UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Fiscal Year Ended December 31, 1998 or
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-13670
TELETRAK ENVIRONMENTAL SYSTEMS, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 13-3187778
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification
Number
2 Sutton Road, Webster, MA 01570
(Address of principal executive offices) (Zip Code)
(508) 949-2430
Registrant's Telephone Number, Including Area Code
-------------------
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.001
(Title of Class)
Check whether the registrant (1) has filed all reports required to be Section 13
or 15(d) of the Exchange Act during the 12 months (or such shorter period that
the registrant was required to reports), and (2) has been subject to such filing
requirements for the days. Yes |_| No |X|
Check if there is no disclosure of delinquent filers pursuant to Item Regulation
S-B contained herein, and no disclosure will be contained, to the best of the
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form l0-KSB. |X|
The aggregate market value of the voting stock held by non-affiliates the
registrant at October 8, 1999 was approximately $1,672,237 based on the average
bid and asked prices as reported by the NASD Electronic Bulletin Board. For
these purposes, the term "affiliates" is deemed to mean the officers and
directors of the registrant.
The registrant's revenues for the year ended December 31, 1998 were $1,580,155.
At October 8, 1999 there were 7,472,927 shares of common stock outstanding.
Documents Incorporated by Reference: None
Transitional Small Business Format: Yes |_| No |X|
<PAGE>
TABLE OF CONTENTS
FORM 10-KSB
PAGE
----
PART I
Item 1. Business................................................... 1
Item 2. Properties................................................. 4
Item 3. Legal Proceedings.......................................... 4
Item 4. Submission of Matters to a Vote............................ 4
PART II
Item 5. Market for Registrant's Common Stock and Related
Stockholder................................................ 5
Item 6. Management's Discussion and Analysis or Plan
of Operations.............................................. 5
Item 7. Financial Statements....................................... 9
Item 8. Changes in and Disagreements With Accountants or
Accounting and Financial Disclosure........................ 9
PART III
Item 9. Directors & Executive Officers; Compliance With
Section 16(a) of the Exchange Act.......................... 10
Item 10. Executive Compensation..................................... 11
Item 11 Security Ownership of Certain Beneficial Owners
and Management............................................. 11
Item 12 Certain Relationships and Related Transactions............. 12
Item 13 Exhibits, List and Reports on Form 8-K..................... 13
<PAGE>
PART I
ITEM 1. BUSINESS
Background
Teletrak Environmental Systems, Inc. (the "Company") a Delaware
corporation, was organized as Teletrak Advanced Technology, Inc. in January 1983
as a wholly-owned subsidiary of Helm Capital Group, Inc. ("Helm") to develop and
market software products. Until November 1998, however, the Company had been an
inactive public company for several years.
On July 24, 1998, the Company entered into a merger agreement (the "Merger
Agreement") with Advanced Environmental Systems, Inc., a Massachusetts
corporation ("AES"), having a principal place of business at 2 Sutton Road,
Webster, Massachusetts 01570. Under the terms of the Merger Agreement, a
newly-formed wholly-owned Massachusetts subsidiary of the Company merged with
and into AES with AES surviving as a wholly-owned subsidiary of the Company (the
"Merger"). Pursuant to the Merger and the Merger Agreement the former AES
stockholders received an aggregate of 3,750,000 shares of the Company's common
stock in exchange for their AES stock.
As a condition to the Merger, the Company effected a one for ten reverse
split of the Company's outstanding common stock (the "Reverse Split"). Under the
Reverse Split, the authorized number shares of the Company's common stock was
reduced to 8,000,000 shares (the "Common Stock") and the number of authorized
shares of preferred stock was reduced to 2,000,000. Subsequently, the
certificate of incorporation was amended to authorize 25,000,000 shares of
Common Stock and 5,000,000 shares of preferred stock. There are no shares of
preferred stock outstanding at this time.
Immediately prior to the effectiveness of the Merger on November 18, 1998,
the Company distributed to the pre-Merger stockholders of the Company, one-half
Warrant (as hereafter described) for each share of Common Stock held by them
upon the effectiveness of the Merger, and 500,000 additional Warrants were
issued to Helm and the Company's former management for pro rata distribution in
exchange for previously issued warrants held by Helm which were canceled in the
Merger. In addition, Helm contributed 5,000,000 shares of the Company's common
stock to the Company which were canceled and the holders of all outstanding
warrants to purchase the Company's common stock waived and surrendered all
rights with respect to such warrants, which were canceled. Simultaneous with the
effectiveness of the Merger, the Company sold in a private placement (the
"Private Placement") to certain former AES stockholders and affiliates 1,000,000
shares of Common Stock plus warrants (the "Warrants") to purchase up to 500,000
shares of Common Stock at an exercise price of $2.00 per share for a period of
three years, redeemable at $.05 per Warrant, at the option of the Company, if
the Common Stock trades for three consecutive days at $3.00 per share on any
national securities exchange, or the average of the bid and asked prices of the
Common Stock in the over the counter markets is over $3.00 for three consecutive
trading days. The purchase price (the "Purchase Price") in the Private Placement
was $.50 for a unit comprised of one share of Common Stock and one Warrant. As
part of the Private Placement, the Company agreed to sell to certain other Helm
affiliates (the "Helm Affiliates"), up to 245,000 shares of Common Stock and up
to 122,500 Warrants at the Purchase Price. Pursuant to the terms of the
Subscription Agreement between the Company and the Helm Affiliates dated
November 9, 1998 (the "Subscription Agreement"), the Helm Affiliates agreed to
pay the Purchase Price as follows: (i) $72,500 upon execution of the
Subscription Agreement; (ii) $25,000 ninety (90) days after the execution of the
Subscription Agreement; and (iii) $25,000 one hundred and eighty (180) days
after execution of the Subscription Agreement. The Helm Affiliates subsequently
defaulted on the second two payments and as a result received only 145,000
shares and 72,500 Warrants. Former AES stockholders and/or their affiliates have
purchased for $25,000, with the agreement of the Helm Affiliates, 50,000 Private
Placement Shares and 50,000 Warrants in lieu of the Helm Affiliates.
The Company
AES, a privately-held company prior to the Merger, specializes in the
manufacture, distribution and licensing of industrial jet pumps known as
"mucking pumps" and related equipment. The design of these pumps, with no
movable parts, makes this equipment a highly effective portable tool for the
removal of granular wet or dry material (including sludge, scale, slurries,
sands and heavy shot blasting material), for a wide range of applications across
many industries including environmental clean-up of hazardous matter such as
lead and other heavy metals and nuclear contaminants and as general maintenance
tools in the marine, transportation, chemical and waste water industries. The
motive power, compressed gases such as air or steam or pressurized liquids such
as water, oils or pulps, provides operating flexibility for hopper loading,
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cleaning and submersible application, as well as the ability to collect and
transport materials over long distances. With no moving parts, the AES pump is
designed to be virtually maintenance free and to require no skilled labor to
operate. The Company believes that more than 1,000 pumps are in use today in a
wide range of industries, including power plants, steel mills, foundries, oil
refineries, chemical and petrochemical operations, food processing facilities,
shipyards and marine vessel applications and water treatment plants. This same
pump technology has been adapted into an entire manufacturing line of vacuum
filtering equipment for use in hazardous sites where strict governmental
standards and laws demand that all surface preparation and removal take place in
a dust free environment.
In addition, the Company manufactures and distributes a full line of
shrouded, hand operated tools that attach to the above vacuum filtering
equipment. These tools have been designed to work on all surfaces and all types
of construction material, both hazardous and non-hazardous.
Marketing and Distribution
The Company has a sales staff of five people. The sales process typically
involves mailing of literature, follow-up communications, technical meetings
with customers, requests for proposals and estimating and submittal of proposals
for specific projects. The Company has developed ongoing relations with a broad
range of customers in various industries and geographical sites. Products are
distributed directly to customers by the Company's sales staff or through
regional distribution networks.
Dependence on Third Party Suppliers and Manufacturers
The Company purchases supplies from a variety of regional sources. The
Company is not dependent on a single supplier for parts or fabrication and
maintains a minimum of two sources of all critical parts,
Dependence on Major Customers
The Company sells to a wide-range of industries, including power plants,
steel mills, foundries, oil refineries, chemical and petrochemical plants, food
processing facilities, shipyards and marine vessel manufacturers and water
treatment plants and therefore is not dependent on any one major customer.
Nonetheless, in 1998, sales to one of the Company's European distributors
represented approximately 13% of all of the Company's sales.
Competition
The industrial maintenance equipment and environmental remediation
equipment supplier industry in the United States are highly fragmented, with
numerous small and medium-sized companies serving niche markets based upon
geography, industry, media (air, water, soil, etc.) and technological
specialization. Because the Company sells to a wide range of industries, the
Company can adapt to changes in the marketplace by allocating its resources to
the industry segment providing the most business opportunities. Management
believes that its key to success in the industry is the unique design of its
products which is regarded as proprietary and is based on proven principles of
physics and air/fluid dynamics creating a vacuum/ cyclone in a pumping device
that has no moving parts. The Company believes that this creates several
advantages over most competitive pumps by permitting applications that involve
particle sizes up to 3/4 inches in diameter, material that can cause plugging,
and transportation of pumped material for distances up to 500 feet vertical and
1,000 feet horizontal. The pump creates a miniature cyclone effect and removes
the desired material from one location to another in a manner similar to a
directed cyclone. In addition, the pump's relative small size and ease of
cleaning and maintenance are also unique and competitive attributes. The base
core technology is also used in the Company's vacuum and filtering products in
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such a manner as to remove hazardous and non-hazardous substances in a safe and
efficient manner. The Company will continue to focus on the application of new
technology as well as innovative applications of existing technologies to solve
complex problems.
Management believes that the primary factors of competition are price,
technological capabilities, reputation for quality and safety, relevant
experience, availability of machinery and equipment, financial strength and
knowledge of local markets and conditions. Management believes that with its
recent acquisitions, the Company will compete favorably on the basis of the
foregoing factors. See "Recent Developments". However, many of the Company's
competitors have financial resources and facilities far greater than that of the
Company. Additionally, from time to time, the Company may face competition from
new entrants into the industry. The Company may also face competition from
technologies that may be introduced in the future, and there can be no assurance
that the Company will be successful in meeting the challenges which will be
posed by its competition in the future.
Proprietary Rights
The Company and its subsidiaries seek proprietary protection for its
products so as to prevent others from commercializing equivalent products in
substantially less time and at substantially lower expense. The Company's
success will depend in part on the ability of the Company to obtain effective
patent protection for the Company's proprietary technologies and products,
defend such patents, preserve its trade secrets and operate without infringing
upon the proprietary rights of others. The Company and its subsidiary, LTC (as
defined below in "Recent Developments"), own the following patents and licenses:
Patents
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Title Applications or Status
Patent Number
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Sealed Waste Transfer System for Vacuum Blasting 5,529,530 Patented
- ----------------------------------------------------------------------------------------------------
Sealed Waste Transfer System for Vacuum Blasting 5,591,067 Patented
- ----------------------------------------------------------------------------------------------------
Bolt Head Blaster 5,667,430 Patented
- ----------------------------------------------------------------------------------------------------
Pressure Balanced Vacuum Blasthead 5,709,590 Patented
- ----------------------------------------------------------------------------------------------------
Pressure Balanced Vacuum Blasthead European Patent Appln. 96936393.6 Pending
- ----------------------------------------------------------------------------------------------------
Pressure Balanced Vacuum Blasthead Japanese Patent Application Pending
- ----------------------------------------------------------------------------------------------------
Air Cushioned Vacuum Blast Head 5,833,521 Patented
- ----------------------------------------------------------------------------------------------------
Unique Power Tool Vacuum Tube Shutoff 5,524,663 Patented
- ----------------------------------------------------------------------------------------------------
</TABLE>
Licenses
Abrasive Blasting System 5,107,630 Patented
Employees
The Company currently has 10-12 full and part-time employees. All other
management decisions are reviewed by the Company's Board of Directors.
Recent Developments
On February 27, 1999, the Company's wholly-owned subsidiary, TES
Acquisition Corp., a Delaware corporation, entered into an asset purchase
agreement (the "Asset Purchase Agreement") with LTC Americas, Inc. ("LTC"),
LTC's wholly-owned subsidiary, Surface Decon Corporation ("Surface Decon"),
LTC's parent, McPhee Fischer, Inc. ("McPhee Fischer") and McPhee Fischer's
controlling shareholder, W.S. McPhee ("McPhee") pursuant to which the Company
acquired substantially all of the non-cash assets of LTC and Surface Decon (the
"Purchased Assets"). The LTC business consists of the manufacturing, sale, and
rental of vacuum blasting equipment. The purchase price for the Purchased Assets
consisted of
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(i) $211,000 in cash; (ii) a promissory note of the Company and TES Acquisition
Corp. in the principal amount of $80,000 (the "Promissory Note") and (iii)
209,000 shares of restricted common stock of the Company. The Promissory Note is
payable in 36 equal monthly installments bearing interest at a rate of 10% per
year.
On March 24, 1999, the Company's wholly-owned subsidiary, TES Acquisition
Corp. amended its Certificate of Incorporation to change its name to LTC
Teletrak, Inc.
ITEM 2. PROPERTIES
Massachusetts Lease
The Company's wholly-owned Massachusetts subsidiary, AES, leases office
space at 2 Sutton Road, Webster, Massachusetts from an entity that is 90% owned
by Gerd Reinig, Chairman of the Company's Board of Directors, officer and
substantial stockholder of the Company. Under the terms of the lease, AES pays
$2,000 per month in rent. The term of the lease is month-to-month.
