1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9255
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RELIABLE POWER SYSTEMS, INC.
f/k/a DENCOR ENERGY COST CONTROLS, INC.
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(Exact name of small business issuer as specified in its charter)
Colorado 84-0658020
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1450 West Evans, Denver, Colorado 80223
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(Address of principal executive office) (Zip Code)
(303) 922-1888
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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 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
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date. No par value per share:
10,638,679 shares issued at May 10, 2001.
Transitional Small Business Disclosure Format
Yes No X
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Cautionary Statement Regarding Forward-Looking Statements. In the
interest of providing the Company's shareholders with certain information
regarding the Company, including management's assessment of the Company's future
plans and operations, certain statements set forth in this Form 10QSB contain or
are based on the Company's projections or estimates of revenue, income, earnings
per share and other financial items or relate to management's future plans and
objectives or to the Company's future economic and financial performance. All
such statements, other than statements of historical fact, contained in this
Form 10QSB in "Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Item 5. Business Plan" generally are
accompanied by words such as "anticipate," "believe," "intend," "estimate,"
"project" or "expect" or similar statements. Such statements are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and are made pursuant to and in reliance on the safe harbor
provisions of such sections.
Although any forward-looking statements contained in this Form 10QSB or
otherwise expressed by or on behalf of the Company are, to the knowledge and in
the judgment of the officers and directors of the Company, reasonable and
expected to prove true, management is not able to predict the future with
certainty and no assurance can be given that such statements will prove true,
management is not able to predict the future with certainty and no assurance can
be given that such statements will prove correct. Forward-looking statements
involve known and unknown risks and uncertainties which may cause the Company's
actual performance and financial results in future periods to differ materially
from any projection, estimate or forecasted result. These risks and
uncertainties include, among other things: general economic and business
conditions; industry conditions and trends; volatility of prices; product supply
and demand; market competition; risks inherent in the Company's operations;
imprecision of reserve estimates; the Company's ability to replace and expand
its business; the Company's ability to generate sufficient cash flow from
operations to meet its current and future obligations; the Company's ability to
access and terms of external sources of debt and equity capital; such other
risks and uncertainties described from time to time in the Company's periodic
reports and filings with the Securities and Exchange Commission. These and other
risks are described elsewhere in this Form 10QSB and will be described from time
to time in the Company's future filings with the Securities and Exchange
Commission. Accordingly, shareholders and potential investors are cautioned that
certain events or circumstances could cause actual results to differ materially
from those projected, estimated or predicted. In addition, forward-looking
statements are based on management's knowledge and judgment as of the date of
this Form 10QSB, and the Company does not intend to update any forward-looking
statements to reflect events occurring or circumstances existing hereafter.
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RELIABLE POWER SYSTEMS, INC.
INDEX
Page
PART I. FINANCIAL INFORMATION 1
Item 1. Consolidated Financial Statements: 1
Balance sheets - March 31, 2001, and December 31, 2000 1
Statement of Operations - Three Months Ended March 31, 2001 2
Statement of Cash Flows - Three Months Ended March 31, 2001 3
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis and Plan of Operations 4
PART II. OTHER INFORMATION 6
Item 2. Changes in Securities and Use of Proceeds 6
Item 6. Exhibits and Reports on Form 8-K 7
Signatures 8
4
RELIABLE POWER SYSTEMS, INC.
