UNITED STATES
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 Ended
September 30, 2003
Commission File Number : 0-30463
R-Tec Holding, Inc.
(Exact name of registrant as specified in its charter)
IDAHO 82-0515707
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1471 E. Commercial Ave., Meridian, ID 83542
(Address of principal executive offices)
(208) 887-0953
(Issuer's telephone number)
At September 30, 2003, the registrant had
22,272,246 shares of common stock outstanding.
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:
1) Consolidated Balance Sheet for the periods ending September 30, 2003
(unaudited) and December 31, 2002
2) Consolidated Statement of Operations for the periods ending
September 30, 2003 and September 30, 2002 (unaudited)
3) Consolidated Statement of Cash Flows for the periods ending
September 30, 2003 and September 30, 2002 (unaudited)
4) Notes to Financial Statements
Item 2. Management's Discussion and Analysis or Plan of Operation:
Revenues for the Company in its two main product groups are listed below
for the quarters ending September 30, 2003 and 2002 respectively. For the 3
months ending September 30, 2003, total revenues decreased by 65%, with
decreases in automation of 79% and 15% in interconnect. For the 9 months ending
September 30, 2003, and September 30, 2002, total sales decreased by 49%, with
decreases in automation of 59% and 15% in interconnect.
3 Months ending September 30, 2003
Segment 2003 2002
- --------------------------------------------------------------
Automation $ 122,682 46% $ 585,164 78%
Interconnect $ 143,845 54% $ 169,662 22%
---------- --- ---------- ---
Total Sales $ 266,527 100% $ 754,826 100%
9 Months ending September 30, 2003
Segment 2003 2002
- --------------------------------------------------------------
Automation $ 643,466 61% $1,575,901 76%
Interconnect $ 414,989 39% $ 487,847 24%
---------- --- ---------- ---
Total Sales $1,058,455 100% $2,063,748 100%
Financial Results of Operations
Management feels the continued decrease in sales for both product sectors
is primarily attributable to sluggish economic conditions in general, but
particularly in the technology sectors. Key customers for the Company in the
interconnect group have indicated a perceptible upswing in their production
volumes, but these positive movements have not yet translated into sales
increases for the Company. In the automation product group, customers' capital
expenditure budgets, which represent allocated funds for the type of products
produced in the automation group, appear to be on hold until the 2nd and 3rd
quarters of 2004.
Gross profit for the period ending September 30, 2003 was $28,196 or 11%,
compared to $225,959 or 30%, for the period ending September 30, 2002. The
decrease in gross profit was attributable primarily to decreases in sales and
underutilization of plant capacities which are factored into cost of good sold.
Selling, General, and Administrative expenses were $147,689 for the period
ending September 30, 2003, compared to $329,097 for the period ending September
30, 2002, a decrease of $181,408 or 55%. The decrease in expenses is
attributable primarily to additional layoffs and continued efforts to reduce
expenses.
Net loss for the quarter was $208,791, or $.01 per share for the period
ending September 30, 2003, compared to a net loss of $141,817 or $.01 per share
for the period ending September 30, 2002. The increase in net loss resulted
primarily from the decrease in gross profit and an increase in interest expense
of $38,657, from $13,241 for the period ending September 30, 2002, to $51,898,
for the period ending September 30, 2003.
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, 2003 and December 31, 2002.
Current assets were $312,732 for the period ending September 30, 2003,
compared to $873,517, for the period ending December 31, 2002, a decrease of
$560,785, or 64%, respectively. Current liabilities were $1,393,425 and
$1,178,965, for the same respective periods. The resulting current ratio was .22
at September 30, 2003, compared to .74 at December 31, 2002. The decrease in
current assets from December 31, 2002 to September 30, 2003 was primarily due to
a decrease of $143,336 in cash, a decrease of $299,202 in accounts receivable, a
decrease in costs and estimated earnings in excess of billings on uncompleted
contracts of $58,229, and a decrease in prepaid expenses of $72,798. Significant
changes in current liabilities included an increase in accounts payable of
$181,081 or 168%, from December 31, 2002, to September 30, 2003, and a decrease
in billings in excess of costs and estimated earnings on uncompleted contracts,
from $61,594 to $24,022 for the same respective periods.
Liquidity:
Management is aware that the Company's liquidity position has continued to
deteriorate due to successive quarterly losses. Short term areas of concern
include an increase in aging of the accounts payable and additional short term
notes payable that have matured and are now past due. In addition, the Company
has fallen behind on payment of accrued interest on the short term notes
payable. Aging of accounts payable includes $88,251 at 61-90 days late and
$82,098 at greater than 90 days. Notes payable currently past due as of
September 30, 2003 include principal in the amount of $584,422 and approximately
$20,965 in past due interest payable.
