SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
-----------------------------------------
/ / TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-30170
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TECE, INC.
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(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 88-0390657
----------- ------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
740 ST. MAURICE, SUITE 410, MONTREAL, QUEBEC, CANADA H3C 1L5
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(Address of Principal Executive Offices)
(514) 954-3665
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(Issuer's Telephone Number, Including Area Code)
N/A
-------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer (1) has filed all reports to be filed by section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Company was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. /X/ Yes / / No
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date: 25,665,757 shares of Common Stock as
of May 11, 2001.
Transitional Small Business Disclosure Format (check one): / / Yes /X/ No
TECE, INC.
FORM 10-QSB
INDEX
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Interim Consolidated Balance Sheet
as at March 31, 2001 (unaudited) and December 31, 2000 (audited)........... 3
Interim Consolidated Statement of Loss
for the three-month periods ended March 31, 2000 and 2001 (unaudited)...... 4
Interim Consolidated Statement of Shareholder's Equity (Deficiency)
for the three-month period ended March 31, 2001 (unaudited)................ 5
Interim Consolidated Statements of Cash Flows
for the three months ended March 31, 2001 and 2000 (unaudited)............. 7
Notes to Interim Consolidated Financial Statements (unaudited)............. 8
Item 2. Management's Discussion and Analysis or Plan of Operation.................. 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.................................. 17
Item 6. Exhibits and Reports on Form 8-K........................................... 17
SIGNATURES........................................................................... 18
2
PART I FINANCIAL INFORMATION
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Balance Sheet as at March 31, 2001 and December 31, 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
As at As at
March 31, December 31,
2001 2000
$ $
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash 820,718 1,921,483
Accounts receivable 381,627 545,436
Tax credits receivable 221,410 232,749
Prepaid expenses 108,552 122,253
-------------------------
1,532,307 2,821,921
FIXED ASSETS 123,355 146,990
OTHER ASSETS 6,453 7,600
-------------------------
1,662,115 2,976,511
=========================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 692,680 1,056,062
Deferred revenue 46,722 131,463
Current portion of long-term debt 45,073 47,381
-------------------------
784,475 1,234,906
-------------------------
LONG-TERM DEBT 81,542 121,472
ADVANCES FROM MANITEX CAPITAL INC 782,232 800,629
ADVANCES FROM INTASYS CORPORATION 340,315 344,941
CONVERTIBLE DEBENTURES 147,060 1,792,835
-------------------------
1,351,149 3,059,877
-------------------------
REDEEMABLE PREFERRED SHARES (4,000,000 Class "A" preferred shares,
December 31, 2000 - 4,000,000) issued and outstanding 2,046,508 2,046,508
-------------------------
SHAREHOLDERS' EQUITY (DEFICIENCY)
EXCESS OF DEFICIT OVER SHARE CAPITAL
Capital stock
25,665,757 (December 31, 2000 - 22,357,811) common shares issued
and outstanding 6,722,260 5,084,859
Deferred stock-based compensation (47,883) (74,487)
Additional paid-in capital 6,594,248 6,718,478
Accumulated other comprehensive income 266,907 227,324
Accumulated deficit (16,055,549) (15,320,954)
--------------------------
(2,520,017) (3,364,780)
--------------------------
1,662,115 2,976,511
==========================
3
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Statement of Loss
For the three-month periods ended March 31, 2001 and 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2001 2000
$ $
(unaudited) (unaudited)
REVENUE
Consulting fees 389,703 25,778
Web advertising revenue 38,085 54,000
Software sales 10,447 --
--------------------------
438,235 79,778
--------------------------
EXPENSES
Selling and administrative (including stock-based compensation expense
of $16,375; 2000 - $6,063) 1,070,617 1,612,782
Research and development, net of tax credits 70,627 17,338
Amortization of other assets 800 3,347
Depreciation of fixed assets 16,996 17,336
--------------------------
1,159,040 1,650,803
--------------------------
OPERATING LOSS (720,805) (1,571,025)
--------------------------
OTHER INCOME (EXPENSES)
Interest income 316 361
Finance fee expense -- (4,128)
Interest expense (including beneficial conversion feature on convertible
debentures of nil; 2000 -$2,571,429) (12,142) (2,664,805)
Foreign exchange gain (loss) (1,964) 4,922
--------------------------
(13,790) (2,663,650)
--------------------------
NET LOSS FOR THE PERIOD (734,595) (4,234,675)
==========================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 23,460,460 3,872,692
==========================
NET LOSS PER COMMON SHARE, BASIC AND DILUTED (0.03) (1.09)
==========================
4
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Statement of Shareholders' Equity (Deficiency)
(Unaudited)
