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 September 30, 2000.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ___________
Commission file number : 0-30463
R-Tec Holding, Inc.
(Exact name of business issuer in its charter)
Idaho 82-0515707
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1471 E. Commercial Ave., Meridian, Idaho 83642
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (208)-887-0953 Fax: (208) 888-1757
- --------------------------------------------------------------------------------
(Former Address)
The number of shares of common stock outstanding as of September 30, 2000, is 8,
533, 594.
Transitional Small Business Disclosure Format. Yes ___, No _X_.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
The following financial statements are filed as part of this report:
The Consolidated Financial Statements of the Company for the three months
and nine months ended September 30, 2000, reviewed by Balukoff, Lindstrom & Co.,
P.A., certified public accountants.
Item 2. Management's Discussion and Plan of Operation:
Third quarter revenues of $129,201 are substantially less than Management
projected due to delays in receiving expected purchase orders for confirmed
sales, resulting in a corresponding operating loss of ($204,607) for the same
period. The purchase orders have now been received, accounting for booked
revenues of $2,183,155, which is slightly above Management's original revenue
projections. Due to the delay in receiving the purchase orders, they will not be
completed until the 1st quarter of 2001. Therefore, Management has revised it's
year end projections for accounting purposes to reflect projected revenues of
$1,523,485 and a corresponding projected year end loss of ($245,000).
Changes in Financial Condition:
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto appearing elsewhere herein for
September 30, 2000, and December 31, 1999.
The balance of current assets at September 30, 2000 was $195,194 compared
to a balance of $181,715 at December 31, 1999. The balance of current
liabilities was $264,445 and $247,847 for the same periods respectively. The
resulting current ratio at September 30 is .74. The current ratio was .73 for
December 31, 1999.
The increase of current assets at September 30, 2000, over December 31,
1999, is due primarily to an increase in cash accounts to $97,826 from $3,608
respectively, with a decrease in receivables from $105,416 to $58,200
respectively. Cash infusions from the sale of preferred stock accounted for
augmented cash accounts in lieu of expected revenues from pending purchase
orders. See "Funding and Capital Resources" below.
The balance of current liabilities at September 30, 2000, is $264,445 and
at December 31, 1999, is $247,847. The increase of $16,598 or 7% is due
primarily to an increase in expenses from direct costs of operations.
2
At September 30, 2000, the Company had insufficient cash flow from
operations to meet its current cash obligations.
Financial Results of Operations:
For the nine months ended September 30, 2000, and September 30, 1999.
Sales for the nine months ended September 30, 2000, were $880,868 compared
to $1,139,561 for the period ending September 30, 1999, resulting in a decrease
of ($258,693) or (23)%.
Operating expenses include primarily direct costs comprised of materials
and supplies and direct labor from production, and indirect costs comprised
primarily of depreciation and amortization. Depreciation and amortization for
the nine months ended September 30, 2000, were $19,744.
Selling, general and administrative expenses were $375,741 or 43% of sales
for the nine months ended September 30, 2000, and $164,430 or 14% of sales for
the same period in 1999, resulting in an increase of $211,311 or 129%. The
increase is due primarily to additional payroll costs in preparation for
expanding operations as discussed in "Plan of Operation" below and a reduction
in sales from non-booked purchase orders as previously explained in "Results of
Operations." Included in expanded operations is the addition of payroll costs
for a satellite office based in Utah for Software Programming and Design to
augment ongoing production requirements for software integration in custom
automation jobs.
For the three months ended September 30, 2000, and September 30, 1999.
Sales for the three months ended September 30, 2000, were $129,201 compared
to $382,374 for the period ending December 30, 1999, resulting in a decrease of
($253,173) or (66)%.
Operating expenses include primarily direct costs comprised of materials
and supplies and direct labor from production, and indirect costs comprised
primarily of depreciation and amortization. Operating expenses for the three
months ending September 30, 2000 were $188,812, compared to $192,555 for the
three months ending September 30, 1999.
Selling, general and administrative expenses were $135,578 or 105% of sales
for the three months ended September 30, 2000, and $52,727 for the three months
ended December 30, 1999. The increase in selling, general and administrative
expenses is due primarily to an increase in expenses for expanding operations as
previously discussed in year-to-date selling, general and administrative
expenses.
