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 quarterly period ended September 30, 2001
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
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 Identification No.)
incorporation of organization)
1471 E. Commercial Ave., Meridian, Idaho 83642
(Address of principal executive offices) (Zip Code)
Issuers Telephone Number: (208) 887-0953 Fax: (208) 888-1757
The number of shares of common stock outstanding as of September 30, 2001, is
19,241,707.
Transitional Small Business Disclosure Format (Check one): Yes [_] No [ X]
PART I - FINANCIAL INFORMATION
Forward Looking Statements and Risk Factors
This form 10-QSB contains certain forward-looking statements which are
based on management's current expectations. The Company has identified risk
factors which could cause actual results to differ substantially from the
forward looking statements. These risk factors include, but are not limited to:
general economic conditions, current industry specific trends, variability in
time line of new product developments, new product acceptance, difficulties in
manufacturing new products in large volume, economic viability of our customers
and vendors, changes in legislation, the ability to obtain adequate capital
funding for product development and expansion, and the availability of qualified
employees.
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, 2001 and 2000.
Item 2. Management's Discussion and Analysis or Plan of Operation:
Financial Results of Operations:
Revenues have slowed through the third quarter of 2001, reflecting the
general economic downturn pervasive in the technology sectors in general.
Continued interest from customers is strong however in the Company's IC
technologies, i.e., interconnect devices including the GCI(TM) product lines and
corresponding sockets. Automation sales have declined as technology customers
have cut back on capital expenditures, which represent the bulk of automation
sales. In addition, software solutions sales have also experienced a decline due
to the downturn in the technology sectors.
Sales for the three months ended September 30, 2001 were $283,167, compared
to $129,201 for the period ending September 30, 2000, an increase of $153,966 or
119%. This increase of 119% is not due to a substantial increase in sales in the
period ending September 30, 2001, but instead, is due to a contrasting slowing
of sales in the period ending September 30, 2000 as anticipated orders for that
period were delayed until subsequent periods. Operating expenses are comprised
mostly of direct costs for materials and labor for design, manufacturing, and
production. Operating expenses were 113% of sales for the period ending
September 30, 2001 compared to 101% of sales for the period ending September 30,
2000. Operating expenses have increased as a percent of sales due, at least in
part, to lowered margins on jobs in our bidding processes. Also, product
development costs, as a process of production have increased as we continue to
fine tune our product lines and prepare for larger market penetrations.
Selling, general and administrative expenses were $525,630, or 186% of
sales for the three months ending September 30, 2001, compared to $203,300 or
157% of sales for the same period ended September 30, 2000. The increase in
selling, general and administrative expenses
was due to the expense of adding several key personnel, increased costs in
complying with our public reporting requirements. Additional costs were also
associated with the acquisition of assets of Browand, LaMeire, and Associates,
Inc., and the acquisition of R-Tec Machine Tool, Inc. The acquisition of assets
from Browand, LaMeire, and Associates, Inc., completes the initial goal of
increasing our marketing capabilities by bringing in-house our former
independent sales representatives. The acquisition of R-Tec Machine Tool, Inc.
has increased our manufacturing capabilities, while also giving us better cost
structures than costs accrued through outsourcing options.
Net loss for the three months ended September 30, 2001 was ($583,016),
compared to a net loss of ($218,514) for the same period ended September 30,
2000. Management feels the increase in net loss is due primarily to the increase
in operating costs and lowered job margins. Some direct labor costs have also
increased as management has determined that it is currently in the best interest
of the company to maintain key employees who have unique training or skills even
though productivity as a percent of production capacity remains underutilized.
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, 2001 and September 30, 2000.
Current assets were $1,153,954 for the period ending September 30, 2001,
compared to $815,664 for the period ending December 31, 2000, an increase of
$338,290, or 41%, respectively. The resulting current ratio was 1.78 at
September 30, 2001, compared to 1.27 at December 31, 2000. The net increase in
current assets at June 30, 2001, over December 31, 2000, was due primarily to an
increase in cash accounts of $578,833 and a decrease in accounts receivable of
$197,771.