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2001
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
3786137 Canada Inc.
TEC.com common (exchangeable - see note 1) TECE, Inc. common
--------------------------- --------------------------- ----------------------------
Number of Value of Number of Value of Number of Value of
shares issued shares shares issued shares shares issued shares
$ $ $
BALANCE AT DECEMBER 31, 2000 - - 11,913,140 5,074,409 10,444,671 10,450
Forfeited stock options of TEC.com - - - - - -
Expense on remaining TEC.com stock options - - - - - -
Common shares of TEC.com repurchased for cash - - - - - -
US$ convertible debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 4 for further details) - - 546,334 576,930 - -
CA$ convertible debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 4 for further details) - - 956,506 936,982 - -
US$ debenture with accrued interest converted to
Tec.com shares 246,976 123,488 - - - -
TEC.com shares transferred to 3786137 Canada Inc.
(see note 5 for further details) (246,976) (123,488) 1,805,106 123,489 - -
Stock-based compensation costs - - - - - -
Net loss for the period - - - - - -
Other comprehensive income
Foreign currency translation - - - - - -
Comprehensive income - - - - - -
---------------------------------------------------------------------------------
BALANCE AT MARCH 31, 2001 - - 15,221,086 6,711,810 10,444,671 10,450
---------------------------------------------------------------------------------
Accumulated Total
Additional Deferred other shareholders'
paid-in stock-based comprehensive Accumulated equity
capital compensation income (loss) deficit (deficiency)
$ $ $ $ $
BALANCE AT DECEMBER 31, 2000 6,718,478 (74,487) 227,324 (15,320,954) (3,364,780)
Forfeited stock options of TEC.com (10,229) 4,229 - - (6,000)
Expense on remaining TEC.com stock options - 22,375 - - 22,375
Common shares of TEC.com repurchased for cash (114,001) - - - (114,001)
US$ convertible debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 4 for further details) - - - - 576,930
CA$ convertible debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 4 for further details) - - - - 936,982
US$ debenture with accrued interest converted to
Tec.com shares - - - - -
TEC.com shares transferred to 3786137 Canada Inc.
(see note 5 for further details) - - - - 123,489
Stock-based compensation costs - - - - -
Net loss for the period - - - (734,595) (734,595)
Other comprehensive income
Foreign currency translation - - 39,583 - 39,583
Comprehensive income - - - - (695,012)
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BALANCE AT MARCH 31, 2001 6,594,248 (47,883) 266,907 (16,055,549) (2,520,017)
----------------------------------------------------------------------------------
5
Redeemable preferred shares
--------------------------------
Number of Value of
shares issued shares
$
BALANCE AT DECEMBER 31, 2000 4,000,000 2,046,508
Forfeited stock options of TEC.com - -
Expense on remaining TEC.com stock options - -
Common shares of TEC.com repurchased for cash - -
US$ convertible debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 4 for further details) - -
CA$ convertible debentures with accrued interest
transferred to 3786137 Canada Inc. (see
note 4 for further details) - -
US$ debenture with accrued interest converted to
Tec.com shares - -
TEC.com shares transferred to 3786137 Canada Inc.
(see note 5 for further details) - -
Stock-based compensation costs - -
Net loss for the period - -
Other comprehensive income
Foreign currency translation - -
Comprehensive income - -
-------------------------------------
BALANCE AT MARCH 31, 2001 4,000,000 2,046,508
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6
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Statement of Cash Flows
For the three-month periods ended March 31, 2001 and 2000
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
2001 2000
$ $
(unaudited) (unaudited)
Cash flows provided by (used in)
Operating activities
Net loss for the period (734,595) (4,234,675)
Adjustments for
Depreciation of fixed assets 16,996 17,336
Depreciation of other assets 800 3,347
Accrued interest on convertible debentures 9,487 81,889
Stock-based compensation expense 16,375 6,063
Accretion on convertible debentures -- 2,571,429
Change in non-cash operating working capital items
Accounts and other receivables 141,591 (16,042)
Tax credits receivable -- (77,548)
Prepaid expenses 7,990 (124)
Accounts payable, accrued liabilities and deferred revenue (402,649) (159,731)
-------------------------
(944,005) (1,808,056)
-------------------------
FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures -- 1,625,000
Repayment of long-term debt (39,930) (4,749)
Net proceeds from issuance of common shares -- 51,359
Repurchase of common shares (114,001) (352)
-------------------------
(153,931) 1,671,258
-------------------------
INVESTING ACTIVITIES
Additions to other assets -- (6,966)
Additions to fixed assets -- (15,840)
-------------------------
-- (22,806)
-------------------------
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (2,829) 158,186
-------------------------
DECREASE IN CASH (1,100,765) (1,418)
CASH - BEGINNING OF PERIOD 1,921,483 143,543
-------------------------
CASH - END OF PERIOD 820,718 142,125
=========================
7
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
March 31, 2001
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
1. BASIS OF PRESENTATION
The consolidated financial statements and related notes included herein
have been prepared by TECE, Inc. without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying unaudited interim consolidated
financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial
position of TECE, Inc. as at March 31, 2001, and the results of its
operations and its cash flows for the three months ended March 31, 2001.