3
Funding and Capital Resources:
Management is of the opinion that present current assets, comprised
primarily of cash and receivables is insufficient to carry the Company through
its current and projected levels of operation through year end. During the third
quarter the Company received $169,100 in Preferred Stock subscriptions to
supplement the cash of the Company.
Plan of Operation:
Presently, the Company is continuing to expand its revenues from it's core
business of custom automation. During the last three years, 1997 thru 1999,
custom automation has recognized a revenue growth of $849,176 or 200%, an
annualized growth rate of 67% annualized. The customer base in custom automation
continues to expand with a significant repeat order business from existing
customers. Management is also expanding its strategic alliances with other
companies to develop its market share.
With it's expertise in custom engineering, the Company has successfully
developed a new line of "socket" products and "interconnect devices" for the
hi-tech IC chip and IC board testing industry. The Company is currently
beginning to receive purchase orders from this new product line with anticipated
growth in revenues coming in the first quarter of 2001.
Along with the successful marketing and production development of the
testing industry devices, the Company has now received successful test results
from a new, proprietary technology aimed at a vertical marketing plan to augment
the current product line. This new proprietary technology called "GCI" is
expected to generate new revenue streams beginning in the first quarter of 2001.
In order to facilitate the rapid growth of its IC testing products, the
Company will initially outsource the production of the "GCI" but will continue
to produce its current testing products, i.e., sockets and interconnect devices
within existing plant facilities. As revenues expand within the first quarter of
2001, the Company anticipates it will need to address the opportunity of
expanding current plant facilities to establish its own production capabilities
of the "GCI" as well as support staff. Currently, the Company is negotiating to
acquire a marketing company, in order to establish a nationwide marketing
network to facilitate the growth in its IC testing product lines, as well as
continuing development of its existing custom automation products. As reflected
in the increase in operational costs, the Company has already hired additional
personnel to handle financial, software design, and production needs in
anticipation of revenue growth.
IntorCorp Motor:
IntorCorp has filed the updated patents for the inventions in the IntorCorp
Motor. Management is currently evaluating the method of continuing the
development and the marketing of the IntorCorp Motor. It is anticipated that a
new business plan will be created and executed to advance the progress of the
IntorCorp Motor. This will be based on the patent position.
4
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. During the third quarter the Company received
additional subscriptions from Series "A" Preferred Stock sold to existing
shareholders of such stock, namely:
Date Shares Cash Consideration Shareholder
---- ------ ------------------ -----------
07/19/00 106,669 $25,000 John E. Smith
07/19/00 273,499 $64,100 George W. Wadsworth
07/24/00 234,672 $55,000 William Glacier
08/08/00 106,669 $25,000 John E. Smith
The described stock transactions were exempt from registration under the
provisions of Section 4(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information.
During the third quarter the Company purchased approximately $10,000 in
assets and employed two software technicians to develop the software division of
R-Tec Corporation, which is located in the Salt Lake City area of Utah. This new
division will eliminate the need to contract for software development when
required by Company contracts and products, and will also enable an opportunity
to develop revenues from contracting software development for other customers.
Item 6. Exhibits and Reports on form 8-K.
(a) No exhibits
(b) No Form 8K filings
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
R-Tec Holding, Inc.
(Registrant)
Date: November 17, 2000 By /s/ Douglas G. Hastings
---------------------------------
Douglas G. Hastings, President and CEO
5
Consolidated Financial Statements
R-TEC HOLDING, INC.
AND SUBSIDIARY
September 30, 2000 and 1999
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT ACCOUNTANTS' REVIEW REPORT .............................. 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet ....................................... 2
Consolidated Statements of Operations ............................ 3
Consolidated Statements of Cash Flows............................. 4
Notes to Consolidated Financial Statements ....................... 5
INDEPENDENT ACCOUNTANT'S REVIEW REPORT
To the Shareholders and Board of Directors
R-Tec Holdings, Inc.
Boise, Idaho
We have reviewed the balance sheet of R-Tec Holdings, Inc. as of September 30,
2000 and the related statements of operations and cash flows for the three-month
and six-month periods ended September 30, 2000 and 1999. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
BALUKOFF, LINDSTROM & CO., P.A.
