U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter period ended June 30, 2002
Commission file number 000-27859
Rad Source Technologies, Inc.
(Name of Small Business Issuer in its charter)
Florida 65-0882844
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20283 State Road 7, Ste. 107, Boca Raton, Florida 33498
(Address of principal executive offices) (Zip Code)
(561) 482-9330
(Issuer's telephone number)
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. Yes X No ___
-
As of July 21, 2002 the Registrant had 9,064,397 shares of common stock, $.001
par value per share, outstanding.
INDEX
PAGE
NUMBER
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet - June 30, 2002 3
Consolidated Statements of Operations - Three Months
and Nine Months Ended June 30, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows - Nine
Months Ended June 30, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information 9
Signatures 9
2
Rad Source Technologies, Inc. and Subsidiary
Consolidated Balance Sheet
June 30, 2002
(Unaudited)
Assets
Current assets:
Cash $ 101,763
Inventory 94,497
Prepaid expenses 6,885
-----------
Total current assets 203,145
Equipment, net 8,770
Other assets 6,211
===========
$ 218,126
===========
Liabilities and Stockholders' Deficit
Current liabilities:
Notes payable $ 90,840
Accounts payable 230,098
Accrued expenses 104,339
Accounts payable - stockholders 42,102
Notes payable to stockholders 94,440
Unearned revenue 50,561
Customer deposits 41,400
===========
Total current liabilities 653,780
-----------
Stockholders' deficit
Common stock, par value $.001; 150,000,000 shares authorized;
9,064,397 issued and outstanding 9,064
Additional paid-in capital 4,628,069
Accumulated deficit (5,072,787)
-----------
Total stockholders' deficit (435,654)
-----------
$ 218,126
===========
The accompanying notes are an integral part of these consolidated financial
statements.
3
Rad Source Technologies, Inc. and Subsidiary
Consolidated Statements of Operations
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
-------------------------- --------------------------
2002 2001 2002 2001
---- ---- ---- ----
Sales $ 419,673 $ 465,628 $ 1,365,529 $ 1,321,518
Cost of sales 292,265 273,579 845,955 761,293
----------- ----------- ----------- -----------
Gross profit 127,408 192,049 519,574 560,225
----------- ----------- ----------- -----------
Expenses:
Research and development 41,932 13,719 47,191 49,954
Selling, general and administrative 206,679 178,026 639,217 526,262
----------- ----------- ----------- -----------
Total expenses 248,611 191,745 686,408 576,216
----------- ----------- ----------- -----------
Loss from operations (121,203) 304 (166,834) (15,991)
Interest expense 4,798 587 16,919 1,172
----------- ----------- ----------- -----------
Net loss (126,001) (283) (183,753) (17,163)
=========== =========== =========== ===========
Earnings per share - basic and diluted $ (0.01) $ (0.00) $ (0.02) $ (0.00)
=========== =========== =========== ===========
Weighted average shares outstanding 8,928,996 7,635,120 8,719,691 7,566,270
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
Rad Source Technologies, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
June 30,
-------------------------------
2002 2001
---- ----
Cash flow provided (used) by operating activities:
Net loss $ (183,753) $ (17,163)
Adjustments to reconcile net loss to net cash
provided (used) in operating activities
Depreciation 3,529 3,312
Non-cash compensation 78,601 14,607
Change in operating assets and liabilities 296,558 17,982
------------ ------------
Net cash provided (used) by operating activities 194,935 18,738
Cash flows used by investing activities - (17,812)
Cash flows provided (used) by financing activities (110,020) 50,000
------------ ------------
Net increase (decrease) in cash 84,915 50,926
Cash, beginning of period 16,848 52,320
------------ ------------
Cash, end of period $ 101,763 $ 103,246
------------ ------------
Supplemental disclosure of cash flow information:
Cash paid for interest during the period $ 14,757 $ -
============ ============
Income taxes paid during the period $ - $ -
============ ============
Supplemental disclosure of non-cash financing activities:
Conversion of accounts payable to notes-payable $ 160,000 $ -
============ ============
Conversion of accounts payable - stockholders to notes-
payable - stockholders. $ 120,000 $ -
============ ============
Conversion of accounts payable stockholders and accrued
expenses to equity $ 34,365 $ -
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
5
RAD SOURCE TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - UNAUDITED INTERIM INFORMATION
The accompanying interim consolidated financial statements are unaudited;
however, in the opinion of management, the interim statements include all
adjustments necessary for a fair presentation of the results for interim
periods. The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
The results of operations for the three months and nine months ended June 30,
2002 are not necessarily indicative of the results to be expected for the year
ended September 30, 2002.
