U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
Commission File Number 33-11795
RECOM MANAGED SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 87-0441351
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
4705 Laurel Canyon Boulevard, Suite 203
Studio City, California 91607
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(Address of principal executive offices)
(303) 893-2300
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(Registrant's telephone number including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the preceding 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.
[ X ] Yes [ ] No
As of April 15, 2003, the Registrant had 31,510,848 shares of common stock,
$.001 par value, outstanding.
Transitional Small Business Disclosure format: Yes [ ] No [ X ]
INDEX
Part I: Financial Information Page No.
Item 1. Financial Statements:
Unaudited Balance Sheet - as of March 31, 2003 ............ 3
Unaudited Statements of Operations - Three Months
Months Ended March 31, 2002 and 2003 .................... 4
Unaudited Statements of Cash Flows - Three Months Ended
March 31, 2002 and 2003 ................................. 5
Notes to Consolidated Financial Statements................. 6 - 7
Item 2. Management's Plan of Operation.......................... 8
Item 3. Controls and Procedures................................. 8
Part II: Other Information...................................... 9
Item 1. Legal Proceedings................................. 9
Item 2. Change in Securities.............................. 9
Item 3. Defaults Upon Senior Securities................... 9
Item 4. Submission of Matters to a Vote
of Security Holders............................... 9
Item 5. Other Information................................. 9
Item 6. Exhibits and Reports on Form 8-K.................. 9
Signatures ..................................................... 10
Certifications ................................................. 10 - 11
2
RECOM MANAGED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
March 31, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ -
EQUIPMENT, net of accumulated depreciation of $12,982 149,801
TECHNOLOGY 34,881
---------
TOTAL ASSETS $ 184,682
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Other Liabilities $ 324,086
Bank overdraft 8,061
Advance from stockholder 150,000
---------
TOTAL LIABILITIES 482,147
STOCKHOLDERS' EQUITY
Common Stock 10,417
Additional paid-in capital 334,225
Deficit accumulated during development stage (642,107)
---------
TOTAL STOCKHOLDERS' EQUITY (297,465)
---------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 184,682
=========
3
RECOM MANAGED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
Successsor Company Predecessor Company Successor Company
------------------ ------------------- -----------------
Cumulative for
the Period of
Three Months Ended Three Months Ended September 19, 2002
March 31, 2003 March 31, 2002 to March 31, 2003
------------------ ------------------- ------------------
Revenue - - -
Research and Development 27,297 - 27,297
General and Administra-
tive Expenses 455,536 20,353 614,810
--------- -------- ---------
Net Loss $(482,833) $(20,353) $(642,107)
========= ======== =========
Basic and Diluted Loss
Per Share $ (0.05) ** $ (0.06)
========= ======== =========
Basic and Diluted
Weighted Average Number
of Shares Outstanding 10,416,948 1,429,928 10,193,582
** Per share amounts are not meaningful due to reorganization.
4
RECOM MANAGED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
Successsor Company Predecessor Company Successor Company
------------------ ------------------- -----------------
Cumulative for
the Period
Three Months Ended Three Months Ended September 19, 2002
March 31, 2003 March 31, 2002 to March 31, 2003
------------------ ------------------- ------------------
Cash used in operating
activities $(116,014) $(28,015) $(292,891)
Cash Flows from Investing
Activities:
Purchase of equipment
and technology (44,031) - (73,072)
Cash Flows from Financing
Activities:
Increase in bank over-
draft, net 8,061 8,061
Capital contributed 3,295 20,000 24,695
Issuance of stock - - 207,786
Sale of warrants - - 125,000
--------- -------- ---------
Net cash provided by
financing activities 11,356 20,000 365,542
Net increase (decrease)
in cash (148,689) (8,015) (421)
Cash at beginning of period 148,689 15,084 421
--------- -------- ---------
Cash at end of period $ - $ 7,069 $ -
========= ======== =========
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RECOM MANAGED SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company is
in the development stage and has a limited operating history since its
reorganization. These factors raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments relating to the classification and recoverability of
recorded asset amounts or the amount of liabilities that may be incurred
should the Company be unable to continue in existence. Continuation as a
going concern is dependent on raising additional capital to fund the
Company's planned operations. There is no assurance that the necessary funds
will be generated.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
statements pursuant to Regulation S-B. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (including normal recurring accruals considered necessary for
a fair presentation) have been included. Operating results for the three
months ended March 31, 2003 are not necessarily indicative of the results that
may be expected for the year ending December 31, 2003. For further
information refer to the financial statements and footnotes included in the
Form 10-KSB for the year ended December 31, 2002.
NOTE 2 - ACQUISITION OF TECHNOLOGY
On September 19, 2002, the Company acquired from ARC Finance Group LLC
("ARC"), certain know how, trade secrets and other intellectual property
described below in exchange for 7,800,000 shares of the Company's common
stock. This technology was valued at $7,800. As a result of this
transaction, ARC owned approximately 84.5% of the Company's outstanding
shares. This transaction is considered a reverse acquisition and as a capital
transaction that results in a capital reorganization. Accordingly, the
reorganized Company's assets have been reflected at fair value. In the
reorganization, the Predecessor Company's intangible asset, Reorganization
Value in Excess of Amount Allocated to Identifiable Assets (in the amount of
$76,667) and its accumulated deficit (in the amount of $164,947) were
eliminated against Additional Paid-in Capital. There has been no goodwill or
intangible assets recognized for this reorganization in the financial
statements.
The Company's technology relates to certain proprietary methods,
processes and ideas concerning devices and services which, if successfully
developed, may be capable of:
* accurately measuring heart functions
* automatically and remotely evaluating these functions over the
telephone, the Internet, or other wireless transmission systems
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* providing the patient and the patient's physician(s) with vital heart
and other data on a real time basis to provide early warnings about
the patient's heart functions.
