SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of report: November 18, 1998
(Date of earliest event reported)
TELETRAK ENVIRONMENTAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
0-13670 13-3187778
(Commission File No.) (I.R.S. Employer Identification No.)
2 Sutton Road
Webster, Massachusetts 01570
(Address of principal executive offices; zip code)
(508) 943-5001
(Registrant's telephone number, including area code)
Teletrak Advanced Technology Systems, Inc.
537 Steamboat Road
Greenwich, Connecticut 06830
(Former Name or Former Address, if changed Since Last Report)
ITEM 2. ACQUISITION OR DISTRIBUTION OF ASSETS
On November 18, 1998, Helm Capital Group Inc., ("Helm") and its
majority-owned subsidiary, Teletrak Advanced Technology Systems, Inc., a
Delaware corporation (the "Company"), completed its previously announced merger
(the "Merger") with Advanced Environmental Systems, Inc., a Massachusetts
corporation ("AES"), pursuant to an Agreement and Plan of Merger dated as of
July 24, 1998.
AES, a privately-held company, specializes in the manufacture, distribution
and licensing of industrial "mucking pumps" and related equipment. The design
of these pumps, based upon jet pump technology, makes this equipment a highly
effective portable tool for the removal of granular wet or dry materials
(including sludge, scale and slurries), particularly for environmental cleanup
of hazardous matter such as asbestos and lead. The motive power, compressed air
or pressurized liquid, provides operating flexibility for hopper loading, vacuum
cleaning and submersible application, as well as the ability to collect and
transport materials over long distances. With no moving parts, the AES pump is
designed to be virtually maintenance free and to require no skilled labor to
operate. More than 1,000 pumps are in use today in a wide range of industries,
including power plants, steel mills and foundries, oil refineries, chemical and
petrochemical plants, food processing facilities, shipyards and marine vessel
operators and water treatment plants. In 1997, AES reported sales of $1,217,000
and a net loss of $464,000. For the six months ended June 30, 1998, AES has
reported sales of $867,000 and a net profit of $52,400.
In connection with the Merger, AES became a wholly-owned subsidiary of
the Company, and the existing shareholders of AES received an aggregate of
3,750,000 shares of the Company's common stock in exchange for their AES
stock. In connection with the Merger, the Company sold to certain AES
stockholders or affiliates, at a purchase price (the "Purchase Price") of
$0.50 for one share of common stock and one warrant to purchase one-half of
one share of common stock, 1,000,000 shares of common stock plus warrants
("Warrants") to purchase up to 500,000 shares of common stock. The Warrants
are exercisable any time prior to the third anniversary of their date of
issuance at an exercise price of $2.00 per share. In addition, the Company
also sold to Herbert M. Pearlman and certain other affiliates, at the
Purchase Price, 250,000 shares of common stock and 125,000 Warrants. Prior
to the Merger, the Company distributed to the pre-Merger stockholders of the
Company one-half of one Warrant for each share of common stock held by them
upon the effectiveness of the Merger, and 500,000 Warrants were issued to
Helm and the Company's former management for pro rate distribution.
Prior to the Merger, on September 28, 1998, the Company (i) effected a
ten-for-one reverse stock split; (ii) changed the par value of its capital stock
to $.001; and (iii) established the number of its authorized shares of capital
stock after the reverse stock split to 30,000,000. Immediately prior to the
Merger, the Company changed its name to "Teletrak Environmental Systems, Inc."
In connection with the Merger, Herbert M. Pearlman, David S. Lawi, Joseph
J. Farley and William Lerner resigned from the Board of Directors of the
Company. Added to the Board of Directors by designation of AES were Gerald P.
McNamara, Gerd E. Reinig, Heinz Buhr, Glen
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Wegner and William Gagnon. Added to the Board of Directors by designation of
Helm was Fred Zeidman and Daniel Murphy. In addition, all officers of the
Company resigned and were replaced with the following AES representatives:
Gerald P. McNamara, President and Chief Operating Officer; Gerd E. Reinig,
Chairman and Chief Executive Officer; and Marcelle J. Landry, Secretary.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
The audited financial statements of AES for the years ended December 31,
1996 and 1997 are as follows:
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[LETTERHEAD OF BARIL & SMITH]
May 29, 1998
To the Board of Directors and Stockholders of
Advanced Environmental Systems, Inc.
