SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB/A
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 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.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
NEVADA 88-0390657
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(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
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(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 August 9, 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
Consolidated Balance Sheet at June 30, 2001
(unaudited) and December 31, 2000 (audited)...................................3
Interim Consolidated Statement of Operations for the six-month
and three-month periods ended June 30, 2001 and 2000 (unaudited)..............4
Interim Consolidated Statement of Shareholder's Equity (Deficiency)
for the six-month period ended June 30, 2001 (unaudited)......................5
Interim Consolidated Statements of Cash Flows
for the six-months ended periods June 30, 2001 and 2000 (unaudited)..........7
Notes to Interim Consolidated Financial Statements (unaudited)................8
Item 2. Management's Discussion and Analysis or Plan of Operation....................14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..........................22
Item 6. Exhibits and Reports on Form 8-K.............................................23
SIGNATURES 23
TECE, INC.
(formerly TEC Technology Evaluation.Com Corporation)
Interim Consolidated Balance Sheet
(expressed in U.S. dollars)
AS AT AS AT
JUNE 30, DECEMBER 31,
2001 2000
$ $
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash 95,754 1,921,483
Accounts receivable 292,299 545,436
Tax credits receivable 319,275 232,749
Prepaid expenses 107,356 122,253
------------------------------------------------
814,684 2,821,921
================================================
FIXED ASSETS 110,523 146,990
OTHER ASSETS 5,911 7,600
------------------------------------------------
931,118 2,976,511
------------------------------------------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 910,108 1,056,062
Promissory note payable to related company (note 4) 37,000 -
Deferred revenue 47,266 131,463
Current portion of long-term debt 46,927 47,381
------------------------------------------------
1,041,301 1,234,906
------------------------------------------------
LONG-TERM DEBT 81,059 121,472
ADVANCES FROM RELATED COMPANIES 1,148,187 1,145,570
CONVERTIBLE DEBENTURES 147,060 1,792,835
------------------------------------------------
1,376,306 3,059,877
------------------------------------------------
REDEEMABLE PREFERRED SHARES (4,000,000 Class "A" preferred shares)
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 6,722,259 5,084,859
Deferred stock-based compensation (34,296) (74,487)
Additional paid-in capital 6,589,702 6,718,478
Accumulated other comprehensive income 231,016 227,324
Accumulated deficit (17,041,678) (15,320,954)
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(3,532,997) (3,364,780)
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931,118 2,976,511
================================================
The accompanying notes are an integral part of these financial statements.
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Statement of
Operations (Unaudited)
FOR THE SIX-MONTH AND THREE-MONTH PERIODS ENDED JUNE 30, 2001 AND 2000
(expressed in U.S. dollars)
6 MONTHS 6 MONTHS 3 MONTHS 3 MONTHS
ENDED JUNE ENDED JUNE ENDED JUNE ENDED JUNE
30, 2001 30, 2000 30, 2001 30, 2000
$ $ $ $
REVENUE
Consulting fees 575,399 233,233 185,696 207,455
Web advertising revenue 61,465 135,000 23,380 81,000
Software revenue 29,519 -- 19,072 --
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666,383 368,233 228,148 288,455
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EXPENSES
Selling and administrative (including stock-based compensation expense, 2,205,666 2,038,903 1,135,049 426,122
(note 9)
Research and development, net of tax credits 125,306 38,824 54,679 21,485
Depreciation of fixed assets 57,009 39,785 39,213 19,103
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2,387,981 2,117,512 1,228,941 466,710
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OPERATING LOSS (1,721,598) (1,749,279) (1,000,793) (178,255)
---------------------------------------------------------
OTHER INCOME (EXPENSES)
Interest expense (including beneficial conversion feature on (19,898 (2,748,085) (8,072) (79,513)
convertible debentures (note 10)
Foreign exchange gain (loss) 20,772 (75,301) 22,736 (80,222)
---------------------------------------------------------
874 (2,823,386) 14,664 (159,735)
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NET LOSS FOR THE PERIOD (1,720,724) (4,572,665) (986, 129) (337,990)
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WEIGHTED AVERAGE NUMBER OF COMMON SHARES 25,054,372 3,888,309 25,665,757 3,903,926
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NET LOSS PER COMMON SHARE, BASIC AND DILUTED (0.07) (1.18) (0.04) (0.09)
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The accompanying notes are an integral part of these financial statements.
