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 June 30, 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)
(818) 432-4560
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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 July 31, 2003, the Registrant had 31,791,260 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 June 30, 2003 ............ 3
Unaudited Statements of Operations - Three and Six
Months Ended June 30, 2002 and 2003 .................... 4
Unaudited Statements of Cash Flows - Six Months Ended
June 30, 2002 and 2003 ................................. 5
Notes to Consolidated Financial Statements................. 6 - 8
Item 2. Management's Plan of Operation.......................... 8
Item 3. Controls and Procedures................................. 9
Part II: Other Information...................................... 10
Item 1. Legal Proceedings................................. 10
Item 2. Change in Securities.............................. 10
Item 3. Defaults Upon Senior Securities................... 10
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 ..................................................... 11
2
RECOM MANAGED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 61,460
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net of accumulated
depreciation of $27,830 153,362
TECHNOLOGY 56,643
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TOTAL ASSETS $ 271,465
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Other Liabilities $ 369,900
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TOTAL LIABILITIES 369,900
STOCKHOLDERS' EQUITY
Common Stock 31,605
Additional paid-in capital 1,965,629
Deficit accumulated during development stage (2,095,669)
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TOTAL STOCKHOLDERS' EQUITY (98,435)
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TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 271,465
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RECOM MANAGED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
(UNAUDITED)
Successor Predecessor Successor Predecessor
Company Company Company Company Successor Company
------------- -------------- ------------ ------------ ------------------
Cumulative for
Three Three Six Six for the Period of
Months Ended Months Ended Months Ended Months Ended September 19,2002
June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 to June 30, 2003
------------- ------------- ------------- ------------- -----------------
Revenue - - - - -
Research and Development 48,879 - 76,176 - 76,176
General and Administra-
tive Expenses 1,404,683 12,798 1,860,219 33,151 (2,019,493)
----------- -------- ----------- -------- -----------
Net Loss $(1,453,562) $(12,798) $(1,936,395) $(33,151) $(2,095,669)
========= ======== =========== ======== ===========
Basic and Diluted Loss
Per Share $ (0.05) ** $ (0.06) ** $ (0.07)
========= ======== =========== ======== ===========
Basic and Diluted
Weighted Average Number
of Shares Outstanding 31,577,004 1,429,928 31,413,924 1,429,928 30,879,624
** Per share amounts are not meaningful due to reorganization.
4
RECOM MANAGED SYSTEMS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
(UNAUDITED)
Successor Company Predecessor Company Successor Company
------------------ ------------------- -----------------
Cumulative for
the Period
Six Months Ended Six Months Ended September 19, 2002
June 30, 2003 June 30, 2002 to June 30, 2003
------------------ ------------------- ------------------
Cash used in operating
activities $(354,322) $(41,086) $(531,199)
Cash Flows from Investing
Activities:
Purchase of equipment
and technology (84,202) - (113,243)
Cash Flows from Financing
Activities:
Capital contributions 3,295 35,000 24,695
Issuance of stock 348,000 - 555,786
Sale of warrants - - 125,000
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Net cash provided by
financing activities 351,295 35,000 705,481
Net increase (decrease)
in cash (87,229) (6,086) 61,039
Cash at beginning of period 148,689 8,262 421
--------- -------- ---------
Cash at end of period $ 61,460 $ 2,178 $ 61,460
========= ======== =========
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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 six months
ended June 30, 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 - CAPITAL TRANSACTIONS
On April 1, 2003, the Company issued 260,004 shares of common stock (on a
post split basis) for $100,000 in cash and $561,801 in expenses (valued using
the market value of shares issued) and equipment. On April 15, 2003 the
Company split its stock three for one. All share amounts and earnings per
share have been presented on a post split basis.
The Company also issued 11,045 shares of stock for marketing services
valued at $34,791 (valued using the market value of shares issued).
The Company also issued a total of 900,000 warrants to purchase shares of
restricted common stock at $.50 per share. These warrants were issued for
services including: the introduction of the Company to investment banking
firms; assistance in the structuring of the Company's private offerings;
assistance in capital market transactions, mergers and acquisitions, advisory
services; and assistance in developing strategic relationships. The Company
recognized a $708,000 expense in connection with the issuance of these
warrants (valued using the Black-Scholes Model).
On May 19, 2003 the Company completed the first tranche of its current
private placement by issuing 82,667 units for $248,000. Each unit consisted
of one share of restricted common stock and one Class A common stock purchase
Warrant. Each Class A Warrant will entitle the holder to purchase one share
of common stock at a price equal to the bid price of the Company's common
stock on each tranche closing date and one Class B Warrant. Each Class B
Warrant will entitle such holder to purchase one additional share of common
stock at a price equal to 200% of the exercise price of the A Warrants.
NOTE 4 - SUBSEQUENT EVENTS
On July 21, 2003, the Company closed the second tranche of its current
private placement in the amount of $250,000. The investors in the second
tranche also received warrants similar to those issued in the first tranche.
On July 7, 2003 the Company issued 92,474 common shares in exchange for
services valued at $337,530 (valued using the market value of shares issued).
On July 17, 2003 the Company retained Maxim Group, LLC, a New York based
investment banking firm to act as its lead investment bank. Maxim will
provide, among other services, assistance with the Company's financing efforts
as it attempts to secure additional capital for product development as well as
to fund the process of gaining approval for the Company's cardiac monitoring
device by the FDA. Maxim will also assist the Company with general business
strategy and with seeking a listing on a national exchange.