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
(Consolidated Balance Sheet)
ASSETS
MARCH 31, DECEMBER 31,
2001 2000
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(UNAUDITED)
CURRENT ASSETS:
Cash $ 14,232 $ --
Accounts receivable, net of allowance for doubtful accounts of $10,400 10,900 --
Inventories 107,600 --
Prepaid and other 207,834 --
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Total Current Assets 340,566 --
Employee receivable 50,000 --
Furniture and equipment 6,186 --
Security deposit 2,712 --
Long term receivables 6,100 --
Goodwill, net 1,374,370 --
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$ 1,779,934 $ --
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 53,396 $ 1,170
Accrued compensation and taxes 52,683 --
Warranty reserve 3,200 --
Accrued interest - Shareholder 3,322 --
Other 9,975 --
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Total Current Liabilities 122,576 1,170
LONG TERM LIABILITIES
Note payable - related party 255,000 --
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Total Liabilities 377,576 1,170
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, no par value, authorized 15,000,000 shares:
Series A, 3,348,000 issued and outstanding 627,285 --
Series B, 300,000 issued and outstanding 300,000 --
Common stock, no par value, authorized 25,000,000
shares, issued and outstanding 1,263,878 and 1,990 769,615 --
Accumulated deficit (294,542) (1,170)
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Total Stockholders' Equity 1,402,358 (1,170)
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$ 1,779,934 $ (1,170)
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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5
RELIABLE POWER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE
MONTHS
ENDED
MARCH 31,
2001
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REVENUES:
Net sales $ 25,083
Interest and other 700
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Total Revenues 25,783
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COSTS AND EXPENSES:
Cost of products sold 21,350
Selling 6,635
General and administrative 257,803
Research and development 17,267
Interest 6,005
Amortization 10,095
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Total Costs and Expenses 319,155
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NET (LOSS) $(293,372)
=========
NET (LOSS) PER COMMON SHARE $ (.30)
=========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 972,211
=========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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RELIABLE POWER SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS
ENDED
MARCH 31,
2001
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (293,372)
Adjustments to reconcile net (loss) to net cash (used)
in operating activities:
Amortization 10,095
Stock based compensation 261,000
Changes in operating assets and liabilities:
Decrease in receivables 15,100
Decrease in inventories 7,700
Increase in prepaid expenses and other assets (205,446)
Increase in accounts payable and accrued expenses 15,741
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Net Cash (Used) by Operating Activities (189,182)
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CASH FLOWS TO INVESTING ACTIVITIES:
Purchase of equipment (6,186)
Acquisition (315,400)
Loan to employee (50,000)
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Net Cash Used by Investing Activities (371,586)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable - shareholder 255,000
Sale of common stock 320,000
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Net Cash Provided by Financing Activities 575,000
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NET INCREASE IN CASH 14,232
--
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CASH, beginning of year
CASH, end of quarter $ 14,232
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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RELIABLE POWER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
The consolidated Financial Statements of the Company as of March 31,
2001 and for the three-month period ended March 31, 2001 have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in the Company's annual financial statements prepared in
accordance with generally accepted accounting principles have been consolidated
or omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.
In the opinion of the Company, the accompanying unaudited consolidated
Financial Statements contain all adjustments, which consist only of normal and
recurring adjustments, necessary to present fairly the financial position as of
March 31, 2001, and the results of operations and cash flows for the three
months ended March 31, 2001.
The results of operations for the three-month period ended March 31,
2001 are not necessarily indicative of the results to be expected for the full
year. These consolidated financial statements should be read in conjunction with
a reading of the financial statements and the notes therein included in the
Company's latest annual report on Form 10-KSB. It should be noted that the Form
10KSB was filed under the Company's former name, Dencor Energy Cost Controls
Inc. and primarily discusses events occurring prior to its merger with Reliable
Power Systems, Inc.
2. Long-Term Debt:
As of the end of First Quarter, 2001, the Company had $255,000 of
long-term debt payable to First Western Industries, LLC. First Western
Industries, LLC is controlled by the Company's Chairman and majority beneficial
shareholder. The debt is due on demand bearing interest at 10%. Subsequent
Events. On May 15, 2001, the Company entered into a two year loan agreement with
Compass Bank in the principal amount of $665,000.00 with an annual interest rate
of 7.5% . The majority of the principle from this loan will be used to retire
the obligation to First Western Industries, LLC pursuant to the line of credit
agreement which had $562,514 of principal outstanding on May 15, 2001. This new
financing will allow the Company to recharacterize the debt as a long term
liability. Additionally, the Company will derive significant benefit from this
refinancing by establishing traditional credit lines.