Funding and Capital Resources:
For the period ending September 30, 2003, the Company received no
additional funding from either equity instruments or debt instruments. The
Company has an agreement with 1st SB Partners Ltd., which was entered into in an
attempt to raise additional equity funding, but has been unable to use this
funding source due to predetermined parameters set by 1st SB Partners Ltd. that
are linked to the Company's stock performance. The Company is also continuing to
seek other sources of funding via partnering with key customers, equity funding
opportunities, and debt funding opportunities. Without some additional funding,
it is unlikely that the Company will be able to maintain operations at the
current level through the end of the period ending December 31, 2003. The
Company is attempting to secure additional funding, but cannot guarantee that
the funding will be available.
Plan of Operation:
Within the recent approximate six weeks, the Company has experienced a
measurable increase in interest from new and existing customers in its
interconnect products. Renewed efforts, as resources allow, are being directed
at responding to these potential sales opportunities as well as prospecting new
opportunities. Management feels that due to physical property changes in the IC
testing industry, including increased testing speeds and tighter testing
tolerances, or finer pitches, the Company's interconnect products are gaining
attention as one of the potentially leading solutions for future testing
applications in several of the testing market segments. To the extent this is
correct, older mechanical solutions will become obsolete and newer, leading edge
solutions will begin to take their places. Management feels that the Company's
interconnect products are in position to be viewed as one of these leading edge
solutions. With the Company's current research and development efforts, several
new leading edge GCI(TM) products are being tested for market introduction,
including a version of its existing standard GCI(TM) with finer pitches than
previously available.
To support the opportunity to increase market awareness and acceptance,
management is directing limited resources to support marketing and sales
efforts. With its state-of-the-art production facility on-line, the Company will
be able to handle substantial increases in sales and production of its
interconnect products with minimal capital expenditures. Of the capital funding
the Company is attempting to secure, a larger amount than previously budgeted is
targeted to support the increased marketing efforts.
From a financial performance perspective the Company has moved towards a
profit center approach to better analyze each operating group and to determine
the best operating structure to minimize expenses and maximize operating
margins. It is anticipated that within the
next quarter, management will make decisions to restructure the Company's
operating groups to focus on areas with the most opportunity for positive margin
contributions.
Management is aware of the acute cash flow position the Company faces and
has implemented strict cash flow management policies, including reduced budgets,
reductions in personnel, reductions on work hours, and short term work area
closures adjusted to current production scheduling.
With the tighter financial controls, management is working towards the
short term goals of achieving a positive cash flow position within six to eight
months, and GAAP financial profitability within eight to ten months. With the
increased interest in the Company's interconnect products, management feels that
the interconnect sales will continue to grow and enable the Company to reach its
target financial goals. Due to the cyclical nature of interconnect sales, no
significant sales increases are expected until the first quarter of 2004.
Testing facilities, which represent the Company's interconnect product
customers, normally slow down or shut down the testing and qualifying of new IC
products during the holiday periods from Thanksgiving thru New Years, with
demand picking up within the first few weeks of January. Management is aware
that without additional capital funding, it will become extremely difficult to
achieve its goals previously mentioned, as well as continuing operations at
their current level. To the extent funding is not secured, the Company may need
to seek alternative solutions, including informal or formal restructuring. If
the Company is successful in securing additional funding, it cannot guarantee
that the foregoing goals of positive cash flow and profitability will be
achieved.
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on their evaluation as of a date within 90 days of the filing date of this
Report on Form 10-Q, the Company's principal executive officer and principal
financial officer have concluded that the Company's disclosure controls and
procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act") are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect the controls subsequent to the date of
their evaluation. There were no significant deficiencies or material weaknesses,
and therefore there were no corrective actions taken.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings: Nothing to Report
Item 2. Changes in Securities: Nothing to Report
During the period ending September 30, 2003, the Company, pursuant to a consent
of directors, issued R-144 common stock to pay for the lease expenses at its
interconnect plant. The monthly lease expense was $1,550 per month. The stock
value was determined by using the closing price of the Company's stock, on the
first trading day of the 3 month rental quarter.
Date Shares Consideration Shareholder
- ---- ------ ------------- -----------
07/01/03 58,125 Lease expense - March, April, May SWCR, Inc.
07/01/03 77,500 Lease expense - June, July, Aug SWCR, Inc.
