U.S. Securities and Exchange Commission Washington, D.C. 20549 FORM 10-QSB/A [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 ------------------ [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from __________________ to ____________________ Commission file number 0-23779 TECHNICAL ENVIRONMENT SOLUTIONS, INC. --------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) Colorado 98-0149351 -------- ---------- (State or other jurisdiction (IRS Employer of incorporation or organization) Identification No.) C/O TES GmbH, 25 Impler Strasse, 81371, Munich, Germany ------------------------------------------------------- (Address of principal executive office) 011 49 89 720 15 100 -------------------- (Issuer's telephone number) - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ------ Number of shares outstanding of the issuer's Common Stock: Class Outstanding at September 30, 1999 ----- --------------------------------- Common Stock, no par value 16,692,804 Technical Environment Solutions, Inc. FORM 10-QSB INDEX ----------------- Page ---- PART 1. FINANCIAL INFORMATION Item 1. Financial Statements a. Consolidated Balance Sheet at September 30, 1999 ........... 3 b. Consolidated Statements of Operations for the three months and nine months ended September 30, 1999 and 1998 .............................. 4 c. Consolidated Statements of Cash Flow for the three months and nine months ended September 30, 1999 and 1998 .............................. 5 d. Notes to Unaudited Financial Statements .................... 6 Item 2. Management's Discussion and Analysis of Financial Condiition and Results of Operations .................... 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings ........................................ 11 Item 2. Changes in Securities .................................... 11 Item 3. Defaults Upon Senior Securities .......................... 11 Item 4. Submission of Matters to a Vote of Security Holders ...... 11 Item 5. Other Information ........................................ 11 Item 6. Exhibits and Reports on Form 8-K ......................... 11 SIGNATURES ......................................................... 12 -2- PART I. FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------- Technical Environment Solutions, Inc. Consolidated Balance Sheet September 3 September 30, 1999 1999 (Unaudited) (Unaudited) ASSETS ------ DM US $ Current assets: Cash and cash equivalents 496,405 270,329 Accounts receivable, trade 63,468 34,564 Accounts receivable - related party 0 0 Note receivable - current portion 10,000 5,446 Inventory 60,000 32,674 Prepaid expenses 113,064 61,572 ---------- ---------- Total current assets 742,937 404,585 Property and equipment, at cost, net of accumulated depreciation of DM 87,762 657,786 358,213 Investments 10,000 5,446 Note receivable - non-current 40,000 21,783 Intangible assets, net of amortization of $357,500 997,500 543,212 Other assets 561,296 305,667 ---------- ---------- 3,009,519 1,638,905 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Notes payable - others 100,000 54,458 Accounts payable 632,156 344,254 Accounts payable - related party 15,862 8,638 Accrued expenses - related party 28,425 15,479 Accrued expenses 752,812 409,961 ---------- ---------- Total current liabilities 1,529,255 832,791 Loans from shareholders 430,900 234,657 Stockholders' equity: Common stock, no par value, 20,000,000 shares authorized, 16,692,804 shares issued and outstanding 7,696,090 4,191,085 Accumulated deficit (6,646,726) (3,619,630) ---------- ---------- 1,049,364 571,456 ---------- ---------- 3,009,519 1,638,904 ---------- ---------- -3- Technical Environment Solutions, Inc. Consolidated Statements of Operations (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 1998 1999 1998 1999 1999 DM DM DM DM US $ -- -- -- -- ---- Sales 266,455 360,488 631,527 850,872 463,362 Cost of operations 80,203 458,842 179,675 732,898 399,117 ----------- ----------- ----------- ----------- ----------- Gross Profit 186,252 (98,354) 451,852 117,974 64,245 Other costs and expenses: General and administrative (Loss) from operations 729,355 1,407,441 1,907,511 2,582,681 1,406,459 ----------- ----------- ----------- ----------- ----------- (543,103) (1,505,795) (1,455,659) (2,464,707) (1,342,214) Other income and (expense): Interest income 7,681 40,870 10,163 40,870 22,257 Losses of unconsolidated subsidiary (40,974) 0 (49,000) 0 0 Interest expense (11,041) (46,319) (14,759) (72,616) (39,545) ----------- ----------- ----------- ----------- ----------- (44,334) (5,449) (53,596) (31,746) (17,288) (Loss) before income taxes (587,437) (1,511,244) (1,509,255) (2,496,453) (1,359,502) Provision for income taxes 95 (1,347) 1,716 2,292 1,248 ----------- ----------- ----------- ----------- ----------- Net (loss) (587,532) (1,512,591) (1,510,971) (2,498,745) (1,360,750) ----------- ----------- ----------- ----------- ----------- Basic earnings (loss) per share: Net income (loss) (0.04) (0.09) (0.10) (0.15) (0.08) Weighted average shares outstanding 15,481,104 16,692,804 14,752,657 16,497,465 16,497,465 ----------- ----------- ----------- ----------- ----------- -4- Technical Environment Solutions, Inc. Consolidated Statements of Cash Flows (Unaudited) Nine Months Ended September 30, 1998 1999 1999 DM DM US $ -- -- ---- Net (loss) (1,510,971) (2,498,745) (1,360,750) Adjustments to reconcile net income (loss) to net cash (used in) operating activities: Depreciation 50,263 126,312 68,786 Amortization 101,750 125,626 68,413 Interest added to loan balance (7,500) 0 0 Losses of unconsolidated subsidiary 49,000 0 0 Changes in assets and liabilities: (Increase) decrease in accounts receivable 236,963 42,123 22,939 (Increase) decrease in inventory 0 60,000 32,674 (Increase) decrease in prepaid expenses 23,953 (34,908) (19,010) (Increase) decrease in other assets (89,383) (261,296) (142,295) Increase (decrease) in accounts payable and accrued expenses (234,072 652,789 355,491 ---------- ---------- ---------- Total adjustments 130,974 710,646 386,999 ---------- ---------- ---------- Net cash (used in) operating activities (1,379,997) (1,788,099) (973,751) ---------- ---------- ---------- Cash flows from investing activities: Investment in unconsolidated subsidiary (49,000) 0 0 Purchase of fixed assets (262,286) (77,014) (41,940) ---------- ---------- ---------- Net cash provided by (used in) investing activities (311,286) (77,014) (41,940) ---------- ---------- ---------- Cash flows from financing activities: Proceeds from sale of common stock 2,589,854 1,835,109 999,351 Advances from shareholder 0 (24,100) (13,124) Repayment of stockholder loans (241,645) 0 0 Repayment of notes payable - bank (197,798) (29,541) (16,087) Proceeds from notes payable - other 0 100,000 0 ---------- ---------- ---------- Repayment of notes payable - other (340,763) (80,000) (43,566) ---------- ---------- ---------- Net cash provided by financing activities 1,809,648 1,801,468 926,574 ---------- ---------- ---------- Increase (decrease) in cash 118,365 (63,645) (89,117) Cash and cash equivalents, beginning of period (937,787) 560,050 304,988 ---------- ---------- ---------- Cash and cash equivalents, end of period 1,056,152 496,405 215,872 ---------- ---------- ---------- See accompanying notes to consolidated financial statements. -5- Technical Environment Solutions, Inc. Notes to Unaudited Financial Statements September 30, 1999 (Unaudited) Basis of presentation The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions incorporated in Regulation SB of the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments and accruals) considered necessary for a fair presentation have been included. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. FORWARD-LOOKING STATEMENTS Statements made in this Form 10-QSB that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. The Company intends that such forward-looking statements be subject to the safe harbors for such statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond the control of the Company that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. These factors include adverse economic conditions, entry of new and stronger competitors, inadequate capital, unexpected costs, failure to successfully penetrate the Company's markets both in Germany and in foreign countries, and failure to capitalize upon access to new markets. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. -6- Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations - -------------------------------------------------------------------------------- The following information should be read in conjunction with the financial statements and the notes thereto and in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-KSB for the year ended December 31, 1998. General Technical Environment Solutions, Inc. ("TES") was incorporated under the laws of Colorado in June 1994. It is a non-operating holding company. TES' operations are conducted entirely in Germany. It has two wholly-owned subsidiaries that have been established under the laws of Germany, and one wholly-owned subsidiary established under the laws of Colorado. Operations are conducted through these subsidiaries: namely, Technical Environment Solutions GmbH ("TES GmbH"), TES Oecon AG ("Oecon"), and Environmental Technologies and Software Solutions, Inc. ("ENTECS"). Unless the context otherwise requires, references to the Company include its subsidiaries. Since 1994, TES has been engaged in the marketing of recycling services on a contract basis primarily for electronic scrap and other valuable waste materials in cooperation with specialist waste disposal companies. The Company has shifted these operations which were previously conducted in TES GmhH to TES Oecon AG. All recycling activities (certified dismantling, marketing of valuable products and components) are now concentrated in TES Oecon AG. Management intends to significantly expand these operations in the future. Therefore TES Oecon AG is currently offering electronic services, which includes maintenance and repair services, and trading and brokerage of used computers and monitors. Although there can be no assurance that the Company will be successful in doing so, management plans to broaden its service offerings by providing high qualified technical support and hosting of client-server-networks in combination with system design services to business customers in the near future. With respect to the merger with ENTECS management plans to merge the former TES GmbH with ENTECS Software und Umweltmanagement GmbH and then conduct operations under the name of TES Com GmbH. Management believes that this name will be more descriptive of the Company's new activities. Although there can be no assurance that the Company will be successful in doing so, management plans to enter the world of e-commerce by offering a wide range of tested second hand computers, components or software tools and software programs on the internet. The Company plans to use the domain name "computerteile.com". These new activities are expected to begin in the first quarter of 2000. ENTECS is a non-operating holding company, which conducts operations entirely in Germany through two wholly owned German subsidiaries - ENTECS Umwelttechnik GmbH and ENTECS Software und Umweltmanagement GmbH. ENTECS is active in the recycling of various waste products within the environmental protection industry, which is expected to grow rapidly due to increasing investments being made to comply with environmental regulation by both private enterprises and public institutions. The