Liquidity:
Management feels that adequate cash and cash equivalents exist to support
current operations. However, due to the instability of sales growth brought on
by the economic downturn in the technology sectors, management feels it
appropriate to seek additional funding to support operational needs for ongoing
projects.
Funding and Capital Resources:
Capital resources have been increased through infusions from private stock
sales. In addition, in anticipation of potential extended slow sales growth, the
company has entered into a financial arrangement with the Olympus Group to
provide ongoing capital resources for expansion. Management feels that the
current cost of capital is high due to the decreased value of the company's
stock. It is expected that if revenues and earnings regain positive movement in
subsequent periods, the cost of capital will be less than current options.
Plan of Operation:
In order to stimulate revenue growth, the Company has strengthened its
marketing approaches through the placement of ads for it's new product line,
GCI(TM), in strategic, national trade journals. It is anticipated that interest
generating from the ads will begin within the first quarter of 2002. The Company
has also hired additional sales representatives to handle strategic customers.
Development of new, standardized products, is also expected to strengthen the
Company's marketing position with compliant and compatible product lines.
For strategic planning purposes, the Company has begun the implementation
of new manufacturing processes to bring in house, certain technical processes
critical to stabilization of product quality. These processes should be in place
within the first quarter of 2002 to support the aggressive sales goals of the
Company's marketing group. In addition, with the continued implementation of its
new manufacturing software Made2Manage, the Company anticipates progress in
moving toward ISO 9001 compliance.
In expansion of its product lines, the Company has introduced a new
product, GCI(TM) II for the IC consumer market applications. This new product
family is in addition to the existing standard GCI(TM), and GCI(TM) Flex,
product lines. It is anticipated that the GCI(TM) II will augment sales within
the Company's IC testing products arena. The company is also in research and
development of standardized automation products to augment sales of customized
automation products.
Management feels the Company is poised for sales growth in the year 2002,
but also recognizes the prudence of a cautionary posture due to current overall
economic conditions. Therefore, management cannot guarantee that sales will in
fact increase in subsequent quarters and that adequate capital resources, either
from sales or capital infusions, will exist to fund ongoing operations.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities:
During the third quarter of 2001, the Company received cash from common
stock through private placements, as follows:
Date Shares Cash Consideration Shareholder
- ---- ------ ------------------ -----------
09/01/01 120,000 $120,000 Ragon Family Trust
09/17/01 50,000 $ 50,000 Wendy or Peter Lewis
09/17/01 20,000 $ 20,000 Executive Image Auto Group
09/17/01 10,000 $ 10,000 Oscar Mink
09/17/01 21,000 $ 21,000 Hospitality Car Wash
------- --------
Totals 221,000 $221,000
======= ========
Other Stock Issuances:
Date Shares Cash Consideration Shareholder
- ---- ------ ------------------ -----------
09/30/01 291,248 Stock @ $291,248 R-Tec Machine Tool, Inc.
(for acquisition of named company)
09/30/01 380,000 Stock @ $380,000 Browand, LaMeire & Assoc.
(for acquisition of assets of named company)
07/01/01 65,542 Conversion of note payable to stock Glenn Clayton
Stock Option Plan:
The Company issued no stock options during the third quarter of 2001.
Item 3: Defaults Upon Senior Securities: None
Item 4: Submission of Matters to a Vote of Security Holders: None
Item 5: Other Information.
Pursuant to management's plans as outlined in the 10-QSB filing for the
period ending June 30, 2001, R-Tec Interconnect, Inc. was merged into R-Tec
Corporation, effective September 1, 2001. This was a related party transaction,
i.e., both companies are wholly owned subsidiaries of R-Tec Holding, Inc. The
net effect of the merger has no financial impact on the Company because all
previous financial reports were consolidated within the R-Tec Holding, Inc.
financial statements.
