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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (D)
of the
SECURITIES AND EXCHANGE ACT OF 1934
For the quarter ended November 30, 2003
Systems Evolution, Inc.
(Formerly Wallace Resources, Inc.)
(Exact name of registrant as specified in its charter)
IDAHO
(State or other jurisdiction of incorporation or organization)
82-0291029
(IRS Employer Identification Number)
10707 Corporate Drive, Suite 156
Stafford, Texas 77477
(Address of principal executive offices)
Robert C. Rhodes, President
Systems Evolution, Inc.
10707 Corporate Drive, Suite 156
Stafford, Texas 77477
(Name and address of agent for service)
(281) 265-7075
(Telephone number, including area code of agent for service)
Indicate by check mark whether the Registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities and 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
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at January 1, 2004
----- --------------------------------
Common Stock, no par value 44,476,215
SYSTEMS EVOLUTION, INC.
FORM 10-QSB
For the Third Quarter Ended November 30, 2003
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INDEX
Part I. Financial Information
Item 1. Financial Statements
a. Consolidated Balance Sheet as of November 30, 2003
b. Consolidated Statement of Operations for the Three and Six Months Ended
November 30, 2003 and 2002 c. Consolidated Statement of Cash Flows for the Six
Months Ended November 30, 2003 and 2002 d. Notes to Consolidated Financial
Statements
Item 2. Management's Discussion and Analysis
Item 3. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
Certifications
[GRAPHIC OMITTED]
Part I. Financial Information
Item 1. Financial Statements
Forward Looking Information
Various forward-looking statements have been made in this Form 10-QSB.
Forward-looking statements may also be in the Company's other reports filed
under the Securities Exchange Act of 1934, in its press releases and in other
documents. In addition, from time to time, the Company, through its management,
may make oral forward-looking statements.
Forward-looking statements are only expectations, and involve known and unknown
risks and uncertainties, which may cause actual results in future periods and
other future events to differ materially from what is currently anticipated.
Certain statements in this Form 10-QSB, including those relating to the
Company's expected results, the accuracy of data relating to, and anticipated
levels of, its future revenues, gross margins and earnings, its anticipated cash
requirements and sources, are forward-looking statements. Such statements
involve risks and uncertainties, which may cause results to differ materially
from those set forth in these statements. Factors which may cause actual results
in future periods to differ from current expectations include, among other
things, the continued availability of sufficient working capital, the
availability of adequate sources of capital, the successful integration of new
employees into existing operations, the continued desirability and customer
acceptance of existing and future products, the success of competitive products,
the success of the Company's programs to strengthen its operational and
accounting controls and procedures. In addition to these factors, the economic
and other factors identified in this Form 10-QSB, including but not limited to
the risk factors discussed herein and in the Company's previously filed public
documents could affect the forward-looking statements contained in herein and
therein.
Forward-looking statements generally refer to future plans and performance, and
are identified by the words "believe", "expect", "anticipate", "optimistic",
"intend", "aim", "will" or the negative thereof and similar expressions. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date of which they are made. The Company undertakes
no obligation to update publicly or revise any forward-looking statements.
Financial Statements and Notes
In the opinion of management, the accompanying unaudited financial statements
included in this Form 10-QSB reflect all adjustments necessary for a fair
presentation of the results of operations for the periods presented. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full year.
