As filed with the
Securities and Exchange Commission on July 12, 1999.
REGISTRATION NO. 333-72405
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM S-1
AMENDMENT NO. 3
TO
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
R-Tec Technologies, Inc.
(Exact Name of Registrant as Specified in Its Charter)
New Jersey 2851 22-3615979
(State or Other (Primary Standard (I.R.S. Employer
Jurisdiction of Classification Code Identification No.)
Incorporation or Number)
Organization)
61 Mallard Dr.
P.O. Box 282
Allamuchy, New Jersey, 07820
(888) 299-7832
(Address and Telephone Number of Registrant's Principal Place of Business)
Marc M. Scola
61 Mallard Drive
Allamuchy, New Jersey 07820
(888) 299-7832
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Bruce Brashear, Esq.
Brashear & Associates, P.L.
Gainesville, FL 32601
(352) 336-0800
Approximate Date of Proposed Sale to the Public: As soon as practicable from
time to time after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Title of each
Class of Proposed Maximum Proposed Maximum
Securities to be Amount to be Offering Price Aggregate Offering Amount of
Registered Registered Per Share 1 Price Registration Fee
<S> <C> <C> <C> <C>
common stock 3,750,000 Shares $8.00 $30,000,000.00 $8,340.00
($.00001 par value)
</TABLE>
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
1 Estimated solely for the purpose of calculating the amount of the registration
fee in accordance with Rule 457 under the Securities Act.
<PAGE>
R-Tec Technologies, Inc.
CROSS-REFERENCE SHEET
Item Number and Heading Heading in Prospectus
1. Front of the Registration
Statement and Outside Front
Cover Page of Prospectus ...............Facing pages; Front Cover Page
2. Inside Front and Outside Back
Cover Pages of Prospectus ..............Inside Front and Outside Back
Cover Pages of Prospectus
3. Summary Information and Risk
Factors ................................Prospectus Summary; Risk Factors
4. Use of Proceeds.........................Prospectus Summary; Use of
Proceeds; Description of Business
5. Determination of
Offering Price .........................Cover Page; Prospectus Summary;
Risk Factors; Determination of
Offering Price
6. Dilution................................Dilution; Comparative Data
7. Selling Security Holders................Not Applicable
8. Plan of Distribution....................Front Cover Page; Plan of
Distribution
9. Description of the Securities...........Description of Securities
10. Interest of Named Experts and
Counsel ................................Not Applicable
11(a). Description of Business ................Description of Business
11(b). Description of Property ................Management - Facilities
11(c). Legal Proceedings .....................Legal Matters
11(d). Market for Common Equity and
Related Stockholder Matters ............Front Cover Page; Risk Factors;
Shares Eligible For Future Sale
11(e)(f)(g). Financial Statements .............Financial Statements
<PAGE>
11(h). Management's Discussion and
Analysis or Plan of Operation.......... Plan of Operations
11(i). Changes In and Disagreements
with Accountants on Accounting
and Financial Disclosure ..............Change in Independent Accountants
11(j). Directors, Executive Officers,
Promoters and Control Persons .........Directors, Executive Officers,
Promoters and Control Persons
11(k). Executive Compensation ................Executive Compensation
11(l). Security Ownership of Certain
Beneficial Owners and Management ..... Security Ownership of Certain
Beneficial Owners and Management
11(m). Certain Relationships and
Related Transactions ..................Related Transactions
12. Disclosure of Commission
Position on Indemnification for
Securities Act Liabilities ............Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities
<PAGE>
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated July 12, 1999
PROSPECTUS
R-Tec Technologies, Inc.
3,750,000 Shares Common Stock
$8.00 per share
-------------
R-Tec owns patented paints The proceeds of stock sales will
and other coating technologies be held in escrow by the Bank of
which detect leaks from freon New York and paid to R-Tec only if:
and other gases by changing
color. We intend to sell the at least 625,000 shares are sold,
paints and to develop new within three (3) months after the
products to detect other effective date of this prospectus
types of gas leaks. or six months after the effective
date of the prospectus, if
This is our initial public extended by R-Tec.
offering. There is currently
no public market for the common Otherwise all subscriptions will
stock. be returned to you with interest.
All of the shares to be sold
in the offering are being sold
by officers and directors of R-Tec
on a "best efforts" basis. We may
sell some units through qualified
selling agents.
The Offering
Possible
Public Price Commissions Total to R-Tec
Per Share..................$ 8.00 $ .80 $ 7.20
Proceeds to R-Tec from
Minimum Offering.........$ 5,000,000.00 $ 500,000.00 $ 4,500,000.00
Proceeds to R-Tec from
Maximum Offering..........$30,000,000.00 $3,000,000.00 $27,000,000.00
This investment involves a high degree of risk. You should purchase shares only
if you can afford a complete loss. See "Risk Factors" beginning on page 5 for
specific risks involved in this offering.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is July __, 1999
<PAGE>
Table of Contents
Prospectus Summary........................................................... 3
Risks Factors ............................................................... 5
Recent Developments...........................................................7
Where You Can Find
Additional Information.................................................... 7
Dilution .....................................................................8
Use of Proceeds...............................................................8
Selected Financial Data .....................................................11
Management's Discussion and
Analysis or Plan of Operation.............................................11
Business.....................................................................13
Management and Affiliates.................................................. 19
Principal Shareholders .................................................... 23
Certain Relationships and
Related Transactions.................................................... 23
Description of Securities....................................................24
Plan of Distribution ...................................................... 25
Legal Matters.............................................................. 27
Experts......................................................................27
Change in Independent Accountants............................................27
How to Invest in R-Tec.......................................................27
Financial Statements........................................................F-1
2
<PAGE>
Prospectus Summary
This summary highlights information contained elsewhere in this
prospectus. You should read the entire prospectus carefully, including the "Risk
Factors" section and the financial statements and the notes to those statements.
R-Tec Technologies, Inc.
R-Tec Technologies, Inc. was formed in October, 1998 for the purpose
of developing, manufacturing, selling and licensing our proprietary technology
for detecting and neutralizing gas leaks. R-Tec has not yet commenced commercial
operations. We presently do not own our own facilities to produce our products,
although we have a contract with a manufacturer, Anscott Chemical Corp. We do
not have commercial quantities of our products. The efficacy of our product,
R-Tect 22, has been confirmed by an independent third-party, Motors & Armatures
Corp. which tested the product and its formulations and found that they meet
Motors & Armatures' standards for commercial leak testing of critical charge
refrigeration and air conditioning systems. To date, R-Tec has devoted all of
its energies to its initial organization, product research and development,
developing a business plan, fund raising efforts and to primarily preparing the
documentation related to this offering.
R-Tec's proprietary technology is protected by a patent which is
owned by R-Tec. We have developed three gas detecting paints. The paints change
color when gas escapes through the coated junction allowing for rapid detection
and neutralization of small gas leaks. We believe our existing products have
broad application in areas such as the manufacture and installation of air
conditioning and refrigeration systems. In addition to detecting leaks, we
believe that some of our products will also neutralize the chloroflurocarbon
contained in the leaking gas by removing the chlorine and florene and, possibly,
rendering a limited amount of the leaking gas inert and potentially harmless to
the ozone layer.
We plan to use these technologies to develop more gas detecting
paints and other products that will be used in a variety of industrial and
manufacturing settings to coat pipe junctions. Examples of such products are a
carbon dioxide reactive paint product which exists in prototype form, designed
to detect carbon dioxide leaks, a natural gas detection reactive paint which
exists in prototype form and a propane leak detection reactive paint product
which has not been developed. In addition to the propane leak detection reactive
paint product, we hope to develop leak detection systems for other gases, such
as ammonia, butane, using our patented technology. R-Tec's detection technology
potentially could be used to measure blood gases, to measure the freshness of
packaged poultry, and to detect gas leaks in electrical transformers. At
present, we have not taken steps to determine feasibility of other potential
applications of our technology. Sale of the minimum number of shares offered
would reduce the number of products which R-Tec can develop and produce.
3
<PAGE>
The Offering
Common Stock Offered............Minimum - 625,000 shares
Maximum - 3,750,000 shares
Offering Price..................$8.00 per share
Total Number of
Shares Outstanding
After the Offering
(assuming all offered
shares are sold)................18,750,000 shares
Total Number of
Shares Outstanding
After the Offering
(assuming the minimum
number of shares offered
are sold).......................15,625,000 shares
Estimated Net Proceeds
(assuming the minimum
number of shares offered
are sold).......................$4,000,000
Estimated Net Proceeds
(assuming all offered
shares are sold)................$26,500,000
Use of Proceeds.................We intend to use the net proceeds of this
offering to
o conduct product research and development
o fund initial business operations
o pay salaries
o develop production and marketing plans
o pay for the patent assigned to R-Tec
o provide working capital and for general
corporate purposes.
Dividend Policy..................We do not intend to pay any cash dividends for
the foreseeable future.
4
<PAGE>
Risk Factors
Investing in our common stock involves a high degree of risk. In addition
to the other information in this document, you should carefully consider the
following risk factors in evaluating an investment in our common stock.
If We Sell Only 625,000 Shares, You Might Lose Your Entire Investment Due To Our
Cash Shortage.
If only 625,000 shares are sold, R-Tec may not have sufficient
capital to fund operations past 24 months, without revenues. In addition, R-Tec
may be unable to find additional suitable financing sources on acceptable terms.
Therefore, if the minimum number of shares are sold, R-Tec may not have
sufficient funds to operate after 24 months and we may not be able to undertake
additional projects or operations described in this prospectus. This could
result in your losing all of your investment.
R-Tec Is A Start-Up Company With Limited Operating History.
There is absolutely no assurance that we will be able, upon
completion of this offering, to successfully implement our proposed business
plan or that R-Tec will ever operate profitably. R-Tec was only recently
incorporated, has no significant assets other than a patent. R-Tec has no
current substantial business operations nor any history of operations and is
considered to be a development stage enterprise.
All Of Our Products Are New And May Not Be Commercially Feasible.
R-Tec may also experience difficulties that could delay or prevent
the development, introduction and marketing of its products. R-Tec will be
dependent upon products that will be developed in commercial quantities in the
future. If we are unable on a timely basis to develop new products or
enhancements to existing products, or if our products do not achieve market
acceptance or commercial success, our business, operational results and
financial condition will be materially adversely affected and investors could
lose their entire investment. Since our products have never been produced in
commercial quantities, there can be no assurance that commercial production will
be feasible.
Even if feasible, there can be no assurance that our products will perform as
intended.
If Our Products Fail To Operate Properly, We Will Be Subject To Significant
Liability.
Our products are designed to avoid significant dangers, such as
natural gas leaks. If our products do not function properly and property or
personal injury occurs as a result of gas leaks which should have been detected
by our products, R-Tec may incur significant liability which R-Tec may be unable
to pay.
We Do Not Have Our Own Production Facilities At This Time To Produce Our
Products And Our Office Space Is Inadequate For Future Needs.
At the present time we do not have our own facility to produce the
paints which are our principal products. In addition, our present office space
is inadequate for future needs.
Shareholders May Be Unable To Sell Stock Since There Is No Active Market At
Present.
No public market exists for R-Tec's common stock. You may not be
able to sell your shares promptly or at all, or sell your shares at a price
equal to or above the price you paid for the shares due to the lack of an active
market at present. There can be no assurance that any market will develop for
the securities or that if a market does develop, that it will continue. If we
are unable to qualify for the NASDAQ Small Cap Market listing, we believe that
our stock will trade on over-the-counter market on the OTC Bulletin Board.
Consequently, selling your common stock would be more difficult, transactions
could be delayed, and security analysts' and news media's coverage of R-Tec may
be reduced. These factors could result in lower stock prices.
R-Tec's Business Is Dependent On Patent Protection Which Cannot Be Assured.
R-Tec holds a patent on its technology. There can be no assurance
that patent, trade secret or copyright laws will protect our technologies or
that we will not be vulnerable to competitors who attempt to copy or use our
products or processes.
5
<PAGE>
There Is A Risk That Our Products Will Not Work As Intended.
We have never produced any commercial quantities of our products and
they have never been tested by consumers. There is no assurance that our
products will work for consumers as intended and no assurance can be given that
our products will not cause damage which will result in liability for R-Tec. If
our products are not commercially viable, we could have insufficient funds to
operate which could result in our terminating operations.
Management Has Broad Discretion In The Use of Proceeds Of This Offering.
Management has broad discretion in the use of proceeds and the
allocations set forth are only estimates, subject to adjustment in the opinion
of management based on events which may arise in the future.
Present Stockholders Will Derive Greater Benefits If We Are Successful And Have
Less Risk.
Present stockholders will benefit from a disproportionately greater
share of R-Tec, if successful, while investors in this offering risk a
disproportional greater loss of cash invested if R-Tec is not successful. Three
of our officers and directors collectively have given total consideration of
$540,000 for the 15,000,000 presently outstanding shares of R-Tec's common
stock. Investors in this offering will pay a total purchase price of
$30,000,000, assuming all 3,750,000 shares are sold. The officers and directors
will own 80% of the outstanding shares and investors in this offering will own
20% of the outstanding shares.
Some of R-Tec's Competitors May Be Larger And Better Financed.
R-Tec's products will compete with electronic and other devices
which are designed to detect gas leaks. Some of these competitors have greater
financial, marketing and manufacturing resources. This, together with the
limited capital available to R-Tec which will limit its marketing efforts,
creates a significant competitive disadvantage. If we are not able to compete
successfully, regardless of the quality of our products and the success of this
offering, we will have little chance of succeeding and it is likely investors
will lose their entire investment.
Since R-Tec Has No Underwriter There Is A Greater Risk That No Market Will
Develop For Our Stock.
Lack of an underwriter or broker/dealer participation in the
offering is likely to increase the risk that no market for our securities will
develop upon completion of the offering. Because R-Tec has not engaged the
services of an underwriter, the independent due diligence review of R-Tec, its
affairs and financial condition, which would ordinarily be performed by an
underwriter, have not been performed.
If R-Tec's Common Stock Becomes Subject To The Penny Stock Rules, Investors May
Find It More Difficult To Sell Their Securities.
If the trading price, if any, of the common stock were to fall below
$5.00 per share, trading in the common stock would be subject to certain rules
promulgated under the Exchange Act of 1934. This could severely limit the
liquidity of the common stock and the ability of investors in this offering to
sell the common stock in the secondary market. Those rules require additional
disclosure by broker-dealers in connection with any trades involving a stock
market price of less than $5.00 per share. Such rules require the delivery of a
disclosure schedule explaining the penny stock market and the risks associated
therewith. Such delivery must occur prior to any transaction. Additional sales
practice requirements are imposed on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors. For these
types of transactions, the broker-dealer must make a special suitability
determination for the investor and must have received the investor's written
consent to the transaction prior to sale. The broker-dealer also must disclose
the commissions payable to the broker-dealer, and current bid and offer
quotations for the penny stock. If the broker-dealer is the sole market-maker,
the broker-dealer must disclose this fact and the broker-dealer's presumed
control over the market. Such information must be provided to the customer
orally or in writing prior to effecting the transaction and in writing before or
with the customer confirmation. Monthly statements must be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements may discourage them from effecting
transactions in the common stock.
6
<PAGE>
We May Be Unable To Sell Stock In Some States Due To The Inability To Comply
With Blue Sky Regulations.
Since R-Tec is not using an underwriter, we must register our
officers and directors in some states in which we seek to sell our common stock.
There can be no assurance that any or all stock registrations in various states
will be approved. If registration is not approved, it will be more difficult for
us to sell the minimum number of shares.
Our Offering Price Has Been Arbitrarily Determined
We have unilaterally and arbitrarily determined the offering price.
The value of the common stock as determined by any subsequent market for the
common stock may be may much less than the price paid by you. Among the factors
we considered in determining such price were our capital requirements, our
negative book value, the percentage of ownership to be held by investors
following the offering, the prospects for our business, the stage of our product
development, the lack of revenue and the prospects for future revenues, and the
current state of the economy in the United States.
Recent Developments
On February 24, 1999, a press release was issued by R-Tec for
distribution on the Internet which contained several inaccurate statements or
statements which require clarification. The press release stated inaccurately
that R-Tec obtained worldwide recognition with its global patent which was filed
in 104 countries. In fact, the recognition referred to was R-Tec's patent
application which was filed in 96 countries. The press release statement that
R-Tec's products were "revolutionary" and its technology instrumental in
reducing CFC emissions and global warming were based on the opinions of Shawn P.
