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 March 31, 2002
|_| 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 March 31, 2002, is
20,256,005.
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, economic
viability of our customers and vendors, changes in legislation, the ability to
obtain adequate capital funding for product development and expansion, the
availability of qualified employees, and the volatile nature of the technology
sector in general.
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
ended March 31, 2002 and 2001.
Item 2. Management's Discussion and Analysis or Plan of Operation:
Financial Results of Operations:
Revenues for the first quarter of 2002 were $751,232, compared with
$699,171 for the same period in 2001. The increase of $52,061 or 7%, while
negligible, represents stronger than anticipated shipments from engineered
automation products for the first quarter. Engineered automation products
accounted for approximately 71% of sales, interconnect products accounted for
approximately 25% of sales, and other sales accounted for approximately 4% of
sales. Interconnect product sales were approximately $164,972 for the quarter
ending March 31, 2002, an increase of $80,276, or 106% over same product sales
for the period ending March 31, 2001.
Management does not anticipate significant increases in shipments and
sales through the second quarter of 2002, based on current bookings and
anticipated shipments. Management does believe however, that quoting
opportunities are increasing slightly, which may translate into additional
bookings and sales in the third and fourth quarters of 2002. The increase in
opportunities is attributed to aggressive efforts within the sales department to
locate quoting opportunities within the Company's areas of expertise and
additional requests from existing customers for new project quotes within the
engineered automation products and interconnect products areas.
Gross profit for the period ending March 31, 2002 was $291,344, or 39% of
sales, and $251,506, or 36% of sales, for the same respective period in 2001.
The increase of 3%, from 36% in 2001 to 39% in 2002, of gross profit as a
percentage of sales, though negligible, is in line with management's commitment
to focus on profitability through maximizing job margins. The
implementation of the Company's new accounting software system, gives management
greater visibility in job costing and job profitability areas to help monitor
and maximize job profitability.
Selling, general and administrative expenses were $504,256, or 67% of
sales for the period ending March 31, 2002, compared to $285,153, or 41% of
sales for the period ending March 31, 2001. The increase is due primarily to the
addition of operating, technical, and sales personnel from prior quarters. It is
not anticipated that any significant increases in selling, general and
administrative expenses will be incurred through the second quarter of 2002.
Net loss for the three months ended March 31, 2002 was $237,563, or $0.01
per common share, compared to a net loss of $52,153, or $0.00 per common share
for the same respective period of 2001. The increase in net loss is primarily
attributable to increases in selling, general and administrative expenses.
Management believes the additional expenses are necessary to position the
Company in a more competitive posture, including the advancement of research and
development of interconnect products and an expanded sales force. Management
does not anticipate significant changes in profitability prior to the third or
fourth quarter of 2002.
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 March
31, 2002 and March 31, 2001.
Current assets were $1,046,690 for the period ending March 31, 2002,
compared to $558,943, for the period ending December 31, 2001, an increase of
$487,747, or 87%, respectively. Current liabilities were $586,503 and $394,734,
for the same respective periods. The resulting current ratio was 1.78 at March
31, 2002, compared to 1.42 at December 31, 2001.
The increase in current assets at March 31, 2002, over December 31, 2001,
was due primarily to an increase in receivables from $150,848 at December 31,
2001 to $646,340 at March 31, 2002. Shipments of significant, engineered
automation projects within the first quarter of 2002, accounted for most of the
increase in receivables.
Liquidity:
Management believes that additional capital funding will be required to
fund operations through the second quarter of 2002.
Funding and Capital Resources:
In the first quarter of 2002, sales of common stock accounted for an
increase in capital resources of $623,400. The Company continues to work with
The Olympus Group, a financial consulting group, to seek additional funding to
augment capital resources. However, management cannot guarantee that additional
funding will be acquired.
Plan of Operation:
The Company continues to focus on increasing profitability through
maximizing margin contributions on a per job basis and reducing unnecessary
overhead expenditures. The Company is also planning on bringing on-line within
the third quarter of 2002, its production facility to manufacture and produce
GCI(TM) products. It is anticipated that with this production facility on-line,
the Company will be able to lower its direct costs for GCI(TM) products and
enhance product margins. The new production facility will also allow the Company
to have greater control over product quality and production lead times.
To increase sales, the Company is focusing on new market applications for
its GCI(TM) family of products. Research and development is underway to test
compatibility with new applications for the GCI(TM) technology. Additionally,
the Company is researching new opportunities within the public sectors,
including defense contractor applications for engineered automation products.