ITEM 3. LEGAL PROCEEDINGS:
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market Information
The following table sets forth the high and low bid prices for the Company'
stock for the prior two year period:
High Low
---- ---
1998 First Quarter $.04 $.035
Second Quarter .07 .035
Third Quarter .045 .04
Fourth Quarter .04 .04
1997 First Quarter .015 .015
Second Quarter .015 .015
Third Quarter .03125 .015
Fourth Quarter .05 .02
The high and low bid prices cited herein for 1998 and 1997 have been
obtained from the Electronic Bulletin Board quotation system of the NASD prior
to the Merger.
At October 8, 1999 the bid and ask prices for the Company's common stock
obtained from the Electronic Bulletin Board of the NASD, were $0.375 and $0.4375
respectively.
Holders
The Company is advised by American Stock Transfer & Trust Company, its
agent, that there were approximately 304 holders of record of the Company Common
Stock at October 8, 1999.
Dividend Policy
The Company has never paid any dividends. The Company does not plan to pay
any cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
AES was initially organized as a Massachusetts corporation January 2, 1996
for the purpose of manufacturing and marketing of jet pumps for pumping or
vacuuming of liquids, sludges and slurries in the waste water field that may be
contaminated. Even though the sales of these jet pumps proved successful, it
soon became apparent that the sale of the pumps as stand-alone units would limit
the applications and sales. By late 1996 AES had developed complete systems with
the jet pump as the core product, comprising the driving sources, vacuum and
holding tanks and the control cabinets all mounted on skids or trailers as
self-contained packages. These systems marketed as HazVac(TM) and Envirovacs(TM)
and combine advanced jet pump, vacuum and filtration technology. The systems can
be transported for diverse applications including removal of hazardous material.
With no moving parts the equipment requires extremely little maintenance and can
be used for vacuuming a large variety of liquid or solid material, wet or dry.
The purpose of the merger with Teletrak, a public company, was to create a
means to raise the required capital to build a solid, financially strong company
which will be a dominant supplier of equipment for industrial plant maintenance
and the environmental clean-up industry on a global basis. This aim is to be
accomplished through acquisitions of companies manufacturing similar and
complementary equipment and through further development of the existing product
lines.
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Comparison of Revenues of Advanced Environmental Systems After Giving Effect to
Merger.
Fiscal Year 1998 1997 1996
----------- ---- ---- ----
Advanced Environmental Systems (AES) 1,580,155 1,216,886 749,383
For the three years prior to the Merger, the Company (Teletrak) had no revenues.
The Company completed its first acquisition in February 1999 with the
purchase of substantially all of the non-cash assets of LTC Americas and its
wholly-owned subsidiary Surface Decon Ltd. LTC and Surface Decon are leading
suppliers of vacuum blasting equipment to the nuclear and chemical industries.
Management believes that the acquisition of the LTC line of vacuum blasting
equipment greatly compliments the Company's existing equipment line and gives
the Company product offering in the surface preparation industry.
Liquidity & Capital Resources
As of December 31, 1998 the Company, after giving effect to the Merger,
had working capital of U.S. $359,481 compared to $92,929 for the year ended
December 31, 1997. The improvement in working capital is primarily due to the
investment of $410,000 from the Private Placement which has subsequently been
completed resulting in aggregate gross proceeds of approximately $600,000.
The Company presently has outstanding publicly held Warrants to purchase
shares of common stock which, if all were exercised, could result in gross
proceeds to the Company of approximately $4,500,000. This does not include the
Warrants attached to the 600,000 units sold under the Private Placement. All
Warrants, including the 600,000 Private Placement Warrants will expire October
31,2001, however, there is no assurance that the Warrants will be exercised and
that Company will receive the proceeds therefrom.
The Company has a $300,000 revolving line of credit with a major bank,
secured by substantially all of the assets of the Company. The line was
increased to $400,000 in 1999. At December 31, 1998, the Company was not in
compliance with required financial covenants. On July 23, 1999, the bank waived
such noncompliance. The bank's waiver does not extend through December 31, 1999.
In accordance with accounting standards, the obligations have been classified as
current.
The Company does not have any material commitments for capital
expenditures as of the filing of this report.
Management believes that the revenues being generated from operations,
short-term lines of credit and the proceeds from the sale of common stock in the
Private Placement will provide sufficient liquidity to meet the Company's
working capital needs for the remainder of this fiscal year ending December 31,
1999.
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Advanced Environmental Systems, Inc. (AES) was privately held until the
Merger. Selected financial data for AES, adjusted for accounting to meet SEC
reporting standards shows the following comparisons to prior fiscal years since
its inception January 1, 1996:
Statement of Operations Data for AES (after giving effect to the Merger):
Years ended
----------------------------------------------
Dec 31, 1998 Dec 31, 1997 Dec 31, 1996
------------ ------------ ------------
Net Sales 1,580,155 1,216,886 749,383
Cost of goods sold 1,002,681 808,891 388,803
---------- ---------- ----------
Gross Profit 577,474 407,995 360,580
SGA&A, Eng. R&D & Interest 746,118 876,364 357,335
---------- ---------- ----------
Loss before provision
for income-taxes (168,644) (468,369) 3,245
---------- ---------- ----------
Net Loss (168,644) (464,369) (4,855)
Balance Sheet Data
Current Assets 998,590 754,228 686,838
Current Liabilities 639,109 661,299 44,082
---------- ---------- ----------
Working capital 359,481 92,929 642,756
Total assets 1,181,370 1,006,851 825,713
Long term obligations 0 124,648 96,358
---------- ---------- ----------
Shareholders Equity 542,261 220,904 685,273
Analysis of Operations for Fiscal 1997 & 1998
Fiscal 1997
AES experienced a net loss of $464,369 for the 1997 fiscal year. The loss
was a result of higher than anticipated start-up costs and some product recalls
on a newly acquired tool line.
Management made a decision to invest in the shrouded power tool market to
complement AES's vacuum and filtration systems. These tools provide dust-free
remediation of lead paint, low level nuclear, and other coatings, from steel,
concrete, and wood. The power tools combine with AES's jet pump/vaccum
technology to provide complete and effective systems to address lead paint
removal from bridges and other structures, and low level nuclear decontamination
from nuclear power plants and Department of Energy facilities. Management
believes that these systems are cost-effective, productive and safe creating a
market to contractors rehabilitating the nation's bridges and mass
transportation systems, as mandated by Congress. In addition, Congress has
allocated significant funds for decommissioning and decontaminating the
country's nuclear power plants. Other potential markets are in the marine
industry, chemical plants and refineries and the transportation sector, wherever
high maintenance costs occur.
During May of 1997 AES acquired Unique Systems of Lansing, IL. Unique
manufactures a patented product line of shrouded power tools. In connection with
this purchase, AES had to invest in further engineering, testing, and
documentation so as to improve the marketing of this product line. The cost of
absorbing and integrating this product line with AES products was higher than
anticipated and these costs were all expensed in 1997.
As a result of the above investments the Tools and related Jet Pump and
Vacuum Systems now function for their intended applications. Initial systems
were sold to the Virginia Department of Transportation, St. Lawrence Seaway
Authority, and Northeast Utilities.
Also during 1997 AES secured rights to a patented power tool capable of
performing high volume lead remediation from Dumont Corp. The tools are
extremely effective in decontaminating large concrete surfaces. Approximately 20
systems to several abatement contractors were sold, but the tools developed an
operating problem when used on a continuous basis. As a result approximately
$40,000 in reworking costs occurred. Dumont and AES agreed to solve the problem
through engineering changes and parts substitution, and management believes that
the tool will become a valuable asset to the Company's product line in the
future.
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The positive effect of these acquisitions is that sales increased by
approximately 30% in 1998, as AES continued to develop a marketing and
distribution system in these new emerging markets.
Fiscal 1998
AES reduced the operating loss of $459,974 for 1997 to an operating loss
of $129,847, a substantial decrease of $330,127 for fiscal year 1998. The loss
was a result of investments in management and staff, the costs of the Merger and
becoming a public company, and the investment for developing an abrasive vacuum
blasting and recovery/recyling system. AES also reduced its SG&A expenses in
1998 to approximately 45% of sales compared to 72% in 1997.
Two regional sales managers were added to the Company's sales staff. This
was done to assure sales coverage along the eastern seaboard. The training costs
and all expenses associated with this transaction were expensed as incurred.
Furthermore, in 1998, a corporate controller was also added to the Company's
management team.
AES developed, designed, and tested equipment capable of vacuuming, and
recycling Bar Shot blasting abrasive. This abrasive is becoming widely used by
the shipbuilding industry because of its increased productivity over
conventional abrasives. The equipment is capable of recycling the abrasive four
times, thus substantially reducing abrasive consumption, acquisition cost for
the abrasive and, more importantly, drastically reducing solid waste disposal
costs. Testing was completed on the technology in October at Ingalls Shipyard, a
Division of Litton Industries, a large shipbuilding facility in Pascagoula, MS.
Ingalls subsequently placed a $131,000 order for a system that was delivered and
successfully started up in the first quarter of 1999. This was the first system
developed to recycle this special abrasive. The Company anticipates additional
orders from Ingalls, and has quoted other major shipbuilders. The cost of
engineering and testing of this new unit was expensed as incurred.
Continued strong demand for the Company's technologies increased sales by
30% to $1,580,155. The gross profit increased to 36.5% from 33.5% in the prior
year. Management believes that improved manufacturing efficiencies and better
cost controls should position the Company, although there can be no assurances,
to achieve close to a 40% margin in fiscal 1999. The Company's tools and jet
pump vacuum technology is being used extensively in the decontamination of
Yankee Atomic Facility in Rowe, MA. Such facility is the first commercial
nuclear plant in the U.S. to be decommissioned and decontaminated. Based on the
success at Yankee, the Company is expecting significant business in other
commercial nuclear plants slated for decommissioning by the Nuclear Regulatory
Commission.
Potential Impact of Year 2000 Computer Issues Overview
The year 2000 computer problem is the inability of computer systems which
store dates by using the last two digits of the year (i.e. "98" for "1998") to
reliably recognize that dates after December 31, 1999 are later than, and not
before, 1990. For instance, the date January 1, 2000, may be mistakenly
interpreted as January 1, 1900, in calculations involving dates on systems that
are non-year 2000 compliant. The Company relies on information technology ("IT")
systems and other systems and facilities such as telephone, building access
control systems and heating and ventilation equipment ("Embedded Systems") to
conduct its business. These systems are potentially vulnerable to year 2000
problems due to their use of date information. The Company also has business
relationships with customers and healthcare providers and other critical vendors
who are themselves reliant on IT and Embedded Systems to conduct their
businesses.
State of Readiness
The Company's IT systems are largely centralized, with substantially all
systems maintained in the Company's corporate headquarters in Webster,
Massachusetts. The Company has developed its own standards for systems which
include both purchased and internally-developed software. The Company's IT
hardware infrastructure is built mainly around mid-range computers and IBM
PC-compatible servers and desktop systems. The Company's internally-developed
software was either been designed to be year 2000 ready from inception or is in
the process of being modified to be year 2000 ready. Substantially all of the
Company's mid-range IT hardware has been remedied to a state of year 2000
readiness, with the remainder scheduled to be remedied by the end of fiscal
1999. The Company plans to complete the remediation, testing and certification
of all of its IT systems by the end of fiscal 1999. The Company leases most of
the office space in which its reliance on Embedded Systems presents a potential
problem and plans to work with the respective lessors to identify and correct
any potential year 2000 problems related to these Embedded Systems. The Company
believes that its year 2000 projects generally are on schedule.
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External Relationships
The Company faces the risk that one or more of its critical suppliers or
customers ("External Relationships") will not be able to interact with the
Company due to the third party's inability to resolve its own year 2000 issues,
including those associates with its own External Relationships. The Company is
attempting to determine the overall year 2000 readiness of its External
Relationships. The Company, however, does not have sufficient information at the
current time to predict whether its External Relationships will be year 2000
ready.
Risks and Contingency/Recovery Planning
If the Company's year 2000 issues were unresolved, the most reasonably
likely worst case scenario would include, among other possibilities, the
inability to accurately and timely authorize and process benefits and medical
stays, accurately bill customers, access claims exposure, determine liquidity
requirements, report accurate data to management, stockholders, customers,
regulators and others, business interruptions or shut downs, financial losses,
reputation harm, loss of significant customers, increased scrutiny by regulators
and litigation related to year 2000 issues. The Company cannot guarantee that it
will be able to resolve all of its year 2000 issues. Any critical unresolved
year 2000 issues at the Company or its External Relationships, however, could
have a material adverse affect on the Company's results of operations, liquidity
or financial condition. The Company has developed, or is developing,
contingency/recovery plans aimed at ensuring the continuity of critical business
functions before and after December 31, 1999. As part of that process, the
Company has substantially completed the development of manual work alternatives
to automated processors which will both ensure business continuity and provide a
ready source of input to affected systems when they are returned to an
operational status. These manual alternatives, presume, however, that basic
infrastructure such as electrical power and telephone service, as well as
purchased systems which are advertised to be year 2000 ready by their
manufacturers (primarily personal computers and productivity software) will
remain unaffected by the year 2000 problem.
Statements Regarding Forward-looking Statements
The annual report contains certain forward-looking statements with respect
to the financial condition, results of operations and business of the Company
including statements relating to the cost savings, revenue enhancements and
Company's plans to restructure and consolidate its operations and grow through
strategic acquisitions. Such forward-looking statements involve certain risks
and uncertainties that could cause the actual results to differ materially from
those contemplated by such forward looking statements. Such risks include,
without limitation: (1) expected cost savings from the restructured and
consolidated operations may not be fully realized; (2) the impact of competition
on revenues and margins; (3) increased costs of raw materials; (4) the
difficulties relating to the integration of new businesses; (5) uncertainty with
respect to year 2000 issues; and (6) other risks and uncertainties as may be
detailed from time to time in the Company's public announcements and Commission
filings.