Item 6: Exhibits and Reports on form 8-K.
(a) No exhibits
(b) Form 8K filings
Description Form
----------- ----
Acquisition of R-Tec Machine Tool, Inc. 8-K filed 07/18/01
Acquisition of assets of Browand, LaMeire & Assoc. 8-K filed 08/01/01
Amendment to Acquisition of R-Tec Machine Tool, 8-K/A filed 09/17/01
Inc., with the following financial statements:
R-Tec Machine Tool, Inc., Balance Sheet as of
12/31/00; R-Tec Machine Tool Inc., Statement of
Operations as of 12/31/00; R-Tec Machine Tool, Inc.,
Statement of Changes in Shareholders' Equity as of
12/31/00; R-Tec Machine Tool, Inc., Statement of
Cash Flow as of 12/31/00; and R-Tec Machine Tools, Inc.,
Notes to Financial Statements as of 12/31/00; R-Tec
Holding, Inc., and Subsidiaries Pro Forma Combined
Balance Sheet as of 12/31/00; R-Tec
Holding, Inc., and Subsidiaries Pro Forma Combined
Statement of Operations as of 12/31/00; and notes to
ProForma Statements.
Amendment to Acquisition of Assets of Browand, 8-K/A filed 09/28/01
LaMeire & Assoc., Inc., with the following financial
Statements: Browand, LaMeire & Assoc, Inc., Balance
Sheet as of 12/31/00; Browand, LaMeire & Assoc., Inc.,
Statement of Operations as of 12/31/00; Browand,
LaMeire & Assoc, Inc., Statement of Changes in Shareholders'
Equity as of 12/31/00; Browand, LaMeire & Assoc., Inc.,
Statement of Cash Flow as of 12/31/00; and Browand, LaMeire
& Assoc, Inc., Notes to Financial Statements as of 12/31/00;
R-Tec Holding, Inc., and Subsidiaries Pro Forma Combined
Balance Sheet as of 12/31/00; R-Tec Holding, Inc., and
Subsidiaries Pro Forma Combined Statement of Operations as
of 12/31/00; and notes to ProForma Statements.
Exhibit Description Incorporated by Reference
No. from Registrant's
- --------------------------------------------------------------------------------
99.12 Share Exchange and Reorganization Agreement 8-K filed 07/18/01
99.12 Asset Purchase Agreement 8-K filed 08/01/01
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 7, 2001 By /s/
----------------------------------
Douglas G. Hastings,
President and CEO
By /s/
----------------------------------
Michael T. Montgomery, CFO
R-TEC HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
As of September 30, 2001 (Unaudited) and December 31, 2000
September 30, 2001 December 31, 2000
------------------ -----------------
Current assets
Cash $ 655,467 $ 76,634
Accounts receivable (net of $-- allowance
for doubtful accounts) 313,753 511,524
Costs and estimated earnings in excess
of billings on uncompleted contracts 163,921 202,530
Income taxes receivable 15,295 15,295
Inventory 1,400 --
Prepaid expenses 1,695 3,094
Notes receivable, current portion 2,423 6,587
----------- ---------
Total current assets 1,153,954 815,664
Equipment and leasehold improvements, at cost,
net of accumulated depreciation 593,143 106,834
Intangible assets, at cost,
net of accumulated depreciation 544,320 --
Other assets 48,474 17,397
Notes receivable, less current portion 15,458 14,663
----------- ---------
Total assets $ 2,355,349 $ 954,558
=========== =========
Current liabilities
Accounts payable $ 259,861 $ 334,142
Accrued expenses 78,759 102,161
Short-term note payable, related party 168,166 --
Accrued preferred dividends payable 80,186 36,517
Billings in excess of costs and estimated
earnings on uncompleted contracts -- 94,663
Leases payable, current portion 59,877 12,020
Notes payable to related parties, current portion -- 65,000
----------- ---------
Total current liabilities 646,849 644,503
Lease payable, less current portion 72,468 28,036
Notes payable to related parties, less current portion 100,000 100,000
----------- ---------
Total liabilities 819,317 772,539
Shareholders' equity
Series A cumulative convertible preferred stock, par value
$0.234 per share, 5,000,000 authorized, 2,781,564
shares issued and outstanding 651,100 651,100
Common stock, no par value per share,
30,000,000 authorized, 19,225,152 and 17,373,128
shares issued and outstanding at September 30, 2001