Walsh, a consultant to R-Tec and a director. However, R-Tec's products are not
yet in consumer use and have never been instrumental in reducing CFC emissions
or global warming. The press release also stated inaccurately that Underwriters
Laboratories were unable to produce a standard for R-Tec's technology because it
is so advanced. In fact, Underwriters Laboratories stated that it did not have a
published standard with which to evaluate R-Tec's R-Tect 22 product due to the
uniqueness of this product. Finally, the reference in the press release to a
contact by Deputy Commissioner of New York City Environmental Protection Agency
failed to indicate that his evaluation of R-Tec's products was based on
statements made to him by R-Tec concerning the product's performance and
efficacy.
Where You Can Find Additional Information
In connection with the offering of the common stock, R-Tec has filed
a registration statement with the Securities and Exchange Commission. There is
additional information concerning R-Tec contained in the registration statement
that is not contained in this prospectus. In addition, beginning with the
effective date of this prospectus, we will be required to file annual quarterly
and special reports and proxy statements with the SEC. You may read and copy any
document we file at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549 or may view them on the SEC worldwide web site at
(dhttp://www.sec.gov\edgar). Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the Public Reference Room. You may request a
copy of our SEC filings, at no cost, by writing R-Tec Technologies, Inc., 61
Mallard Drive, P.O. Box 282, Allamuchy, New Jersey 07820.
7
<PAGE>
Dilution
As of March 31, 1999, R-Tec's common stock had a deficit in net
tangible book value of $(852,437) or approximately $(.057) per share. The
following table sets forth the difference between the price to be paid by new
shareholders and the negative net tangible book value per share at March 31,
1999, as adjusted to give effect to this offering.
<TABLE>
<CAPTION>
3,750,000 shares 2,500,000 shares 1,250,000 shares 625,000 shares
sold sold sold sold
<S> <C> <C> <C> <C>
Assuming a public offering price of $8.00 $8.00 $8.00 $8.00
Net proceeds to R-Tec $26,500,000 $17,500,000 $8,500,000 $4,000,000
Net tangible book deficit per share for existing
shareholders before offering
$(0.057) $(0.057) $(0.057) $(0.057)
Increase per share attributable to payment of
shares purchased by new investors
$1.42 $1.01 $0.53 $0.26
Pro forma net tangible book value after offering $1.37 $.95 $0.47 $0.20
Dilution per share to new investors $6.63 $7.05 $7.53 $7.80
</TABLE>
The following chart illustrates the pro-forma proportionate
ownership in R-Tec, upon completion of the offering of present stockholders and
of investors in this offering, compared to the relative amounts paid and
contributed to capital of R-Tec by present stockholders and by investors in this
offering, assuming no changes in net tangible book value other than those
resulting from the offering.
<TABLE>
<CAPTION>
Shares Issued Total Consideration Average Price
Number Percent Amount Percent Per Share
<S> <C> <C> <C> <C> <C>
Present Stockholders 15,000,000 80% $ 540,000 1.77% $ 0.04
New Investors Maximum 3,750,000 20% $30,000,000 98.23% $ 8.00
Present Stockholders 15,000,000 96% $ 540,000 9.75% $ 0.04
New Investors Minimum 625,000 4% $ 5,000,000 90.25% $ 8.00
</TABLE>
Use Of Proceeds
The net proceeds to R-Tec from the sale of all of the common stock
offered are estimated to be $26,500,000 if the maximum is sold, after deducting:
o Estimated offering expenses of $500,000.00 for legal, accounting,printing and
advertising in connection with the offering, and
o Possible commissions to qualified selling agents of 10% of sales attributed to
them. The common stock will be primarily offered and sold by R-Tec through its
officers and directors, who will not be compensated for their sales efforts. To
the extent shares are sold by
8
<PAGE>
officers and directors of R-Tec, funds now allocated for commissions will be
used for research and development.
The proceeds of this offering will be used to pay:
o Research and development expenses, which consist of the salaries of our
scientists, the cost of equipment, supplies, leasing laboratory space and
purchase or construction of a laboratory.
o Office expenses which consist of expenses for executive offices, purchase or
construction of a building, and lease of warehouse space.
o Parts and supplies expenses which consist of the cost of raw materials and
inventory.
o Salary expenses, which consist of the salaries of R-Tec's officers and
directors, internal accounting, administrative and other personnel.
o Sales and marketing expenses, which consists of advertising and public
relations costs.
o Patent expenses, which consists of the payment due for the patent.
o Insurance expense consists of the cost of general liability, officers and
directors liability, life, health, workers' unemployment compensation and
automobile insurance.
The chart below represents the use of proceeds if the maximum number of
shares offered is sold. Sale of all the shares offered would provide sufficient
funds for R-Tec to operate 48-60 months without revenue.
ESTIMATED
PERCENT OF
AMOUNT PROCEEDS
Research and Development Activities $ 7,011,080 26.46%
Salary Expense 5,485,000 20.70%
Parts and Supplies Expense 3,700,000 13.96%
Office Expense 6,253,920 23.60%
Sales and Marketing Expense 2,000,000 7.55%
Patent Cost 850,000 3.21%
Travel Expense 500,000 1.89%
Insurance Expense 700,000 2.64%
------- -----
TOTAL $26,500,000 100%
Offering Expenses 500,000
Possible Commissions 3,000,000
The chart below represents the use of proceeds if $20,000,000.00 of common
stock is sold. Sale of 2,500,000 of the shares offered would provide sufficient
funds for R-Tec to operate 36 to 48 months without revenue.
ESTIMATED
PERCENT OF
PURPOSE AMOUNT PROCEEDS
Research and Development Activities $ 4,986,080 28.49%
Salary Expense 4,485,000 25.63%
Parts and Supplies Expense 1,800,000 10.29%
Office Expense 3,653,920 20.88%
Patent Cost 850,000 4.86%
Sales and Marketing Expense 1,000,000 5.71%
Travel Expense 200,000 1.14%
Insurance Expense 525,000 3.00%
------- -----
9
<PAGE>
TOTAL $17,500,000 100%
Offering Expenses 500,000
Possible Commissions 2,000,000
The chart below represents the use of proceeds if $10,000,000 of common
stock is sold. Sale of 1,250,000 of the shares offered would provide sufficient
funds for R-Tec to operate 24 to 36 months without revenue.
ESTIMATED
PERCENT OF
PURPOSE AMOUNT PROCEEDS
Research and Development Activities $ 1,161,080 13.66%
Salary Expense 2,885,000 33.94%
Parts and Supplies Expense 800,000 9.41%
Office Expense 1,853,920 21.81%
Patent Cost 850,000 10.00%
Sales and Marketing Expense 500,000 5.88%
Travel Expense 100,000 1.18%
Insurance Expense 350,0000 4.12%
-------- -----
TOTAL $ 8,500,000 100%
Offering Expenses 500,000
Possible Commissions 1,000,000
The chart below represents the use of proceeds if the minimum number
of shares offered are sold. In the event the minimum number of shares offered
were sold, Mr. Scola, Mr. Lacqua and Ms. Vitolo would defer a portion of their
salaries until sufficient funds were available. Sale of all the shares offered
would provide sufficient funds for R-Tec to operate 24 months without revenue.
ESTIMATED
PERCENT OF
PURPOSE AMOUNT PROCEEDS
Research and Development Activities $ 684,920 17.12%
Salaries Expense 1,485,000 37.13%
Parts and Supplies Expense 226,160 5.56%
Office Expense 353,920 8.85%
Sales and Marketing Expense 200,000 5.00%
Patent Cost 850,000 21.25%
Travel Expense 50,000 1.25%
Insurance Expense 150,000 3.75%
------- -----
TOTAL $ 4,000,000 100%
Offering Expenses 500,000
Possible Commissions 500,000
The foregoing represents management's current estimate of how the proceeds
of this offering will be used and is subject to change based on changing
circumstances and differing needs of R-Tec as they may exist in the future.
R-Tec may reallocate the
10
<PAGE>
proceeds in the above described categories or to other purposes in response to
changes in its plans, industry conditions, and R-Tec's future revenues and
expenditures.
We believe that the net proceeds from the sale of the common stock
offered assuming that all shares offered are sold, will provide R-Tec sufficient
capital to fund initial operations, development and expansion of business for
approximately the first 48 to 60 months following completion of this offering.
If only the minimum is sold, R-Tec believes it will be able to operate for 24
months if no revenue is generated from its operations. Many factors may affect
R-Tec's cash needs, including the possible failure to develop sufficient
revenues from the sale of its products. R-Tec may not have sufficient capital
for its funding requirements and may be unable to find suitable financing on
acceptable terms. If R-Tec is unable to obtain such additional financing, our
ability to maintain our level of operations could be materially adversely
affected and R-Tec may not succeed. This event would significantly increase the
risk of loss to those persons who invest in this offering.
A portion of the proceeds will be used to pay a promissory note
executed in payment for the patent which underlies our patented technology.
Under the terms of this note $850,000 is payable within 30 days of completion of
this offering. The note bears interest at the rate of 6% per annum.
Any portion of the net proceeds not required for immediate
expenditure will be deposited in R-Tec's corporate checking account,
interest-bearing accounts or invested in short-term government notes, treasury
bills, or short-term obligations of financial institutions.
We reserve the right to change the use of proceeds in the event that
we determine based on our marketing efforts and research and testing of our
products that an adjustment in the proceeds of this offering is warranted in the
opinion of management. However, there will be no adjustment in any amounts
utilized to pay promissory note and patent expense.
Selected Financial Data
R-Tec is a development stage company and has no revenues or earnings
from operations.
March 31, 1999 December 31, 1998
(unaudited)
Total Assets $1,031,863 $904,500
Total Liabilities 885,336 821,147
Stockholders Equity 146,527 83,353
Net Tangible Book Value (852,437) (776,647)
Net Tangible Book Value per share $ (0.057) $(0.052)
Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis should be read in conjunction with
R-Tec's financial statements and the Notes associated with them contained
elsewhere in this prospectus. This prospectus contains forward-looking
statements that involve risks and uncertainties. R-Tec's actual results may
differ significantly from the result discussed in the forward looking
statements. Factors that might cause such a difference are discussed in "Risk
Factors."
Overview
R-Tec is a start up company with a patented technology for paints and other
products which may be used to detect and neutralize leaks of various gases from
pipes. We believe that our R-Tect 12 reactive paint, R-Tect 22 reactive paint
and R-Tect carbon dioxide reactive paint products are ready for commercial
production and we have an order for R-Tect 22 reactive paint from Motors &
Armatures Corp., one of the largest distributors of air conditioning,
refridgeration adn heating parts and supplies to wholesalers and original
equipment manufacturers in the United States.
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We also have a manufacturing contract with Anscott Chemical
Industries, Inc., a manufacturer of chemical products. Anscott has the exclusive
right under the contract to manufacture R-Tect 12, R-Tect 22 and R-Tect carbon
dioxide reactive paints for a five-year period.
From its inception in 1998, R-Tec has been engaged primarily in
activities devoted towards obtaining the patent rights to the technology,
general business operations, negotiating license agreements and obtaining
financing for this offering. There have been no revenues to date.
Results of Operations
It is difficult for R-Tec to forecast its revenue or earnings
accurately. We believe that period-to-period comparisons of our operating
results may not be meaningful.
As a result of our extremely limited operating history, we do not
have historical financial data for a significant number of periods on which to
base planned operating expenses. Our expense levels are based upon our
expectations concerning future revenue. Thus, quarterly revenue and results of
operation are difficult to project.
Liquidity and Capital Resources
R-Tec is a development stage company and has incurred negative cash
flows from operation since its inception. We expect to continue to expend
substantial sums to complete product development, to create inventory and to
begin marketing and sales.
Our future capital requirements and the adequacy of available funds
will depend on numerous factors, including the successful commercialization of
the R-Tect 22, R-Tect 12 and R-Tect carbon dioxide reactive paint products,
progress in its product development efforts, the magnitude and scope of such
efforts, the cost of contract manufacturing, cost of filing, prosecuting,
defending and enforcing patent claims and other intellectual property rights,
competing technological and market developments, and the development of
strategic alliances for the development and marketing of our products. R-Tec
requires the minimum proceeds of this offering to meet its planned operating
requirements through June 30, 2001. In the event R-Tec's plans change or its
assumptions change or prove to be inaccurate or the proceeds of the offering
prove to be insufficient to fund operations at the planned level (due to further
unanticipated expenses, delays, problems or otherwise), R-Tec could be required
to obtain additional funds in any event through equity or debt financing,
strategic alliances with corporate partners and others, or through other sources
in order to bring its products through regulatory approval to commercialization.
The terms and prices of any equity or debt financings may be significantly more
favorable than those of the shares sold in the offering. R-Tec does not have any
material committed sources of additional financing, and there can be no
assurance that additional funding, if necessary, will be available on acceptable
terms, if at all. If adequate funds are not available, we may be required to
further delay, scale-back, or eliminate certain aspects of our operations or
attempt to obtain funds through arrangements with collaborative partners or
others that may require us to relinquish rights to certain of our technologies,
product candidates, products, or potential markets. If adequate funds are not
available, R-Tec's business, financial condition, and results of operations will
be materially and adversely affected.
The actual research and development and related activities of R-Tec
may vary significantly from current plans depending on numerous factors,
including changes in the costs of such activities from current estimates, the
results of R-Tec's research and development programs, the results of clinical
studies, the timing of regulatory submissions, technological advances,
determinations as to commercial potential, the status of competitive products.
The focus and direction of R-Tec's operations will also be dependent upon the
establishment of collaborative arrangements with other companies, and other
factors.
Until required for operations, R-Tec's policy is to invest its cash
reserves in bank deposits, certificates of deposit, commercial paper, corporate
notes, U.S. government instruments and other investment-grade quality
instruments.
There can be no assurance that R-Tec will be able to commercialize
its technologies, or that profitability will ever be achieved. R-Tec expects
that its operating results will fluctuate significantly from quarter to quarter
in the future and will depend on a number of factors, most of which are outside
R-Tec's control.
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Business
History of Our Company
R-Tec, was recently incorporated under the laws of the State of New
Jersey on October 22, 1998. R-Tec is a development stage company. R-Tec has no
significant assets with the exception of its patent. To date, activities have
been limited to organizational matters, product research, developing a corporate
business plan, patent filings, negotiating license agreements and the
preparation and filing of the registration statement of which this prospectus is
a part.
Background
Presently, there are three major methods used to detect gas freon
leaks. The oldest method is to coat suspected leak sites with a liquid, such as
soap bubbles. Pressure from the escaping gas causes bubbles to form which
confirms a leak at the site. Although inexpensive and generally applicable, this
method lacks the ability to locate small leaks which over time can allow large
volumes of gas to escape. The second major method is the use of electronic
ionization detectors. Although more expensive than the pressure based detection
method, false results have been noted due to interaction with metallic pipes.
Moreover, their effectiveness diminishes with the amount of escaping gas. As a
result, such detectors have a limited ability to find small leaks. The third,
and perhaps most effective currently available detection method is the internal
injection of liquid based dyes. The dye leaks through the opening and can be
seen on the outside of the pipe. This method necessitates purchasing expensive
equipment, hiring trained technicians, and purchasing costly dyes for each
application. Recently, some hardware manufacturers have declared due to the
invasive nature of these dyes, that their use may void the manufacturer's
warranty. Our products are designed as an external coating which is
non-corrosive and will not interfere with the operation of the pipe or equipment
and we believe the manufacturer's warranties will not be affected. Moreover,
none of the competitive methods provide any form of passive leak detection.
The benefits that would result from early detection of leaks in gas
lines may be substantial. By specifically identifying the source of a gas leak
and permitting the early detection of the escaping gas, our products may reduce
environmental damage caused by leaks of gases, which are believed to cause ozone
depletion and other environmental problems. In addition, by specifically
indicating the location of a leak, our products may enable owners or operators
to promptly and cost effectively repair the leak and reduce the gas replacement
cost incurred as a result of leakage.
Our Proposed Business
R-Tec was formed to reduce to industrial production the proprietary
technology contained in a patent transferred to R-Tec and to use this
proprietary technology to develop and manufacture reactive paints and other
products that could be used to coat pipe junctions. Once sealed with the paint,
if gas escapes through the junction, the gas would pass through the paint
causing a chemical reaction resulting in a visible color change of the paint.