environmental protection industry is also expected to continually create new jobs because of the dynamic growth in the area. Further, ENTECS holds the exclusive licensing rights to a new recycling system for the capture and re-use of cement waste and waste water that is generated by concrete mixing plants. The system, known as the "BRS-Compact," is in the process of being patented both as a technology and as a process. Management is currently re-evaluating the cement recycling business in order to determine the Company's strategic direction with respect to cement recycling. ENTECS' subsidiary, ENTECS Umwelttechnik GmbH, owns a wood fiber production system, which produces three grades of high-quality all-natural products as substitutes for peat. -7- In June 1999, the Company entered into an Agreement and Plan of Merger with Environmental Technologies and Software Solutions, Inc. ("ENTECS"), which provided that TES Acquisition Corp., a subsidiary of the Company would be merged into ENTECS, subject to the approval of the ENTECS stockholders. Under the Agreement and Plan of Merger which was approved by the ENTECS shareholders at a Special Meeting on July 30, 1999, the shareholders of ENTECS received seven shares of the Company in exchange for each share of ENTECS that they held. The merger was effective in August 1999. The previous amounts owed by the Company to ENTECS have been eliminated in consolidation since ENTECS is now a wholly-owned subsidiary of TES. The Company continues to use cash and operate at a loss (See "Liquidity and Capital Resources"). Basic loss per share was computed using the weighted average number of common shares outstanding and has been adjusted to reflect the merger described above. Results of Operations Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998 Sales for the nine month period ended September 30, 1999 were DM 850,872 an increase of DM 219,345, or 34.73%, as compared to the nine month period ended September 30, 1998. The principal reasons for this increase in sales were: (i) increased sales to new clients of TES Oecon AG, and (ii) the fact that the Company completed the first year of production of its peat substitute. Cost of operations for the nine month period ended September 30, 1999 was DM 732,898, an increase of DM 553,223, or 307.90%, as compared to the nine month period ended September 30, 1998. This increase was due primarily to: (i) an increase in construction and repair costs for the BRS-Compact cement recyclying system at ENTECS Umwelttechnik GmbH, and (ii) increased costs associated with the Company's wood fiber-production operation. As a result of the changes noted above, gross profit for the nine month period ended September 30, 1999, was DM 117,974, a decrease of DM 333,878, or 73.89%, as compared to the nine month period ended September 30, 1998. General and administrative expenses for the nine month period ended September 30, 1999, were DM 2,582,681, an increase of DM 675,170, or 35.40%, as compared to the nine month period ended September 30, 1998. This increase was principally due to the following: o Increased payroll and payroll related expenses for employees in the Landsberg facility; o A reduction in the state subsidies which the Company receives for each new position created in the recycling component of the Company's business. These subsidies are treated as an offset to general and administrative expenses. The subsidies which the Company receives from the state end after each new employee's first complete year of employment. Thereafter, the Company must bear the full cost of such employees' salary and benefits; o Rent for additional storage ground at the Landsberg facility due to the increased operating activity; and o Legal and accounting expenses related to the merger of the Company with ENTECS. As a result of these factors, the operating loss for the nine month period ended September 30, 1999, was DM 2,464,707, an increase in the operating loss of DM 1,009,048, or 69.32%, as compared to the nine-month period ended September 30, 1998. Other income and expenses for the nine month period ended September 30, 1999, involved an expense of DM 31,746, a decrease of DM 21,850 or 40.77%, -8- as compared to the nine month period ended September 30, 1998. The decrease in other expenses was primarily due to the fact that the Company had written off its investment in an unconsolidated subsidiary in 1998 and, as a result, had no such loss recorded in the nine months ended September 30, 1999, and as a result of higher interest expense resulting from an increase in the Company's borrowings. For the reasons noted above, the net loss for the nine month period ended September 30, 1999, was DM 2,498,745, an increase in the net loss of DM 987,774, or 65.37%, as compared to the nine-month period ended September 30, 1998. Liquidity and Capital Resources The Company is currently experiencing a severe liquidity crisis and must raise additional capital. Further, the Company has not generated sufficient cash flow to fund its operations and activities. Historically, the Company has relied upon internally generated funds, funds from the sale of shares of stock and loans from its principal shareholder and his wife to finance its operations and growth. Management intends to raise additional capital through further public or private offerings of its stock and through bank loans or loans from private investors, although there can be no assurance that the Company will be able to obtain such financing. The Company's future success and viability are entirely dependent upon the Company's ability to raise additional capital. Management is optimistic that the Company will be successful in its capital raising efforts; however, there can be no assurance that the Company will be successful in