and December 31, 2000, respectively 2,132,755 280,731
Additional paid-in capital 107,439 107,439
Accumulated deficit (1,355,262) (857,251)
----------- ---------
Total shareholders' equity 1,536,032 182,019
----------- ---------
Total liabilities and shareholders' equity $ 2,355,349 $ 954,558
=========== =========
See accompanying notes
- 1 -
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2001 2000 2001 2000
------------ ----------- ------------ -----------
Revenues $ 283,167 $ 129,201 $ 2,129,554 $ 880,868
Operating costs 321,151 130,508 1,430,504 681,323
------------ ----------- ------------ -----------
Gross profit (37,984) (1,307) 699,050 199,545
Selling, general and administrative expenses 525,630 203,300 1,143,165 582,411
Research and development 2,955 -- 3,150 --
------------ ----------- ------------ -----------
Operating income (loss) (566,569) (204,607) (447,265) (382,866)
Interest expense (3,722) (2,576) (12,272) (10,416)
Interest income 1,885 -- 5,847 --
Other -- 486 -- 1,487
------------ ----------- ------------ -----------
(1,837) (2,090) (6,425) (8,929)
------------ ----------- ------------ -----------
Income (loss) before income taxes (568,406) (206,697) (453,690) (391,795)
Income taxes -- -- 652 --
------------ ----------- ------------ -----------
Net income (loss) (568,406) (206,697) (454,342) (391,795)
Preferred stock dividends 14,610 11,817 43,669 21,954
------------ ----------- ------------ -----------
Net income (loss) available
to common shareholders $ (583,016) $ (218,514) $ (498,011) $ (413,749)
============ =========== ============ ===========
Net income (loss) per common share $ (0.03) $ (0.03) $ (0.03) $ (0.05)
Weighted average shares outstanding 18,300,012 8,533,594 17,950,635 8,533,594
See accompanying notes
- 2 -
R-TEC HOLDING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended September 30, 2001 and September 30, 2000 (Unaudited)
Nine Months Ended September,
2001 2000
----------- ---------
Cash flows from operating activities
Net income (loss) $ (454,342) $(391,795)
Adjustments to reconcile net loss to net
cash provided used by operating activities
Depreciation and amortization 129,205 19,744
Changes in assets and liabilities
Accounts receivable 197,771 47,280
Costs and estimated earnings in excess
of billings on uncompleted contracts 38,609 25,899
Inventory (1,400) --
Prepaid expenses 1,399 3,331
Accounts payable (74,281) (40,034)
Accrued expenses 144,764 5,917
Billings in excess of costs and estimated
earnings on uncompleted contracts (94,663) (18,682)
Income taxes payable -- 557
Deferred income taxes -- (8,197)
----------- ---------
Net cash used by operating activities (112,938) (355,980)
Cash flows from investing activities
Purchase of equipment and other assets (282,596) (50,018)
----------- ---------
Net cash used by investing activities (282,596) (50,018)
----------- ---------
Cash flows from financing activities
Collections on loans 3,369 1,465
Proceeds from preferred stock -- 562,750
Proceeds from common stock 1,116,184 --
Net payments on line of credit -- (64,000)
Payments on debt (145,186) --
----------- ---------
Net cash provided by financing activities 974,367 500,215
----------- ---------
Net increase in cash 578,833 94,217
Beginning cash 76,634 3,609
----------- ---------
Ending cash $ 655,467 $ 97,826
=========== =========
Supplemental disclosures of cash flow information
Interest paid $ 9,936 $ 8,029
Noncash investing and financing activities
Preferred stock dividends payable $ 43,669 $ 21,954
Equipment acquired through long-term obligations $ 123,639 $ 40,056
Acquisition of assets, net of liabilities of $113,806
with common stock $ 537,426 $ --
Notes payable related party converted to common stock $ 65,000 $ --
Accrued expenses converted to common stock $ 168,166 $ --
See accompanying notes
- 3 -
R-TEC HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
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 effects previously recorded net loss.
