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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
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|x| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 33-11795
RECOM MANAGED SYSTEMS, INC.
(Formerly Mt. Olympus Enterprises, Inc.)
Delaware 87-0441351
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(State of Incorporation) (I.R.S. Employer Identification)
2412 Professional Drive
Roseville, CA 95661
(Address of principal executive offices)
(916) 774-0953
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities 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.
Yes |X| No |_|
As of May 11, 1999, the Registrant had 3,119,000 shares of Common Stock
outstanding.
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<CAPTION>
INDEX
Page
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PART I: FINANCIAL INFORMATION
Item 1 Financial Statements
<S> <C> <C>
Balance Sheets at March 31, 1999 and December 31, 1998 1
Statements of Operations for the three months ended March 31, 1999 and the cumulative
period July 31, 1998 (inception) to March 31, 1999 2
Statements of Cash Flows for the three months ended March 31, 1999 and the cumulative
period July 31, 1998 (inception) to March 31, 1999 3
Notes to Financial Statements 4
Item 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 6
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 8
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<TABLE>
RECOM MANAGED SYSTEMS, INC.
(A Development Stage Company)
Balance Sheets
<CAPTION>
March 31, December 31,
1999 1998
--------- ---------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash ........................................................ $ 216,365 $ 23,855
Accounts receivable ......................................... 129,185 53,766
Deferred offering costs ..................................... -- 21,686
Other current assets ........................................ 8,000 --
--------- ---------
Total current assets ................................... 353,550 99,307
Property and equipment, net ...................................... 97,953 13,678
--------- ---------
Total assets ........................................... $ 451,503 $ 112,985
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ............................................ $ 39,156 $ 10,006
Accrued professional fees ................................... 13,450 62,789
Accrued payroll, bonuses and benefits ....................... 80,215 22,500
Accrued interest ............................................ 11,942 7,257
Due to related party ........................................ 96,987 81,989
Notes payable to stockholders ............................... 190,000 190,000
--------- ---------
Total current liabilities .............................. 431,750 374,541
Stockholders' equity (deficit):
Common Stock, $0.001 par value; 50,000,000 shares authorized;
2,605,000 and 3,119,000 shares issued and outstanding .... 3,119 2,605
Additional paid-in-capital .................................. 504,656 --
Accumulated deficit ......................................... (488,022) (264,161)
--------- ---------
Total stockholders' equity (deficit) ................... 19,753 (261,556)
--------- ---------
Total liabilities and stockholders' equity (deficit) ... $ 451,503 $ 112,985
========= =========
</TABLE>
See notes to financial statements.
1
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<TABLE>
RECOM MANAGED SYSTEMS, INC.
(A Development Stage Company)
Statements of Operations
(unaudited)
<CAPTION>
Cumulative period
Three months July 31, 1998
ended (inception) to
March 31, 1999 March 31, 1999
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<S> <C> <C>
Revenues:
IT staffing services ..................................... $ 171,932 $ 251,224
Cost of revenues:
IT staffing services ..................................... 110,115 161,655
----------- -----------
Gross profit .................................................. 61,817 89,569
----------- -----------
Operating expenses:
Development .............................................. 118,597 118,597
General and administrative ............................... 56,921 132,820
Marketing and selling .................................... 105,475 129,232
----------- -----------
Total operating expenses ...................................... 280,993 380,649
----------- -----------
Operating loss ................................................ (219,176) (291,080)
Interest expense .............................................. 4,685 11,942
----------- -----------
Loss before income taxes ...................................... (223,861) (303,022)
Provision for income taxes .................................... -- --
----------- -----------
Net loss ...................................................... $ (223,861) $ (303,022)
=========== ===========
Basic and diluted loss per share .............................. $ (0.08) $ (0.12)
=========== ===========
Basic and diluted weighted average number of shares outstanding 2,818,921 2,530,016
=========== ===========
</TABLE>
See notes to financial statements.
2
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<TABLE>
RECOM MANAGED SYSTEMS, INC.
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
<CAPTION>
Cumulative period
Three months July 31, 1998
ended (inception) to
March 31, 1999 March 31, 1999
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss .......................................... $(223,861) $(303,022)
Depreciation expense .............................. 3,963 10,333
Other ............................................. 320 320
Change in assets and liabilities:
Accounts receivable .......................... (75,419) (129,185)
Other current assets ......................... (8,000) (8,000)
Accounts payable ............................. 29,150 39,156
Accrued professional fees .................... (49,339) 13,450
Accrued payroll, bonuses and benefits ........ 57,715 80,215
Accrued interest ............................. 4,685 11,942
Due to related party ......................... 14,998 96,987
--------- ---------
Net cash provided by operating activities (245,788) (187,804)
--------- ---------
Cash flows from investing activities:
Acquisitions of property and equipment ............ (88,238) (88,238)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable to stockholders ....... -- 190,000
Reverse acquisition (Note 1) ...................... -- (202,443)
Issuance of stock (Note 3) ........................ 504,850 504,850
Deferred offering costs (Note 3) .................. 21,686 --
--------- ---------
Net cash provided by financing activities 526,536 492,407
--------- ---------
Net increase in cash ................................... 192,510 216,365
Cash at beginning of the period ........................ 23,855 --
--------- ---------
Cash at end of the period .............................. $ 216,365 $ 216,365
========= =========
</TABLE>
See notes to financial statements.