SYSTEMS EVOLUTION INCORPORATED
BALANCE SHEET
NOVEMBER 30, 2003
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 9,301
Accounts receivable - trade, net of allowance of $51,000 91,533
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Total current assets 100,834
FURNITURE AND EQUIPMENT, net 41,022
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Total assets $ 141,856
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LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 40,496
Accrued expenses 25,288
Current portion, long - term debt 6,000
Notes payable 235,428
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Total current liabilities 307,212
LONG - TERM DEBT, net of current portion 12,290
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Total liabilities 319,502
Commitments
STOCKHOLDERS' DEFICIT:
Common stock, no par value, 10,000,000 shares authorized, 44,500,000
shares issued and outstanding 70,140
Accumulated deficit (227,786)
Stockholder receivable (20,000)
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Total stockholders' deficit (177,646)
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Total liabilities and stockholders' deficit $ 141,856
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SYSTEMS EVOLUTION INCORPORATED
STATEMENTS OF OPERATIONS
(Unaudited)
SIX MONTHS ENDED
THREE MONTHS ENDED NOVEMBER 30, NOVEMBER 30,
2003 2002 2003 2002
------------------ ---------------- ---------------- -----------------
REVENUES $ 164,813 $ 333,818 $ 350,956 $ 694,463
OPERATING EXPENSES:
Payroll and related costs 165,525 280,372 425,477 602,945
General, administrative and selling 37,727 102,343 125,117 144,202
---------------- --------------- --------------- ---------------
203,252 382,715 550,594 747,147
---------------- --------------- --------------- ---------------
NET LOSS $ (38,439) $ (48,897) $ (199,638) $ (52,684)
================ ================ =============== ================
(.00) (.00) (.00) (.00)
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BASIC AND DILUTED LOSS PER SHARE:
BASIC AND DILUTED WEIGHTED AVERAGE SHARES 44,500,000 37,500,000 41,000,000 37,500,000
=============== ============== ============== ==============
OUTSTANDING
SYSTEMS EVOLUTION INCORPORATED
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30,
(Unaudited)
2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (199,638) $ (52,684)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 14,000 1,110
Changes in assets and liabilities:
Accounts receivable - trade 48,889 36,363
Prepaid expenses and other assets - 43,318
Accounts payable 7,594 (23,097)
Accrued expenses (11,885) 3,239
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Net cash provided by (used) in operating activities (141,040) 8,249
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes payable and long-term debt (5,051) (2,591)
Proceeds from notes payable and long-tem debt 100,000 -
Proceeds from stockholder receivable 16,422 -
Sale of common stock 9,300 -
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Net provided by (used in) financing activities 120,671 (2,591)
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NET CHANGE IN CASH (20,369) 5,658
CASH, beginning of year 29,670 29,440
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CASH, end of year $ 9,301 $ 35,098
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SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ - $ -
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Income taxes paid $ - $ -
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SYSTEMS EVOLUTION INCORPORATED
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Systems Evolution
Inc. ("Systems Evolution") have been prepared in accordance with accounting
principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission ("SEC"), and should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's Annual Report filed with the SEC on Form 8-K. In the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for the interim period are not necessarily indicative of
the results to be expected for the full year. Notes to the financial statements
which would substantially duplicate the disclosure contained in the audited
financial statements for 2002 as reported in the 8-K have been omitted.
NOTE 2 - REVERSE ACQUISITION
On September 9, 2003, Wallace Resources, Inc. ("Wallace"), a public corporation,
issued 37,500,000 shares of common stock for 100% of the outstanding common
stock of Systems Evolution. After the merger the stockholders of Systems
Evolution owned approximately 84% of the combined entity. For financial
reporting purposes this transaction was treated as an acquisition of Wallace and
a recapitalization of Systems Evolution using the purchase method of accounting.
Systems Evolution's historical financial statements replace Wallace's in the
accompanying financial statements.
NOTE 3 - SUBSEQUENT EVENT
In December 2003, the Company's board of directors approved the 2003 Directors,
Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan
authorizing the issuance of up to 20,000,000 shares of common stock. On January
9, 2004, the company issued 6,200,000 shares of common stock to various
consultants under the plan. Pursuant to the 2003 Directors, Officers, and
Consultants stock option, stock warrant and stock award plan, 6,000,000 stock
options and 3,000,000 shares were issued to Officers, key employees and
consultants in December 2003 and January 2004. Pursuant to a Warrant Agreement
5,500,000 warrants were issued by the CEO and a key employee to a consultant.
