SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-QSB/A
Quarterly Report of Small Business Issuers under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended March 31, 2005
Commission File No. 333-45210
SYSTEMS MANAGEMENT SOLUTIONS, INC.
(Name of Small Business Issuer in Its Charter)
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Nevada 88-046047
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
7550 IH-10 West, 14th Floor 78229
San Antonio, Texas
(Address of Principal Executive Offices) (Zip Code)
Issuer's telephone number, including area code: (210) 541-7133
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The issuer has (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) been subject to
such filing requirements for the past 90 days.
Number of shares outstanding of each of the issuer's classes of common equity:
Class Outstanding as of April 06,2005
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Common stock, $0.0001 par value 20,641,344
The issuer is not using the Transitional Small Business Disclosure format.
TABLE OF CONTENTS
Page
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PART I. FINANCIAL INFORMATION................................................1
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).....................................1
ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS......................................4
ITEM 3. CONTROLS AND PROCEDURES..............................................5
PART II - OTHER INFORMATION....................................................6
ITEM 1. LEGAL PROCEEDINGS....................................................6
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.....................................6
SIGNATURES.....................................................................7
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
SYSTEMS MANAGEMENT SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
March 31, 2005
(unaudited)
ASSETS
Current Assets
Cash $ 9,345
Accounts receivable 36,605
Prepaids 4,375
------------
Total Current Assets 50,325
Property and equipment, net of $409,927
accumulated depreciation 93,281
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$ 143,606
============
LIABILITES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable $ 170,163
Accrued interest 186,868
Shareholder loans 570,026
Short-term portion on lease payable --
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Total Current Liabilities 927,057
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STOCKHOLDERS' DEFICIT
Preferred stock, $.0001 par value, 5,000,000 shares authorized Series A
Cumulative Convertible Preferred Stock, $.0001 par value, 60,000 shares
authorized,
no shares issued and outstanding --
Series B Cumulative Convertible Preferred Stock,
$.0001 par value, 50,000 shares authorized,
no shares issued and outstanding --
Common stock, $.0001 par value, 100,000,000 shares
authorized; 19,195,942 shares issued and outstanding 1,919
Additional paid in capital 19,259,250
Accumulated deficit (20,044,620)
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Total Stockholders' Deficit (783,451)
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Total Liabilities and Stockholders' Deficit $ 143,606
============
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SYSTEMS MANAGEMENT SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31, 2005 and 2004
(unaudited)
2005 2004
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Revenue $ 52,269 $ 7,542
Cost of sales 50,340 29,312
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Gross margin 1,929 (21,770)
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General and administrative 617,344 519,382
Impairment -- --
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Total operating expenses 617,344 519,382
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Net Operating Loss (615,415) (541,152)
Interest expense (54,862) (143,537)
------------ ------------
Loss from continuing operations (670,277) (684,689)
Loss from discontinued operations -- (45,939)
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NET LOSS $ (670,277) $ (730,628)
============ ============
Basic and diluted loss
per share $ (.09) $ (.12)
Weighted average shares
outstanding 7,566,609 6,054,542
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SYSTEMS MANAGEMENT SOLUTIONS, INC.
STATEMENTS OF CASH FLOW
Three Months Ended March 31, 2005 and 2004
(unaudited)
2005 2004
------------ ------------
Cash Flows From Operating Activities
Net income (loss) $ (670,277) $ (730,628)
Net income (loss) from discontinued
Operations -- (45,939)
------------ ------------
Net loss before discontinued operations (670,277) (684,689)
Adjustments to reconcile net loss to net cash used in operating activities:
Imputed Interest 41,054 78,606
Depreciation 15,069 8,493
Changes in:
Accounts receivable (35,569) 3,667
Accounts receivable from related parties (17,905) --
Other Current assets 10,370 12,755
Accounts payable 101,864 (16,951)
Accounts payable to related parties (5,000) --
Accrued expenses (40,666) 109,740
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Net Cash Used In Continuing Operations (601,060) (488,379)
Net Cash Used In Discontinued Operations -- (51,244)
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Net Cash Used In Operating Activities (601,060) (539,623)
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Cash Flows From Investing Activities
Purchase of fixed assets (50,000) --
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Net Cash Used In Continuing Operations (50,000) --
Net Cash Provided By Discontinued
Operations -- --
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Net Cash Provided By (Used In) Investing
Activities (50,000) --
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Cash Flows From Financing Activities
Proceeds from shareholder loans 645,258 511,270
Contributions from related parties 10,000 --
Payments on notes payables -- (30,000)
Payments on capital lease payable -- (15,391)
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Net Cash Provided By Continuing Operations 655,258 465,879
Net Cash Provided By Discontinued
Operations -- 69,000
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Net Cash Provided by Financing Activities 655,258 534,879
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Net change in cash 4,198 (4,744)
Cash at beginning of period 5,147 16,693
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Cash at end of period $ 9,345 $ 11,949
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Supplemental disclosure:
Income Taxes Paid $ -- $ --
Interest Paid -- --
Non-cash operating and financing activities
Common Stock issued for conversion of note payable
and accrued interest to equity 2,310,304 --
Preferred stock dividend 510,300 --
Offset of Related Party Receivable with Note Payable
Due to Shareholder 75,232 --
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SYSTEMS MANAGEMENT SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Systems Management
Solutions, Inc. 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 latest annual financial statements filed with the SEC on Form 10-KSB.