3. Common Stock:
As of the end of the First Quarter, 2001, the Company had 1,263,878
shares of common stock issued and outstanding. This represented an increase of
800,000 shares over the outstanding shares on December 31, 2000. This increase
was the result of the reverse triangular merger by and among, Reliable Power
Systems, Inc., Dencor Energy Cost Controls, Inc. and Denmer Corporation all as
more fully described in the 8K filed on February 16, 2001, the 8K/A filed on
April 16, 2001, and the 10KSB/A filed on March 20, 2001 and in Exhibit 2 of this
Form 10QSB.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion involves the combined operations of Reliable
Power Systems, Inc. from January 1, 2001 to March 31, 2001 and Dencor Energy
Cost Controls, Inc. operations from February 7, 2001 to March 31, 2001. On
February 7, 2001, Dencor Energy Cost Controls, Inc. entered into a reverse,
triangular merger with Reliable Power Systems, Inc. As a result of the
accounting treatment of that merger, the historical accounting information for
Dencor Energy Cost Controls, Inc. was eliminated and replaced with the
historical accounting information of Reliable Power Systems, Inc. This
accounting treatment primarily resulted in the elimination of accumulated
deficit of Dencor Energy Cost Controls and the creation of $1,384,465 of
goodwill. On April 10, 2001, the Company held a shareholders meeting and among
other items, officially changed its name to Reliable Power Systems, Inc. A
detailed description of the items considered at the April 10, 2001,
shareholders meeting is contained in the Company's 14C filed on March 7, 2001.
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RELIABLE POWER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company currently sells energy control systems to residential, commercial,
industrial, and utility customers. This is a continuation of Dencor Energy Cost
Controls, Inc.'s historical business. The Company is in the process of expanding
its operations to include the sale of energy quality products.
NET SALES
First Quarter sales were $25,083. These sales were entirely
attributable to Dencor Energy Cost Controls, Inc.'s historical business.
COST AND EXPENSE
Cost of Products Sold for Dencor Energy Cost Control, Inc.'s products were
$21,350.
Selling expenses as a percentage of net sales were 26.4%. This is a
substantially higher percentage than the Company anticipates for future periods
and is primarily due to the hiring of a Vice President of Sales who will
primarily focus on the sale of energy quality products.
General and Administrative expenses were $257,803. These costs are primarily
attributable to the merger and hiring new professional and support staff. While
the Company does not anticipate any material decrease in these costs, it is
anticipated that future expenses will substantially increase as a result of the
increased size of the Company.
Research and Development expenses as a percentage of net sales were 69%. The
Company anticipates substantial increasing its research and development
activities, as more fully discussed in Item 5. However, the Company believes
research and development expenses will decrease as a percentage of net sales.
EARNINGS
The net loss for the first quarter was $293,372. The net loss was due
to the expenses related to the merger and the increase in payroll as a result of
hiring additional management and support staff.
LIQUIDITY
If working capital beyond that provided by cash flow is needed,
additional debt and equity financing will be sought. If traditional debt
financing is not available, the Company will attempt to raise working capital by
private borrowing including stockholder loans. First Western Industries, LLC has
entered into a line of credit agreement with the Company. Additionally, the
Company may consider raising funds through the equity markets. While, First
Western Industries, LLC has entered into the line of credit agreement, no
assurances can be given that other sources of financing will be available.
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RELIABLE POWER SYSTEMS, INC
PART II - OTHER INFORMATION
Items 1, 3, and 4 would appear to require no answers according to the
instructions.
Item 2. Changes in Securities and Use of Proceeds
(a) Modification or Limitation of Existing Securities.
The instruments defining the rights of the holders of any class of
registered securities were not directly modified. However, the rights of the
common stock holders were affected by the merger as discussed below in
subparagraph (b).
(b) Limitation or Modification of a Class of Securities by the Issuance of
Other Securities.
On February 7, 2001, Dencor Energy Cost Controls, Inc., Denmer
Corporation and Reliable Power Systems, Inc. entered into a reverse, triangular
merger. As a result of that transaction, the Company issued 3,348,000 shares of
its Series A Convertible Preferred Stock. Each share of series A Convertible
Preferred Stock was convertible into 50 shares of common stock. The effect of
this issuance was to vest control of the Company in the shareholders of Reliable
Power Systems, Inc., the target of the merger. On April 10, 2001, the Company
held a shareholders meeting and among other things, increased its authorized
common stock to 190,000,000 shares. As a result of this increase in authorized
common stock the Series A Preferred Stock was converted to common stock. On
April 11, 2001, the Company effectuated a 1 for 18 reverse stock split (as
approved at the April 10, 2001 shareholders meeting). On April 12, 2001, the
Company decreased its authorized common stock to 65,000,000 shares.