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Statement of Shareholders' Equity (Deficiency) (Unaudited)
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2001
(expressed in U.S. dollars)
3786137
CANADA INC.
TEC.Com (EXCHANGEABLE
COMMON -NOTE 1)
------ --------
NUMBER OF VALUE OF NUMBER OF VALUE OF
SHARES ISSUED SHARES SHARES ISSUED SHARES
$ $
BALANCE AT DECEMBER 31, 2000 - - 11,913,140 5,074,409
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
settled for 3786137 Canada Inc. (note 5) - - 546,334 576,930
CA$ convertible debentures with accrued interest
settled for 3786137 Canada Inc. (note 5) - - 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.
(note 6) (246,976) (123,488) 1,805,106 123,488
3786137 Canada Inc. exchangeable preferred shares
exchanged for TECE, Inc. common shares
(note 1) - - (5,815,387) (2,564,322)
Stock-based compensation costs - - - -
Net loss for the period - - - -
Other comprehensive income
Foreign currency translation - - - -
Comprehensive income - - - -
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BALANCE AT JUNE 30, 2001 - - 9,405,699 4,147,487
===============================================================
TECE
INC.
COMMON
------
ACCUMULATED
ADDITIONAL DEFERRED OTHER
NUMBER OF VALUE OF PAID-IN STOCK-BASED COMPREHENSIVE
SHARES ISSUED SHARES CAPITAL COMPENSATION INCOME
$ $ $ $
BALANCE AT DECEMBER 31, 2000 10,444,671 10,450 6,718,478 (74,487) 227,324
Forfeited stock options of TEC.com - - (14,775) 6,108 -
Expense on remaining TEC.com stock options - - (114,000) 34,083 -
Common shares of TEC.com repurchased for cash - - - - -
US$ convertible debentures with accrued interest
settled for 3786137 Canada Inc. (note 5) - - - - -
CA$ convertible debentures with accrued interest
settled for 3786137 Canada Inc. (note 5) - - - - -
US$ debenture with accrued interest converted to
Tec.com shares - - - - -
TEC.com shares transferred to 3786137 Canada Inc.
(note 6) - - - - -
3786137 Canada Inc. exchangeable preferred shares
exchanged for TECE, Inc. common shares
(note 1) 5,815,387 2,564,322 - - -
Stock-based compensation costs - - - - -
Net loss for the period - - - - -
Other comprehensive income
Foreign currency translation - - - - 3,692
Comprehensive income - - - - -
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BALANCE AT JUNE 30, 2001 16,260,058 2,574,772 6,589,702 (34,296) 231,016
===============================================================================
REDEEMABLE PREFERRED
SHARES
------
TOTAL
SHAREHOLDERS'
ACCUMULATED EQUITY NUMBER OF VALUE OF
DEFICIT (DEFICIENCY) SHARES ISSUED SHARES
$ $ $
BALANCE AT DECEMBER 31, 2000 (15,320,954) (3,364,780) 4,000,000 2,046,508
Forfeited stock options of TEC.com - (8,667) - -
Expense on remaining TEC.com stock options - 34,083 - -
Common shares of TEC.com repurchased for cash - (114,001) - -
US$ convertible debentures with accrued interest
settled for 3786137 Canada Inc. (note 5) - 576,930 - -
CA$ convertible debentures with accrued interest
settled for 3786137 Canada Inc. (note 5) - 936,982 - -
US$ debenture with accrued interest converted to
Tec.com shares - 123,488 - -
TEC.com shares transferred to 3786137 Canada Inc.
(note 6) - - - -
3786137 Canada Inc. exchangeable preferred shares
exchanged for TECE, Inc. common shares
(note 1) - - - -
Stock-based compensation costs - - - -
Net loss for the period (1,720,724) (1,720,724) - -
Other comprehensive income
Foreign currency translation - 3,692 - -
----------
Comprehensive income - (1,717,032) - -
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BALANCE AT JUNE 30, 2001 (17,041,678) (3,532,997) 4,000,000 2,046,508
===================================================================
The accompanying notes are an integral part of these financial statements.