09/30/03 46,500 Lease expense - Sept, Oct, Nov SWCR, Inc.
- --------------------------------------------------------------------------------
Totals 182,125
Other Security Transactions: Nothing to Report
Item 3: Defaults Upon Senior Securities: Nothing to Report
Item 4: Submission of Matters to a Vote of Security Holders: Nothing to Report
Item 5: Other Information.
Changes in Officers and Personnel:
a) Effective September 30, 2003, Dave Stewart resigned as a
member of the Board of Directors and as Chairman of the Audit
Committee. Mr. Stewart cited "personal changes I am making in
my own business" as the basis of his decision. Mr. Stewart did
offer to continue working with the Company on "some type of
advisory basis" if the Company so desires. Mr. Stewart
represented the financial export on the Audit Committee. The
Company is working diligently to replace Mr. Stewart with a
qualified financial expert for the audit committee. As of the
date of this filing, this position has not yet been filled.
Item 6: Exhibits and Reports on form 8-K.
a) Exhibit 31.1 Certification Pursuant to 18 U.S.C Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 31.2 Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
b) Exhibit 32.1 Certification Pursuant to Sections 13(a) or 15(d) of
the 1934 Act, and as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Exhibit 32.2 Certification Pursuant to Sections 13(a) or 15(d) of
the 1934 Act, and as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
c) No reports on Form 8-K were filed during the quarter ended September
30, 2003.
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 12, 2003 By / s / Douglas G. Hastings
-------------------------------
Douglas G. Hastings, President
and CEO
By / s / Michael T. Montgomery
-------------------------------
Michael T. Montgomery, CFO
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
As of September 30, 2003 (Unaudited) and December 31, 2002
September 30, 2003 December 31, 2002
------------------ -----------------
Current assets
Cash $ 29,236 $ 172,572
Accounts receivable (net of $12,952 and $20,177
allowance for doubtful accounts, respectively) 179,327 478,529
Costs and estimated earnings in excess
of billings on uncompleted contracts 14,494 72,723
Income taxes receivable 15,295 15,295
Inventory 48,721 35,941
Prepaid expenses 25,659 98,457
----------- -----------
Total current assets 312,732 873,517
Equipment and leasehold improvements, at cost,
net of accumulated depreciation 706,544 888,247
Other assets, at cost, net of accumulated
amortization 10,229 24,775
----------- -----------
Total assets $ 1,029,505 $ 1,786,539
=========== ===========
Current liabilities
Accounts payable $ 288,650 $ 107,569
Accrued expenses 102,849 84,797
Billings in excess of costs and estimated
earnings on uncompleted contracts 24,022 61,594
Notes payable, current portion related parties 100,000 --
Notes and leases payable, current portion 877,904 925,005
----------- -----------
Total current liabilities 1,393,425 1,178,965
Accrued preferred dividends payable 196,832 161,780
Notes and leases payable, less current portion 197,112 110,013
Notes payable to related parties 100,000 200,000
----------- -----------
Total liabilities 1,887,369 1,650,758
Shareholders' equity
Series A cumulative convertible preferred stock, par value
$0.23437 per share, 5,000,000 authorized, 2,646,094
and 2,781,564 shares issued and outstanding 619,350 651,100
Common stock, no par value per share,
60,000,000 authorized, 22,272,246 and 21,742,189
shares issued and outstanding 2,888,804 2,834,082
Additional paid-in capital 538,123 514,123
Accumulated deficit (4,904,141) (3,863,524)
----------- -----------
Total shareholders' equity (deficit) (857,864) 135,781
----------- -----------
Total liabilities and shareholders' equity (deficit) $ 1,029,505 $ 1,786,539
=========== ===========
See accompanying notes
- 2 -
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period Ended September 30, 2003 and September 30, 2002 (Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues
Automation revenues $ 122,682 $ 585,164 $ 643,466 $ 1,575,901
Interconnect revenues 143,845 169,662 414,989 487,847
------------ ------------ ------------ ------------
Total revenue 266,527 754,826 1,058,455 2,063,748
Operating costs
Automation operating costs 133,713 413,104 678,658 1,309,619
Interconnect operating costs 104,618 115,763 302,154 299,907
------------ ------------ ------------ ------------
Total operating costs 238,331 528,867 980,812 1,609,526
------------ ------------ ------------ ------------
Gross profit 28,196 225,959 77,643 454,222
Selling, general and administrative expenses 147,689 329,097 779,521 1,108,018