For example, during the manufacture and installation of air
conditioning and refrigeration systems, the manufacturer or installer may apply
R-Tect 22 to the joints of the system. R-Tect 22 placed externally on the
system, waits for leaking gas to pass through it. When a leak occurs at a coated
joint, the blue paint should change to a bright florescent yellow, identifying a
leak from the inside out. R-Tect 22 does not react with gases in the air
surrounding the pipe. Thus, the exact location of the leak is identified. R-Tect
22 not only detects gas leaks from a system, but also we believe, based on the
tests we have performed, neutralizes limited amounts of some of the
chloroflurocarbons passing through the paint by removing the chlorine and
fluoride from the gas, making the gas inert and possibly harmless to the ozone
layer. Freon gas is trapped in our paint as it escapes from the leaking pipe. A
chemical which reacts with the freon causes it to change its structure through a
polymer which traps the chemical and prevents the release of harmful gases into
the air.
In addition, R-Tect 22 may react to the leak before significant
refrigerant gas escapes from the system and the owner of the equipment
experiences any failure or need to replace the gas, thereby reducing the need
for further production of chloroflurocarbons. Although there are calls for
reducing the amount of chloroflurocarbon production, due to the overwhelming use
of this product worldwide, these gases will be produced overseas and
domestically until the year 2040.
The first of products we plan to make available for sale are:
o R-Tect 22 reactive paint. R-Tect 22 is an external application paint designed
to detect R-22 freon gas leaks in air conditioning
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units,
o R-Tect 12 reactive paint, developed for automotive application to detect R-12
freon gas,
o R-Tect carbon dioxide reactive paint developed as an external application
paint designed to detect carbon dioxide leaks in pipe systems which contain
gaseous or liquid carbon dioxide, and
o R-Tect Natural Gas reactive paint developed as an external application paint
which is designed to detect natural gas leaks in a variety of systems.
Other products nearing the end of development are R-Tect 134A reactive
paint, developed to detect R-134A, a gas in air conditioning applications. We
expect R-Tect natural gas reactive paint, R-Tect carbon dioxide reactive paint
and R-Tect 22 reactive paint to be available for commercial production in
October 1999. R-Tect 12 reactive paint should be available in November 1999,
along with R-Tect 134A reactive paint. However, no assurance can be given that
commercial production will, in fact, occur on this timetable.
Two-Phase Business Plan
Our business plan is based on implementing our strategy in two
phases:
o Phase 1 - Establish Manufacturing and Distribution Relationships and
Begin Distribution of Three Initial Products and
o Phase 2 - Expand Product Lines.
The key elements of each phase of our strategy are described below:
Phase 1 - Establish Manufacturing and Distribution Relationships and
Begin Distribution of the Three Initial Products
R-Tec's primary strategic goals for Phase 1 are:
o The selection of appropriate manufacturing and distribution partners; and
o The commencement of commercial distribution of our reactive paint products:
o R-Tect 22 freon leak detecting coating. Development of this product is
complete.
o R-Tect 12 freon leak detecting coating. Development of this product is
complete.
o R-Tect carbon reactive paint. Development of this product is expected to
be complete by October, 1999 at an additional cost of $50,000.
During Phase 1, we will incur significant operating expenses.
$850,000 due for patent acquisition will also be payable during this period. We
do not expect to generate significant operating revenues for a period of at
least six months after the completion of this offering.
During Phase 1 R-Tec will require manufacturing facilities, office space
and warehouse space. These facilities may be purchased or leased.
Manufacturing and Distribution Relationships.
One of R-Tec's Phase 1 goals is to establish beneficial relationships with
strategic manufacturing and distribution partners. With this strategy, we hope
to eliminate the need to build a large and costly production and sales
infrastructure and to benefit from the inclusion of our products in our
partners' marketing efforts.
R-Tec has entered into a manufacturing contract with Anscott Chemical
Industries, Inc., a nationally recognized manufacturer of chemical products
located in Wayne, New Jersey.
Anscott will be the exclusive manufacturer of our leak detection
products; R-Tect 12, R-Tect 22, and R-Tect carbon dioxide reactive paints. The
agreement is for five years. The rights granted to Anscott under the agreement
are limited to these three specified products and to the United States.
Anscott's exclusivity rights with respect to R-Tect carbon dioxide reactive
paint is further limited to the
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dry cleaning industry. Anscott will manufacture our products based on purchase
orders received from R-Tec. R-Tec intends to locate a quality control technician
employed by us at Anscott's offices, but there is no provision in our contract
with Anscott which requires Anscott to accept such supervision.
We reached an oral distribution agreement with Motors & Armatures in June,
1997. Motors & Armatures is believed to be one of the largest distributors of
air conditioning, refrigeration, and heating parts and supplies to wholesalers
and original equipment manufacturing accounts in the U.S. It sells primarily to
North America.
Motors & Armatures has placed an initial order for 5,000 kits of R-Tect 22
reactive paint at $44.00 per kit. We believe that Motors & Armatures will
distribute R-Tect kits (R-Tect 12, R-Tect 22, and later R-Tect 134A) reactive
paints, primarily to organizations that will in turn sell them to air
conditioning or refrigeration contractors. We expect to deliver R-Tect 22 to
Motors & Armatures by October 31, 1999. Motors & Armatures has advised us that
it intends to create artwork for our products which it will be distributing and
intends to hire an exclusive representative to work on the R-Tect product line.
This specialist will travel with Motors & Armatures' sales representatives to
train and educate its clients in the use of our products. Motors & Armatures has
orally represented to us that it has allocated $156,000 for advertising in the
first year for R-Tec's products and that it will also provide a direct mail
campaign to reinforce the advertising program.
Motors & Armatures has proposed a six month test marketing program to
determine the volume level of sales. It intends to promote R-Tec's products as
both, leak detectors, and as preventative maintenance products.
R-Tec's Efforts To Expand Commercial Use of Initial Products.
During Phase 1 R-Tec also intends to pursue direct sales to end-users and
the original equipment manufacturing market. We will also complete research and
development of our remaining initial products and will pursue marketing of these
products. Potential users include public utility companies, automotive, marine,
aviation, aerospace companies, and commercial real estate owners and developers.
We have met with one utility company, Brooklyn Union Gas Utility. No sales have
resulted from that meeting. Other utility companies have expressed an interest
in the product. We plan to meet with Public Service Electric & Gas and Con
Edison Public Utilities. We have also identified government agencies and
municipalities where our products can reduce maintenance, overhead and provide
another means to detect harmful gases. We also intend to pursue licensing
arrangements with select end-users.
We believe a marketing opportunity will also develop from insurance
companies that underwrite risk associated with gas explosions. R-Tec will
introduce its products to these insurance companies and will attempt to persuade
them either to mandate the use of R-Tec's reactive paint products or to provide
financial incentives, such as discounted insurance rates, to companies that
utilize R-Tec's detection products.
We believe that a marketing opportunity will develop for the use of R-Tec's
reactive paint products to detect natural gas and propane leaks. Specifically,
during the installation of a gas pipe, the installer could apply our paint to
pipe joints. Property owners could also apply our reactive paint to pipe joints
in existing structures. If natural gas or propane leaks through a stress crack,
the paint is designed to change colors, indicating a leak, and warning anyone
who examines the pipe joint.
We also believe a market may exist for our reactive paint products in
chemical plants. Chemical plants utilizing our reactive paint products could
reduce the chance of significant damage caused by a toxic chemical or gas leak
by applying our products to pipe joints in their manufacturing facilities.
We also believe our reactive paint products could be used in the aerospace
and aviation markets. We believe that aircraft utilizing our reactive paint
products could possibly avert disasters caused by gas and fluid leaks if, during
a routine inspection, a mechanic notes a change in color of the paints applied
to pipe joints aboard the aircraft. Should there be a leak, it could be detected
and repaired prior to the aircraft taking off.
It is possible, though unlikely, that our paint could be caused to change
color due to exposure to some other substances or gas from another source. A
false positive reading due to ambient gases is minimized by the use of a clear
polymer coating, which encases each of the R-Tec paints. When properly applied,
the paint's impermeable coating serves to ensure that only gas leaking from the
protected source can contact the reactive paint and therefore cause a positive
reading. None of the testing conducted to date has indicated any variance of
responsiveness of R-Tec's products to geographic area or weather conditions,
such as humidity, air pressure or smog level.
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Phase 2-Expand Product Lines and Expand Internal Sales
R-Tec anticipates that it will add product lines in Phase 2 which will be
marketed to the users identified in Phase 1. R-Tec will continue to pursue new
business with public utilities by developing new products which address specific
needs with the industry.
The speed with which we can develop, introduce, test market and expand
sales of the additions to the R-Tec product line will determine the timing of
the realization of our Phase 2 goals. This phase will be characterized by new
product introductions, test marketing, expanded sales efforts, and industry
driven mandates for the use of R-Tec products.
During Phase 2, in addition to manufacturing facilities, office space and
warehouse space required during Phase 1, R-Tec will require laboratory
facilities for product development.
During Phase 2, R-Tec will develop additional gas detection coating
products.
o R-Tect ethylene detector. The estimated development time is 90 days at
an approximate cost of $70,000.
o R-Tect propane reactive paint. The estimated development time is 90
days at a cost of approximately $100,000.
o R-Tect natural gas reactive paint. The estimated development time is
90 days at an estimated development cost of approximately $200,000.
o R-Tect SF6 detector. The estimated development time is 90 days at an
estimated development cost of approximately $200,000.
o R-Tect 134A, a freon detecting coating designed for the automotive,
air conditioning and refrigerator contractors market. The estimated
development time is 180 days at an approximate cost of $55,000.
o R-Tect 410, a freon detecting coating designed for the residential and
commercial air conditioning and refrigerator contractors market. The
estimated development time is 180 days at an approximate cost of
$55,000.
In the event the minimum number of shares offered are sold, R-Tect 134A and
R-Tect 410 would not be developed from the proceeds of the offering.
Other Potential Applications Of R-Tec's Detection Technology.
Following the development of the products discussed above, R-Tec intends to
develop coatings which detect the following gases. The development time and cost
for each project has not been estimated by R-Tec. R-Tec's ability to develop
additional gas detection products will be dependent upon the proceeds from this
offering and the amount of funds available, if any, from operations.
Ammonia Chlorine Methane
Butane Ethane Methyl Mercaptan
Carbon Monoxide Isobutane Sulphur Hexaflouride
Acetylene Carbon Sulfide 2-Methylpropene
Acetyl Fluoride Carbon Tetrafluoride Nitric Oxide
Allene Hexafluoropropane Nitrogen
Arsine Hydrogen Nitrous Oxide
Boron Trichloride Hydrogen Chloride Other Refrigerants
Boron Trifluoride Isobutylene Phosgene
Bromotrifluoromethane Methyl Ether Propene
1,3-Butadiene Methanethiol Sulphur Dioxide
2-Methylpropane Trimthylamines
We also intend to research the feasibility of using a small strip across
the top of wrapped chicken parts and meat as a means of measuring freshness.
This fine lined strip would be the color green, indicating the chicken is fresh.
If this strip turns red, this would indicate that the chicken is diseased or
tainted with salmonella. This would alert both the retailer and the consumer to
the presence of a disease that might not have been detected without this safety
strip.
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We intend to work with utility companies on the detection of SF6 gas. This
gas is used as an insulator in transformers and takes the place of harmful PCBs.
When these gases leak out of a transformer, they may cause the electricity
passing through the gas to spark and cause an explosion. Currently, the only way
the utility company can detect a leak is when the transformer explodes and it
must be replaced at great cost to utility companies and the consumer. R-Tec
proposes that when a transformer is assembled, the utility company place a strip
of our paint around the top of the transformer so that utility workers will be
able to easily detect a change in the color of a transformer hanging on a
utility pole, if a leak occurs.
Blood Gases
R-Tec believes there may be an interest in the use of our technology in the
field of blood gases. Blood travels from the heart to the lungs, liver, kidneys
and other major organs. During this trip it is carrying a percentage of oxygen,
carbon dioxide and certain other metabolic gases. However, when there is a
restriction in this flow, possibly due to coronary artery disease, the heart and
lungs are unable to supply the proper amount of oxygen to the blood. Therefore,
the oxygen level begins to decrease and the carbon dioxide level will increase.
R-Tec believes that by detecting gas on a molecular basis at the rate of
- -10 to the 64th power, the medical field may have the ability to detect a change
in the amount of carbon dioxide in the blood. This may help patients with a
family history or high risk of heart attacks or strokes to possibly know if they
have a serious medical condition. For example, a person might be able to rub
some gel on their wrist once a month. This gel would consist of a form of
R-Tec's product and dimethyl sulfoxide, a substance that carries medicine into
the body. If the blood flowing through the arterial arteries has a higher than
normal level of carbon dioxide, which is indicative of a restriction of blood
flow and oxygen, the gel would turn from one color to another, possibly warning
the individual that they may be within weeks of suffering a stroke or heart
attack. This pre-warning system will allow a person to seek medical attention
and relieve the arterial restriction before suffering the damage caused by a
heart attack or stroke. Since smog does not affect a person's arterial blood gas
level because the level of these gases is maintained internally, there is little
likelihood of external factors affecting the potential product. The feasibility
of this potential product cannot be assured.
Los Alamos National Laboratory
Los Alamos National Laboratory, (developers of the atomic weapons program),
has requested a sample of our leak detection products. R-Tec intends to explore
the possibility of using its technology for the carbon dioxide experimental
facility at Los Alamos.
Employees
R-Tec currently has four full-time employees. Three full time employees are
officers and directors, and one is clerical. Additionally, R-Tec has retained
the services of the following on a part-time basis: two scientists, five
clerical, secretarial or accounting personnel and one consultant and director.
Upon successful completion of this offering, assuming all the shares are sold,
we plan to hire approximately 30 to 50 additional full-time employees. If the
minimum is sold, we expect to hire five additional employees, for a total of
nine full-time employees.
Facilities
R-Tec's executive offices are located at 61 Mallard Drive, P.O. Box 282,
Allamuchy, New Jersey 07820. Our rent is $2,000 per month under a lease which
expires on October 30, 2000. We also have an office and warehouse at 499 Van
Brunt Street, Suite 4B, Brooklyn, New York 11231. Our rent for that space is
$1,000 a month under a lease which expires on October 23, 1999.
Management believes that R-Tec's existing offices are unsuitable and
inadequate for their future needs. Upon the successful completion of this
offering, we plan to purchase or lease a building which will contain our
offices, warehouse, research and development laboratory, and manufacturing
operation at one location. We expect we will need a 50,000 to 75,000 square-foot
facility. If we purchased a building, the cost may be estimated to be between
$2.5 million and $3.75 million. If we leased such a facility, the expected
annual lease cost may be estimated at $125,000-$200,000.
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Patent
R-Tec's gas detecting coating technology is the invention of Robert J
Verdicchio, Stewart R Kaiser, and Shawn Walsh. Their invention is protected by
U.S. patent #5783110, issued July 21, 1998, entitled, Composition for the
Detection of Electrophilic Gases and Methods of Use Thereof. The patent
describes a coating which detects gases, such as chlorodifluoromethane or carbon
dioxide, which are attracted to electrons. Upon contact with such gases, protons
are exchanged between the gas and the paint. The loss or gain of protons causes
a dye incorporated in the paint to change color, indicating the presence of gas.
On March 28, 1997, Mr. Verdicchio, Mr. Kaiser and Mr. Walsh assigned all of
their interest in the patent to Muriel Kaiser. On November 2, 1998 Muriel Kaiser
assigned all right, title and interest together with all rights of priority in
U.S. patent #5783110 to R-Tec. This assignment has been filed with the U.S.
Patent and Trademark Office.
On May 10, 1999, R-Tec executed a promissory note in favor of Muriel Kaiser
in the principal amount of $850,000 to pay for the transfer of the patent to
R-Tec. The note bears interest at the rate of 6% per annum is to be paid in full
within 30 days following the completion of this offering. By letter agreement
dated July 2, 1999, Mrs. Kaiser has agreed that in the event 625,000 shares are
not sold by January 10, 2000, payment will be made by R-Tec's execution of a
promissory note for $850,000 due and payable in equal quarterly payments over a
five-year period at 6% interest.
There can be no assurance that any of our future patent applications will
be granted, that any current or future patent or patent application will provide
significant protection for our products or technology, be of commercial benefit
or that the validity of such patents or patent applications will not be
challenged. Moreover, there can be no assurances that foreign patent, trade
secret or copyright laws will protect our technologies or that we will not be
vulnerable to competitors who attempt to copy or use our products or processes.
Patent Valuation
The patent has been appraised by Intellectual Property Valuators of
Sandown, South Africa. The appraiser concluded that the patent has a value of
$31,977,000.
Governmental Regulations And Industrial Standards
We believe based on the opinion of our consultant who is also a director,
that our products presently comply with any applicable material governmental
health and safety regulations and standards. However, there can be no assurance
that our products will comply with all applicable regulations and standards in
the future. Because the future scope of these and other regulations and
standards cannot be predicted, there can be no assurance that we will be able to
comply with all future regulations or industry standards.