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Interim Consolidated Statement of Cash Flows
Unaudited
FOR THE SIX-MONTH PERIOD ENDED JUNE 30, 2001 AND 2000
(expressed in U.S. dollars)
2001 2000
$ $
CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES
Net loss for the period (1,720,724) (4,572,665)
Adjustments for:
Depreciation of fixed assets 57,009 39,785
Accrued interest on convertible debentures and advances 13,380 269,601
Stock-based compensation expense 25,416 (966,875)
Accretion on convertible debentures -- 2,571,429
Change in non-cash operating working capital items
Accounts receivables 244,601 (146,403)
Tax credits receivable (87,569) (155,279)
Prepaid expenses 13,543 654
Accounts payable, accrued liabilities and deferred revenue (215,838) 322,592
------------------------
(1,670,182) (2,637,161)
------------------------
FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures -- 1,625,000
Repayment of long-term debt (40,413) (12,271)
Net proceeds from issuance of common shares -- 72,026
Repurchase of common shares (114,001) (487)
Proceeds from issuance of notes payable to related companies 37,000 500,000
Bank indebtedness -- 90,444
Proceeds from advances from related company -- 286,913
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(117,414) 2,561,625
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INVESTING ACTIVITIES
Additions to other assets -- (7,113)
Additions to fixed assets, net of investment tax credits (21,450) (15,941)
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(21,450) (23,054)
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EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (16,683) (16,678)
-------------------------
DECREASE IN CASH (1,825,729) (115,268)
CASH - BEGINNING OF PERIOD 1,921,483 143,543
-------------------------
CASH - END OF PERIOD 95,754 28,275
==========================
The accompanying notes are an integral part of these financial statements.
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
Unaudited
JUNE 30, 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 June 30, 2001 and 2000, and the results of
its operations and its cash flows for the six months ended June 30, 2001
and 2000. All significant intercompany accounts and transactions have
been eliminated on consolidation. The results of operations for the six
months ended June 30, 2001 are not necessarily indicative of the results
that can be expected for the entire fiscal year ending December 31,
2001.
The 9,405,699 Class A Preferred Shares of 3786137 Canada Inc.
outstanding as of June 30, 2001 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.
During Q2 2001, 5,815,387 Class A Preferred Shares of 3786137 Canada
Inc. were exchanged for TECE, Inc. common shares.
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 June 30, 2001, there was substantial
doubt that the Corporation would be able to continue as a going
concern.
For the period ended June 30, 2001, the Corporation had a loss of
$1,720,724 and an accumulated deficit of $17 million.
Management has continued costs rationalization initiated in Q1
and is actively seeking additional capital. A new business model
that has promising revenue opportunities is currently under
development.
(1)
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
Unaudited
JUNE 30, 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 REVENUE
Software 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 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. PROMISSORY NOTE PAYABLE TO RELATED COMPANY
The promissory note payable to Intasys Corporation bears interest at a
rate of 10% per annum and is payable on demand.
5. CONVERTIBLE DEBENTURES
In the six-month period ended June 30, 2001, $1,249,662 of U.S. and
Canadian denominated debentures including accrued and capitalized
interest of $264,250 totalling $1,513,912 were settled through the
issuance of 1,502,840 Exchangeable Preferred Shares of 3786137 Canada
Inc. In addition, $100,000 of U.S. convertible debentures and $23,488 of
accrued and capitalized interest were converted to 246,976 TEC.com
shares, which were subsequently transferred for 123,488 Exchangeable
Preferred Shares of 3786137 Canada Inc on a 2 for 1 basis.
