65,134 180,474 88,672
Other costs and expenses:
General and administrative 397,836 464,951 228,443
General and administrative - related parties 217,656 89,749 44,096
----------- ----------- -----------
(Loss) from operations (550,358) (374,226) (183,868)
Other income and (expense):
Interest income 6,577 576 283
Interest expense - related party (1,682) (416) (204)
Interest expense (12,383) (2,456) (1,207)
----------- ----------- -----------
(7,488) (2,296) (1,128)
(Loss) before income taxes (557,846) (376,522) (184,996)
Provision for income taxes 257 -- --
----------- ----------- -----------
Net (loss) (558,103) (376,522) (184,996)
=========== =========== ===========
Earnings (loss) per share:
Basic and diluted (loss) per share (0.03) (0.02) (0.01)
=========== =========== ===========
Weighted average shares outstanding 16,169,435 16,764,608 16,764,608
=========== =========== ===========
See accompanying notes to consolidated financial statements.
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Technical Environment Solutions, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
Three months ended
March 31,
-----------------------------------
1999 2000 2000
DM DM US $
<S> <C> <C> <C>
Net (loss) (558,103) (376,522) (184,996)
Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:
Depreciation 53,985 55,194 27,118
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (67,917) (87,239) (42,863)
(Increase) decrease in prepaid expenses 10,527 (92,895) (45,642)
(Increase) decrease in other assets (98,176) (86,250) 42,377
Increase (decrease) in accounts payable and
accrued expenses including related parties 100,197 (43,468) (21,357)
---------- ---------- ----------
Total adjustments (1,384) (82,158) (40,367)
---------- ---------- ----------
Net cash (used in) operating activities (559,487) (458,680) (225,362)
---------- ---------- ----------
Cash flows from investing activities:
Sale of fixed assets 21,330 -- --
Purchase of fixed assets (3,482) -- --
---------- ---------- ----------
Net cash provided by (used in) investing activities (17,848) -- --
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 1,398,719 184,941 90,867
Proceeds from bank loan -- 21,207 10,420
Proceeds from stockholder advances 25,000 -- --
---------- ---------- ----------
Net cash provided by financing activities 1,423,719 206,148 101,286
---------- ---------- ----------
Increase (decrease) in cash 882,080 (252,532) (124,076)
Cash and cash equivalents, beginning of period 560,050 428,328 210,450
---------- ---------- ----------
Cash and cash equivalents, end of period 1,442,130 175,796 86,374
========== ========== ==========
See accompanying notes to consolidated financial statements.
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</TABLE>
<PAGE>
Technical Environment Solutions, Inc.
Notes to Unaudited Financial Statements
March 31, 2000
(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, 1999.
Basic loss per share was computed using the weighted average number of common
shares outstanding.
During the quarter ended March 31, 2000, the Company sold common stock in a
private offering to a limited group of investors in Germany. The Company sold
373,800 shares of its common stock for gross proceeds of DM 235,351 and incurred
direct expenses of the offering amounting to DM 50,410.
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
- ------------------------------------------------------------------
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, 1999.
General
Technical Environment Solutions, Inc. (the "Company" or "TES") was
incorporated under the laws of Colorado in June 1994, and is a non-operating
holding company. The Company's operations are conducted entirely in Germany. The
Company has three wholly-owned subsidiaries through which it conducts operations
- - TES Oecon AG ("TES Oecon"), TES Com GmbH ("TES Com") and Environmental
Technologies and Software Solutions, Inc. ("ENTECS"). ENTECS is a non-operating
holding company and its operations are conducted entirely in Germany by its
wholly owned German subsidiary, ENTECS Umwelttechnik GmbH ("ENTECS GmbH").
TES Oecon was formed in July 1997 under the laws of Germany and commenced
operations in October 1997. TES Com was formed under the laws of Germany in May
1992 under the name Technical Environment Solutions GmbH and changed its name to
TES Com GmbH in August 1999 as a result of its merger with ENTECS Software und
Umweltmanagement GmbH, a subsidiary of ENTECS, in which TES Com was the
surviving corporation. ENTECS was formed under the laws of Colorado in May 1997
and became a wholly-owned subsidiary of the Company pursuant to a merger
effected in August 1999. ENTECS GmbH was formed in July 1997 under the laws of
Germany. Unless the context otherwise requires, references to the "Company"
include its direct and indirect subsidiaries.
From 1994 to 1997, the Company was 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. In
1997, the Company commenced recycling activities at its own facility in
Landsberg a. Lech, Germany, which is southwest of Munich. Recently, the Company
expanded its EDP-electronics business by adding electronic services and used
equipment sales, both direct and over the Internet, to its business. In
addition, as a result of the Company's merger with ENTECS, the Company now
engages in the distribution of software programs for managing environmental
protection obligations, the production of wood fiber products as an alternative
to conventional peat, the briquetting of dust, metal refuses and fibers and the
composting of sewage and organic refuse.
The Company continues to use cash and operate at a loss (See "Liquidity and
Capital Resources").