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 interim periods 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 the most recent fiscal year
2004 as reported in Form 10-KSB, have been omitted.
NOTE 2 - EQUITY
On March 18, 2005, SMS authorized 50,000 shares of Series B Convertible
Preferred Stock. The stock has a face value of $100, maintains voting rights on
a fully diluted basis, and is convertible into common stock at $0.90 per share.
On March 21, 2005, the company issued 23,103 shares of Series B Convertible
Preferred Stock for $2,310,304 of debt.
On March 21, 2005, a majority shareholder converted all of the outstanding
Series A and Series B Cumulative Convertible Preferred Stock into 13,101,400
shares of the Company's common stock.
On March 21, 2005, the Board authorized a 1:2.5 reverse split of the company's
common stock. All references to common stock in these financials reflect the
effect of the reverse split.
NOTE 3 - SUBSEQUENT EVENT
On April 6, 2005, the Company acquired all of the outstanding stock of SMS
Envirofuels, Inc., a Texas corporation, in exchange for 1,444,444 shares of its
common stock.
ITEM 2. MANAGEMENT'S PLAN OF OPERATIONS
The following discussion and analysis should be read in connection with
the Company's consolidated financial statements and related notes thereto,
included elsewhere in this report.
The Company acquired on April 6, 2005 all of the outstanding stock of SMS
Envirofuels, Inc. ("SMS"), a Texas corporation, in exchange for 1,444,444 shares
of its $0.0001 par value common stock. SMS has developed a plant to produce
bio-diesel (a biodegradable alternative fuel) from soybean oil. The SMS plant
has the capacity to produce up to 3,000,000 gallons of bio-diesel per year. This
alternative fuel will generally be blended with petro-diesel in the ratio of 5%
bio-diesel or 20% bio-diesel to produce B5 or B20 for use in diesel fueled
vehicles and machines. SMS has established buyers for its production and has
been making deliveries for about three months. The Company will operate the
bio-diesel plant through SMS Envirofuels, Inc. its wholly owned subsidiary as a
part of its Environmental Solutions Division. This division will be a compliment
to the Company's Business Solutions Division, which includes its wholly owned
subsidiary, Aspect Business Systems, Inc.
At a Board of Directors meeting on March 18, 2005 it was RESOLVED, that
out of the Corporation's 5,000,000 shares of preferred stock, par value $0.0001
per share ("Preferred Stock"), there shall be a series of Preferred Stock
designated and known as "Series B Cumulative Convertible Preferred Stock"
consisting of 50,000 shares ("Series B Stock") with an aggregate face value of
$5,000,000 ($100.00 per share")' which such shares shall be subject to the same
relative rights, preferences, voting powers, qualifications and privileges as
previously established by this Board for the Company's Series A Cumulative
convertible Preferred Stock, but the conversion price therefore shall be $0.90
per share (being the same as the most recent price at which the common stock of
the Company was quoted on the NASDAQ:BB).
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It was also RESOLVED at the March 18, 2005 Board of Directors Meeting that
the officers of the Company be, and they hereby are, authorized to do such acts
and execute such documents as may be necessary to implement the issuance of the
number of shares of Series B Stock as are necessary to exchange the
$2,211,022.00 of the debt of the Company owed to United Managers Group, Inc. at
December 31, 2004, together with the interest thereon in the amount of
$99,282.21, the same being 23,103 shares.
The Chairman advised the Board at a Special Meeting of the Board of
Directors of Systems Management Solutions, Inc. held on Tuesday, March 22, 2005
that United Managers Group, Inc. had elected to exchange all of its Series A and
Series B Cumulative Convertible Preferred Stock into shares of the Company's
$0.0001 par value common stock in accordance with the provisions of the
Certificate of Designation of Rights and Preferences for each such Series and
that such conversion would result in the issuance of a total of 32,753,500 new
shares, bringing the total number of shares of the Company to 47,989,855.
The Chairman then suggested to the Board that this number of shares would
result in a substantial reduction in the per share price of the Company and
would tend to make it difficult to maintain a reasonable value for the Company.
He therefore recommended to the Board consider a reverse split of the common
stock of the Company by an exchange of one (1) new share for each two and one
half (2.5) existing shares. This will revise the total number of shares
outstanding to 19,195,942. After discussion and upon motion duly made and
seconded, it was voted on and approved.
ASPECT continued to experience operating losses during the period covered
by this report. As previously reported, ASPECT has expanded its product and
service offerings, which previously were focused on its biometric time and
attendance product. ASPECT now provides custom programming, support and
Microsoft systems products to its customers. During 2004 ASPECT became a
Microsoft Certified Partner which enabled it to remarket a specific line of
software developed by Microsoft Corporation. Adding these products and solutions
to the company's offerings has resulted in a new growth to the company revenue.