Year 2000 Issues
We do not expect any Year 2000 issues to affect the development of our
products. All software used by R-Tec has been represented to be Year 2000
compliant by the vendor. Motors & Armatures has provided assurances that it is
Year 2000 compliant. R-Tec has taken steps to ascertain whether Anscott is Year
2000 compliant. In the event Anscott is not Year 2000 compliant, we will explore
engaging another company to provide raw materials. R-Tec is working to identify
alternative sources for manufacturing. R-Tec cannot give any assurances that
other suppliers, distributors and manufacturers of our products would be able to
resolve any Year 2000 issues that may adversely affect their operations. If this
were the case, it could cause delays in the development, production and sale of
our products, which would have a material adverse effect on the continued
development and growth of our business.
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Management And Affiliates
Directors, Executive Officers And Key Employees
The names, addresses, ages and respective positions of the current
directors and officers of R-Tec are as follows:
Name Age Position
Philip Lacqua 50 President, Treasurer and
1127 83rd Street Director
Brooklyn, New York 11228
Nancy Vitolo 36 Vice President, Secretary
290 Green Road and Director
Sparta, New Jersey 07871
Marc M. Scola 32 Vice President, General
61 Mallard Drive Counsel and Director
Allamuchy, New Jersey 07820
Damon E. Palmer 35 Director
8380 SW 39 Court
Davie, Florida 33328
Shawn P. Walsh 24 Director
538 Wren Way
Branchburg, New Jersey 08876
Each director is elected for a period of one year and serves until his
successor is elected by our shareholders.
Philip Lacqua, age 50, will serve as the President, Treasurer and as a
Director of R-Tec. His duties will include responsibility for the overall
management of R-Tec and sales. Mr. Lacqua was awarded a Bachelor of Science
degree from Central College of Iowa in 1970. with a major in Political Science.
Since 1970, Mr. Lacqua has served as President and Vice President for
various companies. In 1971, Mr. Lacqua started Container Maintenance Corp.,
which was in the business of repairing ocean-going containers, trailers and
chassis. At the same time he started CMC Haulage, Inc., which provided for
interstate and intrastate trucking. In 1973, Mr. Lacqua merged his companies
with others and formed Marine Repair Services, Inc. He assumed the title of Vice
President of Sales. Marine Repair was primarily in the business of repairing
containers, trailers and chassis in the New York area. In December, 1977, Mr.
Lacqua sold his interests in CMC Haulage and Marine Repair.
In February, 1978, Mr. Lacqua formed Eastern Industrial Supply Corp., a
ship supply company. Mr. Lacqua then formed Marine Technical Service, Inc., and
served as a Director and President, overseeing all aspects of that company.
Marine Technical specialized in sales to the Far East, the Middle East and
Europe. In June, 1998, Mr. Lacqua resigned as an officer and director of Marine
Technical Service, Inc. to devote all of his attention to R-Tec. Mr. Lacqua
commenced work for R-Tec in May 1996, prior to its incorporation.
Nancy Vitolo, age 36, will serve as a Vice President, Secretary and as a
Director of R-Tec. As such her duties will include public relations. Ms. Vitolo
was employed by Garden State Heating and Air Conditioning Corporation from 1991
to 1998. Garden State became one of the top 50 Bryant/Carrier Dealers in gross
sales in the continental U.S. and Canada. Ms. Vitolo was a sales representative
for Yves Saint Laurent for the ten years prior to her association with Garden
State.
In 1995, Ms. Vitolo and Mrs. Kaiser began the research project which
resulted in the development of the reactive paint
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<PAGE>
technology now owned by R-Tec. Ms. Vitolo and Mrs. Kaiser opened a laboratory
and engaged scientists to research the feasibility of creating a better method
for detecting minute gas leaks. A laboratory was leased in Warren County, New
Jersey and chemists and other scientists were engaged to perform research in
this area and conduct experiments. Ms. Vitolo later withdrew from active
participation in the project, but continued to assist Mrs. Kaiser in the funding
of the patent. Ms. Vitolo personally loaned Mrs. Kaiser approximately $425,000
to fund the development of the patent.
Marc M. Scola, age 32, will serve as a Vice President, General Counsel and
a Director of R-Tec. His duties will include preparing and negotiating R-Tec's
license agreements, contracts, and various other legal and corporate matters.
Mr. Scola was an attorney in private law practice for six (6) years.
Mr. Scola was awarded a Bachelor of Arts degree from Seton Hall University
in South Orange, New Jersey in 1988. He then was awarded his Juris Doctorate (
J.D.) degree by Texas Southern University School of Law in Houston, Texas in
1992. Mr. Scola obtained a Graduate Law Degree (L.L.M.) in Taxation from Temple
University School of Law in Philadelphia, Pennsylvania in 1996.
Mr. Scola began his law practice as a solo practitioner in 1993 with the
Law Firm of Marc M. Scola, Esq., P.C. located in Florham Park, New Jersey. In
January of 1996, Mr. Scola formed the Law Firm of Scola & Walterschied, P.C., a
two-attorney firm, located in Roseland, New Jersey, as a partner. In 1997, Mr.
Scola continued in solo practice as Marc M. Scola, Esq., P.C., in Allamuchy, New
Jersey. Mr. Scola has been working on the R-Tec project since May 1996.
Mr. Scola, served as counsel to a wide variety of businesses, including
construction companies, physician practices, manufacturing operations, and
computer consulting firms. Mr. Scola has been involved in the review,
negotiation, financing, employment issues, and restructuring of the business
entities. He also had experience in the preparation of shareholder, partnership
and limited liability company, stock option, employment, leasing and other types
of commercial agreements.
Damon E. Palmer, age 35, was elected to serve as a director of R-Tec on
April 14, 1999, and is also a member of the Compensation and Audit Committees of
the Board. Mr. Palmer is Vice President and Chief Financial Officer of Trinity
Industrial Services, a computer consulting company, since 1998. From 1996 until
1998 he was Controller of Marine Technical Services, which was formed by Mr.
Lacqua. Between 1994 and 1996 he was an office administrator for Edward Jones,
C.P.A. From 1989 until 1994 he was a manager of a branch of the Glidden Company,
which engaged in the business of manufacturing and selling paint products.
Shawn P. Walsh, age 24, was elected to serve as a director on April 14,
1999. He graduated from Johns Hopkins University in Baltimore, Maryland in 1996
with a Bachelor of Science degree in Chemistry. He worked for R.W. Johnson
Pharmaceutical Research Institute in Raritan, New Jersey from December 1996 to
March 1999 as a scientist.
R-Tec has a one year consulting Agreement with Mr. Walsh which terminates
on January 1, 2000. Mr. Walsh has been engaged to perform consulting services
regarding scientific experiments and research on reactive paints. R-Tec is to
pay Mr. Walsh $1,000 per month for a total of $12,000 plus all reasonable out of
pocket expenses. Mr. Walsh has no ownership rights to the patent by virtue of
his assignment of all of his rights to Mrs. Kaiser.
Key Employees And Consultants
The following biographical information relates to our consultants:
Name Position
Stewart R. Kaiser Consultant
Shawn P. Walsh Scientific Consultant, Director
Robert J. Verdicchio Scientific Consultant
Stewart R. Kaiser, age 32, is a graduate of Union County Technical College
in Scotch Plains, New Jersey, receiving a degree in the Heating, Ventilation and
Air Conditioning Mechanical Program. Mr. Kaiser was employed by Garden State Air
Conditioning and Heating from 1991 to 1998. Mr. Kaiser was one of three
inventors of the patented proprietary technology which has been assigned to
R-Tec. Mr. Kaiser has no ownership rights to the patent by virtue of his
assignment of all of his rights to Mrs. Kaiser. Mr. Kaiser is the
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<PAGE>
husband of Nancy Vitolo, and the son of Muriel Kaiser. Mr. Kaiser has no
ownership rights to the patent. On November 4, 1998, Mr. Kaiser filed for
Chapter 7 Bankruptcy protection in the United States Bankruptcy Court, District
of New Jersey. On December 16, 1998, he voluntarily withdrew his Bankruptcy
Petition.
R-Tec has a one year Consulting Agreement with Stewart R. Kaiser, which
terminates on January 1, 2000. Mr. Kaiser has been engaged to perform consulting
services regarding scientific experiments and research on reactive paints. R-Tec
is to pay Mr. Kaiser $1,000 per month for a total of $12,000 plus all reasonable
out of pocket expenses.
Robert J. Verdicchio, age 65, has been employed by Verdi Enterprises, Inc.,
a chemical consulting company of Succasunna, New Jersey, of which he is the
principal owner since January, 1996. He was employed by Johnson and Johnson
Consumer Products in Skillman, New Jersey ,from 1973 until his retirement in
1995. He has been engaged in the development of the patented technology since
1996 and has worked for R-Tec as a consultant since July 1996. He received a
Ph.D. in Metaphysical Science in 1994 from the University of Metaphysics in Los
Angeles, California, a Master of Science degree in 1990 from Fairleigh Dickinson
University, and a Bachelor of Science degree in Organic Chemistry in 1962 from
Rutgers University. He was one of three inventors of the patented proprietary
technology which has been assigned to R-Tec. Dr. Verdicchio has no ownership
rights to the patent by virtue of his assignment of all of his rights to Mrs.
Kaiser. Dr. Verdicchio has agreed to consult for R-Tec on an as needed basis.
Executive Compensation
R-Tec was only recently incorporated, and has not paid any compensation to
its executive officers and directors. R-Tec has entered into employment
agreements dated April 4, 1999 with Marc M. Scola, Nancy Vitolo and Philip
Lacqua, who are officers and directors of R-Tec. The agreement with Mr. Scola
provides for the payment of $330,000 plus bonus per year retroactive from
January 1, 1999 for a five year term and will commence upon the sale of the
minimum number of shares. Mr. Scola is employed as Vice President, director and
General Counsel of R-Tec. Mr. Scola has waived his salary due under the
agreement through March 31, 1999.
The employment agreement with Ms. Vitolo provides for the payment of
$330,000 plus bonus per year retroactive from January 1, 1999 for a five year
term and will also commence upon the sale of the minimum number of shares. Ms.
Vitolo is employed as Vice President, Secretary and director of R-Tec. Ms.
Vitolo has waived her salary due under the agreement through March 31, 1999.
The employment agreement with Mr. Lacqua provides for the payment of
$330,000 plus bonus per year retroactive from January 1, 1999 for a five year
term and will commence upon sale of the minimum number of shares. Mr. Lacqua is
employed as President, Treasurer and director of R-Tec. Mr. Lacqua has waived
his salary due under the agreement through March 31, 1999.
In the event the minimum number of shares offered were sold, Mr. Scola, Mr.
Lacqua and Ms. Vitolo would defer their salaries until sufficient funds were
available. Sale of all the shares offered would provide sufficient funds for
R-Tec to operate 24 months without revenue.
In addition, R-Tec established a Stock Option Plan on April 15, 1999 which
provides that all regular full-time employees and key executives may be issued
options to purchase a total of up to one million shares of our common stock at a
price not less than 100% of the fair market value of the shares on the date the
option is granted. The plan is to be administrated by the Stock Option and
Compensation Committee of the Board of Directors, consisting of at least two
disinterested directors. On April 14, 1999 the Board formed a Compensation
Committee which consists of a total of three directors with two disinterested
directors. We also intend to implement a Pension Plan in the near future.
All of our officers are also directors of R-Tec and are, therefore, not
independent. No independent person has reviewed the employment agreements.
However, since April 14, 1999 the Board of R-Tec includes two disinterested
directors who are members of the Compensation and Audit Committees.
If R-Tec sells the maximum amount of shares, $5,485,000 represents an
estimate of the total employee compensation for 48 to 60 months, including
salaries for its officers and staff. The consulting agreements in effect do not
cover full-time employment by these consultants, which must be negotiated at the
appropriate time in the future.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Name Other Securities
and Annual Restricted Underlying LTIP All Other
Principal Compen- Stock Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) Awards ($) SARs ($) sation($)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip Lacqua 1997 --- --- ---- ---- ---- ---- ----
President, Treasurer 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
Nancy Vitolo 1997 --- --- ---- ---- ---- ---- ----
Secretary 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
Marc M. Scola 1997 --- --- ---- ---- ---- ---- ----
General Counsel 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
Damon E. Palmer 1997 --- --- ---- ---- ---- ---- ----
Director 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
Shawn P. Walsh 1997 --- --- ---- ---- ---- ---- ----
Director 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
</TABLE>
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<PAGE>
Principal Shareholders
The following table presents the shares of common stock of R-Tec owned of
record or beneficially by each person known to own more than 5% of R-Tec's
common stock, and the name and shareholdings of each officer and director and
all officers and directors as a group:
<TABLE>
<CAPTION>
Percent After Percent After
Principal Stockholder's Number of Percent Prior Minimum Maximum
Name and Addresses Shares Owned to Offering Offering Offering Office(s) Held
<S> <C> <C> <C> <C> <C>
Philip Lacqua 5,000,000 33 1/3% 32% 26.66% Director,
1127 83rd Street President,
Brooklyn, New York 11228 Treasurer
Nancy Vitolo 5,000,000 33 1/3% 32% 26.66% Director,
290 Green Road Vice President,
Sparta, New Jersey 07871 Secretary
Marc M. Scola 5,000,000 33 1/3% 32% 26.66% Director,
61 Mallard Drive Vice President,
Allamuchy, New Jersey 07820 General Counsel
Damon E. Palmer -0- 0% 0% 0% Director
8380 SW 39 Court
Davie, Florida 33328
Shawn P. Walsh -0- 0% 0% 0% Director
538 Wren Way
Branchburg, New Jersey 08876
All Officers and
Directors as a Group 15,000,000 100% 96% 80%
</TABLE>
Certain Relationships and Related Transactions
Mr. Lacqua, Ms. Vitolo and Mr. Scola own 15,000,000 shares. The contributed
$540,000 in capital through March 31, 1999. As of March 31, 1999, $75,857 of
this amount is due pursuant to a promissory note from Ms. Vitolo bearing
interest at 6.0% per annum.
The patent covering R-Tec's proprietary technology was assigned to us by
Muriel Kaiser. Mrs. Kaiser is the mother of Stewart Kaiser and Nancy Vitolo's
mother-in-law. Ms. Vitolo is the wife of Stewart Kaiser. In consideration for
the patent, we executed a promissory note in favor of Mrs. Kaiser. Pursuant to
the promissory note, R-Tec was obligated to pay $850,000 payable in full within
thirty (30) days of the completion of this offering. By letter agreement dated
July 2, 1999, Mrs. Kaiser has agreed that in the event 625,000 shares are not
sold by January 10, 2000, payment will be made by R-Tec's execution of a
promissory note for $850,000 due and payable in equal quarterly payments over a
five-year period at 6% interest.
R-Tec had previously executed an agreement in favor of Philip Lacqua, Nancy
Vitolo and Marc M. Scola under which R-Tec agreed to reimburse Mr. Lacqua, Ms.
Vitolo and Mr. Scola for all expenses advanced by such individuals prior to and
after the date of R-Tec's incorporation. Such expenses include, but are not
limited to, attorneys' fees, accountant fees, office leases, advertising,
travel,and general expenses of this offering. On May 26, 1999, sums due Mr.
Lacqua, Ms. Vitolo and Mr. Scola were reduced or reclassified as
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<PAGE>
equity. No sums are currently due to Mr. Lacqua, Ms. Vitolo or Mr. Scola.
R-Tec presently has two independent directors. The transactions noted above
were ratified by these independent directors who do not have an interest in the
transactions. Any future transactions undertaken by R-Tec with its officers,
directors or 5% shareholders will be on terms no less favorable to R-Tec than
could be obtained from unaffiliated parties.
Indemnification
R-Tec's Articles of Incorporation, as amended, provide that, to the extent
not inconsistent with applicable law, R-Tec shall indemnify and hold harmless
its officers, directors, employees and agents from liability and reasonable
expense from actions in which he or she may become involved by reason of the
fact that he or she was an officer, director, employee or agent. We expect to
obtain an insurance liability policy for this purpose at a cost of approximately
$75,000 - $150,000 per year.
Disclosure Of Commission Position On Indemnification For Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of R-Tec pursuant to
the foregoing provisions, or otherwise, R-Tec has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that any claim for indemnification against such liabilities,
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the defense of any action, suit or proceeding), is asserted by such director,
officer or controlling person in connection with the securities being
registered, R-Tec will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of the Court of such issue.