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by Regulation S-B are included in this
Annual Report on Form 10-KSB commencing on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING A FINANCIAL
DISCLOSURE
BDO Seidman audited the Company's financial statements for the year ended
December 31, 1994. No independent audits were performed and the Company did not
include audited financial statements in its Form 10-KSB for 1995, 1996 and 1997
because the Company qualified as an inactive registrant under the provisions of
Rule 3-11 of Regulation S-X.
On January 26, 1999, Richard A. Eisner & Company, LLP was appointed as the
Company's independent certified public accountants.
9
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16 (A) OF THE EXCHANGE ACT
The directors and nominees serve, if and when elected, until the next
annual shareholders meeting and until their successors are elected and
qualified.
The following table sets forth regarding the Company's directors,
executive officers and control persons:
Name Age Position
---- --- --------
Gerd E. Reinig 60 Chairman of the Board
Domenic Sgambellone 56 Executive Vice
President and Chief
Operating Officer
Gerald P. McNamara 50 Director, President
and Chief Executive
Officer
Heinz Buhr 48 Director
Glen Wegner 60 Director
William P. Gagnon 53 Director
Gerald P. McNamara. Mr. McNamara is the President and Chief Executive
Officer of the Company and is a founder and director of AES. He has served as
its president and chief executive officer since its inception in 1996. Mr.
McNamara has worked in a variety of executive positions at companies in the
environmental and remediation industry for more than 20 years. He served as
president of IPEC Advanced Systems, a manufacturer of surface preparation and
remediation equipment from 1983 to 1993. From 1993 to 1996, he was a consultant
to environmental equipment manufacturers.
Gerd E. Reinig. Mr. Reinig is the Chairman of the Board and is a
co-founder of AES. He has served as Director and Treasurer of AES since its
inception in 1996 and, since 1975, as President and Chief Executive Officer of
Gould & Eberhardt Corp., a prominent manufacturer or machine tools and large
gear cutting machinery. Prior to this, he held executive and engineering
positions at Orban Company and Lurgi Inc. Mr. Reinig has a masters degree in
mechanical engineering from the Institute of Engineering, Frankfurt, Germany.
Domenic Sgambellone, Mr. Sgambellone is executive vice president, chief
operating officer and the principal financial officer for the Company. He has
served in these positions since July of 1999. Mr. Sgambellone has twenty-five
years experience in organization and financial management as an officer and
consultant to small and medium sized companies. Mr. Sgambellone's most recent
position was with Du-Mont Companies, Wisconsin and Illinois, a company similar
to AES. Prior to Mr. Sgambellone's most recent position with the Du-Mont
Companies, he served as chief financial officer and treasurer of Forte Brothers,
Inc., a heavy construction company. Mr. Sgambellone has a bachelor of science
degree from St. Peters College in Jersey City and a masters of business
administration from Seton Hall University in New Jersey.
Heinz Buhr. Mr. Buhr is a Director of the Company and a private investor.
He has served as Director and Treasurer of AES since its inception in 1996. Mr.
Buhr, a resident and citizen of Germany, is an investor and active partner in
several real estate partnerships and industrial development companies. Prior to
1994, Mr. Buhr served as president and chief executive officer of Metek GmbH, a
major supplier of brake shoes for the automotive industry.
Glen Wegner. Dr. Wegner is a Director of the Company and has served as an
advisor and director of AES since 1996. He is also a private investor and
director of Hobie Cat, Inc. and Basic Telepresence, Inc. He served as president
and vice chairman of Optical Corporation of America from 1990-1997. Dr. Wegner
is trained and licensed in both law and medicine and prior to 1990 served in an
executive capacity with several successful ventures utilizing advanced
technologies in the health and environmental industries.
10
<PAGE>
William P. Gagnon. Mr. Gagnon is a Director of the Company and is the
president and chief executive officer of Arland Tool & Manufacturing, Inc., a
large manufacturing concern involved in Computer Numerically Controlled
machining and assembly of electrical power generation parts. He started with
Arland in 1970 to develop numerically controlled operations. In 1980, he was
appointed chief executive officer. Prior to this he was a laser engineer at the
American Optical Company.
ITEM 10. EXECUTIVE COMPENSATION
For the fiscal years ended December 31, 1998, no cash compensation was
paid to the Company's Chairman to any other executive officer with the exception
of Gerald McNamara, President and Chief Executive Officer, who draws an annual
salary of $100,000 from AES. Mr. McNamara also receives the following
perquisites on an annual basis: (1) $5,400 in car payments; (2) $5,899 in health
insurance premiums; (3) $4,612 in dental insurance premiums and (4) $14,495 in
life insurance premiums. The Company's outside directors received no cash fees
during 1998.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of October 8, 1999, of each
person known by the Company to be the beneficial owner of five percent or more
of the Company's Common, by each current officer and director and all current
officers and directors as a group. Except as otherwise indicated, each named
holder has, to the best of the Company knowledge, sole voting and investment
power with respect to the shares indicated.
Name And Address Of Beneficial Owner Common Stock Beneficially Percentage Of
- ------------------------------------ Owned Outstanding
------------------------- -------------
Helm Capital Group, Inc. 1,176,507(1) 13.6%
537 Steamboat Road
Greenwich, CT 06830
Gerd Reinig 1,599,263(2) 21.2%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570
Domenic Sgambellone 0 0.0%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570
Heinz Buhr 762,750(3) 10.3%
Am Hambuch 18
D53340 Meckenheim
Germany
William Gagnon 600,000(4) 7.9%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570
Dr. Glen Wegner 412,500(5) 5.5%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570
Gerald McNamara 399,750(6) 5.4%
c/o Teletrak Environmental
Systems, Inc.
2 Sutton Road
Webster, MA 01570
All Officers and Directors as a 3,774,263 51%
group (6 persons)
11
<PAGE>
* less than 1%
(1) Includes 1,176,507 Warrants owned by Helm Capital Group, Inc. to purchase
shares of Common Stock at $2.00 per share, expiring November 18, 2001.
(2) Includes 966,250 shares of Common Stock owned by Gerd Reinig, 300,000 shares
of Common Stock owned by his wife, Karola Reinig and 80,000 Warrants owned by
Mr. Reinig to purchase Common Stock at $2.00 per share, expiring November 18,
2001.
(3) Owned by Buhr GmbH, a German corporation, of which Mr. Buhr is a Partner and
the Chief Executive Officer.
(4) Owned by Arland Tool & MFG, Inc., a Massachusetts corporation, of which Mr.
Gagnon is the Chief Executive Officer. Also includes 200,000 Warrants owned by
Arland Tool and MFG, Inc. to purchase shares of Common Stock at $2.00 per share.
The Warrants expire on November 18, 2001.
(5) Includes 187,500 shares of Common Stock owned by Dr. Wegner, 150,000 shares
of Common Stock owed by his wife, Lynn Wegner, and 75,000 Warrants owned by Dr.
Wegner to purchase shares of Common Stock at $2.00 per share. The Warrants
expire on November 18, 2001.
(6) Includes 200,000 shares of Common Stock owned by Mr. McNamara and 199,750
shares of Common Stock owned by his wife, Tomi McNamara.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Prior to the Merger, Helm was the owner of 61.2% of the Company's
outstanding Common Stock. Historically, the Company financed its operations and
operating deficit advances from Helm. Since 1996, Helm has made no advances to
the Company although financial and accounting services were provided by Helm to
the Company. During 1998 and 1997, no transactions were entered into between
Helm and the Company, involving in excess of $60,000 except that in 1997 the
Company issued 3,582,268 shares of common stock to Helm in extinguishment of
$895,567 of indebtedness owing to Helm, and 5,000,000 shares of Common Stock to
Helm upon conversion of 1,000,000 shares of outstanding preferred stock at $.20
per share.
The Company's wholly-owned subsidiary, AES, lease office space at 2 Sutton
Road, Webster, Massachusetts from Gould & Eberhardt, a corporation which is 90%
percent owned by Gerd Reinig, the Company's Chairman of the Board.
On August 19, 1999, the Company borrowed $150,000 from Gerd Reinig, it
Chairmen, and issued a 10% promissory note representing the $150,000 loan
amount. Under the note, interest at the rate of 10% per annum is payable on a
monthly basis and the principal is due August 20, 2000.
On August 23, 1999, the Company's Chairman, Gerd Reinig purchased 253,013
shares of Common Stock from Helm increasing his percentage ownership of the
Company to approximately 21.2%.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number Description Location
- -------------- ----------- --------
3.1 Certificate of Incorporation Incorporated by reference to
Exhibit 3(a) to the
Company's Registration
Statement on Form S-1 (No.
2-84930)
3.2 Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation Exhibit 3(a) to the
Company's Registration
Statement on Form S-1 (No.
2-84930)
3.3 Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation Exhibit 3.2(A) to the
Company's Registration
Statement on Form S-2 (No.
2-30374)
12
<PAGE>
3.4 Certificate of Amendment to Incorporated by reference to
Certificate of Incorporation Exhibit 3.4 to the Company's
Annual Report on Form 10-KSB
for 1991
3.5 Certificate of Amendment to Incorporated by reference to
the Certificate of Exhibit B to the Company's
Incorporation Information Statement filed
on September 4, 1998
4.1 Form of Common Stock Warrant Incorporated by reference to
Exhibit 10.2 of the
Company's Form 8-K filed on
February 19, 1999.
10.1 Agreement and Plan of Merger Incorporated by reference to
by and among AES, the Exhibit 10.1 of the
Company, Helm and the Merger Company's Form 8-K filed on
Sub, dated July 24, 1998 February 19, 1999.
10.2 Asset Purchase Agreement by **
and among LTC, Surface Decon,
McPhee Fischer and LTC
Teletrak, dated February 27,
1999
23.1 Consent of Baril & Smith **
23.2 Consent of Richard A. Eisner **
& Company, LLP
27.1 Financial Data Schedule **
** Filed herewith
(b) Reports on Form 8-K:
A Report on Form 8-K, dated November 18, 1998, was filed by the Company,
pursuant to which Item 2 and Item 7 were reported.
13
<PAGE>
TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)
Contents
Page
----
Financial Statements
Independent Auditor's Report of Baril & Smith F-1
Balance Sheets as of December 31, 1997 and 1996 F-2
Statements of Operations for the years ended December 31, 1997 and 1996 F-3
Statements of Stockholders' Equity for the years ended December 31,
1997 and 1996 F-4
Statements of Cash Flows F-5
Notes to Financial Statements F-6
Supplementary Information:
Independent Auditor's Report on Supplementary Information F-10
Schedules of Cost of Goods Sold F-11
Schedules of Selling, General and Administrative Expenses F-12
Independent auditors' report of Richard A. Eisner Company, LLP F-13
Balance Sheet as of December 31, 1998 F-14
Statement of Operations for the year ended December 31, 1998 F-15
Statement of changes in Stockholders' Equity for the year ended December
31, 1998 F-16
Statement of Cash Flows for the year ended December 31, 1998 F-17
Notes to Financial Statements F-18
14
<PAGE>
May 29, 1998
To the Board of Directors and Stockholders of
Advanced Environmental Systems, Inc.
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Advanced Environmental
Systems, Inc. as of December 31, 1997 and 1996 and the related statements of
operations and stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Environmental Systems,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
Baril & Smith
F-1
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
Assets
1997 1996
---- ----
Current assets:
Cash $ 5,777 $ 15,974
Accounts receivable, less allowance
for doubtful accounts of $15,000 in 1997 235,217 138,652
Stock subscription receivable 375,000
Inventory (Note 2) 491,980 144,716
Prepaid expenses 21,254 12,496
----------- -----------
Total current assets 754,228 686,838
----------- -----------
Property and equipment (Note 3) 273,311 149,782
Less - Accumulated depreciation 43,688 10,907
----------- -----------
229,623 138,875
----------- -----------
Investment in affiliate (Note 7) 23,000
-----------
$ 1,006,851 $ 825,713
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Note payable (Note 4) $ 290,000
Current portion of long-term debt (Note 5) 24,416 $ 9,918
Accounts payable 314,629 16,864
Due to affiliate 32,254 13,200
Accrued income taxes 4,100
----------- -----------
Total current liabilities 661,299 44,082
----------- -----------
Other liabilities:
Deferred credit facility (Note 7) 61,992
Long-term debt (Note 5) 62,656 92,358
Deferred income taxes 4,000
----------- -----------
124,648 96,358
----------- -----------
Commitments (Note 7)
Stockholders' equity:
Common stock, no par value:
Authorized - 200,000 shares
issued and outstanding - 10,000 shares 690,128 690,128
Accumulated deficit (469,224) (4,855)
----------- -----------
220,904 685,273
----------- -----------
$ 1,006,851 $ 825,713
=========== ===========
Read Accompanying Notes and Accountants' Report
F-2
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Net sales $ 1,216,886 $ 749,383
Cost of goods sold 808,891 388,803
----------- -----------
Gross margin 407,995 360,580
Selling, general and administrative expenses 867,969 332,788
----------- -----------
(Loss) income from operations (459,974) 27,792
----------- -----------
Other expenses:
Litigation settlement (Note 8) 20,836
Interest expense 8,395 3,711
----------- -----------
8,395 24,547
----------- -----------
Net (loss) income before provision for income taxes (468,369) 3,245
Provision (credit) for income taxes (Note 6) (4,000) 8,100
----------- -----------
Net loss $ (464,369) $ (4,855)
=========== ===========
Read Accompanying Notes and Accountants' Report
F-3
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Shares Common Stock Accumulated
Outstanding No Par Value Deficit
----------- ------------ -------
Issuance of 3,400 common shares in
exchange for inventory, patterns
and molds 3,400 $ 120,000
Issuance of 3,400 common shares
in exchange for machinery and
equipment 3,400 101,000
Issuance of 1,700 common shares
for cash 1,700 94,128
Issuance of 1,500 common shares
for cash 1,500 375,000
Net loss $ (4,855)
--------- --------- ---------
Balance December 31, 1996 10,000 690,128 (4,855)
Net loss (464,369)
--------- --------- ---------
Balance December 31, 1997 10,000 $ 690,128 $(469,224)
========= ========= =========
Read Accompanying Notes and Accountants' Report
F-4
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
OPERATING ACTIVITIES
Net loss $(464,369) $ (4,855)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 32,781 10,907
Deferred income tax (4,000) 4,000
Provision for doubtful accounts 15,000
(Increase) decrease in operating assets:
Accounts receivable (111,565) (64,716)
Inventory (347,264) 16,864
Prepaid expenses (8,758) (138,652)
Increase (decrease) in operating liabilities:
Accounts payable 297,465 13,200
Accrued expenses 10,800 (12,496)
Accrued income taxes (3,800) 4,100
--------- ---------
Net cash used by operating activities (583,710) (171,648)
--------- ---------
INVESTING ACTIVITIES
Investment in affiliate (23,000)
Purchase of property and equipment (123,529) (6,160)
--------- ---------
Net cash used by investing activities (146,529) (6,160)
--------- ---------
FINANCING ACTIVITIES
Advances from affiliate 125,000
Repayment to affiliate (54,754)
Proceeds from note payable 290,000 100,000
Proceeds from sale of common stock 375,000 94,128
Repayment of long-term debt (15,204) (346)
--------- ---------
Net cash provided by financing activities 720,042 193,782
--------- ---------
(Decrease) increase in cash (10,197) 15,974
Cash at beginning of year 15,974
---------
Cash at end of year $ 5,777 $ 15,974
========= =========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest expense $ 12,497 $ 3,711
Read Accompanying Notes and Accountants' Report
F-5
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
Note 1 - Business activities and accounting policies
Business activities
The Company was incorporated under the laws of the Commonwealth of
Massachusetts on January 4, 1996 and is engaged in the marketing distribution
and licensing of industrial pumps and related equipment. The product is
manufactured on a subcontract basis.