The interim unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended September 30, 2001 filed as part of the Company's form 10-KSB.
NOTE 2 - UNCERTAINTY - GOING CONCERN
The Company's continued existence is dependent upon its ability to resolve its
liquidity problems, principally by obtaining equity, increasing sales and
achieving profitable operations. While undertaking the above, the Company must
continue to operate on cash flow generated from operations, loans and
contributions from stockholders. The Company has, historically, experienced net
losses, has a stockholders' deficit of $435,654, and a net working capital
deficiency of $450,635. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
Management's plans in regard to this matter are to create additional revenue
opportunities by adding products and to increase sales of units of its existing
product line in an effort to generate positive cash flow. Additionally, the
Company must raise equity either directly or through the conversion of existing
debt, and must continue to rely on vendors and service providers and management
for periodic payment deferrals and cost reductions to improve liquidity and
sustain operations. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 3 ISSUANCE OF EQUITY INSTRUMENTS
In June, 2002, the Company issued 150,000 options at an exercise price of $0.10
to an individual in exchange for assistance in technology development. This
issuance was valued using the Black-Scholes option pricing model and has been
expensed.
6
In June, 2002, 164,286 restricted shares of the Company's common stock were
issued to a member of the board of directors upon his conversion of stock
options in the same quantity and for a total conversion price of $11,500.
In March, 2002, the Company sold 100,000 restricted shares of the Company's
common stock to an individual in exchange for the sum of $15,000.
In February, 2002, 600,000 restricted shares of the Company's common stock were
issued to two individuals, an officer and member of the board of directors and a
member of the board of directors upon their conversion of stock options in the
same quantity and for a total conversion price of $40,000.
In January, 2002, the Company issued 15,000 shares of the Company's common stock
to an individual as payment for professional legal services.
In October 2001, the Company issued five-year warrants for the purchase of
150,000 shares of the Company's common stock at an exercise price of $1.50 per
share. These warrants were issued for business planning and capital acquisition
consulting services and were recorded using the Black-Scholes option pricing
model. These have been fully expensed.
Also in October 2001, the Company issued 400,000 shares of common stock and
100,000 warrants to a corporate image and growth consulting firm to provide
related services to the Company over a nine-month period. The warrants contain a
five-year term and an exercise price of $0.50 per share. The warrants were
valued using the Black-Scholes option pricing model and the stock was valued at
market at the time of issuance. These have been fully expensed.
NOTE 4 NOTES PAYABLE
During October and November 2001, the Company executed note agreements with two
vendors. The original face amount of the notes were for $160,000 and $120,000,
respectively, at 9% annual interest. The note for $120,000 is to a vendor who is
also a stockholder. The balance on this note at June 30, 2002 is $74,140 and is
included in Notes payable to stockholders. The notes are unsecured with
principal and interest payable monthly over a 20 month term terminating in May
and June 2003, respectively. The balance on the $160,000 note at June 30, 2002
is $90,840 and is included in Notes payable.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated financial
condition and consolidated results of operations should be read in conjunction
with the financial statements and notes contained herein as well as the
Company's September 30, 2001 Form 10-KSB.
7
Statements which are not historical facts, including statements about the
Company's confidence and strategies and its expectations about new and existing
products, technologies and opportunities, market and industry segment growth,
demand and acceptance of new and existing products are forward-looking
statements that involve risks and uncertainties. These include, but are not
limited to, product demand and market acceptance risks, the impact of
competitive products and pricing, component sourcing and supply for the
Company's products, the results of financing efforts, the effects of economic
conditions and trade, legal, social, and economic risks, such as licensing, and,
trade restrictions; and the results of the Company's business plan. Such
forward-looking statements are subject to risks and uncertainties. Consequently,
our actual results could materially differ from those anticipated in these
forward-looking statements.