Organization Within Last Five Years
R-Tec is a development stage company and has no operating history. As soon
as the money from this offering is made available, R-Tec expects to make all
arrangements necessary so that it can commence commercial operations in 1999.
Description of Securities
The following statements summarize detailed provisions of R-Tec's Articles
of Incorporation and Bylaws, copies of which will be furnished to an investor
upon written request.
Authorized Capital
Our authorized capital stock consists of 50,000,000 shares of $.00001 par
value common stock. We have outstanding 15,000,000 shares of common stock, all
of which are validly issued, fully paid and non-assessable.
Common Stock
The shares being offered are shares of common stock. Currently there are no
markets for the common stock and there can be no assurances there will ever be a
public market in the future.
R-Tec is presently authorized to issue 50,000,000 shares of $.00001 par
value common stock. There are 15,000,000 shares issued and outstanding, and a
maximum of 3,750,000 shares are for sale in this offering. The shares of common
stock being sold will be, when issued in accordance with the terms of the
offering, fully paid and non-assessable.
The holders of common stock, are entitled to equal dividends and
distributions per share with respect to the common stock when and if declared by
the Board of Directors from funds which are legally available. R-Tec has not
paid any dividends on common stock to date and does not anticipate paying
dividends on common stock in the foreseeable future. No holder of common stock
has a pre-emptive
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<PAGE>
right to subscribe for any securities nor are any common shares subject to
redemption or convertible into other securities of R-Tec. Upon liquidation,
dissolution or winding up of R-Tec, and after payment of creditors and preferred
stockholders, if any, the remaining assets will be divided pro-rata on a
share-for-share basis among the holders of the shares of common stock. All
shares of common stock now outstanding are fully paid, validly issued and
non-assessable. Each share of common stock is entitled to one vote with respect
to the election of any director or any other matter upon which stockholders are
required or permitted to vote. Holders of common stock do not have cumulative
voting rights, so that the holders of more than 50% of the combined shares
voting for the election of directors may elect all of the directors, if they
choose to do so and, in that event, the holders of the remaining shares will not
be able to elect any alternate members to the Board of Directors.
Preferred Stock
R-Tec is currently authorized to issue shares of Preferred Stock.
Accordingly, the Board of Directors could authorize the issuance of shares of
Preferred Stock. Preferred Stock may, if and when issued, have rights superior
to those of the common stock offered hereby. The Board of Directors may approve
the issuance of Preferred Stock without a vote by shareholders and conversion
rights may adversely affect the voting power of holders of common stock.
Transfer Agent
The Bank of New York, Inc., One Wall Street, New York, New York 10286, is
the Transfer Agent and Registrar for common stock.
Escrow Agent
The Bank of New York, Inc., One Wall Street, New York, New York 10286 is
the Escrow Agent for subscriptions until the minimum number of shares is sold.
Dividend Policy
We have not paid any dividends on common stock to date and we do not
anticipate paying dividends on common stock in the foreseeable future. We intend
for the foreseeable future to follow a policy of retaining all of its earnings
to finance the development and expansion of our business.
Shares Eligible for Future Sale.
Upon the consummation of this offering at the maximum, we will have
18,750,000 shares of common stock outstanding. Of these shares, the 3,750,000
shares sold in this offering will be freely tradable without restriction or
further registration under the Securities Act, except for any shares purchased
by an affiliate of R-Tec, in general, a person who has a control relationship
with R-Tec, which will be subject to limitations of Rule 144 promulgated by the
Commission under the Securities Act. All of the remaining 15,000,000 shares are
deemed to be restricted securities, as that term is defined under Rule 144
promulgated under the Securities Act, in that such shares were issued in private
transactions not involving a public offering. All of such shares are not
eligible for sale under Rule 144 until December 1, 1999 at which time they will
have been held longer than one year.
Plan Of Distribution
R-Tec, is offering a minimum of 625,000 shares and a maximum of 3,750,000
shares of common stock through it officers and directors on a best-efforts
basis. Until the minimum number of shares are fully subscribed, all subscription
payments will be deposited into an escrow account at the Bank of New York. If
less than the minimum number of shares are subscribed within three months after
the effective date of this prospectus or within six months after the effective
date if we elect to exercise the option to obtain an extension of the offering
period, all proceeds will be promptly refunded in full, with interest, and
without any deduction of expenses. Upon sale of the minimum number of shares,
the escrow will be terminated and subscriptions will go directly to R-Tec. This
offering will end on the earlier of the following:
(1) three months from the effective date of this prospectus if the
minimum number of shares are not sold and fully paid for,
25
<PAGE>
or within six months from the effective date if we elect to exercise the option
to obtain this extension,
(2) the sale of the 3,750,000 shares,
(3) twelve months after the effective date of this prospectus or the
date on which R-Tec decides to close the offering, which will not exceed twelve
months from the effective date of this prospectus.
The offering will be managed by R-Tec without any underwriter. Our officers
and directors will receive no sales commissions or other compensation, except
for reimbursement of expenses actually incurred for such activities. In
connection with their efforts, they will rely on the safe harbor provisions the
Securities and Exchange Act of 1934. Generally speaking, this rule provides an
exemption from the broker/dealer registration requirements of the 1934 Act for
associated persons of an issuer. Our officers and directors will use their best
efforts to find purchasers for the shares.
Investors should be aware that while this offering is being conducted
through our officers and directors,. R-Tec retains the right to utilize the
services of broker/dealers who are members of the NASD. We reserve the right to
pay commissions for sales made by broker/dealers in an amount not to exceed 10%
of the sales price. Before the involvement of any broker/dealers in the
offering, R-Tec must obtain a no objection position from the NASD for any
compensation arrangements. Any broker/dealers that sells securities in this
offering may be deemed an underwriter as defined in Section 2(a)(11) of the
Securities Act of 1933. R-Tec will amend the prospectus and the registration
statement of which it is a part to identify any selected broker/dealers at such
time as such broker/dealers sells 5% or more of the offering.
Under Rule 3a4-1 of the Exchange Act, none of the selling shareholders or
employees of R-Tec will be a "broker" as defined in the Exchange Act, solely by
reason of participation in this offering, because:
(1) none is subject to a statutory disqualification, as that term is defined in
Section 3(a)(39) of the Act, at the time of his participation; and
(2) none will receive, directly or indirectly, any commissions or other
remuneration based either directly or indirectly on transactions in securities,
(3) none is an associated person (partner, officer, director, or employee) of a
broker dealer, and
(4) each meets all of the following conditions: (a) primarily performs, or
is intended primarily to perform at the end of the offering, substantial duties
for the issuer otherwise than in connection with transactions in securities; (b)
none was not a broker or dealer, or an associated person of a broker dealer,
within the preceding 12 months; and (c) none will not participate in selling an
offering of securities for any issuer more than once every 12 months.
R-Tec has not made any efforts to retain an underwriter. We believe that we
can sell our stock without utilizing an underwriter and thus, maximize the net
proceeds to fund our business plan.
Residents of California purchasing units must meet one of the following
suitability requirements: an investor must (1) be an "accredited investor"
within the meaning of Regulation D under the Securities Act of 1933; or (2) a
person who (1) has an income of $65,000 and a net worth of $250,000 or (b) has a
net worth of $500,000 (in each case excluding home, home furnishings, and
personal automobiles); or (3) a bank, savings and loan association, trust
company registered under the investment company act of 1940, pension or
profit-sharing trust, corporation, or to the entity which, together with the
corporation's or other entity's affiliates, have a net worth on a consolidated
basis according to the most recent regularly prepared financial statement (which
shall have been reviewed but not necessarily audited, by outside accountants) of
net less than $14,000,000 and subsidiaries of the foregoing; or (4) a person
(other than a person formed for the sole purpose of purchasing the units offered
hereby) who is purchasing at least $1,000,000 in aggregate amount of the units.
Residents of Virginia purchasing units must have a net worth of at least
$225,000 or a net worth of at least $60,000 and an annual income of at least
$60,000. Net worth in all cases is calculated exclusive of home, furnishings and
automobiles. Virginia residents may not invest more than 10% of their readily
marketable assets in the offering.
Penny Stock Rules
Broker/dealer practices in connection with transactions in penny
stocks are regulated by certain penny stock rules adopted by the Securities and
Exchange Commission. Penny stocks generally are equity securities with a price
of less than $5.00 (other than securities registered on certain national
securities exchanges or quoted on the Nasdaq system, provided that current price
and volume information
26
<PAGE>
with respect to transactions in such securities is provided by the exchange or
system). The penny stock rules require a broker/dealer, prior to a transaction
in a penny stock to deliver a standardized risk disclosure document that
provides information about penny stocks and the risks in the penny stock market.
The broker/dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker/dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer's account. In addition,
the penny stock rules generally require that prior to a transaction in a penny
stock, the broker/dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules.
Since R-Tec is offering the shares without the participation of an
underwriter, the offering price has not been determined by negotiation with an
underwriter, as is customary in most offerings, and instead the offering price
has been set arbitrarily by R-Tec.
Legal Matters
To the knowledge of management there is no material litigation pending or
threatened against R-Tec. Legal counsel for R-Tec in connection with this
offering is Brashear & Associates, P.L., 926 N.W. 13th Street, Gainesville, FL
32601.
Experts
The financial statements of R-Tec as of December 31, 1998, included in this
prospectus have been audited by James Moore & Co. P.L., independent certified
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance on such report given upon the authority of that firm
as experts in accounting and auditing.
Change In Independent Accountants
On May 21, 1999, R-Tec engaged James Moore & Co., P.L. as its independent
auditors for the year ending December 31, 1998 to replace the firm of Jurewicz &
Duca, Certified Public Accountants, P.C., who were dismissed as our auditors
effective May 20, 1999. James Moore & Co., P.L. reaudited the financial
statements for the year ended December 31, 1998; no reliance should be placed on
previous financial statements for the same period. The decision to change
auditors was approved by R-Tec's Board of Directors.
The reports of Jurewicz & Duca, P.C., on the financial statements of R-Tec
from October 29, 1998 (inception) to December 31, 1998 did not contain an
adverse opinion or a disclaimer of opinion and were not qualified or modified as
to uncertainty, audit scope or accounting principles.
In connection with the audits of R-Tec's financial statements for the
period ended December 31, 1998, and for the interim period preceding their
dismissal, there were no disagreements with Jurewicz & Duca, P.C. on any matters
of accounting principles or practices, financial statement disclosure or
auditing scope and procedures. In a letter dated June 15, 1999, Jurewicz & Duca,
P.C. have confirmed this understanding.
How To Invest In R-Tec
If you want to purchase shares of R-Tec Technologies, Inc. in this offering
please fill in the information requested below and return with a check payable
to "Bank of New York, Escrow, R-Tec Technologies, Inc. #301472" If you wish to
have the shares issued in street name, in the name of the brokerage firm where
you have an account, please complete the bottom portion of the form. If you are
a resident of a state where we are not authorized to sell stock, your
subscription will be rejected and returned to you in full, without interest or
deduction.
27
<PAGE>
COMMON STOCK PURCHASE AGREEMENT
TO: R-Tec Technologies, Inc., Escrow, P.O. Box 282, Allamuchy, New Jersey 07820
Please issue shares of R-Tec Technologies, Inc.'s common stock in the
amount(s) and name(s) shown below. My signature acknowledges that I have
received and had an opportunity to read the Prospectus.
Signature:______________________________ Date:__________________
Enclosed is payment for ______________ shares, at $8.00 per share, totaling
$______________________. Please make checks payable to "Bank of N.Y., Escrow,
R-Tec," and indicate account #301472 in legend of check.
Name:_________________________________________________________________
Mailing Address:______________________________________________________
City:___________________ State:_____________ Zip Code:_______________
Telephone No.,________________ Business,_______________ Home
Social Security or Taxpayer ID Number:________________________________
Minimum Investment is $504.00 (U.S. Dollars) (63 shares)
Register the shares in the following name(s) and amount(s):
Name Number of Shares
A)______________________________________ ________________
B)______________________________________ ________________
C)______________________________________ ________________
As (Circle One Below):
Individual Joint Tenants Trust
Tenants in Common Corporation Other
If you would like your stock to be transferred to your Brokerage Account
complete this section. (Complete only if shares will be in the name of the
Brokerage Firm)
Name on Account:______________________________________________________
Name of Brokerage Firm:_______________________________________________
Mailing Address of Brokerage Firm:____________________________________
City:____________________ State:_____________ Zip Code:______________
Telephone Number of Broker:___________________________________________
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<PAGE>
Social Security Number or Taxpayer I.D. Number:_________________________
Broker Account Number:__________________________________________________
WIRE INSTRUCTIONS
Routing No. (ABA) 021000018 (Bank of New York)
Beneficiary: GLA-111/565
Account No. 301472
Date Wired:______________________________________
Amount Wired:____________________________________
Confirm Bank Wire with R-TEC at (888) 299-7832
Please make checks payable to "Bank of N.Y., Escrow, R-Tec," and
indicate account #301472 in legend of check.
- -------------------------------------------------------------------------
Please attach any special mailing instructions other than shown above. You will
be mailed a signed copy of this agreement to retain for your records.
- ---------------------------------------------------------------------------
SUBSCRIPTION ACCEPTED BY R-TEC TECHNOLOGIES, INC.:
______________________________ Dated___________________
Marc M. Scola, Esq.
V.P. & General Counsel
VIRGINIA SUBSCRIBERS
Virginia subscribers must meet the following suitability requirement:
I certify that I am (initial blank) ________ a person who (a) has an annual
income of $60,000 and a net worth of at least $60,000 or (b) has a net worth of
at least $225,000 (in each case excluding home, home furnishings, and personal
automobiles) and that I am not investing more than 10% of my readily marketable
assets in this offering.
MAIL TO: R-Tec Technologies, Inc., Escrow, P.O. Box 282, Allamuchy, New Jersey
07820 - 1(888) 299-7832
Incomplete Forms will be returned to Sender.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors,
R-Tec Technologies, Inc.:
We have audited the accompanying balance sheet of R-Tec Technologies, Inc. (a
development stage company), as of December 31, 1998, and the related statements
of operations, stockholders' equity and cash flows for the period from inception
(October 22, 1998) through December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of R-Tec Technologies, Inc. as of
December 31, 1998, and the results of its operations and its cash flows for the
period from inception (October 22, 1998) through December 31, 1998 in conformity
with generally accepted accounting principles.
As more fully described in Note 10 to the financial statements, subsequent to
the issuance of the Company's 1998 financial statements and an audit report
thereon dated January 7, 1999, certain errors were discovered by management.
These errors resulted in an overstatement of previously reported organizational
costs and an understatement of previously reported deferred offering costs as of
December 31, 1998. In addition, an agreement to acquire a patent and agreements
to repay stockholders for certain organizational expenses were subsequently
significantly modified by management of the Company. Accordingly, the 1998
financial statements have been restated to correct these errors and significant
modifications.
Gainesville, Florida
May 25, 1999
F - 1
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
ASSETS
--------
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
(unaudited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 25,474 $ 43,500
------------- ------------
Equipment 5,425 -
------------- ------------
Other assets
Patent 815,000 815,000
Deferred offering costs 183,964 45,000
Deposits 2,000 1,000
------------- ------------
Total other assets 1,000,964 861,000
------------- ------------
Total Assets $ 1,031,863 $ 904,500
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities
Accounts payable $ 59,336 $ 7,147
Note payable 826,000 814,000
------------- ------------
Total current liabilities 885,336 821,147
------------- ------------
Commitments and Contingencies (Note 3)
Stockholders' equity
Common stock, par value $.00001 per share,
50,000,000 shares authorized, 15,000,000
shares issued and outstanding 150 150
Due from stockholders (75,857) (96,160)
Additional paid-in capital 539,850 419,850
Deficit accumulated during the development stage (317,616) (240,487)
------------- ------------
Total stockholders' equity 146,527 83,353
------------- ------------
Total Liabilities and Stockholders' Equity $ 1,031,863 $ 904,500
============= ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-2
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Inception
(October 22, Inception
1998) (October 22,
Three-Month Through 1998)
Period Ended December 31, Through
March 31, 1999 1998 March 31, 1999
--------------- ------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Revenues $ - $ - $ -
--------------- ------------- ---------------
Expenses
Administrative fees to stockholders 14,500 231,000 245,500
Administrative and start-up 50,629 5,487 56,116
Interest expense 12,000 4,000 16,000
--------------- ------------- ---------------
Total expenses 77,129 240,487 317,616
--------------- ------------- ---------------
Net loss $ (77,129) $ (240,487) $ (317,616)
=============== ============= ===============
Net loss per common share $ (.01) $ (.02) $ (.02)
=============== ============= ===============
Weighted average common shares outstanding 15,000,000 15,000,000 15,000,000
=============== ============= ===============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-3
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the Total
Common Stock Paid-In Due from Development Stockholders'
------------------
Shares Par Value Capital Stockholders Stage Equity
--------- ------------ -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization, October
1998 15,000,000 $ - $ - $ - $ - $ -
Additional capital contributed
by stockholders, October
1998 through December 1998 - 150 419,850 (96,160) - 323,840
Net loss - - - - (240,487) (240,487)
---------- ----------- -------- ------------ ----------- ------------
Balance, December 31, 1998 15,000,000 150 419,850 (96,160) (240,487) 83,353
Additional capital
contributed by stockholders
January 1999 through March
1999 (Unaudited) - - 120,000 20,303 - 140,303
Net loss (Unaudited) - - - - (77,129) (77,129)
Balance, March 31, 1999 ---------- ----------- -------- ----------- ---------- ------------
(Unaudited) 15,000,000 $ 150 $539,850 $ (75,857) $ (317,616) $ 146,527
========== =========== ======== =========== ========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part of this statement.