Accounting policies
The significant accounting policies utilized by the Company are described
below:
Revenue recognition
The Company records sales and related cost of sales at the time of
shipments if all conditions for a sale are met. Shipments on a consignment on
demonstration basis are carried in inventory until a sale to a third party.
Use of estimates
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
Inventory
Inventory, which consists primarily of industrial pumps and related parts,
is stated at first-in, first-out (FIFO) cost.
Property and equipment
Property and equipment is stated at cost and depreciation is provided
using the straight-line and accelerated methods. Expenditures for repairs and
maintenance are charged to operations as incurred. Renewals and betterments
which extend the lives of the assets are capitalized. The cost of property
retired or sold, together with the related accumulated depreciation, is removed
from the appropriate accounts and any resulting gain or loss is included in
operations.
F-6
<PAGE>
Note 1 - Business activities and accounting policies - continued
Income taxes
Deferred income tax assets and liabilities arise from temporary
differences between the financial reporting and tax basis of assets and
liabilities that result in net taxable or deductible amounts in future periods.
Deferred taxes are classified as current or noncurrent, depending on the
classification of the assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or noncurrent depending on the periods in
which the temporary differences are expected to reverse.
Advertising
The Company follows the policy of charging the costs of advertising to
expense as incurred.
Note 2 - Inventory
Inventory at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
Components and replacement parts $447,010 $100,011
Finished goods 44,970 44,705
-------- --------
$491,980 $144,716
======== ========
Note 3 - Property and equipment
The cost of property and equipment and the estimated useful lives used for
computing depreciation at December 31, 1997 and 1996:
Estimated
Useful Life 1997 1996
----------- ---- ----
Machinery and equipment 7 years $193,097 $141,600
Office equipment 3-7 years 58,657 8,182
Motor vehicles 5 years 21,557
--------
$273,311 $149,782
======== ========
Note 4 - Note payable
The Company has a $300,000 revolving line of credit with a bank. The loan
agreements provides for interest payable at the bank's prime rate plus 1.5% and
is secured by all assets of the Company and the personal guarantees of the
Company's stockholders. The revolving credit agreement is renewable annually on
May 31, 1998.
F-7
<PAGE>
Note 5 - Long-term debt
Long-term debt at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
Note payable to bank with interest at prime
plus 2% (10.5%) secured by all assets of the
Company and the personal guarantees of the
Company's shareholders, due in monthly
principal installments of $1,959, plus
interest through October 1, 2001. Financial
performance covenants relative to debt
service and leverage exist. $ 86,164 $ 100,000
Obligation under capital lease secured by
computer equipment payable in 24
installments of $149, including interest. 908 2,276
--------- ---------
87,072 102,276
Less - Amounts due within one year (24,416) (9,918)
--------- ---------
$ 62,656 $ 92,358
========= =========
The aggregate principal maturities for the years subsequent to December
31, 1997 are as follows:
1999 $23,508
2000 23,508
2001 15,640
The Company is not in compliance with certain financial performance
covenants as required by it's lending agreement. The bank is aware of this and
is working with the Company to resolve.
Note 6 - Income taxes
The credit for income taxes represents the reversal of the prior year
deferred tax liability. The Company has a net operating loss carryforward of
approximately $450,000 which is available for fifteen years. The potential
future tax benefit of $150,000 has been offset by a valuation reserve.
Note 7 - Related party transactions
On February 14, 1997, the Company entered into a ten year exclusive sales
and distribution agreement with a stockholder for sale of the Company's products
in Europe. The Company will offer this distributor a 5% discount from list price
in return for an accelerated payment schedule.
F-8
<PAGE>
Note 7 - Related party transactions - continued
Deferred credit facility
As part of a private placement equity financing closed in February 1997
the Company received a deferred credit facility of $125,000 from the
shareholder. The Company has agreed to sell the shareholder products at a sales
value of $125,000 over a three year period. The credit facility is non-interest
bearing and payable through sales discounts over a three year period.
Investment in Eco-Jet
In 1997, the Company acquired a 15% interest in a European distributor
whose majority ownership is held by a shareholder of the Company. Consideration
for the investment of $23,000 is evidenced by a credit taken on sale made to the
distributor.
Facilities
The Company occupies office and assembly space in a facility owned by a
stockholder. Approximately 4,000 square feet is occupied as a tenant at will. A
charge of $24,000 representing rent and utilities has been made.
Note 8 - Litigation
A litigation claim was settled by the Company in 1997 for settlement of
$10,000.
Note 9 - Purchase of Unique tool product line
On May 8, 1997, the Company purchased certain assets consisting of
inventory, fixed assets, tooling, demo equipment, patent rights and other assets
for a total consideration of approximately $208,000 of which $65,000 was paid at
closing. The balance is due within a one year period as the inventory is sold.
Note 10 - Proposed merger
In December 1997, the Company signed a letter of intent to enter into a
merger with Teletrak Advanced Technology Systems, Inc. (Teletrak). The merger is
proposed to be a tax free transaction and Advanced Environmental Systems, Inc.
(AESI) will be the surviving corporation. The merger is expected to be completed
in the second quarter of 1998.
Note 11 - Subsequent events
On March 19, 1998, the Company agreed to sell its affiliate Eco-Jet, pumps
having a sales value of $200,000. The transaction is intended to assist the
Company with cash flows needs.
In May, 1998, the Company entered into an agreement to be a sales
representative for a manufacturer and purchase inventory with a list price of
$50,000. The agreement stipulates that if the Company makes purchases totaling
$250,000 by June 30, 2000, all rights to manufacture the product will be
transferred to the Company.
F-9
<PAGE>
May 29, 1998
To the Board of Directors and Stockholders of
Advanced Environmental Systems, Inc.
Our audits were made primarily for the purpose of forming an opinion on the
financial statements taken as a whole. The accompanying supplementary schedules
of cost of goods sold, selling, general and administrative expenses for the
years ended December 31, 1997 and 1996 are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the
examination of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
Baril & Smith
F-10
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
SCHEDULES OF COST OF GOODS SOLD
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Inventory at beginning of year $ 144,716
----------
Purchases 1,118,990 $471,843
Subcontract costs 37,165 61,676
---------- --------
1,156,155 533,519
---------- --------
Goods available for sale 1,300,871 533,519
Less: Inventory at end of year 491,980 144,716
---------- --------
$ 808,891 $388,803
========== ========
Read Accompanying Notes and Accountants' Report
F-11
<PAGE>
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
SCHEDULES OF SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
Salaries and wages $278,243 $155,766
Travel and entertainment 96,318 38,808
Freight 71,542 14,447
Advertising 67,887 12,536
Insurance 54,956 34,464
Commissions 49,957 1,937
Employee benefits 45,283 26,187
Professional fees 43,985
Rent 33,935 5,637
Telephone 32,950 19,749
Depreciation and amortization 32,781 10,907
Bad debt expense 24,002
Office supplies and expenses 18,730 7,617
Miscellaneous 17,400 4,733
-------- --------
$867,969 $332,788
======== ========
Read Accompanying Notes and Accountants' Report
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Teletrak Environmental Systems, Inc.
Webster, Massachusetts
We have audited the accompanying consolidated balance sheet of Teletrak
Environmental Systems, Inc. (formerly Teletrak Advanced Technology Systems,
Inc.) and subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, changes in stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Teletrak Environmental
Systems, Inc. and subsidiaries as of December 31, 1998 and the consolidated
results of their operations and their consolidated cash flows for the year then
ended, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As disclosed in the financial
statements, the Company has an accumulated deficit at December 31, 1998, has
suffered a substantial net loss during 1998 and obtained a temporary waiver from
a creditor regarding noncompliance with debt covenants that raises substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are also disclosed in Note A. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Richard A. Eisner & Company, LLP
New York, New York
March 11, 1999
With respect to Note I(1)
March 23, 1999
With respect to Note E
July 23, 1999 and August 27, 1999
With respect to Note J(2)
August 19, 1999
F-13
<PAGE>
Consolidated Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash $ 296,709
Accounts receivable (net of allowance for
doubtful accounts of $30,000) 206,031
Inventory 365,098
Subscription receivable 80,000
Other current assets 50,752
-----------
Total current assets 998,590
Property and equipment, net 181,780
Other assets 1,000
-----------
$ 1,181,370
===========
LIABILITIES
Current liabilities:
Notes payable $ 250,000
Current portion of long-term debt 61,906
Accounts payable and accrued expenses 253,907
Due to related party 73,296
-----------
Total current liabilities 639,109
-----------
Commitments
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value, 5,000,000 shares
authorized, none issued
Common stock - $.001 par value, 25,000,000 shares
authorized, 7,252,927 shares issued and outstanding 7,253
Additional paid-in capital 1,172,875
Accumulated deficit (637,867)
-----------
Total stockholders' equity 542,261
-----------
$ 1,181,370
===========
See notes to financial statements
F-14
<PAGE>
Consolidated Statement of Operations
Year Ended December 31, 1998
Net sales $ 1,580,155
Cost of goods sold 1,002,681
-----------
Gross profit 577,474
-----------
Operating expenses:
Selling, general and administrative expenses 662,672
Advertising expense 29,649
Bad debt expense 15,000
-----------
Total operating expenses 707,321
-----------
Loss from operations (129,847)
Interest expense (net of interest income of $862) 38,797
-----------
Net loss $ (168,644)
===========
Net loss per share - basic and diluted $(.04)
=====
Weighted average number of common shares outstanding 3,969,037
===========
See notes to financial statements
F-15
<PAGE>
Consolidated Statement of Changes in Stockholders' Equity
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Common Stock
Par Value $.001 Additional
-------------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
January 1, 1998 3,750,000 $ 3,750 $ 686,378 $ (469,223) $ 220,905
Equivalent shares held by Teletrak
stockholders - pre-merger 2,522,927 2,523 (2,523) 0
Issuance of common stock and warrants 980,000 980 489,020 490,000
Net loss (168,644) (168,644)
----------- ----------- ----------- ----------- -----------
December 31, 1998 7,252,927 $ 7,253 $ 1,172,875 $ (637,867) $ 542,261
=========== =========== =========== =========== ===========
</TABLE>
See notes to financial statements
F-16
<PAGE>
Consolidated Statement of Cash Flows
Year Ended December 31, 1998
Cash flows from operating activities:
Net loss $(168,644)
Adjustments to reconcile net loss to
net cash used in operating activities:
Provision for doubtful accounts 15,000
Depreciation and amortization 41,192
Write-off of fixed assets 8,351
Loss on write-off of investment 3,330
Changes in:
Accounts receivable 14,186
Inventory 126,882
Prepaid expenses and other assets (29,498)
Accounts payable and accrued expenses (60,721)
Due to/from related party (2,280)
---------
Net cash used in operating activities (52,202)
---------
Cash flows from investing activities:
Acquisition of property and equipment (1,700)
---------
Cash flows from financing activities:
Proceeds from sale of common stock 410,000
Principal payments on notes and loans payable (65,166)
---------
Net cash provided by financing activities 344,834
---------
Net increase in cash 290,932
Cash - beginning of year 5,777
---------
Cash - end of year $ 296,709
=========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 38,797
Income taxes $ 1,350
Supplemental disclosures of noncash operating and
financing activities:
Common stock subscriptions receivable $ (80,000)
Other assets $ (18,670)
Due to related parties (Note F) $ 18,670
See notes to financial statements
F-17
<PAGE>
TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)
Notes to Financial Statements
December 31, 1998
NOTE A - THE COMPANY AND BASIS OF PRESENTATION
The Company was incorporated on January 5, 1983 as Helm Advanced Technology
Center, Inc. On April 25, 1983 the Company changed its name to Teletrak Advanced
Technology Systems, Inc. and on November 18, 1998 the Company changed its name
to Teletrak Environmental Systems, Inc. when the Company, an inactive entity,
effected a merger with Advanced Environmental Systems, Inc. ("AES"). The merger
was consummated through an exchange of shares that resulted in the former AES
shareholders receiving control of Teletrak. The merger is accounted for as a
recapitalization and has been treated as a capital transaction for accounting
purposes. In accordance with the merger, Teletrak issued 3,750,000 shares of its
common stock to the shareholders of AES in exchange for the outstanding common
stock of AES. In connection therewith, AES's historic capital accounts were
retroactively adjusted to reflect the equivalent number of shares issued by
Teletrak in the transaction while AES's historical accumulated deficit was
carried forward. The operations reflect those of AES from January 1, 1998
through the date of the merger and consolidated operations through December 31,
1998. AES is an operating company that is engaged in the marketing, distribution
and licensing of industrial pumps and related equipment used primarily in
environmental remediation. All significant intercompany balances and
transactions were eliminated in consolidation.