All significant intercompany accounts and transactions have been
eliminated on consolidation. The results of operations for the three
months ended March 31, 2001 are not necessarily indicative of the
results that can be expected for the entire fiscal year ending December
31, 2001.
The 15,221,086 Class A Preferred Shares of 3786137 Canada Inc. are
exchangeable into TECE, Inc. and are considered to be equal to TECE,
Inc. common shares since they share all the same rights and privileges
of those shares. Consequently, these shares are included in the
calculation of the total issued and outstanding shares of TECE, Inc. as
that number is used for earnings per share and shareholders' equity
presentation.
2. NATURE OF OPERATIONS AND GOING CONCERN
a) The Corporation's mission is to improve the process of reaching
procurement decisions in the information technology (IT) industry.
Management believes that this objective can be achieved through the
provision of consulting and selection services using patented
technology, the publication of research on IT issues and the sale
or licencing of our software. Accordingly, the Corporation
generates revenue from its consulting practice, advertising banners
placed on its web site on behalf of vendors in the IT industry, and
the licencing and sale of its decision support software.
b) The accompanying financial statements have been prepared using
United States generally accepted accounting principles applicable
to a going concern. The use of such principles may not be
appropriate because, as at March 31, 2001, there was significant
doubt that the Corporation would be able to continue as a going
concern.
For the period ended March 31, 2001, the Corporation had a loss of
$734,595 and an accumulated deficit of $16.1 million.
Management has undertaken to significantly reduce costs through a
series of actions including but not limited to: the reduction in
U.S. operating expenses by way of lowering headcount, entering into
negotiations to sublet its U.S. facility and move into smaller
premises and eliminating all web promotional costs. Management is
currently actively seeking additional capital through a private
placement of either debt or equity.
8
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
March 31, 2001
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Although there is no assurance that the Corporation will be
successful in these actions, management is confident that it will
be able to improve the cash generated from operations and secure
the necessary financing to enable it to continue as a going
concern. Accordingly, these financial statements do not reflect
adjustments to the carrying value of assets and liabilities, the
reported revenues and expenses and balance sheet classifications
used that would be necessary if the going concern assumption was
not appropriate. Should it be determined that the going concern
assumption was not appropriate, these adjustments could be
material.
3. SOFTWARE SALES
Software sales revenue is recognized in accordance with the American
Institute of Certified Public Accountants (AICPA) Statement of Position
(SOP) 97-2, "Software Revenue Recognition", and the Securities Exchange
Commission (SEC) Staff Accounting Bulletin (SAB) 101. The Corporation
recognizes the revenue from software sales when the following criteria
are satisfied:
a) the fee is fixed or determinable;
b) collectibility is probable;
c) the revenue is not subject to forfeiture, refund or other
concessions; and
d) there is a signed contract.
Maintenance and subscription revenue is recognized ratably over the
contract period. Revenue attributable to technical support is based on
the average sales price of those elements and is recognized ratably on a
straight-line basis over the product's life cycle.