The Company is also focusing on increasing the acceptance ratio of new quotes
generated.
During the technology sector downturn, the Company has become aware of
several of its customers that have downsized departments where the Company
maintains expertise. In particular, software development is an area where
management feels sales can be increased as these customers look to outsource
services previously handled internally. The Company's sales department and
software engineers are pursuing these opportunities to further increase sales.
Management is currently reviewing capital funding options to augment
capital resources needed to complete the construction of the GCI(TM) products
facility and to fund continued research and development of new product
opportunities. To the extent the Company continues to sustain losses, it will
seek additional funding as well for operational costs. Debt instrument funding
may be pursued if management finds the cost of capital for equity funding to be
excessive at current stock prices. Management cannot guarantee however, that it
will be successful in obtaining adequate funding for continuing operations or
capital expansions.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: None
Item 2. Changes in Securities:
During the first quarter of 2002, the Company received additional
subscriptions for its common stock as follows:
Date Shares Cash Consideration Shareholder
- ---- ------ ------------------ -----------
01/17/02 40,000 $ 20,000 Warren Scheibe
01/17/02 100,000 $ 50,000 James W. Trimble
01/17/02 50,000 $ 25,000 Carol A. Martinez
01/17/02 190,000 $ 95,000 John M. Plocher
01/17/02 400,000 $200,000 Michael Shane Creech
01/17/02 200,000 $100,000 Michael P. Hamilton
02/25/02 66,800 $ 33,400 Federico Cordova
03/19/02 200,000 $100,000 John M. Plocher
--------- --------
Totals 1,246,800 $623,400
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.
Changes in Officers and Personnel:
Effective April 4, 2002, Bill Browand, formerly V.P. of Sales and a member
of the Board of Directors of the Company, announced his resignation. Mr. Browand
has provided no formal statement as to the reason for his resignation. Jeanette
LaMeire, formerly V.P. of Marketing, also terminated her employment with the
Company.
Effective May 1, 2002, Victor Morse, formerly international sales manager
with Jennings Technology and worldwide sales manager with Exetron, Inc., was
appointed as sales manager for the Company.
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: May 13, 2001 By /s/
------------------------------------------
Douglas G. Hastings, President and CEO
By /s/
------------------------------------------
Michael T. Montgomery, CFO
By /s/
------------------------------------------
Gary C. Clayton, Director
By /s/
------------------------------------------
Douglas G. Hastings, Director
By /s/
------------------------------------------
Rulon J. Tolman, Director
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of March 31, 2002 (Unaudited) and December 31, 2001
March 31, December 31,
2002 2001
----------- -----------
Current assets
Cash $ 188,613 $ 330,044
Accounts receivable (net of $40,000 and $25,000
allowance for doubtful accounts, respectively) 646,340 150,848
Costs and estimated earnings in excess
of billings on uncompleted contracts 153,956 52,027
Income taxes receivable 15,295 15,295
Inventory 28,125 --
Prepaid expenses 5,044 3,094
Notes receivable, current portion 9,317 7,635
----------- -----------
Total current assets 1,046,690 558,943
Equipment and leasehold improvements, at cost,
net of accumulated depreciation 636,511 628,957
Intangible assets, at cost, net of accumulated amortization 297,355 320,228
Goodwill 201,218 201,218
Other assets, at cost, net of accumulated amortization 38,840 44,075
Notes receivable, less current portion -- 7,475
----------- -----------
Total assets $ 2,220,614 $ 1,760,896
=========== ===========
Current liabilities
Accounts payable $ 304,742 $ 204,808
Accrued expenses 90,746 28,491
Accrued preferred dividends payable 109,565 --
Billings in excess of costs and estimated
earnings on uncompleted contracts 12,016 --
Leases payable, current portion 69,434 61,435
Notes payable -- 100,000
----------- -----------
Total current liabilities 586,503 394,734
Accrued preferred dividends payable -- 95,116
Lease payable, less current portion 33,738 56,510
Notes payable to related parties, less current portion 369,295 369,295
----------- -----------
Total liabilities 989,536 915,655
Shareholders' equity
Series A cumulative convertible preferred stock, par value
$0.23437 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, 20,256,005 and 19,009,205
shares issued and outstanding at March 31, 2002
and December 31, 2001, respectively 2,693,815 2,132,755
Additional paid-in capital 420,880 358,540