(2)
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
Unaudited
JUNE 30, 2001
(expressed in U.S. dollars)
The convertible debentures consist of the following:
AS AT AS AT
JUNE 30, DECEMBER 31,
2001 2000
$ $
12% US$ convertible debentures 125,000 1,488,596
Accrued and capitalized interest 22,060 304,239
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147,060 1,792,835
======= =========
6. 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 5 and the remaining Canadian minority security holders were common
shareholders that exchanged their shares of TEC.com for 1,681,618
Exchangeable Shares of 3786137 Canada Inc.
7. REPURCHASE OF COMMON SHARES OF TEC.COM
The Corporation repurchased 4 million common shares of TEC.com for
$114,001.
8. 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$0.75.
(3)
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
Unaudited
JUNE 30, 2001
(expressed in U.S. dollars)
Changes in outstanding options during the six-month period ended June
30, 2001 for both plans were as follows:
WEIGHTED
EXERCISE AVERAGE
PRICE NUMBER EXERCISE PRICE
TEC.com US$ US$
Options outstanding - December 31, 2000 449,996 0.24
Cancelled 43,333 0.20
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Total options outstanding - June 30, 2001 406,663 0.24
----------------------------------------------
0.20 351,663
0.50 55,000
----------------------------------------------
406,663
==============================================
Options exercisable - June 30, 2001 0.20 154,663 0.20
0.50 18,333 0.50
----------------------------------------------
172,996
==============================================
Weighted average remaining contractual life 0.20 8.8 years
0.50 8.9 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 - June 30, 2001 2,005,000 0.75
------------------------------------------------
Options exercisable - June 30, 2001 0.75 590,000 0.75
================================================
Weighted average remaining contractual life 0.75 9.7 years
================================================
(4)
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
Unaudited
JUNE 30, 2001
(expressed in U.S. dollars)
9. SELLING AND ADMINISTRATIVE
Selling and administrative expenses include stock-based compensation
expense (reversal) as follows:
6 MONTHS 6 MONTHS 3 MONTHS ENDED 3 MONTHS
ENDED ENDED JUNE 30, ENDED
JUNE 30, JUNE 30, 2001 JUNE 30,
2001 2000 $ 2000
$ $ $
25,416 (966,875) 9,041 (972,438)
----------------------------------------------------------------------------------------
10. INTEREST EXPENSE
Interest expense includes beneficial conversion feature on convertible
debentures as follows:
6 MONTHS 6 MONTHS 3 MONTHS ENDED 3 MONTHS
ENDED ENDED JUNE 30, ENDED
JUNE 30, JUNE 30, 2001 JUNE 30,
2001 2000 $ 2000
$ $ $
- 2,571,429 - -
------------------------------------------------------------------------------------
11. 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:
6 MONTHS 6 MONTHS 3 MONTHS ENDED 3 MONTHS
ENDED ENDED JUNE 30, ENDED
JUNE 30, JUNE 30, 2001 JUNE 30,
2001 2000 $ 2000
$ $ $
United States 641,984 321,587 226,012 252,587
Canada 17,759 46,646 2,136 35,868
Other 6,640 - - -
----------------------------------------------------------------------------------
666,383 368,233 228,148 288,455
==================================================================================
(5)
TECE, INC.
(formerly TEC TechnologyEvaluation.Com Corporation)
Notes to Interim Consolidated Financial Statements
Unaudited
JUNE 30, 2001
(expressed in U.S. dollars)
During the six-month period ended June 30, 2001, there were two
customers from which 10% or more of the Corporation's total revenues
were derived: A and B accounting for 13% and 36% of total revenue
respectively. During the six-month period ended June 30, 2000, there
were two customers from which 10% or more of the Corporation's total
revenues were derived: C and D accounting for 38% and 31% of total
revenue respectively.