4. CONVERTIBLE DEBENTURES
In the three-month period ended March 31, 2001, $1,263,596 of U.S. and
Canadian denominated debentures including accrued and capitalized
interest of $264,250 totalling $1,527,846 were transferred for 1,502,840
Exchangeable Preferred Shares of 3786137 Canada Inc. In addition,
$100,000 of U.S. convertible debentures and $17,929 of accrued and
capitalized interest were converted to TEC.com shares which were
subsequently transferred for 123,489 Exchangeable Preferred Shares of
3786137 Canada Inc.
As at March 31, 2001, the convertible debentures consist of the
following:
$
12% US$ convertible debentures 125,000
Accrued and capitalized interest 22,060
-------
147,060
=======
9
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
March 31, 2001
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
5. SECONDARY OFFERING TO CANADIAN MINORITY INTEREST
On February 28, 2001, the Corporation successfully concluded its
secondary offering to the Canadian minority security holders for the
exchange of their interest in TEC.com for Exchangeable Shares on the
same terms and conditions as those offered to and accepted by the
Majority TEC.com shareholders. A portion of Canadian minority security
holders held convertible debentures which were exchanged as explained in
note 4 and the remaining Canadian minority security holders were common
shareholders that exchanged their shares of TEC.com for 1,681,605
Exchangeable Shares of 3786137 Canada Inc.
6. REPURCHASE OF COMMON SHARES OF TEC.COM
The Corporation repurchased 4 million common shares of TEC.com for
$114,000. The repurchase of these shares had no impact on the issued and
outstanding common shares used in the calculation of both the basic and
fully diluted net loss per share as presented in these financial
statements.
7. CAPITAL STOCK
The Board of Directors approved the creation of an additional stock
option plan under TECE, Inc. whereby 3,000,000 shares would be set aside
for issuance to directors and key employees. The vesting period for
directors and key employees is two and three years, respectively. The
terms, number of common shares covered by each option, as well as the
permitted frequency of the exercise of such options will be determined
by the Board of Directors. Options expire on the earlier of ten years
from the date of grant or on the date of the employee's termination.
Based on the February 21, 2001 resolution regarding the Issuance of
Stock Options to Directors and Officers of TECE, Inc., the Corporation
has granted 2,005,000 stock options at a price of US$0.75.
10
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
March 31, 2001
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
Changes in outstanding options during the three-month period ended March
31, 2001 for both plans were as follows:
Weighted
TEC.COM Exercise average
price Number exercise price
TEC.com US$ US$
Options outstanding - December 31, 2000 449,996 0.24
Cancelled 30,000 0.20
-----------------------------------------------------------
Total options outstanding - March 31, 2001: 419,996 0.24
-----------------------------------------------------------
0.20 364,996
0.50 55,000
-----------------------------------------------------------
419,996
-----------------------------------------------------------
Options exercisable - March 31, 2001 0.20 164,996 0.20
-----------------------------------------------------------
Weighted average remaining contractual life 0.20 8.9 years
0.50 9.2 years
===========================================================
Weighted
Exercise average
price Number exercise price
TEC.com US$ US$
Options outstanding - December 31, 2000 - -
Granted at $0.75 2,005,000 0.75
Total options outstanding - March 31, 2001: 2,005,000 0.75
----------------------------------------------------------
Options exercisable - March 31, 2001 0.75 465,000 0.75
----------------------------------------------------------
Weighted average remaining contractual life 0.75 9.9 years
==========================================================
11
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
March 31, 2001
- --------------------------------------------------------------------------------
(expressed in U.S. dollars)
8. SEGMENT INFORMATION
Management has organized the Corporation under one reportable segment,
being the development and marketing of software and related services.
All of the Corporation's long-lived assets are located in Canada and the
United States.
The summary of revenue by geographic location in which the Corporation's
customers are located is as follows:
March 31, March 31,
2001 2000
$ $
United States 415,920 69,000
Canada 15,623 10,778
Other 6,692 -
-----------------------------------
438,235 79,778
===================================
During the three-month period ended March 31, 2001, there were three
customers from which 10% or more of the Corporation's total revenues
were derived: A, B and C, accounting for 10%, 39% and 11% of total
revenue respectively. During the three-month period ended March 31,
2000, there were also three customers from which 10% or more of the
Corporation's total revenues were derived: D, E and F, accounting for
13%, 13% and 68% of total revenue respectively.
The summary of long-lived assets by geographic location is as follows:
March 31, December 31,
2001 2000
$ $
United States 121,112 140,220
Canada 2,243 6,770
----------------------------------
123,355 146,990
----------------------------------
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
FORWARD LOOKING STATEMENTS AND RISK FACTORS
The discussion in this Quarterly Report on Form 10-QSB contains forward-looking
statements that involve risks and uncertainties. Our actual results may differ
materially from those discussed herein. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in the
section entitled "Risk Factors" of this report, as well as those risks discussed
in this section and elsewhere in this report. We currently anticipate that our
current cash balances, together with cash flows from operations will only be
sufficient to meet the anticipated liquidity needs for working capital and
capital expenditures until June 30, 2001. See "Liquidity and Capital Resources"
and "Risk Factors."