Research and development 22,616 10,668 81,679 44,696
------------ ------------ ------------ ------------
Operating loss (142,109) (113,806) (783,557) (698,492)
Interest expense (51,898) (13,241) (212,985) (53,711)
Interest income -- -- -- 2,341
------------ ------------ ------------ ------------
(51,898) (13,241) (212,985) (51,370)
------------ ------------ ------------ ------------
Income (loss) before income taxes (194,007) (127,047) (996,542) (749,862)
Income taxes -- -- -- 20
------------ ------------ ------------ ------------
Net loss (194,007) (127,047) (996,542) (749,882)
Preferred stock dividends 14,784 14,770 44,075 43,829
------------ ------------ ------------ ------------
Net loss available to
common shareholders $ (208,791) $ (141,817) $ (1,040,617) $ (793,711)
============ ============ ============ ============
Net loss per common share $ (0.01) $ (0.01) $ (0.05) $ (0.04)
Weighted average shares outstanding 22,140,169 21,052,005 22,109,681 20,525,895
See accompanying notes
- 3 -
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS For the
Periods Ended September 30, 2003 and September 30, 2002 (Unaudited)
Nine Months Ended September,
2003 2002
--------- -----------
Cash flows from operating activities
Net loss $(996,542) $ (749,882)
Adjustments to reconcile net loss to net
cash used by operating activities
Depreciation and amortization 196,431 194,965
Options issued for consulting services 24,000 --
Common stock issued for services 13,950 --
Changes in assets and liabilities
Accounts receivable 299,202 (291,987)
Costs and estimated earnings in excess
of billings on uncompleted contracts 58,229 20,546
Prepaid expenses 72,798 (8,671)
Inventory (12,780) (54,129)
Accounts payable 181,080 (4,435)
Accrued expenses 18,052 61,323
Billings in excess of costs and estimated
earnings on uncompleted contracts (37,572) 778
--------- -----------
Net cash used by operating activities (183,152) (831,492)
Cash flows from investing activities
Purchase of equipment and other assets (182) (384,089)
Cash flows from financing activities
Collections on loans -- 10,666
Proceeds from common stock and options -- 822,400
Proceeds from debt 75,000 658,922
Payments on debt (35,002) (316,890)
--------- -----------
Net cash provided by financing activities 39,998 1,175,098
--------- -----------
Net decrease in cash (143,336) (40,483)
Beginning cash 172,572 330,044
--------- -----------
Ending cash $ 29,236 $ 289,561
========= ===========
Supplemental disclosures of cash flow information
Interest paid $ 112,403 $ 37,118
Noncash investing and financing activities
Preferred stock dividends payable $ 44,075 $ 43,829
Common stock issued through conversion of preferred
stock and accrued preferred dividends $ 40,772 $ --
Common stock issued for services $ 13,950 $ --
Accrued preferred stock dividends payable converted to common stock $ 9,022 $ --
See accompanying notes
- 4 -
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
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.
Revenue
The Company recognizes revenue when it is realized or realizable and earned. The
Company considers revenue realized or realizable and earned when it has
persuasive evidence of an arrangement, the product has been shipped or the
services have been provided to the customer, the sales price is fixed or
determinable and collectibility is reasonably assured. In addition to the
aforementioned general policy, the following are specific revenue recognition
policies for each category of revenue.
Contracts are reported using the percentage-of-completion method of revenue
recognition. Under the percentage-of-completion method, earnings are recognized
based on the ratio of costs incurred to total estimated costs. Costs include
direct materials, direct labor, subcontractors and job related overhead. Assets
and liabilities relating to the "costs and estimated earnings in excess of
billings on uncompleted contracts" and "billings in excess of costs and
estimated earnings on uncompleted contracts" are recorded as current assets and
current liabilities on the balance sheet as they will be liquidated in the
normal course of contract completion. Revisions in cost and profit estimates
during the course of the work are reflected in the accounting period in which
the facts requiring revision become known. The entire amount of an estimated
ultimate loss is accrued at the time such a loss becomes known.
Revenue from Interconnect inventory sales is recognized when the product is
shipped to the customer and when there are no unfulfilled company obligations
that affect the customer's final acceptance of the arrangement. Any cost of
these obligations is accrued when the corresponding revenue is recognized.