INDEPENDENT AUDITOR'S REPORT
----------------------------
We have audited the accompanying balance sheets of Advanced Environmental
Systems, Inc. as of December 31, 1997 and 1996 and the related statements of
operations and stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Environmental Systems,
Inc. as of December 31, 1997 and 1996, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ Baril & Smith
Woburn, Massachusetts
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ADVANCED ENVIRONMENTAL SYSTEMS, INC.
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---------- ----------
Current assets:
Cash $ 5,777 $ 15,974
Accounts receivable, less allowance
for doubtful accounts of $15,000 in 1997 235,217 138,652
Stock subscription receivable 375,000
Inventory (Note 2) 491,980 144,716
Prepaid expenses 21,254 12,496
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Total current assets 754,228 686,838
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Property and equipment (Note 3) 273,311 149,782
Less - Accumulated depreciation 43,688 10,907
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229,623 138,875
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Investment in affiliate (Note 7) 23,000
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$1,006,851 $ 825,713
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable (Note 4) $ 290,000
Current portion of long-term debt (Note 5) 24,416 $ 9,918
Accounts payable 314,629 16,864
Due to affiliate 32,254 13,200
Accrued income taxes 4,100
---------- ----------
Total current liabilities 661,299 44,082
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Other liabilities:
Deferred credit facility (Note 7) 61,992
Long-term debt (Note 5) 62,656 92,358
Deferred income taxes 4,000
---------- ----------
124,648 96,358
---------- ----------
Commitments (Note 7)
Stockholders' equity:
Common stock, no par value:
Authorized - 200,000 shares
issued and outstanding - 10,000 shares 690,128 690,128
Accumulated deficit (469,224) (4,855)
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220,904 685,273
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$1,006,851 $ 825,713
========== ==========
Read Accompanying Notes and Accountants' Report
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ADVANCED ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
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Net sales $1,216,886 $ 749,383
Cost of goods sold 808,891 388,803
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Gross margin 407,995 360,580
Selling, general and administrative expenses 867,969 332,788
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(Loss) income from operations (459,974) 27,792
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Other expenses:
Litigation settlement (Note 8) 20,836
Interest expense 8,395 3,711
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8,395 24,547
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Net (loss) income before provision for income taxes (468,369) 3,245
Provision (credit) for income taxes (Note 6) (4,000) 8,100
---------- ----------
Net loss $ (464,369) $ (4,855)
========== ==========
Read Accompanying Notes and Accountants' Report
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ADVANCED ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
SHARES COMMON STOCK ACCUMULATED
OUTSTANDING NO PAR VALUE DEFICIT
----------- ------------ -----------
Issuance of 3,400 common shares
in exchange for inventory,
patterns and molds 3,400 $ 120,000
Issuance of 3,400 common shares
in exchange for machinery and
equipment 3,400 101,000
Issuance of 1,700 common shares
for cash 1,700 94,128
Issuance of 1,500 common shares
for cash 1,500 375,000
Net loss $ (4,855)
--------- --------- ---------
Balance December 31, 1996 10,000 690,128 (4,855)
Net loss (464,369)
--------- --------- ---------
Balance December 31, 1997 10,000 $ 690,128 $(469,224)
========= ========= =========
Read Accompanying Notes and Accountants' Report
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ADVANCED ENVIRONMENTAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND 1996
1997 1996
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OPERATING ACTIVITIES
Net loss $ (464,369) $ (4,855)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 32,781 10,907
Deferred income tax (4,000) 4,000
Provision for doubtful accounts 15,000
(Increase) decrease in operating assets:
Accounts receivable (111,565) (64,716)
Inventory (347,264) 16,864
Prepaid expenses (8,758) (138,652)
Increase (decrease) in operating liabilities:
Accounts payable 297,465 13,200
Accrued expenses 10,800 (12,496)
Accrued income taxes (3,800) 4,100
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Net cash used by operating activities (583,710) (171,648)
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INVESTING ACTIVITIES
Investment in affiliate (23,000)
Purchase of property and equipment (123,529) (6,160)
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Net cash used by investing activities (146,529) (6,160)
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FINANCING ACTIVITIES
Advances from affiliate 125,000
Repayment to affiliate (54,754)
Proceeds from note payable 290,000 100,000
Proceeds from sale of common stock 375,000 94,128
Repayment of long-term debt (15,204) (346)
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Net cash provided by financing activities 720,042 193,782
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(Decrease) increase in cash (10,197) 15,974
Cash at beginning of year 15,974
---------- ----------
Cash at end of year $ 5,777 $ 15,974
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest expense $ 12,497 $ 3,711
Read Accompanying Notes and Accountants' Report
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ADVANCED ENVIRONMENTAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
NOTE 1 - BUSINESS ACTIVITIES AND ACCOUNTING POLICIES
BUSINESS ACTIVITIES
The Company was incorporated under the laws of the Commonwealth of
Massachusetts on January 4, 1996 and is engaged in the marketing distribution
and licensing of industrial pumps and related equipment. The product is
manufactured on a subcontract basis.