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2001 TO THE THREE MONTHS ENDED
MARCH 31, 2000
REVENUE
For the three months ended March 31, 2001 we had revenue of $438,235 and
generated a net loss of $734,595 ($0.03 per share) compared to revenue of
$79,778 and a net loss of $4,234,675 ($1.09 per share) for the three months
ended March 31, 2000. The increase in revenue was primarily from the $389,703 of
consulting revenue generated in the quarter ended March 31, 2001 compared to
$25,778 of consulting revenue for the quarter ended March 31, 2000. In the first
quarter ended March 31, 2001 software sales were $10,447 compared to zero sales
in the first quarter ended March 31, 2000. These software sales are the result
of several factors, not the least of which are a renewed sales effort and the
promotion of the proprietary technology on our Web site. We expect that the sale
of our decision support software and the licensing of existing and to be
developed knowledge bases will represent an increasing percentage of our total
revenue in future periods.
SELLING AND ADMINISTRATIVE EXPENSES
Our selling and administrative costs for the three months ended March 31, 2001
and 2000 represent 92.37% and 97.70%, respectively, of our total operating
expenses for those periods. The composition of these expenses and the reasons
for changes in each of these components are explained in the following table and
the paragraphs that follow.
March 31, % March 31, %
2001 2000
--------- --- ---------- ---
Salaries and wages ..................... $ 640,202 60% $ 743,815 46%
Stock based compensation expense ....... 16,375 1% 6,063 1%
Advertising and promotion expense ...... 10,000 1% 571,369 35%
Consulting fees ........................ 96,465 9% 21,238 1%
Rent ................................. 52,727 5% 31,612 2%
Other ................................ 254,848 24% 238,685 15%
TOTAL SELLING AND ADMINISTRATIVE EXPENSES $1,070,617 100% $1,612,782 100%
13
Salaries and wages
Included in our salary and wages are the following expenses:
o Salaries paid to employees
o Health benefits
o Vacation accruals
o Bonuses and commissions
o Employer contributions to social security, medical aid and other
social programs required by State, Provincial and Federal
authorities
Salaries and wages for the three months ended March 31, 2001 were $640,202
compared to $743,815 for the same period in the prior year. The $103,613
decrease in salaries and wages was the result of reduced staff levels in our
wholly-owned U.S. operating subsidiary (a saving of approximately $168,000)
offset by increased salary and wage costs for our Canadian subsidiary (a cost of
approximately $124,000). The reduced staffing costs of our U.S. subsidiary were
the result of some limited restructuring and attrition in the last half of
fiscal 2000 as we recognized that advertising revenue was not going to provide
the anticipated offset to the costs of hosting original research content on our
Web site.
Stock based compensation expense
The stock based compensation expense for the three months ended March 31, 2001
was $16,375 compared to $6,063 for the comparative period ended March 31, 2000.
The increase of $10,312 is due to changes in the underlying number of options
outstanding.
Advertising and promotion expense
Advertising and promotion expenses decreased to $10,000 in the first quarter of
2001 from $571,369 in the first quarter of 2000, a decrease of 98%. Subsequent
to the launch of our Web site in December 1999, we advertised both on the World
Wide Web and in more traditional media for a period of four to five months. In
subsequent months, because we were unable to assess the impact or the return on
investment of these advertising campaigns, we decided to discontinue all paid
advertising until more reliable methods of assessment become available.
Consulting fees
Consulting fees were $96,465 compared to $21,238 for the three months ended
March 31, 2000. This increase of approximately $75,000 is largely attributable
to marketing and sales consultants hired to assist in our efforts to identify
market needs and develop sales strategies to launch our proprietary technology.
Rent
Rent for the three months ended March 31, 2001 and 2000 was $52,727 and $31,612
respectively. The major reason for the increase of approximately $21,000 in our
rent expense was due to an escalation clause in the lease agreement for our
Woburn, Massachusetts facility and an increase in the rent for our Montreal,
Quebec facility on renewal of that existing lease.
INTEREST EXPENSE
Interest expense decreased to $12,142 from $2,664,805 for the three months ended
March 31, 2000.