Financial Condition
- -------------------
The Company's net cash flow provided by operations in the nine months ended June
30, 2002 was $194,935 reflecting the conversion of accounts payable to notes as
well as reductions in inventory, accounts receivable, and prepaid assets. Net
cash flows used by financing activities consist of proceeds from the sale of
stock in the amount of $15,000 and principal payments on notes payable.
The Company's working capital deficit is $450,635. This lack of liquidity is
primarily the result of the Company's operating losses. In order to improve its
financial condition, the Company must become profitable, raise additional equity
either directly or through the conversion of existing debt, and must continue to
rely on vendors, service providers and management for periodic payment deferrals
and/or cost reductions. In the current nine-month period, the Company issued
common stock and warrants for payment of services in the amount of $78,601;
converted $164,980 (net of principal payments through June 30, 2002) of accounts
payable to notes payable and sold restricted common stock for $15,000. Although
these efforts have assisted the Company's cash flow, the Company's liquidity
position and deficit have continued to deteriorate.
Over the next twelve months, the Company anticipates incurring additional costs
to develop, produce, promote and support new products. In this regard, the
Company signed an agreement in March 2002 with a Russian institute to
commercialize that institute's radiation technology. Should the Company be
unable to generate sufficient profits, its ability to meet cash needs will be
dependent upon raising additional capital. In this case, should the Company be
unable to raise additional capital, it would be unable to continue its
operations.
Results of Operations
- ---------------------
Three Months Ended June 30, 2002 Compared to the Three Months June 30, 2001
- ---------------------------------------------------------------------------
Sales decreased by $45,955, or 9.9% as the result of lower unit sales. Cost of
goods sold increased $18,686, or 6.8% resulting in a decrease in the Company's
gross profit margin
8
from 41.2% to 30.3%. This decrease is primarily the result of an increase in
service and parts costs for existing units under warranty and the destruction of
an x-ray component during testing of one of the serviced products. In addition,
the Company was required to use a costlier x-ray component during the quarter
due to a shortage in availability of the normally used component.
Research and development costs increased $28,213 due primarily to work on a
product with high-dose radiation technology to be made available from a Russian
institute with which the Company has been collaborating.
Selling, general and administrative costs increased $28,653, or 16.1%. This is
primarily attributed to an increase in sales commissions caused by an increase
in commissionable sales over the prior period as well as an increase in
professional fees for legal, investment banking and business planning services
related to the Company's efforts to maintain growth through internal
development, as well as acquisitions. In this regard, the Company had previously
entered into a purchase agreement to acquire an industrial imaging company. In
April, 2002, the Company and the industrial imaging company declined to further
pursue this transaction.
Interest expense increased $4,211 primarily due to an increase in outstanding
interest bearing debt.
Nine Months Ended June 30, 2002 Compared to the Nine Months Ended June 30, 2001
- -------------------------------------------------------------------------------
Sales increased $44,011 or 3.3% primarily as the result of selling higher-priced
equipment and service during the period. Cost of goods sold increased $84,662,
or 11.1% resulting in a decrease in the Company's gross profit margin from 42.4%
to 38.0% primarily as the result of the most recent quarter's increased service
costs including the destruction of an x-ray component while testing one of the
serviced products.
Research and development costs decreased by $2,763 primarily due to a decrease
in costs related to imaging and blood irradiation products.
Selling, general and administrative costs increased $112,955, or 21.5%. This is
primarily attributed to an increase in sales commissions caused by an increase
in commissionable sales over the prior period and an increase in professional
fees for legal, investment banking and business planning services related to the
Company's efforts to maintain growth through internal development, as well as
acquisitions. In this regard, the Company had previously entered into a purchase
agreement to acquire an industrial imaging company. In April, 2002, the Company
and the industrial imaging company declined to further pursue this transaction.
Interest expense increased $15,747 primarily due to an increase in outstanding
interest bearing debt.
PART II OTHER INFORMATION
9
ITEM 1
Not applicable.
ITEM 2
Not applicable.
ITEM 3 through ITEM 5
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
99.1 Statement of Principal Executive Officer.
99.2 Statement of Principal Financial Officer.
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter
ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
Rad Source Technologies, Inc.
Dated: August 15, 2002 By: /s/ Randol Kirk
-----------------
Randol Kirk, Chief Executive Officer
Dated: August 15, 2002 By: /s/ William Hartman
-------------------
William Hartman, Chief Financial Officer
10