No assurance can be given that commercial products or services will ever
result or that those products or services will be accepted by regulatory
agencies, physicians, patients or insurance providers.
NOTE 3 - SUBSEQUENT EVENTS
On April 1, 2003, the Company entered into a common stock purchase
agreement with M. Stein, whose spouse is a majority shareholder, pursuant to
which Mr. Stein purchased 37,594 shares of the Company's common stock at a
price of $6.65 per share for a total consideration of $250,000. The
consideration included $100,000 in cash and $150,000 of expenses and
capitalized assets which had previously been advanced by Mr. Stein. An
advance of $150,000 has been reflected on the March 31, 2003 Balance Sheet for
expenses totaling $33,208 and equipment and leasehold improvements totaling
$116,792.
On April 1, 2003, the Company issued 49,064 shares of common stock to
individuals in exchange for consulting services rendered. The March 31, 2003
financial statements reflect the accrual of $268,500 for these services.
On April 2, 2003, the Board of Directors declared a three-for-one stock
split effective as of the close of business on Friday, April 11, 2003.
On April 15, 2003, the Company entered into an investment banking
agreement with Brookstreet Securities Corporation which has its offices in
Irvine, California. The agreement provides that Brookstreet will provide
various investment banking services including advising the Company in
connection with financing strategies and assisting the Company with its
capital needs including locating potential sources of debt and equity capital
and establishing an orderly market for the Company's securities. As
compensation for these services Brookstreet is being issued warrants to
purchase an aggregate of 200,000 shares of the Company's common stock. The
warrants will be issued in 4 tranches of 50,000 each with the first tranch of
50,000 fully vested and exercisable at $1.25 per share. The second tranch
will vest in 90 days after the date of the agreement and will have an exercise
price of $2.25 per share. The third tranch will vest in 180 days and will
have an exercise price of $3.25 per share. The fourth tranch will vest in 270
days and will have an exercise price of $4.25 per share.
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ITEM 2. MANAGEMENT'S PLAN OF OPERATION.
FORWARD-LOOKING INFORMATION
This Report on Form 10-QSB contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. The
statements regarding the Company contained in this report that are not
historical in nature, particularly those that utilize terminology such as
"may," "will," "should," "likely," "expects," "anticipates," "estimates,"
"believes" or "plans," or comparable terminology, are forward-looking
statements based on current expectations and assumptions, and entail various
risks and uncertainties that could cause actual results to differ materially
from those expressed in such forward-looking statements. Details about these
risks are set forth in the Company's Report on Form 8-K which was filed with
the SEC in September 2002.
PLAN OF OPERATION FOR THE NEXT TWELVE MONTHS
The Company intends to proceed with further development and possible
commercialization of products or services which embody or otherwise utilize
the technology described above in Note 2. We plan to develop a belt that can
be used by the patient which will hold the electrodes and electronics. We
also plan to initiate the study of alternative algorithms for the analyzing of
ECGS. The Company currently has no cash on hand and in order to fund its
immediate short-term working capital needs, management is attempting to raise
at least $50,000 in either debt or equity financing. Management is also
considering a private equity offering to raise up to $5 million to complete
the development of its first product and become fully operational. There is
no assurance that any of these financing efforts will be successful. In the
event the Company is not able to secure financing, many adverse contingencies
may result such as downsizing of the Company's facilities and/or personnel,
ceasing development efforts and/or operations. Notwithstanding any of these
activities, the Company believes it is highly likely that it will not achieve
any revenues or earnings during the next twelve months, and for a significant
period of time thereafter.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management,
including our principal executive officer, we have evaluated the effectiveness
of the design and operation of our disclosure controls and procedures within
90 days of the filing date of this quarterly report, and, based upon their
evaluation, our principal executive officer and principal financial officer
have concluded that these controls and procedures are effective. There were no
significant changes in our internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation.
Disclosure controls and procedures are our controls and other procedures
that are designed to ensure that information required to be disclosed by us in
the reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by us in the reports that we
file under the Exchange Act is accumulated and communicated to our management,
including our principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
ITEM 5. Other Information.
See Subsequent Event footnote to the financial statements above.
ITEM 6. Exhibits and Reports on Form 8-K.
a. Exhibits.
10.12 Employment Agreement with Charles E. McGill dated
March 10, 2003
10.13 Investment Banking Agreement with Brookstreet Securities
Corporation dated April 15, 2003
b. Reports on Form 8-K.
None.
9
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.
RECOM MANAGED SYSTEMS, INC.
Date: May 6, 2003 By:/s/ Marvin H. Fink
Marvin H. Fink, Chief Executive
Officer
Date: May 6, 2003 By:/s/ Charles E. McGill
Charles E. McGill, Chief Financial
Officer
CERTIFICATIONS
I, Marvin H. Fink, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Recom Managed
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
10
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 6, 2003
/s/ Marvin H. Fink
Marvin H. Fink
President
(Chief Executive Officer)
CERTIFICATIONS
I, Charles E. McGill, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Recom Managed
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
11
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for
the registrant's auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: May 6, 2003
/s/ Charles E. McGill
Charles E. McGill
(Chief Financial Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER OF
RECOM MANAGED SYSTEMS, INC.
PURSUANT TO 18 U.S.C. SECTION 1350
We certify that, to the best of our knowledge, the Quarterly Report on
Form 10-QSB of Recom Managed Systems, Inc. for the period ending March 31,
2003:
(1) complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material aspects, the financial condition and results of operations of Recom
Managed Systems, Inc.
/s/ Marvin H. Fink /s/ Charles E. McGill
Marvin H. Fink Charles E. McGill
Chief Executive Officer Chief Financial Officer
12