The summary of long-lived assets by geographic location is as follows:
JUNE 30, DECEMBER 31,
2001 2000
$ $
United States 107,320 140,220
Canada 3,203 6,770
-----------------------------------------------
110,523 146,990
===============================================
12. NEW ACCOUNTING STANDARDS
On June 29, 2001, the FASB approved its proposed Statements of Financial
Accounting Standards No. 141 (SFAS 141), Business Combinations, and SFAS
142,Goodwill and Other Intangible Assets. The provisions of SFAS 141 and
SFAS 142 are effective for fiscal years beginning on or after January 1,
2002 with early adoption permitted under certain circumstances. In all
cases, the standard must be adopted at the beginning of a fiscal year
and retroactive adoption is not permitted. FAS 141 requires all business
combinations to be accounted for under the purchase method and requires
the separate recognition of intangible assets apart from goodwill if
criteria are met. FAS 142 prohibits the amortization of goodwill and
indefinite life intangible assets. Instead, goodwill and intangible
assets are to be written down whenever carrying value exceeds fair
value. Intangible assets that do not have an indefinite life must
continue to be amortized. The adoption of SFAS No. 141 and 142 is not
expected to have any material impact on the Corporation's financial
statements.
13. SUBSEQUENT EVENT
Subsequent to June 30, 2001, a shareholder, Intasys Corporation advanced
to the Corporation $263,000, evidenced by a promissory note payable on
demand bearing interest at a rate of 10% per annum.
(6)
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. The 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. Management currently anticipates
that the current cash balances, cash flows from operations and advances from
related companies will only be sufficient to meet the anticipated liquidity
needs for working capital and capital expenditures until August 31, 2001. See
"Liquidity and Capital Resources" and "Risk Factors".
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 2001 TO THE SIX MONTHS ENDED JUNE
30, 2000
REVENUE
Revenue for the first six months ended June 30, 2001 increased to $666,383
compared with $368,233 for the same period last year, which represents an
increase of 81%. The increase in revenue is primarily attributable to consulting
fees, which were at $575,399 for the first six months compared with $233,233 for
the same period last year. The net loss for the first six months was $1,720,724
($0.07 per share) compared with a net loss of $4,572,665 ($1.18 per share) for
the same period last year.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the six months ended June 30, 2001 and
2000 represented 92.37% and 96.29%, respectively, of the total operating
expenses for those periods. The composition of these expenses and the reasons of
significant changes in each of these components are explained in the following
table and the paragraphs that follow.
June 30, % June 30, %
2001 2000
---------- ---- ---------- ----
Salaries and wages ................. $1,405,587 64% $1,589,276 78%
Stock based compensation expense.... 25,416 1% (966,875) (47%)
Advertising and promotion expense... - - 800,466 39%
Professional fees .................. 393,203 18% 230,929 11%
Rent ............................... 162,240 7% 62,288 3%
Other .............................. 219,220 10% 322,819 16%
------- --- ------- ---
TOTAL $2,205,666 100% $2,038,903 100%
---------- ---- ---------- ----
SALARIES AND WAGES
Salaries and wages for the six months ended June 30, 2001 were $1,405,587
compared to $1,589,276 for the same period last year. The $183,689 decrease is
due to reduced staff in our wholly-owned U.S. operating subsidiary (a saving of
approximately $354,000) offset by increased expenses for our Canadian subsidiary
(approximately $190,000). The reduced expenses of our U.S. subsidiary were the
result of some limited restructuring and attrition in the last half of fiscal
2000.
STOCK BASED COMPENSATION EXPENSE
The stock based compensation expense for the six months ended June 30, 2001 was
$25,416 compared to a recovery of $966,875 for the same period last year. The
expense of $25,416 in 2001 is due to amortization of deferred stock based
compensation. The recovery of previously recorded stock based compensation
expenses of $966,875 in 2000 resulted from a repurchase of 2,000,000 of TEC.com
common shares that were issued at no cost in fiscal 1999.
ADVERTISING AND PROMOTION EXPENSES
There were no advertising and promotion expenses in the first six months of 2001
compared to $800,466 in the first six months of 2000. Subsequent to the launch
of our Internet Web site in December 1999, the Company advertised both on the
World Wide Web and in more traditional media for five months. Subsequently,
management was unable to assess the impact or the return on investment of these
advertising campaigns and decided to discontinue all paid advertising until more
reliable methods of assessment are available.
PROFESSIONAL FEES
Professional fees were $393,203 compared to $230,929 for the six months ended
June 30, 2000. This increase of approximately $162,000 was largely attributable
to legal and accounting fees increased due to public Company's filing
requirements and marketing and sales consultants hired to assist in efforts to
identify market needs and develop sales strategies to launch the Company'
services.