The fiscal 2000 interest expense was unusually high because of the beneficial
conversion feature that arose due to the March 31, 2000 issue of $3,000,000 6%
convertible debenture in our subsidiary TEC.com at a conversion price that was
lower than the market price of the underlying TEC.com shares. As a result of
this issue the debenture holders had an intrinsic benefit if they converted
their debentures into shares. In recognition of this, the expense for the three
months ended March 31, 2000 reflected a non-recurring non cash charge of
$2,571,429 that represented the difference between the conversion price and the
market price of the underlying shares. Furthermore, effective November 9, 2000
these $3,000,000 6% convertible debentures were exchanged for exchangeable
preferred shares ("Exchangeable Shares") of our subsidiary, 3786137 Canada Inc.
("3786137"), and consequently, and in accordance with the exchange agreement,
all interest subsequent to September 30, 2000 was waived.
In addition to the above, effective February 28, 2001, debentures having a face
value of $1,263,596 were also exchanged for Exchangeable Shares of 3786137 and
in accordance with the exchange agreement all interest subsequent to September
30, 2000 was waived.
14
LIQUIDITY AND CAPITAL RESOURCES
We have historically satisfied our cash requirements primarily through private
placements of equity or debenture securities. In the three months ended March
31, 2001 our net cash position deteriorated by $1,100,765 for the reasons
explained in the following paragraphs.
Cash used in operating activities
Net cash used in operating activities totaled $944,005 for the three months
ended March 31, 2001 compared to $1,808,056 for the three months ended March 31,
2000. The decreased use of our cash in the first quarter of 2001 is largely
explained by the reduction in our selling and administrative expenses and an
increase in our revenues. We reduced the cash required to support the creation
of original research content on our Web site by reducing our headcount and
significantly reduced our advertising and promotion expenses.
At March 31, 2001 our receivables are $381,627 and represent 87% of our first
quarter's revenue. This relatively high percentage is largely the result of the
timing of our invoices since on our consulting engagements we only invoice on
achieving contractual milestones. In the month of March we invoiced $256,417 to
all customers. We have a good history of collecting our receivables from our
customers and consequently are confident that we will be able to collect on
these amounts.
Cash used in financing activities
In the three months ended March 31, 2001 financing activities used cash of
$153,931 as follows: $39,930 to repay debt and $114,001 to repurchase 4,114,740
common shares of our subsidiary TEC.com. In contrast to this, in the three
months ended March 31, 2000 we raised an additional $1,625,000 through the
issuance of 6% convertible debentures that were convertible, at a price of $0.21
per share, into TEC.com common shares and an additional $51,359 from the issue
of common shares of TEC.com.
Cash used in investing activities
In the three months ended March 31, 2001 no cash was used or generated on
investing activities compared to the use of $22,806 of cash for the three months
ended March 31, 2000.
We currently anticipate that our current cash balances, together with cash flows
from operations will only be sufficient to meet the anticipated liquidity needs
for working capital and capital expenditures until June 30, 2001. We are
currently actively seeking additional capital through the issuance of debt or
equity.
RISK FACTORS
We operate in a rapidly changing environment that involves a number of risks,
some of which are beyond our control. The following discussion highlights the
most material of the risks.
WE WILL NEED ADDITIONAL FINANCING TO CONTINUE OUR OPERATIONS AS PLANNED.
We currently anticipate that our available cash and the cash flows from
operations will only suffice to finance our activities until the end of the
second quarter of fiscal 2001.
If we issue equity securities, our present stockholders will suffer dilution. If
we issue debt securities, we will face the risks associated with debt, including
rises in interest rates and insufficient cash flow to pay the principal of and
interest on our debt securities. We are unable to predict whether additional
equity or debt financing will be available to us, on favourable terms or at all.
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Our future liquidity and capital requirements will depend upon numerous factors,
some, but not all, of which are listed below:
o Our ability to sell our advertising space on our Web site at current
market rates;
o Our ability to deliver on our consulting mandates, which will be
influenced by our ability to find and retain adequately qualified staff
for our consulting practice;
o The pace of expansion of our operations;
o The need to fund acquisitions of complementary products, technologies or
businesses.
WE EXPECT THAT WE WILL INCUR LOSSES FOR THE FORESEEABLE FUTURE.