Stock Options
Effective December 12, 2000, the Board of Directors of the Company adopted a
stock option plan which allows for the grant of options for up to 2,000,000
shares of the Company's Common Stock to officers, directors or key employees of
the Company, consultants of the Company or employees of companies that do
business with the Company. The plan allows for granting incentive stock options
to employees and non-qualified stock options to all other parties. The plan
provides for the options to be granted on incentive stock options at a price
equal to the market price of the stock and at a price of not less than 85% of
the market price of the stock for non-qualified stock options. The
- 5 -
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
plan further allows for the option period to not exceed five years for the
incentive stock options and not to exceed ten years for the non-qualified stock
options. The Company issued 2,410,000 stock options under the plan during the
nine months ended September 30, 2003. The Company is aware that the total number
of stock options available for allocation needs to be increased.
The Company accounts for its stock options under Accounting Principles Board
(APB) Opinion No. 25 using the intrinsic value method. In accordance with
Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure, pro-forma net income, stock-based
compensation expense, and earnings per share using the fair value method are
stated as follows:
Nine Month Ended
------------------------------
September 30, September 30,
2003 2002
------------- -------------
Net loss, as reported $(1,040,617) $(793,711)
Deduct: stock-based employee compensation
expense determined under fair value based
method, net of tax (37,627) (11,801)
----------- ---------
Pro forma net income $(1,078,244) $(805,512)
=========== =========
Earnings per share
Basic - as reported $ (.05) $ (.04)
Basic - pro forma $ (.05) $ (.04)
NOTE B - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of:
Equipment $ 946,212
Vehicles 2,633
Office equipment and furnishings 96,082
Leasehold improvements 118,484
-----------
1,163,411
Accumulated depreciation and amortization (456,867)
-----------
$ 706,544
===========
- 6 -
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
NOTE C - OTHER ASSETS
Intangible assets consist of:
Software $ 76,327
Accumulated amortization (66,098)
--------
$ 10,229
========
The estimated useful life of software is three years.
NOTE D - INVENTORY
Inventory is stated at the lower of cost (last-in, first-out method) or market.
Inventories consist of:
Finished goods $ 9,658
Work in process 6,186
Raw materials 32,877
-------
$48,721
=======
NOTE E - SEGMENT DISCLOSURE
The Company operates in two business segments: Custom Automation and
Interconnect. These segments have been determined by evaluating the company's
internal reporting structure and nature of products offered.
Custom Automation: The Company, under contracts with various customers,
develops, engineers and fabricates High-Tech custom manufacturing equipment and
parts to be incorporated into customer owned and operated manufacturing
equipment and manufactured products.
Interconnect: The Company manufactures a line of high performance sockets and
interconnecting devices used in the testing of IC chips.
- 7 -
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
Custom
Automation Interconnect Total
----------- ------------ ----------
Nine months ended September 30, 2003
Operating revenue $ 643,466 $414,989 $1,058,455
Operating income (loss) (35,192) 112,835 77,643
Depreciation and amortization 92,530 72,421 164,951
Custom
Automation Interconnect Total
Nine months ended September 30, 2002
Operating revenue $ 1,575,901 $487,847 $2,063,748
Operating income loss 266,282 187,940 454,222
Depreciation and amortization 95,654 95,654
Three months ended September 30, 2003
Operating revenue $ 122,682 $143,845 $ 266,527
Operating income (loss) (11,031) 39,227 28,196
Depreciation and amortization 31,118 24,132 55,250
Three months ended September 30, 2002
Operating revenue $ 585,164 $169,662 $ 754,826
Operating income loss 172,060 53,899 225,959
Depreciation and amortization 27,599 27,599
The Company does not assign interest income, interest expense, other income or
income taxes to operating segments. Identifiable assets and related capital
expenditures are assigned to operating segments, with depreciation and
amortization allocated to the segments.
NOTE F - COMMITMENTS
On June 16, 2003, the Company entered into a consulting agreement that provides
for the payment of 600,000 shares of common stock. The liability of $36,000 has
been included in accounts payable.
NOTE G - NOTES PAYABLE
Notes payable currently past due as of September 30, 2003, include principal in
the amount of $584,422 and approximately $20,965 in past due interest payable.
UCC filings have been filed on behalf of convertible note holders for a
perfected security position in significantly all assets of the Company excluding
intellectual properties.
The Company has received a letter from one note holder requesting repayment of
the note in the amount of $50,000. The note matured on October 31, 2003.
- 8 -
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2003 and 2002
NOTE H - GOING CONCERN CONSIDERATIONS
The Company's recurring losses from operations in current and prior years raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments to reflect the possible
effects on the recoverability and classification of assets or amounts and
classifications of liabilities that may result from the possible inability of
the Company to continue as a going concern. The Company is attempting to
increase sales and raise additional capital to sustain operations. However,
there can be no assurance that these plans will be successful.
- 9 -