ACCOUNTING POLICIES
The significant accounting policies utilized by the Company are described
below:
REVENUE RECOGNITION
The Company records sales and related cost of sales at the time of
shipments if all conditions for a sale are met. Shipments on a consignment on
demonstration basis are carried in inventory until a sale to a third party.
USE OF ESTIMATES
The process of preparing financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions
regarding certain types of assets, liabilities, revenues and expenses. Such
estimates primarily relate to unsettled transactions and events as of the date
of the financial statements. Accordingly, upon settlement, actual results may
differ from estimated amounts.
INVENTORY
Inventory, which consists primarily of industrial pumps and related parts,
is stated at first-in, first-out (FIFO) cost.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciation is provided using
the straight-line and accelerated methods. Expenditures for repairs and
maintenance are charged to operations as incurred. Renewals and betterments
which extend the lives of the assets are capitalized. The cost of property
retired or sold, together with the related accumulated depreciation, is removed
from the appropriate accounts and any resulting gain or loss is included in
operations.
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NOTE 1 - BUSINESS ACTIVITIES AND ACCOUNTING POLICIES - CONTINUED
INCOME TAXES
Deferred income tax assets and liabilities arise from temporary differences
between the financial reporting and tax basis of assets and liabilities that
result in net taxable or deductible amounts in future periods. Deferred taxes
are classified as current or noncurrent, depending on the classification of the
assets and liabilities to which they relate. Deferred taxes arising from
temporary differences that are not related to an asset or liability are
classified as current or noncurrent depending on the periods in which the
temporary differences are expected to reverse.
ADVERTISING
The Company follows the policy of charging the costs of advertising to
expense as incurred.
NOTE 2 - INVENTORY
Inventory at December 31, 1997 and 1996 consist of the following:
1997 1996
---------- ----------
Components and replacement parts $447,010 $100,011
Finished goods 44,970 44,705
$491,980 $144,716
======== ========
NOTE 3 - PROPERTY AND EQUIPMENT
The cost of property and equipment and the estimated useful lives used for
computing depreciation at December 31, 1997 and 1996:
ESTIMATED
USEFUL LIFE 1997 1996
---------- ---------- ----------
Machinery and equipment 7 years $ 193,097 $ 141,600
Office equipment 3-7 years 58,657 8,182
Motor vehicles 5 years 21,557
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$ 273,311 $ 149,782
========== ==========
NOTE 4 - NOTE PAYABLE
The Company has a $300,000 revolving line of credit with a bank. The loan
agreements provides for interest payable at the bank's prime rate plus 1.5% and
is secured by all assets of the Company and the personal guarantees of the
Company's stockholders. The revolving credit agreement is renewable annually on
May 31, 1998.