Additionally, the Company issued 300,000 shares of its Series B
Redeemable and Convertible Preferred Stock as a result of the merger. The Series
B Preferred Stock has a stated value of $1.00 per share and may be redeemed for
cash or converted into common stock at its then fair market value on certain
conversion dates, provided that the fair market value of the common stock shall
be deemed to be not less than $2.00 per share nor more than $10.00 per share.
The holders of the Series B Preferred Stock are entitled to liquidation
preferences over the holders of both common stock and Series A Preferred Stock.
The effect of this issuance was to make the holders of common stock and Series A
Preferred Stock subordinate to the holders of Series B Preferred Stock in the
event of a liquidation of the Company. The Series B Preferred Stock was issued
to employees of the Company as a result of their agreements to forgive accrued
compensation, interest on that compensation, and accrued benefits.
(c) Information Required by Item 701 of Regulation S-B
On February 7, 2001, the Company issued 12,600,000 shares of common
stock and 3,348,000 shares of its Series A Preferred Stock to the shareholders
of Reliable Power Systems, Inc. as a result of the merger discussed above.
Additionally, On February 7, 2001, the Company issued 1,800,000 shares of Common
Stock to Venture Vest, Inc. as a finders fee for the above described
transaction. Finally, on February 7, 2001, the Company issued 300,000 shares of
its Series B Preferred Stock.
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RELIABLE POWER SYSTEMS, INC.
The Company did not use an underwriter in association with any of the
stock issuances described above.
In exchange for the 12,600,000 shares of common stock and the 3,348,000
shares of Series A Preferred Stock, the Company received 100% of the issued and
outstanding stock of Reliable Power Systems, Inc. which primarily consisted of
$300,000 of cash and immaterial liabilities. In exchange for the 1,800,000
shares of common stock issued to Venture Vest, Inc. the Company received
consulting services related to the merger. In exchange for the Series B
Preferred Stock, the Company received forgiveness of approximately $340,000 of
accrued compensation, interest on the compensation and benefits.
The securities were issued in accordance with Sections 4(2) and 4(6) of
the Securities Act of 1933 and Rule 145.
As described above, the Series A Preferred Stock and the Series B
Preferred Stock are convertible into common stock. Additionally, the Series B
Preferred Stock is convertible into common stock as more fully described above.
Item 5. RELIABLE POWER SYSTEMS, INC. DESCRIPTION
Reliable Power Systems, Inc. was formed in July of 2000 as DHW Industries, Inc.
After evaluating the energy market, DHW Industries, Inc. changed its name to
Reliable Power Systems, Inc. on October 17, 2001 and adopted a business plan to
address the growing crisis in the delivery and quality of distributed electric
energy and to address the energy crisis in the underserved industrial and
commercial markets. On February 7, 2001, Reliable Power Systems, Inc. merged
into a wholly owned subsidiary of Dencor Energy Cost Controls, Inc. a designer,
developer and manufacturer of proprietary energy management and conservation
systems. In April of 2001, the shareholders approved the name change from Dencor
Energy Cost Controls, Inc. to Reliable Power Systems, Inc. The combined company
now trades on the OTC: BB under the symbol RPSI.
The Company designs and markets power quality products that provide the
consistent, reliable electric power required by today's economy. The Company is
currently developing a fully integrated continuous power system, which targets
the industrial, medical, data and telecommunications power markets. The Company
currently owns the right to several patents in energy technology management and
intends to develop and acquire additional technologies.
The Company develops, integrates and maintains unique total power systems
encompassing power quality, reliability, power information systems, and niche
distributed power generation. The Company intends to custom tailor solutions to
its customers' specifications by employing standard equipment solutions from
various manufacturers and by incorporating its own, patented products, to offer
the underserved industrial, medical and commercial consumers the highest
operating efficiencies in the power quality and reliability industry. The
Company intends to provide affordable and reliable solutions to its customer's
power needs for today and beyond.
Engineering Services: The Company intends to design a full power back up
system, or full power generation system to allow the customer both fuel options,
no break UPS systems, upgrades to existing systems, distributive generation
systems off the utility grid, or the ability to sell back generation capacity.