Management is developing a plan to improve cash position including focusing its
sales in profitable product lines, as well as introducing new LTC products (see
Note J).
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Inventory:
Inventory is valued at the lower of cost (first-in, first-out) or market.
(2) Property and equipment:
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the respective assets ranging from 3 to 7 years.
Expenditures for maintenance and repairs are charged to operations as
incurred.
(3) Revenue recognition:
Shipments on a consignment or demonstration basis are carried in inventory
until such items are sold.
(4) Cash equivalents:
The Company considers all cash accounts, which are not subject to
withdrawal restrictions or penalties, and all highly liquid instruments
purchased with a maturity of three months or less to be cash equivalents.
(5) Long-lived assets:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", the Company records impairment losses on
long-lived assets used in operations, including intangible assets, when
events and circumstances indicate that the assets might be impaired and
the undiscounted cash flows estimated to be generated by those assets are
less than the carrying amounts of those assets.
F-18
<PAGE>
TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)
Notes to Financial Statements
December 31, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(6) Income taxes:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standard No. 109, "Accounting for Income Taxes"
("SFAS 109") which requires use of the liability method of accounting for
income taxes. The liability method measures deferred income taxes by
applying enacted statutory rates in effect at the balance sheet date to
the differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. The resulting asset or
liability is adjusted to reflect changes in the tax laws as they occur.
(7) Concentration of credit risk:
The Company maintains its cash in highly rated financial institutions. At
December 31, 1998, the Company had bank deposits exceeding federally
insured limits by approximately $192,000.
(8) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
(9) Loss per common share:
The Company calculates net loss per share pursuant to Statement of
Financial Accounting Standards No. 128 "Earnings Per Share," which
requires the presentation of basic and diluted earnings per share
information. Basic and diluted loss per share exclude any dilutive effects
of options, warrants and convertible securities.
(10) Research and development:
The Company expenses costs of research and development activities as
incurred.
(11) Recent accounting pronouncements:
In June 1997, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," and No. 131, "Disclosure about Segments of an Enterprise and
Related Information," which were effective for the year beginning January
1, 1998. These pronouncements did not have an effect on the information
presented in the Company's financial statements.
NOTE C - INVENTORY
Inventory consists of the following at December 31, 1998:
Components and replacement parts $199,995
Finished goods 165,103
--------
$365,098
========
F-19
<PAGE>
TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)
Notes to Financial Statements
December 31, 1998
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1998:
Machinery and equipment $215,354
Office equipment 47,076
--------
262,430
Less accumulated depreciation 80,650
--------
$181,780
========
NOTE E - NOTES PAYABLE - BANK
At December 31, 1998, the Company had a $300,000 line of credit with a bank
which was subsequently increased to $400,000 and which, as extended, expires on
June 30, 2000. Available borrowings are based on a formula of eligible accounts
receivable and inventory. Outstanding borrowings under the line are payable on
demand and bear interest at 1.50% above the bank's base rate (7.75% at December
31, 1998). At December 31, 1998 the Company had $50,000 available for future
borrowings under the line.
At December 31, 1998, the Company was not in compliance with required financial
covenants. On July 23, 1999, the bank has waived such noncompliance. The bank's
waiver does not extend through December 31, 1999. In accordance with accounting
standards the obligations have been classified as current.
Additionally, the Company has a loan with the bank, principal payable in monthly
installments of $1,959 plus interest at the bank's base rate plus 2.00% through
August 2001. Principal repayments as originally scheduled are due as follows:
1999 $ 23,508
2000 23,508
2001 14,890
--------
$ 61,906
========
However, such periodic payments are deemed accelerated and may be payable during
1999. Both loan facilities are secured by substantially all of the Company's
assets.
NOTE F - RELATED PARTY TRANSACTIONS
The Company rents its premises from an entity owned by a stockholder who is a
director and officer of the Company. Rent is $2,000 per month. To date the
Company has not paid rent and $48,000 of accrued rent is recorded as a liability
in the financial statements. Rent expense of $24,000 has been charged to
operations during 1998. In addition, the Company purchases supplies from this
entity. At December 31, 1998 amounts payable to the related party aggregated
$73,296.
F-20
<PAGE>
TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)
Notes to Financial Statements
December 31, 1998
NOTE F - RELATED PARTY TRANSACTIONS (CONTINUED)
In 1997, the Company acquired a 15% interest in a European distributor whose
majority ownership is held by a shareholder of the Company. Sales to this
distributor represent approximately 13% of the Company's sales in 1998. During
1998, the Company, in a noncash transaction, sold back their entire investment
to the distributor for the settlement of outstanding payables totaling $18,670.
NOTE G - COMMITMENTS
In 1997, the Company entered into a ten year exclusive sales and distribution
agreement with a stockholder for sale of the Company's products in Europe. The
Company will offer this distributor a 5% discount from list price in return for
an accelerated payment schedule. Total sales since the inception of agreement
amounted to approximately $352,000.
In 1998, the Company entered into an agreement to be a sales representative for
a manufacturer and purchase inventory with a list price of $50,000. The
agreement stipulates that if the Company makes purchases totaling $250,000 by
June 30, 2000, all rights to manufacture the product will be transferred to the
Company. At December 31, 1998, the Company has purchased approximately $51,000.
NOTE H - TAXES ON INCOME
The Company's deferred tax asset at December 31, 1998 represented a benefit from
a net operating loss carryforward of $200,000 which is reduced by a valuation
allowance of $200,000 since the likelihood of realization of such tax benefit is
not presently determinable. The Company's provision for income taxes for the
period ended December 31, 1998 are comprised of the deferred tax items. The
Company's ability to utilize its net operating loss carryforwards may be subject
to an annual limitation in future periods pursuant to Section 382 of the
Internal Revenue Code of 1986, as amended, if additional transactions and/or
ownership changes take place. Net operating losses of the pre-merger public
entity, old Teletrak, are subject to a Section 382 limitation and any potential
benefit is considered de minimis.
The difference between the statutory federal income tax rate on the Company's
net loss and the Company's effective income tax rate for the year ended December
31, 1998 is summarized as follows:
Statutory federal income tax benefit rate (34.0)%
State income tax benefit, net of federal benefit (6.0)%
Increase in valuation allowance 40.0%
-----
0.0%
=====
At December 31, 1998 the Company had available for federal income tax purposes a
net operating loss carryforward of approximately $500,000 expiring through the
year 2018 that may be used to offset future taxable income.
F-21
<PAGE>
TELETRAK ENVIRONMENTAL SYSTEMS, INC. AND SUBSIDIARIES
(formerly Teletrak Advanced Technology Systems, Inc.)
Notes to Financial Statements
December 31, 1998
NOTE I - STOCKHOLDERS' EQUITY
(1) Private placement:
Pursuant to the merger agreement between Teletrak and AES, the Company was
authorized to sell certain AES stockholders or affiliates up to 500,000
units, consisting of two post-merger shares of Teletrak common stock ("New
Common Share") and one warrant to purchase an additional New Common Share
for $2.00 for a period of three years ("Warrant"), (collectively a
"Unit"), at a purchase price of $1.00 per Unit. The Company was also
authorized to sell up to 125,000 Units to holders of Teletrak's post
merger common stock or their affiliates.
As of December 31, 1998, 410,000 Units had been sold and warrants remain
outstanding on 205,000 Units, of which 80,000 units were subscribed to in
1998 and paid for in March 23, 1999.
(2) Warrants:
Immediately preceding the merger, each of Teletrak's shareholders received
one-half of a Warrant for each post-split common share held by them upon
the effectiveness of the merger, for a total of 1,261,463 Warrants. In
addition, 493,000 Warrants were issued to pre-merger Warrant holders in
exchange for Warrants canceled pursuant to the merger and 7,000 additional
Warrants were issued.
At December 31, 1998 the Company has outstanding 2,251,463 Warrants, each
to purchase one share of common stock at $2.00 per share. The Warrants are
exercisable through September 27, 2001. The Warrants are redeemable at
$.05 per Warrant at the Company's option if the common shares trade for
three consecutive days at $3.00 per share on any national securities
exchange, or if the average bid and asked price of the common shares in
the over the counter markets is over $3.00 per share for three consecutive
trading days.
Shares have not been reserved for the exercise of Warrants.
NOTE J - SUBSEQUENT EVENTS
(1) In February 1999, the Company consummated an agreement to buy designated
assets (including inventory, fixed assets and certain intangible assets)
of a company and its subsidiary that manufactures, sells and rents vacuum
blasting equipment. Preliminary unaudited information for the five-month
period ended February 28, 1999 indicates that the acquired business has
experienced a significant loss in the amount of $206,000 based on revenues
of $313,000. The transaction is expected to be accounted for as a
purchase. The cost consists of $211,000 in cash, $80,000 in promissory
notes bearing interest at 10% per annum and payable in 36 equal monthly
installments and 209,000 shares of common stock valued at approximately
$52,000. The purchase price will be allocated among the tangible and
intangible assets acquired based on their fair values. In addition, the
Company is assuming the seller's operating leases including premises,
photocopier and telephone services, related services contracts and a
supply contract.
(2) On August 19, 1999, the Company entered into a promissory note to borrow
$150,000 from a stockholder who is a director and officer. Under the note,
the principal sum and interest at the interest rate of 10% per annum on a
monthly basis is due August 20, 2000.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.
Signature Title Date
- --------- ----- ----
/s/ GERD E. REINIG Chairman of the Board October 15, 1999
- ------------------------
Gerd E. Reinig
/s/ GERALD P. MCNAMARA Director, President and October 15, 1999
- ------------------------ Chief Executive Officer
Gerald P. McNamara
/s/ DOMENIC SGAMBELLONE Executive Vice President and October 15, 1999
- ------------------------ Chief Operating Officer
Domenic Sgambellone (principal financial officer)
/s/ HEINZ BUHR Director October 15, 1999
- ------------------------
Heinz Buhr
/s/ GLEN WEGNER Director October 15, 1999
- ------------------------
Glen Wegner
/s/ WILLIAM P. GAGNON Director October 15, 1999
- ------------------------
William P. Gagnon
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is entered effective February 27, 1999, among (1)
LTC Americas Inc. ("LTC"), a Virginia corporation with principal place of
business at 22446 Davis Drive, Suite 142, Sterling, Virginia 20164, (2) LTC's
wholly-owned subsidiary, SurfaceDecon Corporation ("SurfaceDecon"), a Virginia
corporation, (3) LTC's parent company, McPhee Fischer Inc. ("McPhee Fischer"), a
Virginia corporation (LTC, SurfaceDecon, and McPhee Fischer to be referred to
collectively as "Sellers"), (4) the controlling shareholder of McPhee Fischer,
W.S. McPhee ("Shareholder"), an individual, and (5) TES Acquisition Corp.
("Buyer"), a Delaware corporation with principal place of business at 2 Sutton
Road, Webster, Massachusetts 01570, to state the terms on which Buyer will
purchase certain assets of LTC and SurfaceDecon (the "Transaction").
WHEREAS, LTC operates a vacuum blasting equipment manufacturing, sale, and
rental business (the "Business") and desires to sell substantially all of its
non-cash assets, and substantially all of the non-cash assets of SurfaceDecon,
to Buyer; and
WHEREAS, Buyer desires to purchase said assets from LTC and SurfaceDecon;
THEREFORE, IN CONSIDERATION OF the mutual covenants stated below, the parties
agree as follows:
SECTION 1: PURCHASE AND SALE OF ASSETS
1.1 PURCHASED ASSETS. A t the Closing, LTC and SurfaceDecon shall sell and
deliver, and Buyer shall purchase and pay for, all of the assets listed in
Schedule 1.1 (the "Purchased Assets") on the terms of this Agreement.
1.2 EXCLUDED ASSETS. Notwithstanding any other provision of this Agreement, LTC
and SurfaceDecon will not sell and deliver, and Buyer will not purchase and pay
for, the assets listed in Schedule 1.2 (the "Excluded Assets").
SECTION 2: ASSUMPTION OF LIABILITIES
2.1 ASSUMED LIABILITIES. At the Closing, Buyer shall assume and undertake to
timely discharge the liabilities listed on Schedule 2.1 (the "Assumed
Liabilities").
2.2 EXCLUDED LIABILITIES. Buyer does not assume and shall have no obligation to
discharge any of the liabilities listed in Schedule 2.2 (the "Excluded
Liabilities").