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NOTE 5 - LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consist of the following:
1997 1996
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Note payable to bank with interest at prime plus 2%
(10.5%) secured by all assets of the Company and
the personal guarantees of the Company's shareholders,
due in monthly principal installments of $1,959, plus
interest through October 1, 2001. Financial performance
covenants relative to debt service and leverage exist. $86,164 $100,000
Obligation under capital lease secured by computer
equipment payable in 24 installments of $149, including
interest. 908 2,276
---------- ----------
87,072 102,276
Less - Amounts due within one year (24,416) (9,918)
$ 62,656 $ 92,358
========== ==========
The aggregate principal maturities for the years subsequent to December 31,
1997 are as follows:
1999 $23,508
2000 23,508
2001 15,640
The Company is not in compliance with certain financial performance
covenants as required by it's lending agreement. The bank is aware of this and
is working with the Company to resolve.
NOTE 6 - INCOME TAXES
The credit for income taxes represents the reversal of the prior year
deferred tax liability. The Company has a net operating loss carryforward of
approximately $450,000 which is available for fifteen years. The potential
future tax benefit of $150,000 has been offset by a valuation reserve.
NOTE 7 - RELATED PARTY TRANSACTIONS
On February 14, 1997, the Company entered into a ten year exclusive sales
and distribution agreement with a stockholder for sale of the Company's products
in Europe. The Company will offer this distributor a 5% discount from list
price in return for an accelerated payment schedule.
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NOTE 7 - RELATED PARTY TRANSACTIONS - CONTINUED
DEFERRED CREDIT FACILITY
As part of a private placement equity financing closed in February 1997 the
Company received a deferred credit facility of $125,000 from the shareholder.
The Company has agreed to sell the shareholder products at a sales value of
$125,000 over a three year period. The credit facility is non-interest bearing
and payable through sales discounts over a three year period.
INVESTMENT IN ECO-JET
In 1997, the Company acquired a 15% interest in a European distributor
whose majority ownership is held by a shareholder of the Company. Consideration
for the investment of $23,000 is evidenced by a credit taken on sale made to the
distributor.
FACILITIES
The Company occupies office and assembly space in a facility owned by a
stockholder. Approximately 4,000 square feet is occupied as a tenant at will. A
charge of $24,000 representing rent and utilities has been made.
NOTE 8 - LITIGATION
A litigation claim was settled by the Company in 1997 for settlement of
$10,000.
NOTE 9 - PURCHASE OF UNIQUE TOOL PRODUCT LINE
On May 8, 1997, the Company purchased certain assets consisting of
inventory, fixed assets, tooling, demo equipment, patent rights and other assets
for a total consideration of approximately $208,000 of which $65,000 was paid at
closing. The balance is due within a one year period as the inventory is sold.
NOTE 10 - PROPOSED MERGER
In December 1997, the Company signed a letter of intent to enter into a
merger with Teletrak Advanced Technology Systems, Inc. (Teletrak). The merger
is proposed to be a tax free transaction and Advanced Environmental Systems,
Inc. (AESI) will be the surviving corporation. The merger is expected to be
completed in the second quarter of 1998.
NOTE 11 - SUBSEQUENT EVENTS
On March 19, 1998, the Company agreed to sell its affiliate Eco-Jet, pumps
having a sales value of $200,000. The transaction is intended to assist the
Company with cash flows needs.
In May, 1998, the Company entered into an agreement to be a sales
representative for a manufacturer and purchase inventory with a list price of
$50,000. The agreement stipulates that if the Company makes purchases totaling
$250,000 by June 30, 2000, all rights to manufacture the product will be
transferred to the Company.
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(b) PRO FORMA FINANCIAL INFORMATION.
Unaudited pro forma financial information to be filed by amendment.
(c) EXHIBITS.
Exhibit
Number Exhibit Title
- ------- -------------
3.1 Certificate of Amendment to Certificate of Incorporation
10.1 Agreement and Plan of Merger
10.2 Form of Warrant
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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 hereunto duly authorized.
Dated: February 22, 1999
TELETRAK ENVIRONMENTAL SYSTEMS, INC.
(Registrant)
By: /s/ Gerd E. Reinig
------------------------------------
Gerd E. Reinig
Chief Executive Officer
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EXHIBIT INDEX
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Exhibit
Number Exhibit Title
- ------- -------------
3.1 Certificate of Amendment to Certificate of Incorporation
10.1 Agreement and Plan of Merger
10.2 Form of Warrant
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