10QSB 1 recon10qsb_5142003.txt QUARTERLY REPORT FOR PERIOD ENDED 5/14/2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the three month period ended March 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from________ to ________ 333-64122 (Commission file number) Reconstruction Data Group, Inc. (Exact name of small business issuer as specified in its charter) California (State or other jurisdiction of incorporation or organization) 22-3755993 (IRS Employer Identification No.) 11650 Iberia Place, Suite 201 San Diego, California 92128 (Address of principal executive offices) (858) 618-1085 (Issuer's telephone number) (Former name, former address and former fiscal year, if changed since last report) [X] 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. APPLICABLE ONLY TO CORPORATE ISSUERS The number of shares outstanding of each of the issuer's classes of common equity; as of May 12, 2003 - 3,634,000 shares of common stock Transitional Small Business Disclosure Format (check one): Yes [X] No [ ] Reconstruction Data Group, Inc. Index Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheet, March 31, 2003 (unaudited) 3 Condensed Statements of Operations, three months ended March 31, 2003 and 2002 (unaudited) 4 Condensed Statements of Cash Flows, three months ended March 31, 2003 and 2002 (unaudited) 5 Notes to condensed Financial Statements (unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations 8 Item 3 Procedures and Controls Part II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Change in Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 11 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements FORM 10-QSB 1ST QUARTER INDEX Page ---- PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements Condensed balance sheet, March 31, 2003 (unaudited) ........................ 3 Condensed statements of operations, three months ended March 31, 2003 and 2002 (unaudited) ..................................... 4 Condensed statements of cash flows, three months ended March 31, 2003 and 2002 (unaudited)...................................... 5 Notes to condensed financial statements (unaudited) ........................ 6 Part 1. Item 1. Financial Statements ------- -------------------- RECONSTRUCTION DATA GROUP, INC. Condensed Balance Sheet (Unaudited) March 31, 2003 Assets Current assets: Cash ........................................................... $ 9,165 --------- Total current assets ............................. 9,165 Furniture, equipment and web site domain, net ...................... 16,317 Deposit ............................................................ 1,313 --------- $ 26,795 ========= Liabilities and Shareholders' Deficit Current liabilities: Accounts payable and accrued liabilities ....................... $ 9,393 Current maturities on notes payable (Note 2) ................... 60,000 Accrued interest expense (Note 2) .............................. 12,502 Unearned conference registration fees .......................... 8,868 Unearned membership and advertising income ..................... 21,566 --------- Total current liabilities ........................ 112,329 Long-term debt: Notes payable, less current maturities (Note 2) ................ 5,000 --------- Total liabilities ................................ 117,329 --------- Commitments ........................................................ -- Shareholders' deficit (Note 4): Common stock ................................................... 323,825 Additional paid-in capital ..................................... 19,167 Retained deficit ............................................... (433,526) --------- Total shareholders' deficit ...................... (90,534) --------- $ 26,795 ========= See accompanying notes to condensed financial statements 3 RECONSTRUCTION DATA GROUP, INC. Condensed Statements of Operations (Unaudited) For the Three Months Ended March 31, -------------------------- 2003 2002 ----------- ----------- Revenue: Memberships ........................... $ 7,319 $ 5,878 Advertising income .................... 1,169 1,883 Consulting services ................... 690 1,044 Other income .......................... -- 58 ----------- ----------- Total revenue .......... 9,178 8,863 ----------- ----------- Expenses: Compensation .......................... 7,530 16,162 Rent .................................. 3,939 3,939 Professional services and consulting .. 4,158 2,075 Costs of seminar ...................... 1,944 -- Other general and administrative ...... 10,827 3,945 Depreciation and amortization ......... 3,617 3,443 Interest .............................. 3,050 1,850 ----------- ----------- Total expenses ......... 35,065 31,414 ----------- ----------- Loss before income taxes (25,887) (22,551) Income tax provision (Note 3) ............. -- -- ----------- ----------- Net loss ............... $ (25,887) $ (22,551) =========== =========== Basic and diluted loss per share .......... $ (0.01) $ (0.01) =========== =========== Basic and diluted weighted average common shares outstanding ............. 3,651,500 3,110,000 =========== =========== See accompanying notes to condensed financial statements 4 RECONSTRUCTION DATA GROUP, INC. Condensed Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, -------------------- 2003 2002 -------- -------- Net cash used in operating activities ........... (7,755) (14,660) -------- -------- Cash flows from investing activities: Purchases of furniture and equipment ............ -- (1,549) -------- -------- Net cash used in investing activities ........... -- (1,549) -------- -------- Cash flows from financing activities: Proceeds from the issuance of debt .............. 5,000 10,000 -------- -------- Net cash provided by financing activities ........... 5,000 10,000 -------- -------- Net change in cash ............. (2,755) (6,209) Cash, beginning of period ........................... 