SECTION 3: PURCHASE PRICE
3.1 PURCHASE PRICE. Buyer agrees to pay LTC the "Purchase Price" for the
Purchased Assets, consisting of: a promissory note of the Buyer and Teletrak
Environmental Systems, Inc. ("Teletrak,"
<PAGE>
symbol TEAS) in the principal amount of $80,000; and 209,000 shares of
restricted common stock of Teletrak.
3.2 PAYMENT. The Purchase Price shall be paid as follows:
(1) CASH. At the Closing, Buyer shall pay cash to LTC in the amount of
$2 11,000 by cashier's check or wire transfer.
(2) PROMISSORY NOTE. At the Closing, Buyer shall deliver to LTC
promissory note of Buyer and Teletrak in the principal amount of
$80,000, bearing interest at the rate of 10% per year, payable in 36
equal monthly installments, with no penalty for prepayment, , in the
form of Exhibit 3.2(2).
(3) TELETRAK SHARES. Upon one or more written requests by LTC at any
time within three months after the Closing, Buyer shall deliver a
total of 209,000 common shares of newly-issued Teletrak restricted
common stock to LTC and/or a maximum of eight creditors, or owners
of creditors, of LTC. The Teletrak shares shall be subject only to
trading restrictions based on the securities law exemption under
which they are issued, which exemption shall arise under either
Section 4(2) of the Securities Act of 1934 or Regulation D. Any
transferee shall execute such documents acknowledging said
restrictions as Buyer shall reasonably request in order to qualify
for such exemption.
3.3 ALLOCATION OF PURCHASE PRICE. The aggregate Purchase Price shall be
allocated among the Purchased Assets for tax purposes in accordance with
Schedule 3.3. Buyer and Sellers shall follow and use such allocation in all
income, sales, and other tax returns, filings, and related reports submitted to
any governmental agencies. To the ex tent that disclosures of this allocation to
the Internal Revenue Service are required, a party shall disclose any such
report to the adverse party or parties before filing.
SECTION 4: CLOSING
4.1 DATE AND TIME. The C losing of the Transaction shall take place at the
offices of Sellers' attorney, Ralph M. Tener, Tener & Callahan, P.C., 8330 Boone
Boulevard, Suite 401, Vienna, Virginia, at 10:00 a.m. E.S.T. on March 1, 1999,
or at such other time and place as the parties may later agree.
4.2 DOCUMENTS TO BE DELIVERED BY SELLERS. At the Closing, Sellers shall deliver
to Buyer the following documents, duly executed and in form acceptable to Buyer:
(1) BILL OF SALE. A bill of sale from LTC and SurfaceDecon in the form
of Exhibit 4.2(1).
(2) COMPLIANCE CERTIFICATES. Certificates signed by the Chief Executive
Officers of LTC and SurfaceDecon and other applicable persons
stating that each of the representations and warranties made by
Sellers in this Agreement is true and correct in all material
respects as of the Closing Date and that Sellers have performed all
of their obligations under this Agreement which are to be performed
on or before the Closing.
<PAGE>
(3) CERTIFIED RESOLUTIONS. Certified copies of the resolutions of the
Boards of Directors of Sellers authorizing and approving this
Agreement, the Bill of Sale, and the consummation of the
Transaction.
(4) INCUMBENCY CERTIFICATES. Incumbency certificates stating the
official capacity of each person signing any document signed on
behalf of Sellers and delivered to Buyer under this Agreement.
(5) OPINION OF COUNSEL. The opinion of Sellers' counsel, Tener &
Callahan, P.C., in the form of Exhibit 4.2(5).
(6) OTHER DOCUMENTS. All other documents required to be delivered to
Buyer as of the Closing or reasonably requested by Buyer, including
all third party consents necessary to consummate the transaction
contemplated by this Agreement.
4.3 DOCUMENTS TO BE DELIVERED BY BUYER. At the Closing, Buyer shall deliver to
Sellers the following documents, duly executed and in form reasonably acceptable
to Sellers:
(1) ASSUMPTION OF LIABILITIES. All documents reasonably necessary and
sufficient in the opinion of Sellers and its counsel to effect
Buyer's assumption of the Assumed Liabilities.
(2) COMPLIANCE CERTIFICATE. A certificate signed by the Chief Executive
Officer of Buyer stating that each of the representations and
warranties made by Buyer in this Agreement is true and correct in
all material respects as of the Closing Date and that Buyer has
performed all of Buyer's obligations under this Agreement which are
to be performed on or before the Closing.
(3) CERTIFIED RESOLUTIONS. A certified copy of the resolutions of the
Board of Directors of Buyer authorizing and approving this
Agreement, the Promissory Note, and the consummation of the
Transaction.
(4) INCUMBENCY CERTIFICATE. An incumbency certificate stating the
official capacity of each person signing any document signed on
behalf of Buyer and delivered to Sellers under this Agreement.
(5) OTHER DOCUMENTS. All other documents required to be delivered to
Sellers as of the Closing or reasonably requested by Sellers.
4.4 FRORATIONS. Any post-Closing expenses prepaid by Sellers which will accrue
to the benefit of Buyer, any pre-Closing expenses paid by Buyer which will
accrue to the benefit of Sellers, and any other similar items shall be prorated
as of the Closing, with the net amount being paid by Buyer or Sellers, as
applicable, in cash within 14 days after the Closing.
<PAGE>
SECTION 5: SELLERS' REPRESENTATIONS AND WARRANTIES
Each Seller jointly and severally represents and warrants, and Shareholder
represents and warrants to the best of his knowledge, to Buyer as follows:
5.1 ORGANIZATION AND EXISTENCE. Each of LTC and SurfaceDecon is a corporation
duly organized and validly existing under the laws of Virginia, has full power
and authority to own, lease and operate its properties and assets and to conduct
its business as now being conducted, and is duly qualified or licensed to do
business as a foreign corporation in all jurisdictions where the character of
the properties it owns, leases or operates, or the conduct of its business,
requires such qualification or licensing. Each of LTC and SurfaceDecon has paid
all franchise taxes and filed all reports required to be filed in Virginia and
all such jurisdictions and no Governmental Authority has taken steps to dissolve
or otherwise disqualify LTC or SurfaceDecon. The jurisdictions in which LTC and
SurfaceDecon are qualified or licensed to do business are set forth on Schedule
5.1.
5.2 ARTICLES OF INCORPORATION; BY-LAWS. Each of LTC and SurfaceDecon has
heretofore delivered to Buyer true and complete copies of the Articles of
Incorporation and By-Laws, as amended to and including the date hereof, of LTC
and SurfaceDecon.
5.3 AUTHORIZATION. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of each of LTC, SurfaceDecon and McPhee Fischer, the
sole stockholder of McPhee Fischer, and all other corporate action of each of
LTC, SurfaceDecon and McPhee Fischer and the sole stockholder of McPhee Fischer,
including all approvals, authorizations and ratifications necessary to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been taken. This Agreement constitutes the
valid and binding obligations of each of LTC, SurfaceDecon and McPhee Fischer
enforceable against each entity in accordance with its terms subject to
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws now or hereafter in effect relating to creditors' rights generally
and the application of principles of equity, including without limitation the
principle that equitable remedies, such as the remedy of specific performance,
are subject to the discretion of the court before which any proceeding therefor
may be brought. Except as set forth on Schedule 5.3 hereto, no consent of any
lender, trustee, security holder of LTC, SurfaceDecon and McPhee Fischer, or
other Person is required for LTC, SurfaceDecon and McPhee Fischer to enter into
and deliver this Agreement or to consummate the transactions contemplated
hereby, nor shall such execution, delivery and performance of this Agreement
conflict with, result in a breach of, constitute a default under or result in
the creation ot any lien upon the Purchased Assets, under the Articles of
Incorporation or By-Laws of each of LTC, SurfaceDecon and McPhee Fischer or any
law, contract, mortgage or other instrument to which each of LTC, SurfaceDecon
and McPhee Fischer is a party or by which any Seller is bound or affecting any
of its properties.
5.4 TITLE TO ASSETS; LIENs AND ENCUMBRANCES. Except as disclosed in Schedule.
5.4, each of LTC and SurfaceDecon is the owner of, and has good and marketable
title to, all of the Purchased Assets and on the Closing Date, each of LTC and
SurfaceDecon shall convey such good and marketable title to Buyer, free and
clear of all liens. Each of LTC and SurfaceDecon owns all of the assets used by
it in the operation and conduct of its business, except for those assets leased
by LTC and SurfaceDecon under leases specifically identified on Schedule 5.4
hereto. The Purchased Assets
<PAGE>
constitute all of the assets, except for the Excluded Assets, used by LTC or
SurfaceDecon for the normal conduct of their business.
5.5 OPERATING CONDITION. Except as set forth on Schedule 5.5 hereto, to the
knowledge of Sellers, substantially all of the tangible Purchased Assets
(including, without limitation, all equipment leased by Sellers) are in good
repair and operating condition, normal wear and tear excepted.
5.6 TRADEMARKS, SERVICE MARKS, TRADE NAMES, PATENTS AND COPYRIGHTS.
Schedule 5.6 hereto sets forth a true and complete list of all patents,
registered trademarks and service marks, trade names and corporate names, and
licenses, ("Proprietary Rights") used by each of LTC and SurfaceDecon and which
are material in the conduct of its business. Except as indicated on Schedule
5.6, each such Proprietary Right is owned by LTC or SurfaceDecon and is not
subject to any license, royalty arrangement or dispute. No other material
patents, trademarks, trade names, service marks, corporate names, or licenses,
are used in the conduct of each of LTC and SurfaceDecon's business as now
conducted. Except as indicated on Schedule 5.6, to the knowledge of each of LTC
and SurfaceDecon, none of such Proprietary Rights nor any product manufactured
or sold, or manufacturing process, trade secret, customer list or know-how used,
by LTC or SurfaceDecon infringes any intellectual Property Right of any other
person. Except as set forth in Schedule 5.6, no claim has been asserted or, to
Seller's knowledge, threatened, by any Person with respect to the ownership,
validity, license or use of, or any infringement resulting from, any of the
Proprietary Rights used by LTC or SurfaceDecon or the production, provision or
sale of any services or products by LTC or SurfaceDecon and, to the knowledge of
Sellers, there is no basis for any such claim. Each of LTC and SurfaceDecon has
the right to produce, provide and sell the services and products produced,
provided and sold by it and to conduct its business as heretofore conducted, and
the consummation of the transactions contemplated hereby will not alter or
impair any such rights. To the Sellers' knowledge, no Proprietary Right used by
LTC or SurfaceDecon infringes any trademark, service mark or trade name of
others in the United States of America or any other country in which such
trademark, service mark or trade name is used by Sellers. No stockholder,
officer, director or employee of Sellers owns or has any interest in any
Proprietary Rights or any trade secret, invention or process, if any, used by
LTC or SurfaceDecon in connection with its business.
5.7 CONTRACTS. Set forth on Schedule 2.1 hereto is a list of the material
contracts to be assumed by Buyer pursuant to Section 2.1 hereof. All contracts
set forth on Schedule 2.1 require the consent of the other party in order to be
assigned to Buyer. Each of the contracts listed on Schedule 2.1 is a valid and
subsisting contract of all of the parties thereto in full force and effect
without modification. Each of LTC or SurfaceDecon has performed all obligations
required to be performed by it and is not in default under any contract listed
on Schedule 2.1, and no event has occurred thereunder which, with or without the
lapse of time or the giving of notice, or both, would constitute a default by it
thereunder. To the knowledge of Sellers, no other party is in default under any
contract listed on Schedule 2.1. No contract listed on Schedule 2.1 has been
orally modified or amended. Other than Shareholder, none of the stockholders,
officers or directors of Sellers or any affiliate or associate thereof is a
party to or subject to or bound by any contract or has any right which in any
way relates to the business of either LTC or SurfaceDecon.
5.8 LABOR RELATIONS. There are no labor strikes, disputes, slow downs, work
stoppages or other labor grievances pending or, to Sellers' knowledge,
threatened against or involving either LTC or
<PAGE>
SurfaceDecon. No unfair labor practice complaint before the National Labor
Relations Board, no discharge or grievance before the Equal Employment
Opportunity Commission and no complaint, charge or grievance of any nature
before any similar or comparable state, local or foreign agency, in any case
relating to either LTC or SurfaceDecon or the conduct of its business is pending
or, to Sellers' knowledge, threatened. Sellers have not received notice, and
have no knowledge of, the intent of any governmental authority responsible for
the enforcement of labor or employment laws to conduct any investigation of or
relating to LTC or SurfaceDecon or the conduct of its business. To the knowledge
of Sellers, no officer or key employee of LTC or SurfaceDecon other than
Shareholder has any plans to terminate his or her employment with LTC and
SurfaceDecon.
5.9 LEGAL PROCEEDINGS. Except as set forth on Schedule 5.9 hereto, there are no
actions pending or, to the knowledge of Sellers, threatened against LTC or
SurfaceDecon and which affect any of the Purchased Assets or the Assumed
Liabilities.
5.10 ORDERs, DECREES, ETC. To the knowledge of Sellers, there are no orders,
decrees, injunctions, rulings, decisions, directives, consents, pronouncements
or regulations of any court or any governmental authority issued against, or
binding on, LTC or SurfaceDecon, which do or may specifically and directly
affect, limit or control the Purchased Assets or LTC or SurfaceDecon's method or
manner of doing business and in respect of which LTC or SurfaceDecon is in
violation.
5.11 COMPLIANCE WITH LAW. To the knowledge of Sellers, each of LTC and
SurfaceDecon has complied and is in compliance with all laws of any governmental
authority, applicable to each of LTC and SurfaceDecon, its assets or property or
its operations.