Three-months Ended March 31, 2000 Compared to Three-months Ended March 31, 1999
Sales for the three-month period ended March 31, 2000 were DM 311,492, a
decrease of DM 10,014, or 3.1%, as compared to the three-month period ended
March 31, 1999. The principal reasons for this decrease in sales were:
o TES Com GmbH restructured its business in September, 1999. Since the
new businesses are not yet fully operational, they are not generating
as much revenue as the old businesses.
o a decrease in wood material orders by ENTECS Umwelttechnik GmbH's
primary client compared to orders received in the first quarter of
1999.
Cost of operations for the three-month period ended March 31, 2000 was DM
131,018, a decrease of DM 125,354, or 48.9%, as compared to the three-month
period ended March 31, 1999. This decrease was due primarily to the fact that
cost of operations for 1999 was unusually high due to construction and repair
costs for the BRS-System due to design defects, which did not continue into the
2000 fiscal year, and the fact that TES Com GmbH did not incur as many
operational costs since its restructured business was not yet fully operational.
- 7 -
<PAGE>
As a result of the changes noted above, gross profit for the three-month
period ended March 31, 2000, was DM 180,474, an increase of DM 115,340, or
177.1%, as compared to the three-month period ended March 31, 1999.
General and administrative expenses for the three-month period ended March
31, 2000, were DM 554,700, a decrease of DM 60,792, or 9.9%, as compared to the
three-month period ended March 31, 1999. This decrease was principally due to
the merger between TES and ENTECS.
As a result of these factors, the operating loss for the three-month period
ended March 31, 2000, was DM 374,226, a decrease in the operating loss of DM
176,132, or 32.0%, as compared to the three-month period ended March 31, 1999.
Other income and expenses for the three-month period ended March 31, 2000
was an expense of DM 2,296, a decrease of DM 5,192, or 69.3%, as compared to the
three-month period ended March 31, 1999. The decrease in other expenses was
primarily due to a decrease in interest expense for the three-month period ended
March 31, 2000, of DM 11,193, or 79.6%, as compared to the three-month period
ended March 31, 1999.
For the reasons noted above, the net loss for the three-month period ended
March 31, 2000, was DM 376,522, a decrease in the net loss of DM 181,581, or
32.5%, as compared to the three-month period ended March 31, 1999.
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 first quarter of 2000, the Company sold 373,800 shares of its
common stock in Germany to German citizens for net proceeds to the Company of DM
184,941. At March 31, 2000 the Company had negative working capital of 667,272
DM and cash and cash equivalents of 175,796 DM. Further, the Company's
accumulated deficit had increased to 7,552,601 DM at March 31, 2000 from an
accumulated deficit of 4,706,084 at March 31, 1999.
Management intends to raise additional funds as necessary through further
private or public offerings of its stock 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.
The Company has future minimum lease obligations totaling 742,895 DM
through 2004.
Year 2000 Compliance
The Year 2000 Problem referred to existing computer programs' ability to
appropriately distinguish the year 2000 from the year 1900 when processing
transactions. Prior to January 1, 2000, management of the Company had been
advised that all software programs that the Company was using had been
programmed for Year 2000. As of this date, the Company has not experienced any
difficulties in year 2000 compliance. No contingency plans have had to be
initiated and no additional costs have been incurred.
In addition, the Company's software is programmed to accept the New
European currency - the EURO.
- 8 -
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
- --------------------------
Mr. Juergen Bozenhardt, the licensor of the BRS-Compact concrete recycling
system, has filed a lawsuit against the Company based on the alleged breach of a
consulting contract between him and the Company. Mr. Bozenhardt alleges that the
Company owes him approximately 280,000 DM under the agreement. Management of the
Company maintains that, as a result of the design defects in the BRS-Compact
concrete recycling system and Mr. Bozenhardt's failure to obtain the two patents
required under the BRS-Compact license, Mr. Bozenhardt owes the Company
approximately 575,000 DM and has counterclaimed for that amount. Management
intends to vigorously defend the lawsuit.
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.
- ------------------------------------------------------------
No matters were submitted by the Company to a vote of its shareholders
through the solicitation of proxies or otherwise, during the period covered by
this report.
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 March 31, 2000.
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during
the three months ended March 31, 2000.
- 9 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 19, 2000
TECHNICAL ENVIRONMENT SOLUTIONS, INC.
/s/ Gerd Behrens
----------------
Gerd Behrens, President and director
(Principal Executive Officer)
/s/ Frank Behrens
-----------------
Frank Behrens, Secretary-Treasurer and director
(Principal Financial Officer)
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS OF TECHNICAL ENVIRONMENT SOLUTIONS, INC. AT AND FOR THE
THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 175,796
<SECURITIES> 0
<RECEIVABLES> 182,411
<ALLOWANCES> 0
<INVENTORY> 60,000
<CURRENT-ASSETS> 528,710
<PP&E> 588,349
<DEPRECIATION> 310,751
<TOTAL-ASSETS> 1,958,474
<CURRENT-LIABILITIES> 1,195,982
<BONDS> 0
0
0
<COMMON> 7,885,093
<OTHER-SE> (7,552,601)
<TOTAL-LIABILITY-AND-EQUITY> 1,958,474
<SALES> 311,492
<TOTAL-REVENUES> 311,492
<CGS> 131,018
<TOTAL-COSTS> 685,718
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,872)
<INCOME-PRETAX> (376,522)
<INCOME-TAX> 0
<INCOME-CONTINUING> (376,522)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376,522)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