3
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RECOM MANAGED SYSTEMS, INC.
(A Development Stage Company)
Notes to Financial Statements
Note 1--Organization
Recom Managed Systems, Inc., a Delaware corporation, (the "Company")
engages in the business of providing information technology desktop services and
application solutions to mid-sized commercial and government entities. The
Company provides a modular set of services that cover the entire lifecycle of
desktops, networks and business applications from initial design through
implementation, ongoing maintenance, upgrade and retirement. The Company is
considered to be in the development stage as limited revenues have been derived
from operations.
The Company was formed on July 31, 1998 as J2 Technologies, LLC ("J2"), a
California limited liability company. On October 30, 1998, pursuant to a
"Stock-for-Membership Interest Exchange Agreement", J2 acquired all of the
outstanding common stock of an inactive public shell company, Mt. Olympus
Enterprises, Inc. ("MOE"). For accounting purposes the acquisition has been
treated as a recapitalization of MOE with J2 as the acquirer (reverse
acquisition). In connection with the closing of the reverse acquisition, MOE's
name was changed to RECOM Managed Systems, Inc. The historical financial
statements prior to October 30, 1998, are those of J2.
Note 2--Basis of Presentation
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly our financial
position at March 31, 1999 and December 31, 1998, and our results of operations
and cash flow for the three months ended March 31, 1999 and the cumulative
period July 31, 1998 (inception) to March 31, 1999. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. For further information, refer to our Form 10-KSB for the year ended
December 31, 1998. Operating results for the three months ended March 31, 1999
and the cumulative period July 31, 1998 (inception) to March 31, 1999 are not
necessarily indicative of future results.
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 has had limited
operating history, is in the development stage, and, at March 31, 1999, has
negative working capital as well as an accumulated net deficit. 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
recoverability and classification of recorded asset amounts or the amount of
liabilities that might be necessary should the Company be unable to continue in
existence. Continuation of the Company as a going concern is dependent on
obtaining necessary funds to continue its operations. Management plans to
generate these funds through a combination of private placement and / or public
offerings. There is no assurance, however, that such plans will be completed or,
if completed, will generate sufficient funds to enable the Company to continue
operations for the next twelve months.
Note 3--Stockholders' Equity
In March 1999, the Company completed a private placement offering of
504,000 shares of common stock. Gross and net proceeds after selling commissions
and direct offering costs totaled $630,000 and $504,850, respectively. Selling
commissions and direct offering costs of $78,650 and $46,500, respectively,
where charged to equity upon completion of the private placement.
In January 1999, the Company adopted the 1998 Stock Option Plan (the
"Plan") providing for the granting of options to purchase shares of the
Company's common stock to key employees, directors, officers and consultants as
designated by the Company's Board of Directors. Under the Plan, the Company is
authorized to grant both incentive and non-qualified stock options for up to
520,000 shares of common stock at an exercise price not less than 100% and 85%
of the fair market value on the date of grant for incentive options and
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non-qualified options, respectively. The options vest over a period determined
on the date of grant and expire after ten years from the date of grant. In
January 1999, 451,000 options were granted to key employees and officers with an
average exercise price of $0.25 per share, the fair value of the underlying
stock at the date of grant as determined by the Board of Directors.
Also in January and February of 1999, separate incentive options were
granted to each of the Company's outside Directors. A total of 110,000 options
were granted with an exercise price of $0.25 per share, the fair value of the
underlying stock at the date of grant as determined by the Board of Directors,
with vesting ranging from one to three years. These options expire after ten
years from the date of grant. Two outside Directors were also issued 5,000
shares each of the Company's common stock at a purchase price equal to the fair
value of the underlying stock at the date of issuance as determined by the Board
of Directors.
In connection with a corporate advisory agreement entered into in January
1999, the Company issued a total of 75,000 warrants for the purchase of its
common stock at an exercise price of $0.25, the fair market value of the
underlying stock at the date of issuance as determined by the Board of
Directors.
Compensation expense charged to operations for the stock issued to the two
outside Directors and the warrants issued was not material to these financial
statements and was calculated using the Black-Scholes Option pricing model with
the following weighted average assumptions: dividend yield of 0%; expected
volatility of 12%; risk free interest rate of 5.35%; and an expected life of two
years.
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Results of operations
For the three months ended March 31, 1999 and the cumulative period July
31, 1998 (inception) to March 31, 1999, revenues from information technology
consulting services (IT Revenues) totaled $171,932 and $251,224, respectively.