RENT
Rental costs for office premises for the six months ended June 30, 2001 and 2000
were $162,240 and $62,288 respectively. The increase of approximately $100,000
is attributable to a change of the Company's Boston facility. The previous
facility is now available for sublease, for which a reserve for vacancy has been
accrued.
INTEREST EXPENSE
Interest expense decreased to $19,898 from $2,748,085 for the six months ended
June 30, 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
a $3,000,000 6% convertible debenture in our subsidiary TEC.com. These
debentures were issued at a conversion price 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 six months ended June 30, 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 Canada"), and
consequently, and in accordance with the exchange agreement, all interest in
respect of such debentures accruing subsequent to September 30, 2000 was waived.
In addition to the above, effective February 28, 2001, debentures having a face
value of $1,249,662 were also settled for Exchangeable Shares of 3786137 Canada
and in accordance with the exchange agreement all interest in respect of such
debentures accruing subsequent to September 30, 2000 was waived.
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2001 TO THE THREE MONTHS ENDED
JUNE 30, 2000
REVENUE
Revenue for the three months ended June 30, 2001 decreased to $228,148 compared
with $288,455 for the same period last year, which represents a decrease of 21%.
The decrease is mainly related to a decrease in Web advertising revenue, which
was at $23,380 for the three months ended June 30, 2001 compared with $81,000
for the same period last year. The decrease of Web advertising revenue is due to
a shortage of inventory in the three months ended June 30, 2001. The net loss
for the three months ended June 30, 2001 was $986,129 ($0.04 per share) compared
with a $337,990 ($0,09 per share) net loss for the same period last year.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for the three months ended June 30, 2001 and
2000 represent 92.36% and 91.30%, respectively, of total operating expenses for
those periods. The composition of these expenses and the reasons of significant
changes in each of these components are explained in the following table and the
paragraphs that follow.
June 30, % June 30, %
2001 2000
--------- ---- --------- -----
Salaries and wages ................. $ 672,005 58% $ 855,870 202%
Stock based compensation expense.... 9,041 1% (972,438) (228%)
Advertising and promotion expense... - - 232,151 54%
Professional fees .................. 167,577 15% 53,138 12%
Rent ............................... 109,742 10% 30,963 7%
Other .............................. 176,684 16% 226,438 53%
------- --- ------- ---
TOTAL $1,135,049 100% $ 426,122 100%
============================================
SALARIES AND WAGES
Salaries and wages for the three months ended June 30, 2001 were $672,005
compared to $855,870 for the same period last year. The $183,865 decrease was
the result of reduced staff level in our wholly-owned U.S. operating subsidiary
(a saving of approximately $270,000) offset by increased expenses for our
Canadian subsidiary (approximately $130,000). The reduced staffing expenses of
our U.S. subsidiary were the result of some limited restructuring and attrition
in the last half of fiscal 2000.
STOCK BASED COMPENSATION EXPENSE
The stock based compensation expense for the three months ended June 30, 2001
was $9,041 compared to a recovery of $972,438 for the same period last year. The
expense of $9,041 in 2001 is due to amortization of deferred stock based
compensation. The recovery of previously recorded stock based compensation
expenses of $972,438 in 2000 resulted from a repurchase of 2,000,000 of TEC.com
common shares that were issued at no cost in fiscal 1999.
ADVERTISING AND PROMOTION EXPENSES
There were no advertising and promotion expenses in the second quarter of 2001
compare to $232,151 in the same period last year due to the discontinued
advertising campaigns in 2000.
PROFESSIONAL FEES
Professional fees were $167,577 compared to $53,138 for the three months ended
June 30, 2000. This increase of approximately $110,000 is largely attributable
to legal and accounting fees required in order to meet the public Company's
filing requirements.
RENT
Rent for office space for the three months ended June 30, 2001 and 2000 was
$109,742 and $30,963 respectively. The increase of approximately $79,000 is
mainly attributable to expenses incurred to terminate the previous Boston
facility in May 2001 and replace it
by a new less expensive facility. Rent for the three months ended June 2001
included a reserve of three months for subleasing.