5.12 PERMITS AND LICENSE S. Each of LTC and SurfaceDecon presently holds, and to
the extent permitted to do so thereunder, will transfer to Buyer on the Closing
Date, all the permits, licenses and franchises which are necessary for or
material to the use, occupancy or operation of the Purchased Assets or the
conduct of the business as it is presently conducted; and no notice of violation
of any applicable zoning regulation, ordinance or other similar law with respect
to the Purchased Assets or its business has been received. The licenses and
permits are listed on Schedule 5.12. Except as set forth on Schedule 5.12,
immediately after the Closing, Buyer will be in compliance with all laws as they
relate to the Purchased Assets or the Assumed Liabilities unless noncompliance
is by virtue of the nature of Buyer.
5.13 ENVIRONMENTAL PROTECTION. To the knowledge of Sellers, each of LTC and
SurfaceDecon has, and through the Closing Date will have, complied in all
respects with all environmental laws. Each of LTC and SurfaceDecon presently
holds and will to the extent permitted thereunder transfer to Buyer on the
Closing Date all permits, licenses, certificates and other authorizations which
are required with respect to its operation under any environmental laws and all
such permits, licenses, certificates and other authorizations are listed on
Schedule 5.13 hereto. Immediately after the Closing, Buyer will be in compliance
with all Environmental Laws as they relate to the Purchased Assets or the
Assumed Liabilities unless noncompliance is by virtue of the nature of Buyer or
any acts or omissions of Buyer.
5.14 No ENVIRONMENTAL PROCEEDINGS. There is no pending or, to Sellers'
knowledge, threatened civil, criminal or administrative action, demand, claim,
hearing, notice of violation,
<PAGE>
investigation, proceeding, notice or demand letter that affects or applies to
either LTC or SurfaceDecon, its business or assets, the products it has
manufactured or the services it has provided relating in any way to any
environmental laws or any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder.
5.15 EMPLOYEE BENEFITS. Neither LTC nor SurfaceDecon has maintained or
contributed to any "employee benefit plan," as that term is defined in Section
3(3) of ERISA, whether or not such plan has been terminated and whether or not
such plan is of a legally binding nature or in the form of an informal
understanding.
5.16 GOVERNMENTAL APPROVALS. No governmental authorization, approval, order,
license, permit, franchise, or consent and no registration, declaration or
filing by either LTC or SurfaceDecon or any stockholder of LTC or SurfaceDecon
with any governmental authority is required in connection with the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby.
5.17 No CHANGE IN CUSTOMER RELATIONS. Neither LTC nor SurfaceDecon has been
advised and has no reasonable basis to believe that any customer or customers
intend not to continue to conduct business after the Closing.
5.18 TAX MATTERS. Each o f LTC and SurfaceDecon has paid all taxes required to
be paid for each and every tax period including, without limitation, the tax
period ending on and as of the Closing Date, and has duly filed all tax returns
required in connection therewith to be filed by it. None of the Sellers has
received any notice of any tax deficiency outstanding, proposed or assessed
relating to LTC or SurfaceDecon, nor are there any outstanding waivers or
requests for waivers of the time to assess any deficiency for taxes; and to the
best of the Sellers' knowledge after due inquiry, there are no threatened claims
for deficiencies relating to LTC or SurfaceDecon. There are no tax liens upon,
pending or threatened against the Sellers relating to LTC, SurfaceDecon or any
of the Purchased Assets.
5.19 FINANCIAL STATEMENTS. The financial statements of LTC and SurfaceDecon
furnished to Buyer have been prepared in accordance with GAAP (except with
respect to inventory) applied on a consistent basis with prior periods. The
financial statements are true, correct and complete in all material respects,
and present (or will present) fairly the assets, liabilities, financial
condition and results of operations of LTC and SurfaceDecon, but not including
the inventory included within the Purchased Assets, as at the respective dates
of such statements and for the respective periods then ended.
5.20 INENTORY. Each of LTC and SurfaceDecon owns its inventories free and clear
of all liens, and no inventories have been delivered to third parties on
consignment; (b) all of the inventories are usable and in good condition; and
(c) neither LTC nor SurfaceDecon is under any material liability or obligation
with respect to the return of inventory or merchandise in the possession of
wholesalers, distributors, retailers or other customers.
5.21 INSURANCE. Sellers have maintained, up to the Closing, insurance policies
sufficient for compliance with all material requirements of law and agreements
by which the Sellers are bound or affected and to which the Purchased Assets are
subject, and provide adequate insurance coverage for the properties and
operations of the business in such amounts and against such risks and losses as
are
<PAGE>
reasonable. There are no material claims pending or threatened under any of such
policies, there are no disputes between the Sellers and any of the underwriters
of said policies, all premiums due and payable through the date hereof under
such policies have been paid, and all such policies are and shall remain through
the Closing Date in full force and effect in accordance with their respective
terms.
5.22 PRODUCT LIABILITY. There is, and has been during the past two (2) years, no
action, suit, inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or commission pending
or, to the best of the Sellers' knowledge after due inquiry, threatened against
or involving the Sellers relating to any product sold by LTC or SurfaceDecon and
alleged to have been defective, nor do the Sellers have any knowledge of any
facts constituting a valid basis for any such action, proceeding or
investigation.
5.23 ACCURACY OF INFORMATION. All representations, warranties and certifications
contained in this Agreement or in any document, exhibit, schedule or certificate
furnished or to be furnished pursuant hereto or in connection herewith and all
other information with respect to the Sellers, the business and their respective
assets, liabilities, business condition or prospects that have been or shall be
supplied to the Buyer by the Sellers or on their behalf, are true, correct and
complete and do not contain any statement which is false or misleading with
respect to a material fact, and do not omit to state a material fact necessary
in order to make the statements herein and therein not false or misleading. The
Sellers have disclosed to the Buyer all facts material to the assets,
liabilities, business condition and prospects of LTC or SurfaceDecon, other than
recent financial statements.
5.24 No BROKERS OR FINDERS. Sellers and Shareholder have not retained, employed,
or used any broker or finder in connection with the Transaction, and have
incurred no commissions or fees therefor.
SECTION 6: BUYERS REPRESENTATIONS AND WARRANTIES Buyer represents and warrants
to Sellers and Shareholder as follows:
6.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware.
6.2 CORPORATE POWER. Buyer has all requisite corporate power and authority to
enter into and perform this Agreement.
6.3 AUTHORIZATION. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Buyer, and all other corporate action of Buyer,
including all stockholder approvals, authorizations and ratifications, necessary
to authorize the execution and de livery of this Agreement and the consummation
of the transactions contemplated hereby have been taken. This Agreement
constitutes a binding obligation of Buyer, enforceable against Buyer in
accordance with its terms subject to bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws now or hereafter in effect
relating to creditors' rights generally and the application of principles of
equity, including without limitation the principle that equitable remedies, such
as the remedy of specific performance, are subject to the discretion of the
court before which any proceeding there-for may be brought. Except for the
consents contemplated by Section 5.3, no consent of any lender, trustee or
security holder of Buyer or other
<PAGE>
Person is required for Buyer to enter into and deliver this Agreement and to
consummate the transactions contemplated hereby.
6.4 No VIOLATION. The execution, delivery, and performance of this Agreement and
all related documents will not violate any statute, regulation, rule, order,
injunction, or decree of any court or governmental authority.
6.5 CONSENT. The execution, delivery, and performance of this Agreement and the
related documents does not require any consent, authorization, approval,
exemption, or other action by any court, governmental agency, or other entity or
person which will not have already been obtained as of the Closing.
6.6 No BREACH. The execution, delivery, and performance of this Agreement and
all related documents will not constitute a material default or breach of any
contract or other obligation to which Buyer is subject, nor of Buyer's articles
of incorporation, bylaws, or other constituent documents.
6.7 FINANCIAL CAPACITY. Buyer has the financial means necessary to timely con
summate the Transaction, pay the Purchase Price and all other amounts due
hereunder, and discharge the Assumed Liabilities.
6.8 No BROKERS OR FINDERS. Buyer has not retained, employed, or used any broker
or finder in connection with the Transaction, and has incurred no commissions or
fees therefor.
SECTION 7: FURTHER COVENANTS OF SELLER
7.1 ACCESS TO RECORDS. Until the Closing, Sellers shall give Buyer, its counsel,
accountants, and other representatives, reasonable access during normal business
hours to information and records relating to the Purchased Assets as reasonably
requested by Buyer.
7.2 CONDUCT OF BUSINESS. Until the Closing, Sellers shall continue to conduct
the Business in substantially the same manner as it has heretofore and shall not
make any material changes in its operations, nor take any action which will
result in a material adverse change in the value or suitability of the Purchased
Assets to Buyer in continuing the Business.
7.3 MAINTENANCE OF PURCHASED ASSETS. Until the Closing, Sellers shall use,
operate, maintain, and repair the Purchased Assets in accordance with their
normal and reasonable business practices.
7.4 MAINTENANCE OF INSURANCE. Until the Closing, Sellers shall maintain all of
its current insurance relating to the Purchased Assets. LTC and SurfaceDecon
shall either continue their existing products liability insurance coverage or
procure "tail" coverage in amounts reasonably adequate to cover potential
products liability for sales completed prior to the Closing and sales under
unfulfilled orders listed in Exhibit 10.3
7.5 TRANSITION ASSISTANCE. LTC shall provide transition assistance in the form
of support services rendered by Shareholder which are within Shareholder's areas
of back ground and expertise, as
<PAGE>
requested by Buyer and agreed by Shareholder, consisting of a maximum of 50
workdays during the first four months after the Closing, a maximum of 90
workdays during the next eight months, and a maximum of 192 workdays during the
next 24 months. The services shall be provided at times mutually convenient to
Buyer and Shareholder. LTC shall also maintain its status as an active company
for up to three years as necessary to facilitate subcontracting of existing GSA,
U.S. Department of Energy, and other contracts to Buyer if required. Buyer shall
promptly reimburse Shareholder for travel, hotel, subsistence, and other
approved costs reasonably incurred by Shareholder in providing such services. To
the extent necessary for the completion of existing contracts and Sellers'
collection of their pre-Closing receivables, Buyer grants LTC and SurfaceDecon a
temporary license to continue to use the trade names LTC Americas Inc. and
SurfaceDecon Corporation in connection therewith.
7.6 BULK SALES ACT. Sellers shall provide information and other assistance as
reasonably requested by Buyer in order to comply with any applicable provisions
of the Virginia bulk sales law, to the extent possible in light of the date
agreed upon for the Closing. Sellers shall indemnify and hold Buyer harmless
against and with respect to any claims by creditors of LTC and SurfaceDecon
which Buyer becomes legally obligated to pay as a result of failure to send
timely notice of the Transaction to creditors of LTC and SurfaceDecon.
7.7 SHAREHOLDER ACTION. Sellers and Shareholder agree to authorize, direct,
and/or take all actions reasonably necessary to cause LTC and SurfaceDecon to
perform the covenants undertaken in this Section.
7.8 JACOBS SETTLEMENT. Sellers shall timely discharge the payment obligations of
LTC under the settlement entered with A.P.M. Jacobs, liquidator of LTC
International, B.V., as evidenced by two letters dated December 21, 1998, and
December 28, 1998, respectively. If Sellers fail to make any such payments when
due, Buyer shall have the right, but not the obligation, to make any such
payments and assert the right of setoff provided in paragraph 16.1 with respect
thereto.
7.9 ADDITIONAL DOCUMENTS AND ACTS. Sellers and Shareholder, at any time at or
after the date hereof, shall execute, acknowledge, and deliver any further
deeds, assignments, conveyances, and other assurances, documents, and
instruments of transfer reasonably requested by Buyer and will take any other
action consistent with the terms of this Agreement that may reasonably be
requested by Buyer for the purpose of assigning, transferring, granting,
conveying, and confirming to Buyer, or reducing to possession, any or all of the
Purchased Assets.
SECTION 8: FURTHER COVENANTS OF BUYER
8.1 DOE/FEC CONTRACT. Buyer shall pay LTC the full margin ("Margin") received on
Contract No: DE-AR26-98FT-403667 "High Productivity Vacuum Blasting System."
Margin includes all amounts, such as G&A and Overhead, received in excess of the
Payroll, Fringe, and Other Expenses reimbursed under the contract. Margin
payments to LTC shall be made on a proportionate basis within five business days
after each customer payment under the contract is received.
8.2 WARRANTY ASSISTANCE. Buyer shall assist LTC and SurfaceDecon to the
following extent in their provision of warranty service on sales completed prior
to the Closing and on sales under unfulfilled orders listed in Exhibit 10.3:
<PAGE>
(1) Buyer shall provide labor and materials to LTC and/or SurfaceDecon
at cost, with no overhead factor or other mark-up, as reasonably
requested for such warranty service; and
(2) Buyer and LTC shall cooperate in providing such warranty service,
sharing the costs 50% - 50%, for claims asserted on or after June 1,
1999.
SECTION 9: COMMISSIONS
9.1 SRS REVENUES. The term "SRS Revenues" or "Sale, Rental, and Service
Revenues" shall mean all amounts received as the sale price, rental charge, or
charge for services rendered for vacuum blasting machines, air cooler/dryers,
articulating arms, Power Tool Centers, all types of equipment offered in
connection with the Business (with the sole exception of power tools), parts for
any of the foregoing, CAE contract commission receipts, engineering contracts,
training, operator services, and any other type of related services. SRS
Revenues shall not include shipping and handling charges, taxes, insurance,
repair or maintenance charges, or rental fees when later credited toward the
purchase price of products purchased under options in rental contracts.
9.2 COMMISSIONS. Independent of the Purchase Price to be paid for the Purchased
Assets, Buyer shall pay LTC 6% of SRS Revenues generated during the four years
following the Closing by Buyer and/or its affiliates, successors, agents,
licensees, assignees, or any other parties who continue the Business or a
similar business. Commissions on SRS Revenues generated in each month shall be
paid in cash no later than the 15th day of the following month.