IT Revenues from a single customer with a master contract that has
month-to-month terms totaled $126,086 and $205,378 for the three months ended
March 31, 1999 and the cumulative period July 31, 1998 (inception) to March 31,
1999, respectively. The Company believes that it has a very good relationship
with the customer and expects the contract to continue for the foreseeable
future. IT Revenues under a separate month-to-month contract with a second
customer totaled $35,741 for the three months ended March 31, 1999. The Company
also earned IT Revenue of $10,105 during the three months ended March 31, 1999
from Recom Technology, a related party.
The net loss of $223,861 and $303,022 for the three months ended March 31,
1999 and the cumulative period July 31, 1998 (inception) to March 31, 1999,
respectively, can be attributed to development, marketing and selling, and
general and administrative expenses incurred during the Company's developing
stage.
Capital Financing
On March 4, 1999, the Company completed a private placement offering of
504,000 shares of common stock resulting in gross proceeds of $630,000. The
shares, representing 19% of the Company's outstanding shares after completion of
the offering, were sold to 17 qualifying investors. Net proceeds to the Company,
after selling commissions of $78,650 and direct offering costs of $46,500,
totaled $504,850. The net proceeds from the offering are being used to fund the
Company's continuing operations and development. The selling commissions and
direct offering costs were charged directly to equity.
Liquidity and sources of capital
As of March 31, 1999, the Company had current assets of $353,550 with
current liabilities of $431,750. This represents a negative working capital of
$78,200. Cash flows used in operating activities, totaling $245,788 and $187,804
for the three months ended March 31, 1999 and the cumulative period July 31,
1998 (inception) to March 31, 1999, respectively, were generated primarily from
changes in current assets and liabilities.
Cash flows used in investing activities of $88,238 for the three months
ended March 31, 1999 was expended on information technology infrastructure used
to support the Company's developing business. Cash flows from financing
activities primarily consisted of the $504,850 of net proceeds from the private
placement offering described above.
Plan of operation for the next twelve months
The Company planned business execution during its development stage will
require the Company to pursue sources of capital funding during the next twelve
months in addition to the capital raised in the March 1999 private placement
offering. These funds are expected to be used for the continued development of
the Company's technology infrastructure necessary to support its planned service
offerings, anticipated business acquisitions, and to support an expected
increase in the number of Company employees.
Year 2000 Compliance
There is significant concern that certain computer programs and computers
are not presently configured to recognize the year 2000 or succeeding years.
This defect in computer functions could have a serious adverse impact upon our
industry and other industries if various computer programs and applications
6
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cease to function or function erroneously as we approach the year 2000. The
Company views the year 2000 compliance problems it may face to fall within three
general categories:
1. The potential impact on the Company's own information technology.
2. The potential impact of the possibility of collateral failure or
miss-function in non-IT systems due to their computer components such as
telephone systems, security systems, etc.
3. The potential adverse effect upon the Company from year 2000 failure among
third party service providers.
The Company believes that it has addressed all of its year 2000 problems
related to its owned IT systems and has determined that its' existing, as well
as in-development, internal hardware and software will function past the year
2000 without modification. The Company has also addressed its non-IT systems and
believes that these systems also will function past the year 2000 without
modification. The Company does not believe that there are any feasible plans to
adjust operations to potential industry-wide problems, such as may occur with
suppliers or outsource consultants. The Company will deal with those problems
when and if they arise on a case-by-case basis.
Amounts incurred by the Company related to the year 2000 for the period
July 31, 1998 (inception) to March 31, 1999 were not significant. Amounts
expected to be spent through the remainder of 1999 are also not expected to be
significant.
Caution about forward-looking statements
This Form 10-QSB includes "forward-looking" statements about future
financial results, future business changes and other events that haven't yet
occurred. For example, statements like we "expect," we "anticipate" or we
"believe" are forward-looking statements. Investors should be aware that actual
results may differ materially from our expressed expectations because of risks
and uncertainties about the future. We will not necessarily update the
information in this Form 10-QSB if any forward-looking statement later turns out
to be inaccurate. Details about risks affecting various aspects of our business
are discussed throughout this Form 10-QSB. Investors should read all of these
risks carefully.
7
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PART II
ITEM 1 through 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1) Exhibits:
27 Financial Data Schedule.
2) The following reports on Form 8-K were filed during the quarter ended
March 31, 1999:
On March 4, 1999, the Company filed a report on Form 8-K reporting the
selection of Burnett, Umphress & Company, LLP to serve as its
independent public accountants for the year 1998 and, accordingly, the
dismissal of Hansen, Barnett & Maxwell.
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.
May 11, 1999
By: /s/ JOHN C. EPPERSON, JR.
John C. Epperson, Jr.,
President and Chief Executive Officer
8
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<NAME> RECOM MANAGED SYSTEMS, INC.
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
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