INTEREST EXPENSE
Interest expense decreased to $8,072 for the three months ended June 30, 2001
from $79,513 for the same period last year. The fiscal 2000 interest expense was
composed of interest on convertible debentures that were converted to shares in
2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its cash requirements primarily through
private placements of equity or debenture securities. For the six months ended
June 30, 2001 the Company used $1,825,729 in cash as explained below.
CASH USED IN OPERATING ACTIVITIES
Net cash used in operating activities totaled $1,670,182 for the six months
ended June 30, 2001 compared to $2,637,161 for the six months ended June 30,
2000. The decreased use of cash in the first six months of 2001 is explained by
an increase of revenue and a better control on working capital items.
CASH USED IN FINANCING ACTIVITIES
In the six months ended June 30, 2001 financing activities consumed cash of
$117,414 as follows: $40,413 to repay debt and $114,001 to repurchase 4,114,740
common shares of our subsidiary TEC.com. An amount of $37,000 was raised through
the issuance of a note payable from a shareholder. For the six months ended June
2000 the Company raised $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 $72,026 from the issuance of common shares of
TEC.com. Also, a total of $786,913 was raised through the issuance of notes
payable and advances from shareholders.
CASH USED IN INVESTING ACTIVITIES
For the six months ended June 30, 2001 investing activities used $21,450 to
purchase additional fixed assets compared with $23,054 used for the same period
last year.
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 August 31, 2001. We are
currently in discussions to secure additional capital through the issuance of
debt or equity. However, there can be no assurance that we will be successful in
raising additional funds.
SUBSEQUENT EVENT
Subsequent to June 30, 2001, a shareholder, Intasys Corporation, advanced to the
Corporation $263,000, evidenced by a promissory note payable on demand bearing
interest at a rate of 10% per annum.
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 what
management believes to be the most material of the risks.
WE WILL NEED ADDITIONAL FINANCING TO CONTINUE OUR OPERATIONS AS PLANNED.
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 August 31, 2001. We are
currently in discussions to secure additional capital through the issuance of
debt or equity. However, there can be no assurance that we will be successful in
raising additional funds.
If we issue equity securities, our present stockholders will be diluted. If we
issue debt securities, risks associated with debt, such as rises in interest
rates and insufficient cash flow to pay the principal of and interest on debt
securities, are still valid. Management is unable to predict whether additional
equity or debt financing will be available to us on favorable terms or at all.
Future liquidity and capital requirements will depend upon numerous factors,
some, but not all, of which are listed below:
o ability to raise additional funds;
o ability to adapt our business model, products and services to market
opportunities and conditions;
o pace of expansion of operations; and
o 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. Profitability expectations depend in part on:
o developing the capacity to market products and services;
o market acceptance of our products;
o our ability to obtain additional funding; and
o our 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.
RAPID TECHNOLOGICAL CHANGE COULD RENDER PRODUCTS OBSOLETE OR NON-COMPETITIVE.
The industries we engage in are subject to rapid technological change and there
can be no assurance that we will be able to adapt to such change in a timely
fashion or that the introduction of new products and services by others will not
render our copyrights, licenses, trade secrets, trademarks, products and
services less competitive or obsolete. We expect to continue spending funds in
an effort to enhance already technologically complex products and services and
develop or acquire new products and services. Failure to develop and introduce
new or enhanced products and services on a timely basis might have an adverse
impact on our results of operations, financial condition and cash flows.
Unexpected costs and delays are often associated with the process of designing,
developing and marketing enhanced versions of existing products and services and
new products and services.
PROPRIETARY PROTECTION FOR OUR PRODUCTS AND SERVICES IS IMPORTANT YET UNCERTAIN.
The following factors are important to our success:
o receiving patent protection for our products;
o maintaining its trade secrets;
o not infringing on the proprietary rights of others; and
o preventing others from infringing our proprietary rights.
We try to protect our proprietary position by filing United States, Canadian and
foreign patent applications related to 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.