On July 28, 2003 the Company issued 19,151 shares to individuals for
marketing and business services to be performed during the quarter ending
September 30, 2003. These services were valued at $72,774 based on market
value of the shares issued.
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As the Company has previously announced, the Company recently retained
Maxim Group to, among other things, complete a series of financings. Based on
the agreement with certain shareholders of Advanced Heart Technologies, Inc.
("AHT") previously entered into by the Company as set forth in the Company's
Form 10-KSB for the year ended December 31, 2002, the Company believes that in
the event the Company completes a financing of more than two million dollars
($2,000,000), it is possible that up to 4% of any such financing will be
utilized by the Company to pay down obligations assumed by the Company
previously alleged to be owed to certain AHT shareholders by the Company Chief
Technology Officer (and the Inventor of the Company's technologies), Budimir
S. Drakulic in the amount of not more than a total of $480,100. The Company
assumed this obligation when it signed an agreement to obtain the services of
Mr. Drakulic for ten years. The Company provides no assurances that it will
ever complete such a financing, or that other conditions precedent in the
referenced agreement will ever be satisfied to an extent requiring the Company
to actually make such payment out of the proceeds of any equity offerings.
Furthermore, the referenced agreement is complex and the Company provides no
assurances that its reading of the agreement will ultimately be concurred with
by the other parties to the agreement.
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 and services which employ or otherwise utilize
the technology described in Note 2 above. We plan to develop a belt that is
worn by the patient which will hold both the electrodes and the electronics.
This development will be accomplished in stages with the first stage housing
only the electrodes with the electronics in a separate module. Subsequent
development will incorporate the electronics in the belt along with the
electrodes. We have initiated the study of alternative algorithms for the
analysis of ECGs and the Company is also evaluating the advisability of
submitting its proof of concept system for hospital institutional review board
testing. We are also in discussions with various medical centers regarding
beta testing of the low power electronics version of our system.
The Company currently has sufficient cash on hand to fund development and
operations through September 2003, because the Company raised approximately
$500,000 from the private sale of equity during May-July 2003. The Company
needs to continue raising capital to finance its business. The Company
entered into an investment banking agreement with Maxim Group, LLC during July
2003, and Maxim Group is expected to assist the Company in conducting a
private offering in the range of $1 million to $3 million. If this offering
is not successful, the Company will continue to raise capital on its own.
Future development tasks and accomplishments are highly dependent upon having
adequate funding to support future development milestone activities.
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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.
During April 2003, the Company issued 112,812 shares of its restricted
common stock to Mitchell J. Stein for a total consideration of $250,000 ($2.22
per share). The consideration included $100,000 in cash and $150,000 of
expenses and capitalized assets which had previously been advanced by Mr.
Stein. The Company relied on Section 4(2) of the Securities Act of 1933, as
amended. Mr. Stein executed a stock purchase agreement in which he
represented that he was acquiring the shares for investment only and not for
the purpose of resale or distribution. The appropriate restrictive legend was
placed on the certificate and stop transfer instructions were issued to the
transfer agent.
During the three months ended June 30, 2003, the Company sold 82,667
units to three accredited investors at $3.00 per unit in cash. Each unit
consisted of one share of common stock and one warrant. Each warrant is
exercisable at $3.00 until May 14, 2004. Upon exercise of the warrants each
investor will receive one share of common stock and an additional warrant to
purchase one share of common stock at $6.00 per share until November 15, 2004.
The Company relied on the exemption provided by Section 4(2) of the Securities
Act and Rule 506 of Regulation D thereunder. The investors received a
disclosure document and they executed a Subscription Application and a Common
Stock Purchase Agreement in which they represented that they were acquiring
the units for investment purposes. The certificates for the warrants and the
shares contain restrictive legends.
On April 15, 2003 the Company issued to Brookstreet Securities
Corporation warrants to purchase 200,000 shares of the Company's common stock
pursuant to an investment banking agreement. The warrants were issued in four
tranches of 50,000 each with the first tranche of 50,000 fully vested and
exercisable at $1.25 per share. The second tranche will vest in 90 days after
the date of the agreement and will have an exercise price of $2.25 per share.
The third tranche will vest in 180 days and will have an exercise price of
$3.25 per share. The fourth tranche will vest in 270 days and will have an
exercise price of $4.25 per share.
During the three months ended June 30, 2003 the Company's Board of
Directors approved the issuance of five-year warrants to purchase 900,000
shares of the Company's common stock at $.50 per share to a firm which was
retained to perform various services including: the introduction of the
Company to investment banking firms; assistance in the structuring of the
Company's private offerings; assistance in capital market transactions,
mergers and acquisitions; advisory services; and assistance in developing
strategic relationships. The agreement for the above referenced services was
entered into on March 10, 2003. The warrants do not include any registration
rights but they do contain a cashless exercise provision. The Company relied
on Section 4(2) of the Securities Act of 1933, as amended. The appropriate
restrictive legend was placed on the warrant certificate.
ITEM 3. Defaults Upon Senior Securities.
None.
10
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.
31.1 Certification of Chief Filed herewith
Executive Officer Pursuant electronically
to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Filed herewith
Financial Officer Pursuant electronically
to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Filed herewith
Executive Officer Pursuant electronically
to 18 U.S.C. Section 1350
32.2 Certification of Chief Filed herewith
Financial Officer Pursuant electronically
to 18 U.S.C. Section 1350
b. Reports on Form 8-K.
None.
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: August 12 2003 By:/s/ Marvin H. Fink
Marvin H. Fink, Chief Executive
Officer
Date: August 12, 2003 By:/s/ Charles E. McGill
Charles E. McGill, Chief Financial
Officer
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