The majority of the revenue generated during the time period covered by this
filing has been generated from Microsoft solutions and custom programming.
Jim Karlak and Reagan Hicks each made a $5,000 contribution to the company
on March 24, 2005.
SMS incurred a net loss of $670,277 for the three months ended March 31,
2005, and had a working capital deficit of $876,732 as of March 31, 2005. These
conditions create an uncertainty as to The Company's ability to continue as a
going concern. The Company has seen improvement in the operating results of
ASPECT during the past six months. The Company continues to aggressively pursue
other acquisition targets which would contribute positively to the company's
profitability and cash flow. The company at the time of the filing has been
aggressively pursuing a corporate acquisition designed to improve the future
cash flow of the company. The Company believes that through acquisition it can
grow and attain positive cash flow in the near term. However, the Company
continues to rely on loans and advances principally from its major stockholder,
United Managers Group, Inc., to fund operating shortfalls and does not foresee a
change in this situation in the immediate future. There can be no assurance that
the Company will continue to have such loans and advances available. The Company
will not be able to continue operations without them. The Company does not plan
on significant changes in the number of employees in the near future. Neither
does the Company plan on a purchase or sale of plant or significant equipment.
However, it remains a central focus of the Company to pursue acquisition targets
that will enhance the ability of the Company to satisfy its cash requirements.
ITEM 3. CONTROLS AND PROCEDURES
(a) Under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, we
conducted an evaluation of the design and operation of our disclosure controls
and procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), within 90 days of the filing date of this report. Based on that
evaluation, our principal executive officer and our principal financial officer
concluded that the design and operation of our disclosure controls and
procedures were effective in timely alerting them to material information
required to be included in the Company's periodic reports filed with the SEC
under the Securities Exchange Act of 1934, as amended. The design of any system
of controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless of
how remote.
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(b) In addition, there were no significant changes in our internal control over
financial reporting identified in connection with the evaluation that occurred
during the last fiscal quarter that have materially affected, or that are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July of 2004, ARCOA, LLC, a Texas limited liability company, together
with a related individual, filed three actions in the Judicial District Court of
Harris County, Texas against Systems Management Solutions, Inc. and certain
related companies and individuals, claiming damages in connection with certain
loans made and services performed on behalf of YCO Holdings, Inc., a subsidiary
of the Company. ARCOA sought damages of approximately $500,000, plus attorneys'
fees and court costs. A Comprehensive Settlement Agreement was entered into by
the Company and all plaintiffs on October 19, 2004, settling all claims for a
total of $240,000 in payments. The parties have filed motions to dismiss for all
three cases.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive
Officer
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial
Officer
32.1 Section 1350 Certification of Principal Executive Officer
32.2 Section 1350 Certification of Principal Financial Officer
(b) Reports on Form 8-K:
On August 20, 2004, the Company filed a Current Report on Form 8-K
announcing the change of the Company's name to Systems Management
Solutions, Inc.
(C) On February 8, 2005, the Board of Directors of the Company voted to
change its fiscal year end from June 30 to December 31. The Company
last changed its fiscal year to correspond to the fiscal year of a
subsidiary that has since discontinued operations. Because the
quarter ended December 31, 2004, coincides with the end of the
Company's new fiscal year, the Company will not file Form 10-QSB for
the second quarter, but will instead file Form 10-KSB for the
transition period ended December 31, 2004. the Form 10-KSB will
include audited financial statements for the transition period and
is required to be filed no later than the ninetieth day following
the determination to change the Company's fiscal year end, or May 9,
2005.
(d) On March 22, 2005, the Board of Directors of the Company voted to
reduce the number of shares outstanding of the Company's $0.0001 par
value common stock by reverse split to exchange one (1) new share
for each two and one half (2 1/2) old shares. Any fractional shares
created by this reverse split shall be truncated to the nearest
whole share and no cash will be paid for any such fractional share.
(e) On April 6, 2005, the Registrant established a wholly owned
subsidiary named SMSN Merger Sub, Inc., a Texas corporation which
such corporation then entered into an Agreement and Plan of Merger
between itself , SMS Envirofuels, Inc., a Texas corporation, and the
Registrant. Under the terms of such Plan of Merger, SMS Envirofuels,
Inc. will be merged into SMSN Merger Sub, Inc., the name of SMSN
Merger Sub, Inc. will be changed to SMS Envirofuels, Inc., the
shares of SMS Envirofuels, Inc. will be exchanged for 1,444,444
shares of the $0.0001 common stock of Registrant. SMS Envirofuels,
Inc. has developed a plant to produce bio-diesel from soybean oil
and has recently begun marketing such bio-diesel to distributors and
retailers. The Registrant plans to continue this business with the
operating assets of SMS Envirofuels, Inc. and to expand the
production and marketing of the bio-diesel product.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Dated: June 7, 2005
SYSTEMS MANAGEMENT SOLUTIONS, INC.,
a Nevada corporation
By: /s/ James Karlak
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James Karlak, President and Chief Executive Officer
By: /s/ Morris Kunofsky
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Morris Kunofsky, Chief Financial Officer
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