11,920 10,092 -------- -------- Cash, end of period ................................. $ 9,165 $ 3,883 ======== ======== Supplemental disclosure of cash flow information: Income taxes .................................... $ -- $ -- ======== ======== Interest ........................................ $ -- $ -- ======== ======== See accompanying notes to condensed financial statements 5 RECONSTRUCTION DATA GROUP, INC. (A Development Stage Company) Notes to Condensed Financial Statements (Unaudited) (1) Basis of Presentation The financial statements presented herein have been prepared by the Company in accordance with the accounting policies in its Form 10-KSB dated December 31, 2002, and should be read in conjunction with the notes thereto. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) which are necessary to provide a fair presentation of operating results for the interim period presented have been made. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the year. The Company is in the development stage in accordance with Statements of Financial Accounting Standards (SFAS) No. 7 "Accounting and Reporting by Development Stage Enterprises". As of March 31, 2003, the Company has devoted its efforts to financial planning, raising capital and providing services and resources to the accident reconstruction industry via its Internet web domain. Financial data presented herein are unaudited. (2) Notes Payable Notes payable consisted of the following promissory notes at March 31, 2003: Note payable to an individual, interest at 12 percent, principal and interest due on November 6, 2003, unsecured ............................................. $ 30,000 Note payable to an individual, interest at 12 percent, principal and interest due on November 6, 2003, unsecured ............................................. 25,000 Note payable to an individual, interest at 12 percent, principal and interest due on July 29, 2004, unsecured ............................................. 5,000 Note payable to an individual, payable on demand for one payment of $6,250, unsecured .................. 5,000 -------- 65,000 Less: current maturities ................................ (60,000) -------- $ 5,000 ======== Interest expense on the notes totaled $3,050 and $1,850 for the three months ended March 31, 2003 and 2002. (3) Income Taxes The Company records its income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes". The Company incurred net operating losses for all periods presented resulting in a deferred tax asset, which was fully allowed for; therefore, the net benefit and expense resulted in $-0- income taxes. 6 RECONSTRUCTION DATA GROUP, INC. (A Development Stage Company) Notes to Condensed Financial Statements (Unaudited) (4) Subsequent Event On May 1, 2003, the Company entered into an Agreement and Plan of Merger (the "Agreement") with Verdisys, Inc., ("Verdisys") California corporation. Verdisys is a leading provider of patented lateral drilling oil services and satellite solutions for Energy Production Enhancement. Under the terms of the Agreement, the shareholders of Verdisys would receive one share of the Company's common stock in exchange for each share of common stock held in Verdisys. Following the closing of the Agreement, the Company would remain as the surviving corporation and the former shareholders of Verdisys would become the majority shareholders in the Company. On the date of the Agreement, Verdisys had approximately 17,935,137 common shares outstanding. Verdisys is also in the process of conducting a private placement of its common stock whereby it may sell up to five million additional common shares. In addition, prior to closing, Verdisys anticipates conversion of: (1) outstanding common stock warrants into 3,650,909 common shares; (2) outstanding Series B Preferred stock into 1,410,000 common shares; (3) outstanding Series C Preferred stock into two million common shares; and (4) outstanding promissory notes into 2,971,988 common shares. Should these common stock sales and conversions occur, Verdisys would have approximately 32,968,034 common shares outstanding upon closing of the Agreement. 7 Item 2. Management's Discussion and Analysis of Financial Condition and Plan of Operations This statement includes projections of future results and "forward looking statements" as that term is defined in Section 27A of the Securities Act of 1933 as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934 as amended (the "Exchange Act"). All statements that are included in this Quarterly Report, other than statements of historical fact, are forward looking statements. Although management believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Management Discussion Reconstruction Data Group provides professional services and resources to the Accident Reconstruction industry; including a comprehensive web site offering a professional organization concept to the accident reconstructionist. Services and resources made available include; membership/expert directory, monthly newsletters, advertising, web site design, crash tests and seminars, and continuing education. On May 1, 2003 the Company entered into an Agreement and Plan of Merger with Verdisys, Inc. The Agreement calls for the issuance of xx,xxx,xxx shares of common stock of the Company to the Shareholders of Verdisys. The Company shall be the surviving corporation in the merger and on the effective date, the board of directors of Verdisys will become the board of directors of the Company and that senior management of Verdisys will become management of the Company. The effectiveness of the Agreement is dependent upon approval of the shareholders of Verdisys and the Company and the filing of a certificate of merger with the State of California. The effective date of the Agreement is projected to be May 31, 2003. Verdisys recently acquired the U.S. and Canadian rights to the patented Landers lateral drilling technology, considered to be a leading technology in the market for enhancing oil and gas well production from existing fields. These services allow increased oil and gas production from existing wells as well as extracting oil and gas from wells previously "tapped out". There are 1.7 million petroleum wells that would benefit from the economics of Verdisys' lateral drilling and high-speed satellite connectivity services. An estimated 87% of the known oil reserves in the United States remain untapped, a total potential market of more than $50 billion. Verdisys' lateral drilling services provide a unique and cost effective method of tapping these reserves. 