We also rely upon a combination of trade secret, copyright and trademark laws to
protect our intellectual property. We have entered into confidentiality
agreements with our management and key employees with respect to such assets and
limit access to and distribution of these and other proprietary information.
However, the steps we have taken to protect our intellectual property may not be
adequate to deter misappropriation of our proprietary information. In addition,
we may be unable to detect unauthorized uses of and take appropriate steps to
enforce our intellectual property rights. Although senior management believes
that our services and products
do not infringe on the intellectual property rights of others, we are subject to
the risk that such a claim may be asserted in the future.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE.
The market price of our Common Stock is subject to significant price
fluctuations based on (a) changes in our business, operations, and future
prospects, (b) general market and economic conditions, and (c) other factors
affecting the perceived value of our Common Stock.
CASH DIVIDENDS ARE UNLIKELY IN THE FORESEEABLE FUTURE.
Management anticipates that earnings generated from our operations will be used
to finance our working capital and market expansion opportunities and that, for
the foreseeable future, cash dividends will not be paid to holders of our Common
Stock.
WE ARE DEPENDENT ON A FEW KEY PERSONNEL.
Our success is dependent upon the experience and abilities of our senior
management. There is significant competition in our industries for qualified
personnel. There can be no assurance that we will be able to retain our existing
personnel or will be able to recruit new personnel to support our business
marketing objectives, goals and plans.
LABOR AVAILABILITY AND EMPLOYEE RELATIONS ARE UNCERTAIN.
Currently the pool of skilled software developers and sales employees is
adequate for our needs in the areas it operates in. Nevertheless, additional
firms entering the industries we compete in could reduce these labor pools. Any
increase in the competition for these employees could have a significant effect
upon both the availability and the price of available labor.
We believe our employee relations are good. Currently, none of our employees are
unionized. There can be no assurance, however, that a collective bargaining unit
will not be organized and certified in the future. If certified in the future, a
work stoppage by a collective bargaining unit could be disruptive and have a
materially adverse effect on us until normal operations resume.
We CAN GIVE NO ASSURANCES THAT 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 the management's views with respect to
future events and financial performance. The words, "believe," "expect," "plans"
and "anticipate" and similar expressions identify forward-looking statements.
Although
management believes that the expectations reflected in such forward-looking
statements are reasonable, management 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. Management
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 21, 2001, the Company held its annual meeting of stockholders, whereby
the stockholders ratified the share exchange transaction by and among the
Company, 3786137 Canada, TEC.com and stockholders of TEC.com, approved the
adoption of Amended and Restated Articles of Incorporation, elected directors
approved the adoption of the Company's 2001 Stock Option Plan and approved a
proposal to ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent auditors for the fiscal year ending December 31, 2001. The
votes on such matters were as follows:
1. Ratification of a Share Exchange Agreement and related agreements,
as amended (the "Exchange Agreements"), dated October 10, 2000 among the
Company, 3786137 Canada, TEC.com, Manitex Capital Inc., Intasys Corporation, and
Don Lobley.
For Against Abstain
---------- ------- --------
14,701,444 -- --
2. To approve the adoption of Amended and Restated Articles of
Incorporation.
For Against Abstain
---------- ------- --------
14,701,444 -- --
3. Election of directors:
For Against
--- -------
Philip W. Roizin 15,844,045 --
Guy Faure 15,844,045 --
Louis Lu 15,844,045 --
Stece Saviuk 15,844,045 --
Andre Telmosse 15,844,045 --
Claude E. Forget 15,844,045 --
4. To approve the adoption of the Company's 2001 Stock Option Plan.
For Against Abstain
---------- ------- --------
14,701,444 -- --
5. Ratification of appointment of auditors: To ratify the appointment
of PricewaterhouseCoopers LLP as the Company's auditors for the fiscal year
ending December 31,2001.
For Against Abstain
---------- ------- --------
15,844,045 -- --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 2001.
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: August 16, 2001 TECE, INC.
By: /s/ Andre Telmosse
Andre Telmosse
President and CEO
By: /s/ Daniel Bertrand
Daniel Bertrand
CFO (Principal Financial and Accounting Officer)