F-4
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash and Cash Equivalents
<TABLE>
<CAPTION>
Inception
(October 22, Inception
1998) October 22,
Three-Month Through 1998)
Period Ended December 31, Through
March 31, 1999 1998 March 31, 1999
-------------- ------------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (77,129) $ (240,487) $ (317,616)
-------------- -------------- --------------
Adjustments to reconcile net loss to
net cash used in operating activities:
Unreimbursed expenses contributed to
capital by shareholders 14,500 231,000 245,500
Interest expense - amortization of
discount on note payable 12,000 4,000 16,000
Increase in deposits (1,000) (1,000) (2,000)
Increase (decrease) in accounts payable (611) 147 (464)
-------------- ------------- --------------
Total adjustments 24,889 234,147 259,036
-------------- ------------- --------------
Net cash used in operating activities (52,240) (6,340) (58,580)
-------------- ------------- --------------
Cash flows from investing activities
Patent costs - (5,000) (5,000)
Purchase of equipment (5,425) - (5,425)
-------------- ------------- --------------
Net cash used in investing activities (5,425) (5,000) (10,425)
-------------- ------------- --------------
Cash flows from financing activities
Increase in deferred offering costs (86,164) (38,000) (124,164)
Capital contributed by stockholders 125,803 92,840 218,643
-------------- ------------- --------------
Net cash provided by financing activities 39,639 54,840 94,479
Net increase (decrease) in cash -------------- ------------- --------------
and cash equivalents (18,026) 43,500 25,474
Cash and cash equivalents, beginning of period 43,500 - -
-------------- ------------- --------------
Cash and cash equivalents, end of period $ 25,474 $ 43,500 $ 25,474
============== ============= ==============
Supplemental disclosures of noncash
investing and financing activities
Purchase of patent with note payable $ - $ 810,000 $ 810,000
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
F-5
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) Summary of Significant Accounting Policies:
-------------------------------------------
The following is a summary of the more significant accounting policies and
practices of R-Tec Technologies, Inc. (the Company) which affect the
accompanying financial statements.
(a) Organization and operations--The Company was incorporated on
October 22, 1998, to commercialize and advance the technology of a
recently obtained patent on a type of paint that can detect certain
gases. The Company plans to pursue other applications of this
technology.
(b) Presentation--The Company has devoted substantially all its
efforts to date to raising capital to commercialize its technology and
has no revenues. Therefore, these financial statements have been
prepared in accordance with Statement of Financial Accounting Standards
No. 7 Accounting and Reporting by Development Stage Enterprises.
(c) Unaudited information--In the opinion of management, all
adjustments consisting only of normal recurring adjustments necessary
for a fair presentation of the financial position at March 31, 1999;
the results of operations and cash flows for the three months then
ended; and the results of operations and cash flows for the period from
inception though March 31, 1999, have been made. Operating results for
the three month period ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999.
(d) Use of estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that effect certain
reported amounts and disclosures. Accordingly, actual results could
differ from those estimates.
(e) Cash and cash equivalents--For the purposes of reporting cash
flows, the Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
(f) Equipment--Equipment is recorded at cost. No depreciation has been
recorded in the accompanying financial statements since the equipment
has not been placed in service.
(g) Deferred offering costs--Costs directly attributable to the
proposed stock offering as described in Note 2 are deferred and
offset against the proceeds from the offering if successful or
expensed if the offering is not successful.
(h) Patent--Patents are recorded at the cost of acquisition if
purchased or if developed internally, the accumulation of the direct
costs incurred to obtain the patent. No amortization has been recorded
in the accompanying financial statements since the patent has not been
placed in service.
(i) Deferred income taxes--Deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective income tax bases.
Deferred tax assets and liabilities are measured using enacted rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
F-6
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(1) Summary of Significant Accounting Policies: (Continued)
------------------------------------------
(j) Loss per common share--Loss per common share is computed using the
weighted average of shares outstanding during each period presented
in accordance with Statement of Financial Accounting Standards No. 128
Earnings Per Share.
(k) Start-up costs--The initial costs incurred to organize the Company
are expensed when incurred.
(l) Advertising--Advertising costs are expensed when incurred.
(2) Proposed Public Offering of Common Stock:
-----------------------------------------
The Company is offering 3,750,000 shares of its common stock for sale at $8.00
per share, which is expected to raise between $5,000,000 and $30,000,000.
There is no assurance the offering will be successful.
(3) Commitments and Contingencies:
------------------------------
The Company has entered into a five year exclusive manufacturing agreement
with a specialty chemical manufacturer for certain of the Company's initial
products expiring in October 2003.
On April 14, 1999, the Company entered into five year employment contracts with
its three principal officers for total annual salaries of $990,000 beginning on
January 1, 1999. The officers have waived their salaries for the three months
ended March 31, 1999. No amounts have been reflected in the accompanying
financial statements because the Company is in the earliest phases of
development.
On April 14, 1999, the Company adopted a stock bonus plan for certain classes
of employees and reserved 1,000,000 shares of its authorized but unissued
common stock under this plan. No stock options have been granted.
The Company has one year service contracts with two consultants beginning
January 1, 1999. The contracts specify a minimum payment of $1,000 per month.
The contracts can be cancelled with thirty days written notice by either party.
The Company expensed $2,000 and the consultants waived $4,000 in payments under
the contracts for the three months ended March 31, 1999.
The Company leases an office facility under a one year operating lease with a
monthly rent of $1,000. A second office is leased from a stockholder under a
two year lease at $2,000 per month. Rent expense was $10,000 for 1998 and
$9,000 for the three months ended March 31, 1999.
F-7
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(4) Note Payable:
-------------
The Company purchased a patent from a related party (see Note 6) on December 1,
1998, the terms which were substantially modified on May 10, 1999. The purchase
price for the patent was $850,000 under a promissory note due in full within
thirty days of the completion of the minimum funding of the stock offering
described in Note 2. Interest at 6% accrues on the unpaid amount from the date
of the completion of the minimum funding until paid in full. As of the date of
the agreement, the patent and note payable have been recorded at $810,000 which
represents the net present value of the note payable with a face amount of
$850,000. The accompanying financial statements reflect the new terms of this
transaction.
(5) Income Taxes:
-------------
The Company has a deferred tax asset of approximately $75,000 at December 31,
1998, due to the net loss incurred since inception. Temporary differences giving
rise to deferred tax assets consist primarily of the deferral of substantially
all start-up expenses for income tax purposes. Management has provided a
valuation allowance equal to the amount of the deferred tax assets at December
31, 1998 due to the uncertainty of realization of the future benefit of these
future deductions. Therefore, no income tax provision or benefit is provided in
the accompanying statements of operations.
(6) Related Party Transactions:
---------------------------
Certain unreimbursed administrative expenses of the Company were incurred by two
shareholders, both before and after the Companys' incorporation on October 22,
1998. The Company recorded $14,500 and $231,000 as administrative fees to
stockholders and as an increase in additional paid in capital for the three
months ended March 31, 1999 and for the period ended December 31, 1998,
respectively, in the accompanying financial statements.
The Company is owed $75,857 and $96,160 from stockholders for amounts due for
additional paid-in capital as of March 31, 1999 and December 31, 1998,
respectfully. These amounts have been reflected as a reduction in stockholder
equity in the accompanying financial statements.
The Company purchased a patent under terms described in Note 4 from a relative
of a shareholder/officer of the Company. The Company owes this related party
$850,000 at December 31, 1998.
(7) Concentrations of Credit Risk:
------------------------------
Significant concentrations of credit risk for all financial instruments owned by
the Company are as follows:
(a) Demand deposits--The Company has demand deposits in one bank,
which are insured by the Federal Deposit Insurance Corporation (FDIC)
up to $100,000. The bank balance was $29,033 and $48,500 at March 31,
1999 and December 31, 1998, respectively. The Company has no policy of
requiring collateral or other security to support its deposits.
F-8
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(7) Concentrations of Credit Risk: (Continued)
-----------------------------
(b) Due from stockholders--The Company is owed $75,857 from one
stockholder at March 31, 1999, and $96,160 from two stockholders at
December 31, 1998. The Company has no policy of requiring collateral
or other security to support these amounts.
(8) Fair Value of Financial Instruments:
------------------------------------
Statement of Financial Accounting Standards No. 107 Disclosures about Fair
Values of Financial Instruments requires disclosure of fair value to the extent
practicable for financial instruments which are recognized or unrecognized in
the balance sheet. The fair value disclosed herein is not necessarily
representative of the amount that could be realized or settled, nor does the
fair value amount consider the tax consequences of realization or settlement.
The following table summarizes financial instruments by individual balance sheet
account as of December 31, 1998:
Carrying Amount Fair Value
--------------- ----------
Financial Assets
Cash and cash equivalents $ 43,500 $ 43,500
Due from stockholders 96,160 96,160
--------------- ----------
Total financial assets $ 139,660 139,660
=============== ==========
Financial Liabilities
Accounts payable $ 7,147 $ 7,147
Notes payable 814,000 850,000
--------------- ----------
Total financial liabilities $ 821,147 $ 857,147
=============== ==========
The fair value of financial instruments approximates carrying value due to the
short-term maturity of the instruments.
(9) Reorganization:
---------------
The Company reorganized December 1, 1998, and increased the common stock
outstanding from 1 million to 15 million shares. On April 18, 1999, the Company
increased the number of authorized shares of common stock from 25 to 50 million
shares. The accompanying financial statements retroactively reflect these
changes for all periods presented.
F-9
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(10) Restatement of Previously Issued Audited Financial Statements:
Subsequent to the issuance of the Company's 1998 financial statements and an
audit report thereon dated January 7, 1999, certain errors were discovered by
management. These errors resulted in an overstatement of previously reported
organizational costs and an understatement of previously reported deferred
offering costs as of December 31, 1998. In addition, an agreement to acquire a
patent and agreements to repay stockholders for certain organizational expenses
were subsequently significantly modified by management of the Company.
Accordingly, the 1998 financial statements have been restated to correct these
errors and significant modifications. The effect of these errors and changes was
to increase the net loss and deficit accumulated during the development stage by
$227,065, decrease total assets by $456,854, decrease total liabilities by
$553,626 and increase paid-in capital by $323,837. Components of these errors
and changes and their effect on net income and earnings (loss) per share are as
follows:
<TABLE>
<CAPTION>
Earnings
Income (Loss) Per-
Amounts (Loss) Effect share Effect
--------- ------------- ------------
<S> <C> <C> <C>
Organization costs previously capitalized - expensed $ 228,065 $ (228,065) $ (.01)
in restatement
Organization costs previously capitalized -
reclassified as deferred offering costs in restatement 45,000 - -
Patent costs previously expensed - capitalized in restatement 5,000 5,000 -
Modification of patent acquisition agreement, previously
capitalized at $1 - recorded at net present value and corresponding
obligation was recorded in restatement 814,999 - -
Imputation of interest expense on patent acquisition recorded in
restatement 4,000 (4,000) ( - )
Organization costs due to stockholders under notes payable
previously recorded - eliminated in restatement 1,050,936 - -
Loans from stockholders previously recorded - reclassified
as paid-in capital in restatement 323,840 - -
Additional capital due from stockholders was recorded in restatement 96,160 - -
============
Totals ------------ -------------
$ (227,065) $ (.01)
============= =============
</TABLE>
The Company has restated its previously issued audited financial statements,
which were audited by other auditors and whose opinion was dated January 7,
1999. Any previously issued financial statements of the Company should not be
relied upon for any purpose.
F-10
<PAGE>
TABLE OF CONTENTS
Prospectus Summary 3
Risks Factors 5
Recent Developments 7
Where You Can Find
Additional Information 7
Dilution 8
Use of Proceeds 8
Selected Financial
Data 11
Management's Discussion
and Analysis or Plan of
Operation 11
Business 13
Management and Affiliates 19
Principal Shareholders 23
Certain Relationships
and Related Transactions 23
Description of Securities 24
Plan of Distribution 25
Legal Matters 27
Experts 27
Change in Independent
Accountants 27
How to Invest in R-Tec 27
Financial Statements F-1
----------
R-Tec Technologies, Inc.
3,750,000 Shares Common Stock
$8.00 per share
-------------------------
Until __________, 1999, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus. This is in addition to the obligation of
dealers to deliver a prospectus when acting as underwriters with respect to
their unsold allotments or subscriptions. This prospectus should be read in its
entirety by any prospective investor prior to his or her investment.
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution*
The following table sets forth the estimated costs and expenses to
be paid by R-Tec in connection with the offering described in the registration
statement.
SEC registration fee $ 8,340.00
Blue sky fees and expenses $ 25,000.00
Printing and shipping expenses $ 20,000.00
Legal fees and expenses $200,000.00
Accounting fees and expenses $ 50,000.00
Transfer and escrow expenses $ 45,000.00
Advertising expenses and miscellaneous $151,660.00
Total $500,000.00
* All expenses except SEC registration fee are estimated.
ITEM 14. Indemnification of Directors and Officers.
The Registrant's Articles of Incorporation, Article Eight, provide
that R-Tec shall indemnify and hold harmless its directors, employees and agents
from liability and reasonable expenses from actions in which he or she may
become involved by reason of the fact that he or she was an officer, director,
employee or agent.
Insofar as indemnification for liabilities arising under the
Securities Act, indemnification may be provided to directors, officers or
persons controlling the Registrant pursuant to the foregoing section. The
Registrant has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 15. Recent Sales of Unregistered Securities.
On November 26, 1998, Mr. Lacqua, Ms. Vitolo and Mr. Scola received
a total of 15,000,000 shares in conjunction with formation of R-Tec
Technologies, Inc. They made capital contributions of $540,000 through
March 31, 1999.
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
3.0* Certificate of Incorporation dated October 21, 1998.
3.1* Amended and Restated Articles of Incorporation, dated November 24, 1998.
3.2* Amended and Restated Articles of Incorporation, dated December 18, 1998.
3.3 Certificate of Amendment to the Certification of Incorporation of R-Tec
Technologies, Inc., dated April 18, 1999.
3.4* By-laws, dated November 4, 1998.
3.5* R-Tec Technologies, Inc. Policy Against Insider Trading.
3.6* Form of common stock certificate.
5.0* Opinion and consent of Brashear & Associates, P.L.
10.0* Patent Assignment dated November 2, 1998 between Muriel Kaiser and R-Tec
Technologies, Inc.
II-1
<PAGE>
10.1 Patent Assignment dated March 30, 1999 between Muriel Kaiser and R-Tec
Technologies, Inc.
10.2* Promissory Note dated April 15, 1999 between Nancy Vitolo, Muriel Kaiser
and R-Tec Technologies, Inc.
10.4* Promissory Note dated April 15, 1999 between Nancy Vitolo and R-Tec
Technologies, Inc. for reimbursement of start up costs.
10.5* Promissory Note dated April 22, 1999 between Marc M. Scola and R-Tec
Technologies, Inc. for reimbursement of start up costs.
10.6* Promissory Note dated April 22, 1999 between Columbia Trading, Inc. and
R-Tec Technologies, Inc. for reimbursement of consulting fees and
start up costs.
10.7* Promissory Note dated April 22, 1999 between R-Tec Technologies, Inc.
and Marc M. Scola for reimbursement of office lease, secretaries,
postage, and other cost incurred, prior to incorporation.
10.8* Expense Reimbursement Agreement between Marc M. Scola, Philip Lacqua and
Nancy Vitolo and R-Tec Technologies, Inc. dated October 24, 1998
regarding start up costs.