NOTE B - EQUIPMENT
Equipment consists of:
Equipment $ 634,715
Vehicles 32,857
Office equipment and furnishings 41,931
Leasehold improvements 45,720
---------
755,223
Accumulated depreciation and amortization (162,080)
---------
$ 593,143
=========
NOTE C - INTANGIBLES
Intangibles consist of:
Goodwill $ 201,218
Customer lists 365,975
---------
567,193
Accumulated depreciation and amortization (22,873)
---------
$ 544,320
=========
The goodwill and customer lists were acquired in July 2001. Goodwill is not
amortized and the customer list is amortized over a 48- month period.
NOTE D - ACQUISITIONS
On July 3, 2001, the Company acquired R-Tec Machine Tool, Inc., an Idaho
corporation, pursuant to a Share Exchange and Reorganization Agreement by and
between the Company and the four individual shareholders of R-Tec Machine Tool,
Inc.
- 4 -
R-TEC HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
Under the terms of the Agreement, the parties agreed to be bound by and accept
the fair market value placed on R-Tec Machine Tool, Inc. obtained from an
independent business appraisal. Consideration for the acquisition was 291,248
shares of the common stock of the Company valued at $1.00 per share, which the
parties agree and acknowledge was the fair market value of the Company's shares
as of the date of the Agreement. Significant assets acquired and liabilities
assumed were as follows:
Cash $ 15,734
Equipment 188,102
Goodwill 201,218
Notes payable assumed (113,806)
---------
$ 291,248
=========
On July 17, 2001, the Company acquired certain assets from Browand, LaMeire &
Associates, Inc., an Oregon corporation, pursuant to an Asset Purchase Agreement
by and between the Company and Browand, LaMeire & Associates and its two
shareholders, Bill Browand and Jeanette LaMeire.
Under the terms of the Agreement, the Company acquired certain assets, which
include the client list and industry contacts, certain items of office equipment
and inventory. Substantially, all of the purchase price related to the client
list and industry contacts. Consideration for the acquisition was 380,000 shares
of the common stock of the Company valued at $1.00 per share, which the parties
agree and acknowledge was the fair market value of the Company's shares as of
the date of the Agreement.
Significant assets acquired and liabilities assumed were as follows:
Equipment $ 9,394
Customer lists 369,332
Other 1,274
--------
$380,000
========
NOTE E - SHORT-TERM NOTE PAYABLE
The Company converted accrued expenses of $168,166 into a note payable during
September 2001. The note is owed to Browand, LaMeire & Associates for
commissions earned on sales of Company products. The note accrues interest at 8%
and is payable in monthly interest only payments until maturity on March 15,
2002.
- 5 -
R-TEC HOLDING, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2001 and 2000
NOTE F - STOCK OPTION PLAN
The Company has a stock option plan, which allows employees, directors and
consultants of the Company to receive stock options. The Board of Directors set
aside 2,000,000 shares of common stock for issuance upon exercise of the
options. The Company has awarded 382,000 stock options to employees and
directors during 2001. The stock options vest 100% on the first anniversary of
the grant notice at a strike price of $1 per share.
The stock options are exercisable by the optionee as to all or any part of the
stock then vested by delivery to the Company of written notice of exercise and
payment of the purchase price as provided by the plan.
The Board of Directors maintains the right to change, suspend or terminate the
plan at any time, without notice, and in its sole discretion as provided by the
plan. The Company accounts for these plans under APB Opinion No. 25, "Accounting
for Stock Issued to Employees."
- 6 -