8 Financial Summary Results of Operations for the Three Months Ended March 31, 2003 For the three months ended March 31, 2003, the Company had revenues of $9,178 as compared to $8,863 in revenues for the three month period ended March 31, 2002. $7,319 of the revenue was from Membership fees which increased $1,491 from the same period last year. The Company had total expenses of $35,065 and a net loss of $25,887 for the three months ended March 31, 2003 as compared to expenses of $1,414 and a net loss of $22,551 for the three months ended March 31, 2002. Liquidity and Capital Resources The Company had current assets of $9,165 and total assets of $26,795 at March 31, 2003. It had total liabilities of $117,329. Management Plan of Operations With the limited cash and funding available and due to the Agreement with Verdysis, the Company intends to carry out its accident reconstruction business as it has over the past fiscal year. It is anticipated that subsequent to the effective date of the Agreement, the Company will sell its accident reconstruction business to current management. Item 3. Controls and procedures The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 13a-14(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Within 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on the foregoing, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There have been no significant changes in the Company's internal controls or in other factors that could significantly affect the internal controls subsequent to the date the Company completed its evaluation. 9 Part II. OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Change in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submission of Matters to a Vote of Security Holders Not applicable Item 5. Other Information None Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibits The following Exhibits are filed as part of this report pursuant to Item 601 of Regulation S-B: 3.1 (1) -- Articles of Incorporation and Bylaws 10.1 (1) -- Rocker & Spike Entertainment ARC Acquisition Agreement 10.2 (1) -- Promissory Note of J. Chatfield, dated January 20, 2002 10.3 (1) -- Promissory Note of T. Haywood, dated June 19, 2001 10.4 (1) -- Promissory Note of M. Reno, dated September 6, 2001 10.5 (1) -- ARC Network BASIC Membership Application Form 10.6 -- Agreement and Plan of Merger 99.1 -- Sarbanes Oxley Act Section 906 Certification (1) Incorporated by reference from Form SB-1 registration statement SEC File # 333-64122 effective June 28, 2002 b. Reports on Form 8-K On May 1, 2003, the Company filed a Current Report on Form 8-K announcing the Agreement and Plan of Merger with Verdisys, Inc. 10 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. Reconstruction Data Group Inc. By: /s/ Scott B. Baker ---------------------- Scott B. Baker, President Dated: May 12, 2003 11 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER REGARDING FACTS AND CIRCUMSTANCES RELATING TO EXCHANGE ACT FILINGS I, Scott B. Baker, certify that: 1. I have read this quarterly report on Form 10-QSB of Reconstruction Data Group, Inc. 2. Based on my knowledge, the 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 the report. 3. Based on my knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition, results of operations and cash flows of the issuer as of, and for, the periods presented in the report; 4. I (a) am responsible for establishing and maintaining internal disclosure controls and procedures for the company; (b) have designed such disclosure controls and procedures to ensure that material information relating to the company is made known to me by others within the company, particularly during the period in which the periodic reports are being prepared; (c) have evaluated the effectiveness of the issuer's disclosure controls and procedures as of a date within 90 days prior to the report; and (d) have presented in the report my conclusions about the effectiveness of their disclosure controls and procedures based on my evaluation as of that date; 5. I have disclosed, based on our most recent evaluation to the company's auditors and the audit committee of the board of directors (or persons fulfilling the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the company's ability to record, process, summarize, and report financial data and have identified for the company's auditors any material weaknesses in internal controls; and 12 (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the company's internal controls; and 6. I have indicated in the report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. BY: /s/ Scott B. Baker State of California --------------------------------- County of San Diego Scott B. Baker, President and CEO (Principal Executive Officer and Subscribed and sworn to Principal Financial Officer) before me this 15th day of May 2003 /s/ Eric Lorimore -------------------------------------- DATE: May 15, 2003 Eric Lorimore - Notary Public My Commission Expires: 7/12/2003 Commission Number: 1228689 13