The stock will be expensed using the closing price of the Company's common stock
price on the date issued and the warrants at fair value calculated using the
Black-Scholes pricing model.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three and Six Months Ended November 30, 2003
and 2002
The current quarter's net loss was smaller by $10,458 or 21% versus last year's
comparable quarter. The net loss for the current six months ended was larger by
$146,954 or 279% as compared to the same period in the previous year.
Revenues
Revenues during the current quarter decreased by $169,005 or 51% over the
comparable period last year and decreased by $343,507 or 49% during the first
six months of the current year versus last year.
General and Administrative
The current quarter's operating expenses were lower by $179,463 or 47% over last
year's comparable period.
The current six month period's operating expenses were lower by $196,553 or 26%
over the previous year's period.
Liquidity and Capital Resources
As at September 30, 2003, we had cash and cash equivalents of $9,301.
During the current six months ended, net cash used in operating activities was
lower by $149,289 or 1,810% as compared to last year's comparable period.
For the six-month period ended November 30, 2003, net cash provided by financing
activities provided higher cash of $123,262 or 4,757% as compared to the
previous year's comparable period.
We are currently seeking funding to properly capitalize our business. We are
currently negotiating with existing shareholders as well as other individuals
and organizations in order to obtain the working capital necessary to meet both
current and future obligations. We are confident these efforts will produce the
requisite financing necessary to fund the growth of our revenues. Nevertheless,
there can be no assurance we will be able to raise additional capital on
satisfactory terms, or at all. In the event we are unable to obtain such
additional capital or to obtain it on acceptable terms or in sufficient amounts,
the impact thereof would have a material adverse effect on our business,
operating results, financial condition and may affect our ability to carry on as
a company.
Item 3. Controls and Procedures
Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Chief Executive Officer and Chief Financial
Officer, has evaluated the effectiveness of the Company's disclosure controls
and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
end of the period covered by this report. Based on such evaluation, the
Company's Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company's disclosure controls and
procedures are effective in recording, processing, summarizing and reporting, on
a timely basis, information required to be disclosed by the Company in the
reports that it files or submits under the Exchange Act.
Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting
[GRAPHIC OMITTED]
Part II. Other Information
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds -
Pursuant to the 2003 Directors, Officers, and Consultants stock option, stock
warrant and stock award plan, 6,200,000 shares were issued to consultants on
January 9th, 2004.
Pursuant to the 2003 Directors, Officers, and Consultants stock option, stock
warrant and stock award plan, 6,000,000 stock options and 3,000,000 shares were
issued to Officers, key employees and consultants in December 2003 and January
2004.
Pursuant to a Warrant Agreement 5,500,000 warrants were issued by the CEO and a
key employee to a consultant.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits were filed as part of this Form 10-QSB.
(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.
Systems Evolution, Inc.
(Registrant)
January 20, 2004
/s/ Robert C. Rhodes
Robert C. Rhodes
President
Duly Authorized Officer
CERTIFICATIONS
I, Robert C. Rhodes, certify that:
1.
I have reviewed this quarterly report on Form 10-Q of Systems Evolution, Inc.;
2.
Based on my knowledge, this 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 report;
3.
Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4.
As the registrant's certifying officer I am responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under my supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to me by others within those entities, particularly
during the period in which this report is being prepared;
(b)
Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report my conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5.
As the registrant's certifying officer I have disclosed, based on my most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors:
(a)
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant's internal control over financial
reporting.
Date: January 20, 2004
/s/ Robert C. Rhodes
Robert C. Rhodes
President
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Systems Evolution, Inc. (the
"registrant") on Form 10-Q for the period ending November 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "report"), I,
Robert C. Rhodes, President, of the registrant, certify, pursuant to 18 U.S.C.
ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that
to my knowledge:
(1)
The report fully 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
respects, the financial condition and result of operations of the registrant.
January 20, 2004
/s/ Robert C. Rhodes
Robert C. Rhodes
President