Accumulated deficit (2,534,717) (2,297,154)
----------- -----------
Total shareholders' equity 1,231,078 845,241
----------- -----------
Total liabilities and shareholders' equity $ 2,220,614 $ 1,760,896
=========== ===========
See accompanying notes
-1-
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Periods Ended March 31, 2002 and March 31, 2001 (Unaudited)
Three Months Ended March 31,
2002 2001
------------ ------------
Revenues $ 751,232 $ 699,171
Operating costs 459,888 447,665
------------ ------------
Gross profit 291,344 251,506
Selling, general and administrative expenses 504,256 285,153
Research and development 3,305 --
------------ ------------
Operating loss (216,217) (33,647)
Interest expense (7,859) (4,842)
Interest income 982 1,435
------------ ------------
(6,877) (3,407)
------------ ------------
Loss before income taxes (223,094) (37,054)
Income taxes expense 20 650
------------ ------------
Net loss (223,114) (37,704)
Preferred stock dividends 14,449 14,449
------------ ------------
Net loss available to common shareholders $ (237,563) $ (52,153)
============ ============
Net loss per common share $ (0.01) $ (0.00)
Weighted average shares outstanding 19,855,996 17,688,072
See accompanying notes
-2-
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended March 31, 2002 and March 31, 2001 (Unaudited)
Three Months Ended March 31,
2002 2001
--------- ---------
Cash flows from operating activities
Net income (loss) $(223,114) $ (37,704)
Adjustments to reconcile net loss to net
cash provided used by operating activities
Depreciation and amortization 69,700 11,023
Changes in assets and liabilities
Accounts receivable (495,492) (146,762)
Income taxes receivable -- --
Costs and estimated earnings in excess
of billings on uncompleted contracts (101,929) 128,451
Inventory (28,125) (15,503)
Prepaid expenses (1,950) 1,464
Accounts payable 99,934 (152,901)
Accrued expenses 62,255 44,433
Billings in excess of costs and estimated
earnings on uncompleted contracts 12,016 (53,827)
Income taxes payable -- --
--------- ---------
Net cash used by operating activities (606,705) (221,326)
Cash flows from investing activities
Purchase of equipment and other assets (49,146) (35,510)
--------- ---------
Net cash used by investing activities (49,146) (35,510)
--------- ---------
Cash flows from financing activities
Collections on loans 5,793 547
Proceeds from common stock and options 623,400 701,000
Payments on debt (114,773) (2,483)
--------- ---------
Net cash provided by financing activities 514,420 699,064
--------- ---------
Net increase (decrease) in cash (141,431) 442,228
Beginning cash 330,044 76,634
--------- ---------
Ending cash $ 188,613 $ 518,862
========= =========
Supplemental disclosures of cash flow information
Interest paid $ 4,876 $ 2,506
Noncash investing and financing activities
Sale refund through issuance of note payable $ -- $ 58,706
Preferred stock dividends payable $ 14,449 $ 14,449
See accompanying notes
-3-
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 and 2001
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 AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of:
Equipment $ 670,911
Vehicles 33,804
Office equipment and furnishings 86,568
Leasehold improvements 45,720
---------
837,003
Accumulated depreciation and amortization (200,492)
---------
$ 636,511
=========
NOTE C - INTANGIBLE ASSETS
Intangible assets consist of:
Customer lists $ 365,975
Accumulated amortization (68,620)
---------
$ 297,355
=========
The estimated useful life of customer lists is four years.
-4-
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2002 and 2001
NOTE D - OTHER ASSETS
Intangible assets consist of:
Software $ 74,421
Accumulated amortization (35,581)
--------
$ 38,840
========
The estimated useful life of software is three years.
NOTE D - INVENTORY
Parts inventory is stated at the lower of cost (last-in, first-out method) or
market.
Inventories consist of:
GCI inventory $ 3,825
Parts inventory 24,300
-------
$28,125
=======
NOTE E - OPTIONS
During the three months ended March 31, 2002, Rule 144 restricted stock and
options were sold to investors. The Company estimated the value assigned to the
options based on an estimated stock trading price of $.50 per share and a 10%
discount factor for the stock restriction. The value assigned to the options for
the three months ended March 31, 2002, was estimated at $62,430.
NOTE F - SUBSEQUENT EVENT
On April 4, 2002, two employees terminated. The Company and the terminated
employees have agreed on a settlement of approximately $22,000. In addition, the
Company owes the employees $169,295 on a related party note payable. The terms
of the note have not changed, however, the note has been securitized by a UCC-1
filing on equipment.
-5-