raising additional capital. The failure to raise additional capital will have a material and adverse affect upon the Company and its shareholders. At September 30, 1999 the Company had negative working capital of (786,318 DM) and cash and cash equivalents of 496,405 DM. Further, the Company's net deficit had increased to 6,646,726 DM at September 30, 1999. Management has taken certain steps to reduce its overhead, including reducing the number of its employees, and is considering other cost cutting measures. Year 2000 Compliance The Year 2000 ("Y2K") computer problem refers to the potential for system and processing failures of date-related data as a result of computer-controlled systems using two digits rather than four to define the applicable year. For example, computer programs that have time-sensitive software may recognize a date represented as "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations, including among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. ENTECS has the exclusive distribution rights to Fabius, which is a software product designed to assist companies with environmental compliance. The Company has been advised by the developer of Fabius that it is Y2K compliant. In addition, the Company has tested Fabius for Y2K compliance, and based upon the results of those tests, management believes that Fabius is Y2K compliant. However, TES' testing of Fabius does not cover every possible computing environment. Accordingly, some customers may have Y2K problems with products that the Company believes are Y2K compliant. For instance, users of Fabius may be operating on older versions of hardware platforms than the hardware platforms tested. The Company also may be affected by Y2K issues related to non-compliant internal systems developed by TES or by third-party vendors. The Company has reviewed its internal systems, including its accounting system, and has found them to be Y2K compliant. The Company is not currently aware of any Y2K problem -9- relating to any of its internal, material systems and management does not believe that it has any material systems that contain embedded chips that are not Y2K compliant. The Company's internal operations and business are also dependent upon the computer-controlled systems of third parties such as suppliers, customers and service providers. Management believes that absent a systemic failure outside the control of the Company, such as a prolonged loss of electrical or telephone service, Y2K problems at such third parties will not have a material impact on the Company. The Company has no contingency plan for systemic failures such as loss of electrical or telephone services. The Company's contingency plan in the event of a non-systemic failure is to establish relationships with alternative suppliers or vendors to replace failed suppliers or vendors. Other than the previously described testing, and remedying problems identified by testing or from external sources, the Company has no other contingency plans or intention to create other contingency plans. Any failure by the Company or its licensor to make Fabius Y2K compliant could result in a decrease in sales of Fabius, an increase in allocation of resources to address Y2K problems of its customers without additional revenue commensurate with such dedication of resources, or an increase in litigation costs relating to losses suffered by Fabius' customers due to such year 2000 problems. Failures of TES' internal systems could temporarily prevent it from processing orders and issuing invoices, and could require it to devote significant resources to correcting such problems. But to management's knowledge, the internal accounting systems have been attested by the supplier as Y2K compliant. Due to the general uncertainty inherent in the year 2000 computer problem, resulting from the uncertainty of the year 2000 readiness of third-party suppliers and vendors, the Company is unable to determine at this time whether the consequences of Y2K failures will have a material impact on its business, results of operations, and financial condition. -10- PART II. OTHER INFORMATION -------------------------- Item 1. Legal Proceedings - ------------------------- Not Applicable Item 2. Changes in Securities - ----------------------------- With the exception of the common stock issued to the ENTECS shareholders in connection with the acquisition of ENTECS, the Company has not issued any other securities required to be disclosed in this report. The shares of the Company's Common Stock issued to the former ENTECS shareholders were registered with the United States Securities and Exchange Commission under the Act. Item 3. Defaults Upon Senior Securities - --------------------------------------- Not Applicable Item 4. Submission of Matters to a Vote of Security Holders - ----------------------------------------------------------- Not Applicable Item 5. Other Information - ------------------------- Not Applicable Item 6. Exhibits and Reports on Form 8-K - ---------------------------------------- a) Exhibits: No exhibits are filed with this Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999. b) Reports on Form 8-K: In connection with the acquisition of ENTECS, the Company filed two Form 8-K's during the quarter ended September 30, 1999. Date Filed Item Number(s) August 23, 1999 Item 2 and Item 7 September 27, 1999 Item 2 and Item 7 -11- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 10, 1999 TECHNICAL ENVIRONMENT SOLUTIONS, INC. /s/ Gerd Behrens ------------------------------------- Gerd Behrens President and director (Principal Executive Officer) -12- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: December 10, 1999 TECHNICAL ENVIRONMENT SOLUTIONS, INC. Gerd Behrens President and director (Principal Executive Officer) -13-