10.9* Employment Agreement between R-Tec Technologies, Inc. and Marc M. Scola.
10.10* Employment Agreement between R-Tec Technologies, Inc. and Nancy Vitolo.
10.11* Employment Agreement between R-Tec Technologies, Inc. and Philip Lacqua.
10.12* Consultant Agreement dated January 5, 1999 between Stewart Kaiser and
R-Tec Technologies, Inc.
10.13* Consultant Agreement dated January 11, 1999 between Shawn Walsh and
R-Tec Technologies, Inc.
10.14* Exclusive Manufacturer's Agreement dated October 21, 1998 between
Anscott Chemical Industries and R-Tec Technologies, Inc.
10.15 Distribution Agreement between R-Tec Technologies, Inc. and Motors &
Armatures Corp.
10.16* Stock Transfer Agency Agreement between R-Tec Technologies, Inc. and
Bank of New York dated as of January, 1999.
10.17* Subscription Escrow Agreement between R-Tec Technologies, Inc. and Bank
of New York dated as of January 26, 1999.
10.18 Stock Option Plan adopted April 15, 1999.
10.19 Intellectual Property Evaluation dated May 31, 1999 by Intellectual
Property Valuators.
10.20* Promissory Note executed by Nancy Vitolo in favor of R-Tec Technologies,
Inc. in the original principal amount of $75,857 dated May 10, 1999.
10.21* Promissory Note executed by R-Tec Technologies, Inc. in favor of Muriel
Kaiser in the original principal amount of $850,000 dated May 10,
1999.
10.22* Release regarding Patent dated May 10, 1999 between R-Tec Technologies,
Inc. and Muriel Kaiser.
10.23* R-Tec Resolution dated June 1, 1999.
10.24 Letter agreement with Muriel Kaiser dated July 2, 1999.
10.25 Letter dated July 6, 1999 waiving officers salaries in the event
minimum shares are sold.
16.00 Jurewicz and Duca's letter regarding change in independant accountants
dated June 15, 1999.
23.0 Consent of James Moore & Co., L.P.
23.1 Consent of Property Valuations.
27.0 Financial Data Schedule
* Previously filed
+ To be filed by amendment
II-2
<PAGE>
(b) FINANCIAL STATEMENT SCHEDULE
The Financial Statement Schedule as of December 31, 1998 and the
Report of Independent Public Accountants on such schedule are included in this
Registration Statement. All other schedules are omitted because they are not
applicable or are not required under Regulation S-X.
ITEM 17. Undertakings
(a) The Registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) to include any prospectus required by section 10(a)(3)of the
Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information in the registration statement; and
(iii) to include any material information with respect to the plan of
distribution. not previously disclosed in the registration statement or any
material change to such information in the registration statement.
2. That determining liability under the Securities Act each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time be deemed to be the initial bona fide offering. thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered that remain unsold at the termination of the
offering.
(f) The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(i) The Registrant hereby undertakes that for purposes of determining any
liability under the Securities Act, (i) the information omitted from the form
of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 42A (b)(1) or (4) or 497(h) under the Securities Act shall
be deemed to be part of this registration statement as of the time it was
declared effective, and (ii) each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this third amendment to its registration statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Allamuchy, State of New Jersey, on July 8, 1999.
R-Tec Technologies, Inc.
By: /s/ PHILLIP LACQUA
------------------------
Philip Lacqua
President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS THIRD
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
Signatures Title Date
/s/ PHILLIP LACQUA
__________________ President and July 8, 1999
Philip Lacqua Chief Executive Officer
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Director
/s/ NANCY VITOLO
________________ Director July 8, 1999
Nancy Vitolo
/s/ MARC M. SCOLA
_________________ Director July 8, 1999
Marc M. Scola
________________ Director July 8, 1999
Damon E. Palmer
________________ Director July 8, 1999
Shawn P. Walsh
CERTIFICATE OF AMENDMENT TO THE CERTIFICATION OF INCORPORATION
OF
R-TEC TECHNOLOGIES, INC.
Federal Employer Identification No. 22-3615979
Pursuant to the provision of Section 14A:9-2(4) and Section
14A:9-4-(3), Corporations, General, of the New Jersey Statutes, the undersigned
corporation executes the following Certificate of Amendment to its Certification
of Incorporation:
1. The name of the corporation is: R-Tec Technologies, Inc.
2. The following amendment to the Certification of Incorporation was approved by
the directors and thereafter duly adopted by the shareholders of the corporation
on the 18th day of April, 1999:
RESOLVED, that Article Fourth, the aggregate number of shares
which the corporation shall have authority to issue shall be amended to fifty
(50) million shares with par value of .00001.
3. The number of shares outstanding at the time of the adoption of the
amendment was 15,000,000. The total number of shares entitled to vote
thereon was 15,000,000.
4. The number of shares voting for and against such amendment is as follows:
Number of Shares Number of Shares
Voting for Amendment Voting against Amendment
15,000,000 -0-
5. The effective date of this Amendment to the Certificate of
Incorporation shall be the date of filing.
Dated this 18th day of April, 1999.
R-TEC TECHNOLOGIES, INC.
By: s/s
Marc M. Scola
Vice President and
General Counsel
Assignment
FOR GOOD AND VALUABLE CONSIDERATION
I, Muriel Kaiser residing at 10110 Boynton Place Circle, Boynton
Beach, Florida 33437 do hereby sell, assign and transfer unto R-Tec
Technologies, Inc. a corporation organized under the laws of the State of NEW
JERSEY, and having an address for service at PO Box 70, Allamuchy, New Jersey
07820 herein sometimes called "ASSIGNEE," the entire right, title and interest,
together with all rights of priority, in and to the invention for
COMPOSITION FOR THE DETECTION OF ELECTROPHILIC GASES AND METHODS OF USE THEREOF
as described and/or claimed in Letters Patent of the United States of America,
Serial No. 5 783 110 issued July 21, 1998 which was assigned to me mesne
assignments the last being to me from R-Tect, Inc. in a document of assignment
of three pages, dated October 19, 1998 and recorded in the United States Patent
and Trademark office on November 2, 1998 under reel 9586 and frame 0264 and as
described and/or claimed in any and all applications for Letters Patent based
thereon including divisions, continuations and reissues thereof as well as all
foreign counterparts thereof together with all Letters Patent issuing on any of
the aforesaid applications for Letters Patent, the same to be held and enjoyed
by ASSIGNEE, its successors, assigns or other legal representatives, to the full
ends of the terms of all said Letters patent therefor which may be granted.
The purpose of this assignment is to correct the assignment intended
to transfer said letters patent to R-Tec Technologies, Inc. but through
inadvertence and without deceptive intent, executed in favor of R-Tec, Inc.
having the same address. Said transfer being recorded in the United States
Patent and Trademark Office at Reel 9567 Frame 0152 on November 12, 1998.
And I Hereby Authorize Assignee to make applications for and to
receive Letters Patent for said invention in any foreign countries and in its
own name, or in my our name, at its election.
And I Hereby Covenant and Agree that I will execute or procure any
further necessary assurance of title to said invention and any Letters patent
which may issue therefor and that I will, at any time, upon the request and at
the expense of ASSIGNEE deliver any testimony in any legal proceedings and
execute all papers that may be necessary or desirable to perfect the title to
said invention or any Letters Patent which may be granted therefor in ASSIGNEE,
its successors, assigns, or other legal representatives, and that I will, at any
time, upon the request and at the expense of ASSIGNEE execute any continuations,
divisions, reissues, or any other additional applications for Letters Patent for
said invention or any part or parts thereof, all of which applications and any
Letters patent issuing thereon are hereby assigned to ASSIGNEE, and will make
all rightful oaths, and do all lawful acts requisite for procuring the same
therein, without further compensation, but at the expense of ASSIGNEE, its
successors, assigns or other legal representatives.
And I Hereby Authorize and Request the Commissioner of Patents and
Trademarks to issue any and all Letters of Patent of the United States for said
invention, resulting from any of the aforesaid applications to said as sole
assignee.
Witness My hand and seal this 30 day of March, 1999.
/s/
Muriel Kaiser
Acknowledgment
State of Florida
County of Palm Beach
On this 30 day of March 1999, before me Jeanette Y. DeVaughn Murray, a Notary
Public of the State of Florida, personally appeared Muriel Kaiser, to me known,
and known by me to be the same person described in and who executed the
foregoing instrument in my presence, and acknowledged that she they executed the
same, of her own free will and for the purposes set forth.
/s/
Jeanette Y. DeVaughn Murray
Notary Public
[seal]
[Letterhead]
MOTORS & ARMATURES, INC.
250 Rabro Drive East
Hauppauge, NY 11788
516-348-0200 fax 516-348-7160
March 26, 1999
R-Tec Technologies, Inc.
P.O. Box 282
Allamuchy, NJ 07820
Att: Marc Scola, Esq.
Dear Marc,
This letter is to advise you that MARS has tested the R-Tec formulation and
found that it meets with our standards for commercial leak testing of critical
charge refrigeration and air conditioning systems.
MARS has had a verbal distribution agreement with R-Tec since early June of
1997. As a part of that agreement, MARS plans to advertise to the trade in the
refrigeration, air conditioning and heating markets.
No employee of R-Tec is, or has ever been, employed by, or affiliated with,
MARS.
MARS looks forward to a long and evolving association with R-Tec Technologies,
Inc.
Sincerely,
MOTORS & ARMATURES, INC.
/s/
Fred H. Baron
Marketing Manager
The Stock Option Plan
Of
R-Tec Technologies, Inc.
1. Name and Purpose. This Plan shall be known as THE STOCK OPTION
PLAN OF R-TEC TECHNOLOGIES, INC. (the "PLAN"). The purpose of the Plan is to
advance the interests of R-TEC Technologies, Inc. (the "COMPANY") by providing
material incentive for the continued services of key employees and directors and
by attracting able executives to employment with and to serve on the Board of
Directors of the Company.
2. Administration. The Plan shall be administered by the Stock
Option and Compensation Committee of the Board of Directors (the "Committee"),
consisting of at least two directors, each of whom is a "disinterested person"
as defined in Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission pursuant to Section 16b of the Securities exchange Act of
1934 (the "Exchange Act"), if applicable. The Committee may establish, subject
to the provisions of the Plan, such rules and regulations as it deems necessary
for the proper administration and interpretation of the Plan, and make such
determination and take such action in connection therewith or in relation to the
Plan as it deems necessary or advisable, consistent with the Plan. All approvals
and major decisions in connection with the Plan, including but not limited ot he
designation of employees and directors to participate in the Plan, the number of
shares to be awarded to each participant, and amendment of the Plan, shall be
made by the Committee; provided however, the number of shares for which options
may be granted pursuant to the Plan shall be determined by the Board of
Directors of the Company from time to time. Any action taken by the Committee
with respect to the implementation, interpretation or administration of the Plan
shall be final, conclusive and binding on all parties. The Plan may be
terminated by the Board of Directors of the Company at any time.
3. Eligibility. Regular full-time employees of the Company who are
key executives or other key salaried employees, including officers and directors
of the Company shall be eligible to participate in the Plan. Those directors who
are not regular employees of the Company are also eligible to participate in the
Plan. Such employees and directors are hereinafter referred to as
"Participants."
4. Shares Subject to the Plan.
(a) The shares to be issued and delivered by the Company upon
exercise of options granted under the Plan are the Company's shares of common
stock, $.00001 par value per share ("Shares"), which may be either authorized
but unissued shares of treasury shares.
(b) The initial aggregate number of Shares of the Company which may
be issued under the Plan shall not exceed One Million (1,000,000) shares;
provided however, such number shall be subject to the adjustment provided in
Paragraph 10 in the event of stock splits, stock dividends, exchanges of shares
or the like occurring agter the effective date of the Plan, and subject to any
increase or decrease in the said number of shares as determined by the Board of
Directors of the Company, pursuant to Paragraph 11 below. No option may be
granted, or shares issued, under this Plan which could cause such maximum limit
to be exceeded.
(c) Shares covered by an option which is no longer exercisable with
respect to such shares, or Shares which have been resold to the Company, shall
again be available for issuance under this Plan, except to the extent prohibited
under Rule 16b-3, if applicable.
5. Grant of Options. After the designation by the Board of Directors
of the Company of the total number of shares currently eligible for which
options may be granted hereunder, then upon the recommendation of the CEO, the
Committee may from time to time, in its discretion and subject to the provisions
of the Plan, grant options to acquire Shares to Participants. Participants to
whom options have been granted are herein referred to as "Optionees". Each
option shall be embodied in a Notice of Grant of Option executed by the Company
advising the Optionee of the grant and its terms and conditions ("Notice of
Grant" attached as Exhibit A), and the Notice of Exercise of Option and
Agreement signed by the Optionee and the Company providing that the option shall
be subject to the provisions of this Plan and containing such other provisions
as the Committee may prescribe not inconsistent with the Plan ("Notice of
Exercise" attached as Exhibit B).
6. Terms and Conditions of Option. All option granted under the Plan
shall contain such terms and conditions as the Committee from time to time
determines, subject to the foregoing and following limitations and requirements.
(a) Option price. The option price per share for any option granted
under the Plan shall be not less than 100% of the fair market value of the
Shares on the date the option is granted, as determined by the Board of
Directors of the Company, with the assistance of qualified appraisers and/or
independent auditors and accountants, as deemed appropriate in the judgement of
the Board of Directors.
(b) Period within which option may be exercised. The period of each
option shall be fixed by the Committee, but no Option may be exercised after the
expiration of ten years from the date the option is granted. The Committee may,
in its discretion, determine as a condition of any option, that all or a stated
percentage of the Shares covered by such option shall become exercisable in
installments or otherwise, only after the completion of a specified service
requirement by the Optionee. Notwithstanding the foregoing, no option may be
exercised by an officer or director of the Company who is subject to section
16(b) of the Exchange Act within six months from the date such option was
granted, if applicable. Unless otherwise specified in the Notice of Grant of
Option, the option shall be exercisable one-fifth each year for a period of five
years from the date after the date of grant and no option being exercisable more
than ten years after the date of grant.
(c) Termination of option by reason of termination of employment or
services as director. Unless the Committee in its discretion determines
otherwise, if an Optionee's employment with the Company terminates or the
service of an Optionee on the Board of Directors who is a Participant solely as
a member of the Board of Directors terminates, for any reason other than death
or disability, all options granted under this Plan to such Optionee shall
immediately terminate. In the event of the death of disability of the Optionee,
any remaining options shall terminate if not exercised before the expiration of
ninety (90) days after the death or disability, if the Optionee was employed by
the Company or a member of the Board of Directors of the Company at the time of
the Optionee's death or the commencement of disability. Disability as used
herein shall have the meaning as provided in Section 7 of the Stockholders
Agreement.
(d) Non-transferability. Each option and all rights thereunder shall
be exercisable during the Optionee's lifetime only by Optionee and shall be
non-assignable and non-transferable by the Optionee except in the event of the
Optionee's death, as provided herein. In the event of the death of an Optionee,
the representative or representatives of the Optionee's estate, or the person or
persons who acquired ( by bequest or inheritance) the rights to exercise the
Optionee's options in whole or in part prior to the expiration of the applicable
exercise period, may exercise said option as specified in Paragraph (c) above.
(e) More than one option granted to an Optionee. More than one
option may be granted to an Optionee under this Plan.
(f) Compliance with securities laws. Option granted and shares
issued by the Company upon exercise of options shall be granted and issued only
in full compliance with all applicable securities laws, including laws, rules
and regulations of the Securities and Exchange Commission and applicable state
Blue Sky Laws. With respect thereto, the Committee may impose such conditions on
transfer, restrictions and limitations as it may deem necessary and appropriate
to assure compliance with such applicable securities laws.
(g) Modification or Cancellation of Option. The Committee shall have
the authority to effect, at any time and from time to time, with the consent of
the affected Optionee or Optionees, the modification of the terms of any Notice
of Exercise (subject to the limitations hereof), including the acceleration of
the exercisability of any option for any reason, or the cancellation of any or
all outstanding options granted under this Plan. In substitution for cancelled
options, the Committee may grant new options (subject to the limitations hereof)
covering the same or different numbers of Shares at an option price per share in
all events not less than fair market value on the date of the new grant.
(h) Change of Control. All outstanding options shall become
immediately exercisable upon a Change of Control Event. A Change of Control
shall include (i) any purchase of Common Stock pursuant to a tender offer or
exchange offer for 51% or more of the stock, other than to a Permitted
Transferee, as defined in the Stockholders Agreement (other than by the Company
or its subsidiaries), (ii) a change in 51% or more of the beneficial ownership
of the combined voting securities of the Company, other than to a Permitted
Transferee, as defined in the Stockholders Agreement, or (iii) approval by
Company stockholders of a consolidation, a merger in which the Company does not
survive, or the sale of substantially all of the Company's assets or the assets
of a principle subsidiary.