We have had net operating losses since being founded and currently have an
accumulated deficit. These losses result from selling, general and
administrative expenses. We expect to have substantial additional expenses over
the next several years as part of the process of marketing and selling our
products and services. We expect that such expenses will result in additional
losses. Our future profitability depends, in part, on:
o Entering into agreements to develop and commercialize products;
o Developing the capacity to market products or entering into agreements
with others to do so; |X| Market acceptance of our products;
o The ability to obtain additional funding; and
o The ability to achieve certain product development milestones.
We may not achieve any or all of these goals and, thus, are unable to predict
whether we will ever achieve significant revenues or profits. Even if we receive
funding of one or more of our products, we may not achieve significant
commercial success.
RAPID TECHNOLOGICAL CHANGE COULD RENDER OUR PRODUCTS OBSOLETE OR
NON-COMPETITIVE.
Major technological changes can occur quickly. The development by competitors of
technologically improved or different products may make our product candidates
obsolete or non-competitive.
PROPRIETARY PROTECTION FOR OUR PRODUCTS IS IMPORTANT AND UNCERTAIN.
The following factors are important to our success:
o Receiving patent protection for our products;
o Maintaining our trade secrets;
o Not infringing on the proprietary rights of others; and
o Preventing others from infringing our proprietary rights.
We can protect our proprietary rights from unauthorized use by third parties
only if these rights are covered by valid and enforceable patents or are
effectively maintained as trade secrets.
We try to protect our proprietary position by filing United States, Canadian and
foreign patent applications related to our proprietary technology, inventions
and improvements that are important to the development of our business.
Enforceability of patents cannot be projected with certainty. Patents, if
issued, may be challenged, invalidated or circumvented. Any patents that we own
or license from others may provide no protection against competitors. Our
pending patent applications, those we may file in the future, or those we may
license from third parties, may not result in patents being issued. If patents
are issued, they may not provide us with proprietary protection or competitive
advantages against competitors with similar technology. Furthermore, others may
independently develop similar technologies or duplicate any technology that we
have developed. The laws of certain foreign countries do not protect our
intellectual property rights to the same extent as the laws of the United States
and Canada.
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We also rely on trade secrets, know-how and technology, which we try to protect
by entering into confidentiality agreements with parties that have access to it,
such as our corporate partners, collaborators, employees and consultants. Any of
these parties can reach the agreement and disclose our confidential information
or our competitors might learn of the information in some other way.
WE CAN GIVE NO ASSURANCES THAT OUR FORWARD-LOOKING STATEMENTS WILL BE CORRECT.
Certain forward-looking statements, including statements regarding our business
and financing plans, are contained in this Quarterly Report on Form 10-QSB.
These forward-looking statements reflect our views with respect to future events
and financial performance. The words, "believe," "expect," "plans" and
"anticipate" and similar expressions identify forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, we can give no assurance that such expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from such expectations are disclosed in this Quarterly Report on Form
10-QSB. All subsequent written and oral forward-looking statements attributable
to us are expressly qualified in their entirety by the cautionary statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
PART 2. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the first quarter of 2001, we issued a total of 3,307,946 shares of
our common stock in trust to provide for the exchange of 3,307,946 Exchangeable
Shares of our subsidiary 3786137 Canada Inc. which were issued as consideration
for the acquisition of shares and convertible debentures of Tec.com. Following
this transaction, we now own approximately 98% of Tec.com on a fully diluted
basis. The securities were issued in reliance on the exemption from registration
under the Securities Act of 1933, as amended (the "Securities Act"), provided
for in Rule 903 of Regulation S ("Regulation S") to a trust for the benefit of
the holders of Exchangeable Shares all of whom are non-U.S. Persons (as such
term is defined in Rule 902 of Regulation S). All such securities were deemed by
the Company to be restricted securities and were appropriately legended and
restricted as to subsequent transfer. No underwriter was involved in such
transaction. The company derived no proceeds from this issuance, although
debentures of our subsidiary Tec.com with a principal amount of $1,263,596 were
retired as a result of the transaction.
On February 22, 2001 we granted options under our stock option plan to
acquire a total of 2,005,000 shares of our common stock at a price of $0.75 per
share to eight beneficiaries. These options can be exercised until February 22,
2006 and are subject to various vesting periods.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2001.
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: May 14, 2001 TECE, INC.
By: /s/ Andre Telmosse
------------------
Andre Telmosse
President and CEO
By: /s/ Michael Clayton
-------------------
Michael Clayton
Vice President and CFO
(Principal Financial and Accounting Officer)
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