SECTION 10: UNFULFILLED ORDERS
10.1 FULFILLMENT. LTC wit 1 fulfill, invoice, and collect for its own benefit
all unfulfilled orders for equipment, rentals, parts, services, and other items
received before the Closing. Equipment, work in process, parts, and other items
listed on Exhibit 10.3 which are on hand with Sellers at the time of the Closing
shall be used to fulfill such orders without charge to Sellers. Buyer shall be
responsible for all product warranties and product liability claims for such
orders.
10.2 ADDITIONAL ITEMS. Buyer shall make available reasonable amounts of
additional parts and other items necessary to fulfill such orders, which shall
be charged to LTC at actual cost. Buyer shall also make available reasonable
amounts of labor to fulfill such orders, which shall be charged to LTC at actual
cost plus an overhead factor of 100% of the labor cost. If any orders have not
been fulfilled within 60 days after the Closing, such arrangements will be
extended by mutual agreement, or if requested by Buyer, alternative equitable
arrangements will be negotiated.
10.3 LIST. LTC shall deliver at the Closing, for attachment to this Agreement as
Exhibit 10.3, a complete and accurate list of all unfulfilled orders outstanding
at the time of the Closing, stating for each order the customer name, order
number, delivery date, security deposit, work-in-process, and parts and
materials not yet drawn from inventory and/or needed to be purchased.
SECTION 11: EMPLOYEES
<PAGE>
11.1 NO OBLIGATION TO OF FER EMPLOYMENT. Buyer undertakes no obligation to offer
employment to any of the current employees of Sellers. Sellers shall indemnify
Buyer for any liabilities incurred as a result of Sellers' termination of the
employment of any of Sellers' employees.
11.2 NON-SOLICITATION. Sellers and Shareholder agree not to hire or offer
employment after the Closing to any of Seller's current employees which Buyer
designates in writing as employees it desires to hire, unless Buyer fails to
make an offer of employment to any such employee within sixty days after the
Closing or unless such employee's employment with Buyer has terminated first.
Sellers and Shareholder agree not to hire or offer employment to any of Buyer's
employees during the two years following the Closing. Not withstanding the
foregoing, Buyer acknowledges and agrees that LTC will retain Mr. Allwyn
Albuquerque on the LTC payroll for the remainder of his current leave, which
ends on March 28, 1999.
SECTION 12: NON-COMPETITION
12.1 NON-COMPETITION. Sellers and Shareholder agree not to directly or
indirectly own, operate, or otherwise engage in any vacuum blasting equipment
manufacturing, sale, or rental business competitive with such business as
conducted by Buyer within the entire world for four years after the Closing;
provided, however, that ownership of shares of Teletrak or any other
publicly-held company shall not be deemed a breach of this paragraph.
SECTION 13: CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
13.1 REPRESENTATIONS. Buyer's obligation to close and otherwise consummate the
Transaction is conditioned on all of the representations and warranties made by
Sellers and Shareholder being true and correct in all material respects when
made and as of the Closing.
13.2 COMPLIANCE WITH AGREEMENT. Buyer's obligation to close and otherwise
consummate the Transaction is conditioned on Sellers and Shareholder having in
all material respects performed their obligations under this Agreement which are
to be performed before the Closing, including tender of all documents required
of Sellers and Shareholder at the Closing.
13.3 No LEGAL CHALLENGE. Buyer's obligation to close and otherwise consummate
the Transaction is conditioned on no action, suit, or proceeding having been
commenced or threatened which is reasonably likely to result in a material
adverse change in the business of LTC or SurfaceDecon or the Purchased Assets.
13.4 OPINION OF COUNSEL. Buyer's obligation to close and otherwise consummate
the Transaction is conditioned on receipt of the opinion of Tener & Callahan,
P.C., counsel to Sellers, dated as of the Closing, in the form of Exhibit
4.2(5).
SECTION 14: CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS
14.1 REPRESENTATIONS. Sellers' obligations to close and otherwise consummate the
Transaction are conditioned on all of the representations and warranties made by
Buyer being true and correct in all material respects when made and as of the
Closing.
<PAGE>
14.2 COMPLIANCE WITH AGREEMENT. Sellers' obligations to close and otherwise
consummate the Transaction are conditioned on Buyer having in all material
respects performed its obligations under this Agreement which are to be
performed before the Closing, including tender of all payments and documents
required of Buyer at the Closing.
14.3 No LEGAL CHALLENGE. Sellers' obligations to close and otherwise consummate
the Transaction are conditioned on no action, suit, or proceeding having been
commenced or threatened before any court or governmental authority seeking to
restrain, prevent, or modify the Transaction, challenging the validity of this
Agreement or any related documents, or seeking damages in connection with or
imposing any condition on the Transaction.
SECTION 15: INDEMNITY
15.1 BY SELLERS. Sellers shall defend, indemnify, and hold harmless Buyer, its
successors, assigns, directors, officers, owners, employees, and affiliates,
against all claims arising from the inaccuracy or breach of any representation,
warranty, or covenant of Sellers in this Agreement or any related document or
arising from any liabilities of LTC or SurfaceDecon not expressly assumed by
Buyer under this Agreement.
15.2 BY BUYER. Buyer shall defend and indemnify Sellers, their respective
successors, assigns, directors, officers, owners, employees, and affiliates,
against all claims arising from the inaccuracy or breach of any representation,
warranty, or covenant of Buyer in this Agreement or any related document, or
from Buyer's failure to timely discharge any of the Assumed Liabilities.
13.3 NOTICE AND DEFENSE. The Indemnified Party will give the Indemnifying Party
prompt notice of any claim, (although the failure to do so shall not relieve the
Indemnifying Party of its indemnification obligations unless materially
prejudiced thereby) and the Indemnifying Party will assume the defense thereof
by representatives chosen by it; provided, however, that the Indemnified Party
shall be entitled to participate in the defense of such claim and to employ
counsel at its own expense to assist in the handling of such claim.
15.4 FAILURE TO DEFEND. If the Indemnifying Party, within a reasonable time
after notice of any such claim, fails to assume the defense thereof, the
Indemnified Party shall (upon further notice to the Indemnifying Party) have the
right to undertake the defense or, with the consent of the Indemnifying Party,
not to be unreasonably withheld or delayed, to undertake a compromise or
settlement of such claim on behalf of and for the account and risk of the
Indemnifying Party, subject to the right of the Indemnifying Party to assume the
defense of such claim at any time prior to the settlement, compromise or final
determination thereof.
15.5 NON-MONETARY RELIEF. Anything in this Section 15 to the contrary
notwithstanding, (a) if there is a reasonable probability that a claim may
materially and adversely affect the Indemnified Party other than as a result of
money damages or other payments, the Indemnified Party shall have the right to
defend, as its own cost and expense, and to compromise or settle such claim with
the consent of the Indemnifying Party (which consent shall not be unreasonably
withheld or delayed) and (b) the Indemnifying Party shall not, without the
written consent of the Indemnified Party (which consent shall
<PAGE>
not be withheld unreasonably or delayed), settle or compromise any claim or
consent to the entry of any judgment which imposes any future obligation on the
Indemnified Party or which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the Indemnified Party, or both, a
release from all liability in respect of such claim.
15.6 REMEDIES CUMULATIVE. The remedies provided in this Section 15 shall be
cumulative and shall not preclude assertion by any party hereto of any other
rights or the seeking of any other remedies against the other party hereto.
SECTION 16: GENERAL
16.1 RIGHT OF SETOFF. In addition to any other available remedies, the Buyer
shall also have the right to set off, against all indemnifiable damages arising
under claims asserted in good faith by Buyer against Sellers in writing within
12 months after the Closing, any payments due to the Sellers from the Buyer as
the Commissions described in Section 9 (but not against payments due under the
Promissory Note described in Section 3.2 (3) or the Margin described in Section
8), provided the Buyer deposits the setoff amounts into escrow pending
resolution of said claims.
16.2 SURVIVAL OF REPRESENTATIONS. The parties hereto agree all representations,
warranties, covenants, conditions and agreements contained herein or in any
instrument or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby for the shorter of the applicable statute of limitations or
indefinitely.
16.3 EXPENSES. Except as expressly provided otherwise in this Agreement, each
party shall bear its own expenses, filing fees, fees of attorneys and other
agents, and other costs incurred in connection with the Transaction.
16.4 NOTICES. All notices required under this Agreement shall be given in
writing and delivered by courier or certified mail to the address stated below
or later designated in writing by the party being notified, with copy
transmitted to a facsimile telephone number or electronic mail address
maintained by the party, if known. Notices shall be effective upon the first
attempt at delivery by the courier or postal service. Addresses to be used for
notices are:
If to Buyer:
c/o Advanced Environmental Systems, Inc.
Attn: Gerd Reinig, Chairman and CEO
2 Sutton Road
Webster, Massachusetts 01570
Facsimile: (508) 949-0151
with copy to:
Richard S. Frazer
Pryor Cashman Sherman & Flynn LLP
<PAGE>
410 Park Avenue
New York, NY 10022
Facsimile: (212) 326-0806
If to Sellers or Shareholder:
W.S. McPhee
2151 Jamieson Avenue, No. 1810
Alexandria, Virginia 22314
Facsimile: (703) 566-0972
with copy to:
Ralph M. Tener
Tener & Callahan, P.C.
8330 Boone Boulevard, Suite 401
Vienna, Virginia 22181
Facsimile: (703) 790-8105
16.5 SUCCESSORS. This Agreement shall bind and inure to the benefit of the
parties and their respective successors and permitted assigns.
16.6 No REPRESENTATIONS OR INDUCEMENTS. Each party acknowledges that it has not
been induced to enter into this Agreement by any representations, promises, or
other inducements not specifically stated in this Agreement.
16.7 FAIR INTERPRETATION. The parties acknowledge that the terms of this
Agreement have been freely negotiated and agree that this Agreement is to be
interpreted in accordance with the reasonable and fair meaning of its terms,
rather than being construed against any party as the draftsman of all or any
part.
16.8 ENFORCEMENT COSTS. In any suit or action arising under this Agreement or in
connection with the transfer of the Purchased Assets, the prevailing party shall
be entitled to recover its reasonable attorney's fees and other enforcement
costs.
16.9 APPLICABLE LAW. This Agreement shall be governed by and construed in
accordance with the laws of Virginia.
16.10 ENTIRE AGREEMENT. This document, including referenced Exhibits and
Schedules, states the complete, final, and exclusive agreement of the parties
concerning its subject and supersedes all earlier oral or written agreements,
representations, promises, negotiations, and other communications between the
parties. The terms of this Agreement may only be amended, supplemented, or
waived by a later writing signed by the parties.
<PAGE>
16.11 AUTHORITY To CONTRACT. Each person signing this Agreement on behalf of a
party represents and warrants that he has been duly authorized by said party to
sign this Agreement and bind the party thereto.
16.12 ACKNOWLEDGMENT. E ach party acknowledges and represents that it has read
this Agreement, understands it, has had adequate opportunity to consult counsel
with respect to it, and agrees to be bound by all of its terms.
[Remainder of page intentionally left blank]
<PAGE>
INTENDING TO BE LEGALLY BOUND, the parties have signed this Asset Purchase
Agreement as of the effective date stated above.
SELLERS: BUYER:
LTC AMERICAS INC. TES ACQUISITION CORP.
By: By:
----------------------------- ----------------------------------
W.S. McPHEE GERD REINIG
PRESIDENT CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SURFACEDECON CORPORATION
By:
-----------------------------
W.S. McPHEE
PRESIDENT
MCPHEE FISCHER INC.
By:
-----------------------------
W.S. MCPHEE
PRESIDENT
SHAREHOLDER:
- --------------------------------
W.S. MCPHEE
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the use of our report dated March 11, 1999, including Note
I[1] which is dated March 23, 1999, Note E which is dated July 23, 1999 and
August 27, 1999 and Note J[2] which is dated August 19, 1999, and the financial
statements for the period ended December 31, 1998 in the Annual Report on Form
10-KSB for the year ended December 31, 1998 of Teletrak Environmental Systems,
Inc.
Richard A. Eisner & Company, LLP
/s/ Richard A. Eisner & Company, LLP
New York, New York
October 13, 1999
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the use of our report dated May 29, 1998 and the financial
statements of Advanced Environmental Systems, Inc. for the periods ended
December 31, 1997 and December 31, 1996 in the Annual Report on Form 10-KSB for
the year ended December 31, 1998 of Teletrak Environmental Systems, Inc.
Baril & Smith
/s/ Baril & Smith
Woburn, Massachusetts
October 13, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from 1998
Financial Statements and is qualified in it's entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 296,709
<SECURITIES> 0
<RECEIVABLES> 236,031
<ALLOWANCES> 30,000
<INVENTORY> 365,098
<CURRENT-ASSETS> 998,590
<PP&E> 262,430
<DEPRECIATION> 80,650
<TOTAL-ASSETS> 1,181,370
<CURRENT-LIABILITIES> 639,109
<BONDS> 311,906
0
0
<COMMON> 7,253
<OTHER-SE> 1,172,875
<TOTAL-LIABILITY-AND-EQUITY> 1,181,370
<SALES> 1,580,155
<TOTAL-REVENUES> 1,580,155
<CGS> 1,002,681
<TOTAL-COSTS> 1,710,002
<OTHER-EXPENSES> 38,797
<LOSS-PROVISION> 15,000
<INTEREST-EXPENSE> 38,797
<INCOME-PRETAX> (168,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (168,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (168,644)
<EPS-BASIC> (.04)
<EPS-DILUTED> (.04)
</TABLE>