The Company's engineering services a full range design and build offering.
Installation services: The Company intends to offer full turn key services that
include the site survey and installation of the power system, or monitoring
units. The Company intends to act as the general contractor to insure full
system integration and site acceptance. Training and management of the site may
also be provided. The Company intends its field installation capability to
include rigging, setting of the equipment and the mechanical and electrical
connections of all systems and the proper interface of all units to act as a
full-integrated solution.
The Company, with patented Dencor Energy Cost Controls, Inc. Modules, currently
offers site monitoring and energy management. This technology allows the
Company to monitor its customers' energy usage and control the on and off times
for various pieces of equipment in order to reduce or eliminate peak power
bills. The Company's connectivity will also allow for the monitoring of various
systems to insure proper interface between energy management and the intended
use of the equipment. The Company's monitoring system platform is cost
effective and can be easily retro fitted into existing equipment designs.
Constant Voltage Stabilizers: The Company intends to offer a full line of
voltage stabilizers for its industrial and hospital customers. Due to the
unique demand of industrial applications, voltage sags are common within a
factory setting. The Company's Constant Voltage Stabilizers design will allow
for constant voltage output without the requirement of expensive battery back up
systems. In hospital applications, the Company's phase stabilizer capability
will correct overloaded system imbalances caused by the rapidly expanding power
requirement of hospital additions.
The Company intends to supply a full line of engine generator systems. Prime,
continuous duty, and standby systems will be included in this offering, combined
with the Company's other technologies in order to best suit its customers
requirements. By combining its existing technology with the engine units, the
Company intends to intorduce peak load shedding and alternative fuel choices.
The Company will thrive by addressing a few key segments of the market:
o MARKETING: The Company has proprietary technology that has not been
effectively marketed. Although there is no quick effective way for the
nation to generate more power, the Company has proven effective solutions
for energy conservation. These solutions are tailored to both the
commercial and residential markets.
o PRODUCT QUALITY: The Company intends to develop a complete line of power
production equipment and energy management technology. The Company intends
to sell products from various manufacturers and produce its own products.
o EXECUTION OF ACQUISITIONS: The Company may expand into new markets through
the acquisition of electrical technology and fuel suppliers. The Company
will use these businesses as a platform on which to layer the sales of its
other products and services. Further benefits may accrue to the Company
through the elimination of redundancies in these organizations.
o MULTIPLE PRICING MODELS: The establishment of multiple pricing models will
allow the Company to offer flexible pricing plans that make sense for the
customer as well as allowing the Company to generate recurring revenue.
o MANAGEMENT: The Company has hired key members for its management team that
are deep with both start up and technical knowledge. These skill sets will
allow the company to grow intelligently, with a dedication to profits.
Item 6. Exhibits and Reports On Form 8-K
(a) The following Exhibit is filed as part of this Quarterly Report on
Form 10-Q:
2. Merger Agreement and Plan of Reorganization dated February
7, 2001 by and among Dencor Energy Cost Controls, Inc., Denmer Corporation and
Reliable Power Systems, Inc.
19. 14C Filed on March 7, 2001 (incorporated herein by this
reference)
99. Line of Credit by and between First Western Industries, LLC
and Dencor Energy Cost Controls, Inc. d/b/a Reliable Power Systems effective
February 7, 2001.
(b) During the quarter ended March 31, 2000, the Registrant filed one
report on Form 8-K:
February 16, 2001 Changes in Control of Registrant
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RELIABLE POWER SYSTEMS, INC.
SIGNATURE
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.
Reliable Power Systems, Inc.
Registrant
By: David Groom
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Secretary and Interim Principal
Accounting Officer
Date: May 12, 2001
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EXHIBIT INDEX
Exhibit No. Description
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2 Merger Agreement and Plan of Reorganization dated February 7,
2001 by and among Dencor Energy Cost Controls, Inc., Denmer
Corporation and Reliable Power Systems, Inc.
19 14C Filed on March 7, 2001 (incorporated herein by this
reference)
99 Line of Credit by and between First Western Industries, LLC
and Dencor Energy Cost Controls, Inc. d/b/a Reliable Power
Systems effective February 7, 2001.