October 25, 2000
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R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
September 30,
2000
---------
Current assets
Cash $ 97,826
Accounts receivable (net of $-- allowance
for doubtful accounts) 58,200
Costs and estimated earnings in excess
of billings on uncompleted contracts 37,306
Prepaid expenses --
Notes receivable, current portion 1,862
---------
Total current assets 195,194
Equipment, at cost, net of accumulated depreciation 115,020
Other assets 19,742
Notes receivable, less current portion 23,809
---------
Total assets $ 353,765
=========
Current liabilities
Accounts payable $ 47,805
Accrued expenses 70,817
Accrued dividends payable 21,954
Income taxes payable 4,761
Billings in excess of costs and estimated
earnings on uncompleted contracts 7,296
Lease payable, current portion 11,812
Notes payable, related parties 100,000
---------
Total current liabilities 264,445
Lease payable, less current portion 28,244
---------
Total liabilities 292,689
Shareholders' equity
Series A cumulative convertible preferred stock, par value
$0.23437 per share, 5,000,000 authorized, 2,401,118
shares issued and outstanding 562,750
Common stock, no par value per share,
30,000,000 authorized, 8,533,594 shares
issued and outstanding 221,729
Additional paid-in capital 107,439
Accumulated deficit (830,842)
---------
Total shareholders' equity 61,076
---------
Total liabilities and shareholders' equity $ 353,765
=========
See accompanying notes
-2-
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues $ 129,201 $ 382,374 $ 880,868 $ 1,139,561
Operating costs 188,812 192,555 870,877 814,130
----------- ----------- ----------- -----------
Gross profit (59,611) 387,789 9,991 523,401
Selling, general and administrative expenses 135,578 52,727 375,741 164,430
Research and development 9,418 17,116
----------- ----------- ----------- -----------
Operating income (loss) (204,607) 137,092 (382,866) 161,001
Interest expense (18,256) (7,468) (10,416) (15,269)
Other 486 3,890 1,487 4,419
----------- ----------- ----------- -----------
(2,090) (3,578) (8,929) (10,850)
----------- ----------- ----------- -----------
Income (loss) before income taxes (206,697) 133,514 (391,795) 150,151
Income taxes -- 29,107 -- 69,488
----------- ----------- ----------- -----------
Net income (loss) (206,697) 104,407 (391,795) 80,663
Preferred stock dividends 11,817 -- 21,954 --
----------- ----------- ----------- -----------
Net income (loss) available
to common shareholders $ (218,514) $ 104,407 $ (413,749) $ 80,663
=========== =========== =========== ===========
Net income (loss) per common share $ (0.03) $ 0.01 $ (0.05) $ 0.01
Weighted average shares outstanding 8,533,594 8,533,594 8,533,594 8,533,594
See accompanying notes
-3-
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
2000 1999
--------- ---------
Cash flows from operating activities
Net income (loss) $(391,795) $ 80,663
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization 19,744 27,014
Sale refund through issuance of note payable --
Changes in assets and liabilities
Accounts receivable 47,280 34,331
Costs and estimated earnings in excess
of billings on uncompleted contracts 25,899 44,553
Prepaid expenses 3,331 276
Accounts payable (40,034) (87,000)
Accrued expense 5,917 (21,678)
Billings in excess of costs and estimated
earnings on uncompleted contracts (18,682) (52,977)
Income taxes payable 557 52,581
Deferred income taxes (8,197) 16,905
--------- ---------
Net cash provided (used) by operating activities (355,980) 94,668
Cash flows from investing activities
Purchase of equipment and other assets (50,018) (15,668)
Purchase of investment -- (8,428)
--------- ---------
Net cash provided (used) by investing activities (50,018) (24,096)
--------- ---------
Cash flows from financing activities
Collections on loans 1,465 70,555
Proceeds from preferred stock 562,750 --
Net payments on line of credit (64,000) --
Payments on debt -- (84,201)
--------- ---------
Net cash provided (used) by financing activities 500,215 (13,646)
--------- ---------
Net increase (decrease) in cash 94,217 56,926
Beginning cash 3,609 3,338
--------- ---------
Ending cash $ 97,826 $ 60,264
========= =========
Supplemental disclosures of cash flow information
Interest paid $ 8,029 $ 6,310
Noncash investing and financing activities
Preferred stock dividends payable $ 21,954 $ --
Equipment acquired through capital leases $ 40,056 $ --
Sale of equipment with debt assumption $ -- $ 138,675
See accompanying notes
-4-
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
NOTE A - UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of R-Tec Holdings, Inc. (the
Company) and the results of operations and cash flows. Certain reclassifications
of prior quarter amounts were made to conform with current quarter presentation,
none of which affect previously recorded net income.
NOTE B - EQUIPMENT
Equipment consists of:
Equipment $ 85,378
Vehicles 31,171
Office equipment and furnishings 60,630
----------
177,179
Accumulated depreciation and amortization (62,159)
----------
$ 115,020
==========
NOTE C - CUSTOMER AGREEMENT
The Company entered into a $58,706 agreement with a customer during March 2000.
The agreement was created as a result of a product return. Terms of the
agreement require twelve monthly payments of $4,892, commencing in April 2000.
The Company does not allow for product returns within the terms of their
contracts. However, to satisfy this customer, the product was repurchased. The
balance of the agreement at September 30, 2000 is $24,461 and the amount is
included in accrued expenses.
NOTE D - NOTES PAYABLE, RELATED PARTIES
The Company redeemed stock from the shareholders on November 4, 1999 by issuing
a note for $100,000. The redemption represented the 20% minority interest as of
that date. The note is payable only from available earnings of R-Tec and is not
scheduled to commence until January 1, 2001. Interest accrues at the prime
lending rate.
NOTE E - CAPITAL LEASE PAYABLE
The Company entered into a capital lease payable for $40,056 during August 2000.
Terms of the lease require thirty-six monthly payments of $1,389, commencing in
September 2000.
-5-
NOTE F - INCOME TAXES
The Company is in a net operating loss carryforward position as of September 30,
2000. The net operating loss approximates $367,000. A full valuation allowance
has been provided to offset the deferred tax assets related to the net operating
loss carryforward.
NOTE G - PREFERRED STOCK AND SUBSEQUENT EVENTS
The Board of Directors adopted an amendment to the Articles of Incorporation in
January 2000 to provide for the original preferred stock to be divided into
series, with the first series, Series A Preferred Stock, consisting of 2,133,399
shares of cumulative convertible preferred stock with a par value of $.23437.
Dividends on this preferred stock are cumulative from the date of issuance at
the rate of $.0222 per share, per annum, payable out of funds legally available.
Such dividends are payable only when, as, and if declared by the Board of
Directors, and shall accumulate from the date of issue, payable annually. Unpaid
dividends are not interest bearing. Dividends on Common Stock can not be paid
until all dividends on the Series A Preferred Stock have been paid. Each Series
A Preferred stock is convertible, at the option of the holder, at any time on or
before the fifth day before any redemption date (January 31 each year) to the
Company's Common Stock. The conversion price is $.23437 per share of Common
Stock. The Series A Preferred Stock shall be automatically converted on the
earlier of the date specified by vote or written consent or agreement of at
least two-thirds of the outstanding shares of such series or immediately on the
closing of the sale of public offering of Common Stock in excess of $5.00 per
share and $1,000,000 in proceeds.
On October 17, 2000, the Board of Directors approved a revision to the Series A
Preferred Stock. The revision no longer allows the holder the option of
redeeming Series A Preferred Stock into cash. Previous to this change, Series A
Preferred Stock was redeemable into cash at the option of the holder. The Series
A Preferred Stock has been presented in the equity section of the consolidated
balance sheet as a result of this change.
The remaining preferred shares outstanding shall be designated, as the Board of
Directors shall determine into classes, series, and preferences, limitations,
restrictions and relative rights of each class or series of preferred stock.
The Board of Directors approved a stock dividend of one share of Common Stock
for each share of Common Stock held as of October 18, 2000. The financial
statements as of September 30, 2000, do not include this stock dividend.
-6-
NOTE H - ACQUISTION AND EMPLOYMENT AGREEMENTS
On September 13, 2000, the Company acquired certain assets of Creative Test
Solutions, L.L.C. for $10,000. The Company entered into five-year employment
agreements with two of the members of Creative Test Solutions, L.L.C. on August
28, 2000. As part of the employment agreement the Company provided signing
bonuses in the form of Common Stock totaling 100,000 shares. The Common Stock
has not been issued as of September 31, 2000. Accordingly, the amount of the
bonus, $15,400, is included as accrued expenses in the financial statements.
-7-