(i) Nonqualified Options. The options granted hereunder shall not be
considered statutory or incentive stock options under S421 or S422 of the
Internal Revenue Code.
7. Method of Exercise. An option granted under this Plan may be
exercised by written notice to the Committee, signed by the Optionee, or by such
other person as is entitled to exercise such option in the form attached hereto
as Exhibit B, the Notice of Exercise. The Notice of Exercise shall state the
number of Shares in respect of which the option is being exercised, and shall
either be accompanied by the payment of the full option price from such shares,
or shall fix a date (not more than ten business days for the date of such
notice) for the payment of the full option price of the Shares being purchased.
A certificate or certificates for the Shares of the Company purchased through
the exercise of an option shall be issued in regular course after the exercise
of the option any payment in full therefore. During the option period no person
entitled to exercise any option granted under this Plan shall have any of the
rights or privileges of a stockholder with respect to any Shares issuable upon
exercise of such option until certificates representing such Shares shall have
been issued and delivered.
8. Restrictions Applicable to Shares.
(a) The shares purchased by the Optionee hereunder shall be subject
to the terms and provisions of the Stockholders Agreement, which requires the
Optionee to offer the shares to the Company at specified prices in certain
events, including the termination of the Optionee's employment with the Company.
(b) Upon the award of Shares, payment of the purchase price,
certificates representing the Shares shall be issued to the Optionee.
9. Change of Control. Upon a Change in Control Event (as defined in
Paragraph 6 (h) ), the options for all Shares shall be fully exercisable and all
Shares acquired hereunder shall be fully vested.
10. Share Adjustments. In the event there is any change in the
Company's Shares resulting from stock splits, stock dividends, combinations or
exchange of shares, or other similar capital adjustments, equitable
proportionate adjustments shall automatically be made without further action by
the Committee in (i) the number of Shares available for award under this Plan,
(ii) the number of Shares subject to options granted under this Plan, and (iii)
the option price of optioned Shares.
11. Amendment or Termination. The Committee may terminate this Plan
at any time, and may amend the Plan at any time or from time to time: provided ,
however, that any amendment that would increase the aggregate number of shares
that may be issued under the Plan, materially increase the benefits accruing to
employees or directors under the Plan, or materially modify the requirements as
to eligibility for participation in the Plan shall be subject to the approval of
the Company stockholders to the extent required by Rule 16b-3, if applicable,
other applicable laws or any other governing rules or regulations except that
such increase or modification that may require such approval. If the Plan is
terminated, any unexercised option shall continue to be exercisable in
accordance with its terms.
12. Company Responsibility. All expenses of this Plan, including the
cost of maintaining records, shall be borne by the Company. The Company shall
have no responsibility or liability (other than under applicable Securities
Acts) for any act or thing done or left undone with respect to the price, time,
quantity, or other conditions and circumstances of the purchase of Shares under
the terms of the Plan, so long as the Company acts in good faith.
13. Tax Withholding. Any grant of an option hereunder shall provide
as determined by the Committee for appropriate arrangements for the satisfaction
by the Company and the Optionee of all federal, state, local or other income,
excise or employment taxes or tax withholding requirements applicable to the
exercise of the option or the later disposition of the Shares thereby acquired
and all such additional taxes or amounts as determined by the Committee in its
discretion, including, without limitation, the right of the Company or any
subsidiary thereof to receive transfers of Shares or other property from the
Optionee or to deduct or withhold in the form of shares from any transfer to an
Optionee, in such amount or amounts deemed required or appropriate by the
Committee in its sole and absolute discretion.
14. Section 83 (b) Elections. An Optionee who files an election with
the Internal Revenue Service under S83 (b) of the Internal Revenue Code to
include the fair market value of any option granted hereunder upon the exercise
of the option in gross income shall promptly furnish the Company with a copy of
such election together with the amount any federal, state, local or other taxes
required to be withheld to enable the Company to claim an income tax deduction
with respect to such election.
15. Implied Consent. Every optionee, by acceptance of an option
under this Plan, shall be deemed to have consented to be bound, on the
Optionee's own behalf and on behalf of the Optionee's heirs, assigns, and legal
representatives, by all of the terms and conditions of this Plan.
16. No Effect on Status as Employee or Director. The Fact that an
employee or director has been granted an option under this Plan shall not limit
or otherwise qualify the right of the Company to terminate the employment of the
Optionee or the services of the Optionee as a director at any time.
17. Duration and Termination of the Plan. The Plan shall become effective
on the date hereof, as approved and adopted by the Stockholders of the Company,
and shall continue until terminated as
provided herein.
18. New Jersey Law to Govern. This Plan shall be construed and administered
in accordance with and governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its
duly authorized officer this _____ day of April, 1999.
ATTEST: R-TEC TECHNOLOGIES, INC.
_____________________________ By:___________________________
Philip Lacqua
President
<PAGE>
EXHIBIT A
NOTICE OF GRANT OF OPTION
UNDER
THE STOCK OPTION PLAN
OF
R-TEC TECHNOLOGIES, INC.
OPTIONEE: _______________________________
DATE: _______________________________
FROM: R-TEC Technologies, Inc.
RE: Grant of Stock Option
R-TEC Technologies, Inc. (The "Company") hereby grants to the
Optionee the option to purchase ______ shares of common stock of the Company at
the price of $_______ per share, for a total of $________, pursuant to the terms
and conditions contained in The Stock Option Plan adopted by the Company and
dated ___________, 1999. Such options are exercisable as follows:
(1) One-fifth thereof at any time after one year from the date hereof;
(2) One-fifth thereof, plus any options not exercised under paragraph (1) above,
at any time after two years from the date hereof;
(3) One-fifth thereof, plus any options not exercised under paragraphs (1) or
(2) above, at any time after three years from the date hereof;
(4) One-fifth thereof, plus any options not exercised under paragraphs (1), (2)
or (3) above, at any time after four years from the date hereof;
(5) One-fifth thereof, plus any options not exercised under paragraphs (1), (2),
(3) or (4) above, at any time after five years from the date hereof;
(6) With all unexercised options hereunder expiring ten years from the date
thereof.
The exercise of the within options shall be made by the filing of a Notice of
Exercise of Stock Option with the Company, in the form attached hereto.
R-TEC TECHNOLOGIES, INC.
By:_________________________________
Philip Lacqua
President
<PAGE>
EXHIBIT B
NOTICE OF EXERCISE OF OPTION
AND AGREEMENT
UNDER
THE STOCK OPTION PLAN
OF R-TEC TECHNOLOGIES, INC.
OPTIONEE:______________________________
DATE: ______________________________
FROM: R-TEC Technologies, Inc.
RE: Exercise of Stock Option
I hereby elect to exercise the option granted to me to purchase
_______________ shares of stock of R-TEC Technologies, Inc. (the "Company")
under the R-TEC Technologies, Inc. Stock Option Plan, dated _________, 1999,
pursuant to the Notice of Grant of Option dated ________, attached hereto, at a
price of $_________ per share for a total of $___________.
Enclosed is a certificate check in the amount of $________ for the
full purchase price payable to R-TEC Technologies, Inc.
I hereby represent, warrant and covenant as follows:
(a) Authority to Perform this Agreement. I have full power and
authority to execute, deliver, and perform this Agreement.
(b) Investment Representations and Warranties. I understand that the
offer and sale of the stock of the Company is not registered with the Securities
and Exchange Commission or the securities authority of any state or
jurisdiction; but the offer and sale is made instead on reliance upon an
exemption from registration commonly referred to as the "Private Placement
Exemption". I understand that there is no public market for the sake or other
transfer of the Company's stock is restricted by federal and state securities
laws and by the terms if the offer and sale. I understand that I may be required
to bear the economic risk of the investment indefinitely. I am acquiring the
stock for investment for my own account and not for the purpose of resale,
division, fractionalization, or distribution. I do not have present or
foreseeable need for the case invested in the stock and, if I have borrowed all
or portion of the cash so invested, I believe that I will have the ability to
repay such borrowing without selling the stock.
(c) Representations as to Value. I acknowledge that the Company
makes no representation or warranty at to either the value of the shares
purchased hereunder or the value of the assets and properties of the Company. I
am not relying upon the Company with regard to such matters.
(d) Acknowledgement as to Continued Employment or Services as
Director. I acknowledge and agree that:
(i) neither the sale of the Purchased Shares to me nor any provision
contained herein or in the Stockholders Agreement shall entitle me
to remain in the employment of the Company or remain on the Board of
Directors if the Company or affect the right of the Company to
terminate my employment or my service on the Board of Directors at
any time for any reason; and
(ii) except as may be required by law, the Company shall
have no duty or obligation to disclose to me, and I shall have no
right to be advised of, any material information regarding the
Company at any time prior to, upon or in connection with the
repurchase of shares purchased hereunder upon the termination of my
employment with the company or service on the Board of Directors of
the Company or as otherwise provided hereunder.
(iii) if my employment with the Company terminates or my
service on the Board of Directors terminates, for any reason other
than my death or disability, all options granted under this Plan to
be shall immediately terminate. In the event of my death or
disability, any remaining options shall terminate if not exercised
before the expiration of ninety (90) days after my death or the
commencement of disability. Disability as used herein shall have the
meaning as provided in Paragraph 7 of the Stockholders Agreement.
(iv) if I am granted the within option to purchase
shares of stock of the Company as an employee of the Company, then I
agree that in the vent my employment is terminated for any reason
other than my death or disability, then the terms and conditions of
Paragraph 9 of the Stockholders Agreement shall apply to said stock.
(v) if I am granted the within option to purchase shares
of stock of the Company solely as a Director of the Company, then I
agree that in the event my services as a Director are terminated for
any reason other than my death or disability, then upon the
termination of my said services as director, I shall be deemed to
have offered to sell my stock to the Company and the Stockholders
therein pursuant to the terms and conditions of Paragraph 5 of the
Stockholders Agreement.
(e) Terms of the Stock Option Plan. I hereby exercise the option
granted to me under The Stock Option Plan and acknowledge that this
option and the stock acquired hereunder is subject to the terms and
provisions of The Stock Option Plan.
(f) Stockholders Agreement. I hereby agree to execute an agreement
to be a party to the Stockholders Agreement amount the Company and
all stockholders therein contemporaneously with the execution of
this document. My rights, duties and obligation in connection with
my holding of the shares purchased hereunder, including but not
limited to the obligation to offer the stock to the Company and the
other stockholders in the event of the termination of my employment
or my services as a director of the Company, or in the event I
desire to dispose of the shares purchased hereunder, shall be
subject to all the terms and conditions of the Stockbrokers
Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and seal
as of the day and year first above written.
ATTEST R-TEC TECHNOLOGIES, INC.
By:__________________________ By:___________________________
Name: Name:
Title: Title:
WITNESS OPTIONEE
----------------------------- ------------------------------
Name: Name
Exhibit 10.19
Office Address: Postal Address
4th Floor, PO Box 652361
INTELLECTUAL PROPERTY VALUATORS JG&M House, Benmore, 2010
VALUATIONS OF TRADE MARKS, 72 Grayston Drive, South Africa
COPYRIGHT IN COMPUTER SOFTWARE, Sandown
PATENTS & TRADE SECRETS
Tel: (011) 784 4210
Fax: (011) 784-4215
Docex: 456
IPV
R-TEC TECHNOLOGIES INC.
Allamuchy
New Jersey
Our Ref: VAL/H13
Your Ref:
Date: 20 May 1999
Dear Sirs
SOUTH AFRICA - Intellectual Property Valuation - R-TECH
- -------------------------------------------------------
1. INTRODUCTION
We have been requested to conduct a valuation of the intellectual property
within the business of R-TECH TECHNOLOGIES INC. The business holds the
patent to a product which is the first passive leak detection and
neutrallsation system in the market. This patent has potentially
widespread use in both heavy and light industry particularly in the fields
of medicine, food technology, aviation and nuclear technology.
Intellectual property forms part of the intangible assets of a business.
It must be stressed that these forms of assets generally will not account
for the entire difference between the market capitalisation of the
business (the value of the shareholders equity) and the net tangible
assets of the business. It must also be borne in mind that valuation of
intellectual property is made at a specific date in time. It is always
necessary to carry out a periodic re-evaluation of the value of the
intellectual property, as is the case with any form of property.
Intellectual Property Valuators (Pty) Limited.
Director: J.P. eo Chalain B Sc (Chem Eng) B Proc H Dip Co Law
Chemical Engineer, Attorney, Patent & Trade Mark Attorney, F.L.L.P.L.
Reg No PB/04888/C7
<PAGE>
2. INTELLECTUAL PROPERTY
2.1 The law recognizes and protects the following types of
intellectual property rights; patents; registered designs;
trademarks; copyright; and trade secrets. We have been
instructed to value only one type of intellectual property
within R-TEC TECHNOLOGY, INC., namely, the patent.
2.2 A patent essentially grants the patentee a monopolistic right
to the invention covered by the patent. The effect of a patent
is to grant the patentee the right to exclude others from
making, using, exercising or disposing of the invention so
that the patentee may enjoy the whole profit and advantage
accruing by reason of the invention.
* * * * *
<PAGE>
3. VALUATION METHODOLOGIES
3.1 There are a number of approaches that may be used in valuing
intellectual property. Set out below are the so-called cost
approach, market approach, royalty relief approach and
economic use approach.
3.2 Cost Approach
This approach involves valuing intellectual property on the
basis of what it would cast to reproduce or replace the
intellectual property. The assumption underlying this approach
is that the cost of developing or buying a new invention, a
trade mark or copyright in a computer program is commensurate
with its economic value over the entire life span of the
invention, trade mark or copyright. The pitfalls involved in
this approach are immediately apparent viz. It cannot take
into account the amount of economic benefits that may be
achieved for the actual intellectual property being valued nor
can it take into consideration the time period over which
benefit might continue. Unlike commodities in which there is a
mature market, such as motor vehicles and houses, cost cannot
always be equated with value in the case of intellectual
property. For example, millions of rands may be spent on
developing a particular pharmaceutical product but it may turn
out eventually that the product is unsuitable for human
consumption. The development costs cannot coincide with the
value of the patent in respect of the pharmaceutical product
since the patent is probably worthless in view of the fact
that the product cannot be commercially used. Accordingly, we
are of the view that this is not an appropriate methodology
and we have not used it.
3.3 Market Approach
This approach involves a comparison of the price at which
similar intellectual property has changed hands. It
pre-supposes a willing buyer and a willing seller and the
value is determined through an examination of the prices paid
for similar intellectual property exchanged between such
parties. This approach is somewhat more realistic than the
"cost approach". However, comparable transactions are rare,
and in any event, access to pricing information is usually
difficult to come by since such transactions are usually kept
confidential by the parties concerned. Further, intellectual
property by its very nature is unique and therefore it is
unlikely that one market transaction will apply to another.
Accordingly, we have not used this methodology.
3.4 Economic Use Approach
According to this methodology, the value of the intellectual
property is determined by considering the economic value of
the intellectual property in its use in the business. By
identifying the intellectual property's net contribution to
the business, future cash flows directly attributable to the
intellectual property may be computed over the economic life
of the intellectual property. This methodology is particularly
suitable in circumstances where the intellectual property
under consideration only relates to a portion of the entire
business of the company and in circumstances where more than
one type of intellectual property is generating the same
income stream. This approach is also a particularly accurate
methodology and is favored in a situation where a business
contains various forms of intellectual property as is the case
under present consideration.
3.5 Royalty Relief Approach
This method is similar to the economic use approach in that
the valuation of the intellectual property is determined in
accordance with general investment principles, i.e. the
intellectual property has a value insofar as it is able to
generate economic benefits to the user thereof. The method
differs from the economic use approach insofar as the
derivation of the income streams that are generated from the
intellectual property are concerned. In this approach, one
looks at what a party would pay to rent the particular
intellectual property under consideration. In other words,
what royalty could be expected from a third party if it were
to use the intellectual property. The royalty is expressed as
a percentage of turnover and once turnover has been forecast,
the amount of the income stream that can be generated by the
intellectual property can be calculated. In arriving at a
royalty rate similar considerations to those used in the
economic use the approach are taken into account.
3.6 For purposes of this valuation, we are of the view that the
economic use approach is a more accurate approach and hence
it has been used as our valuation methodology.
* * * * *
<PAGE>
4. COMPUTATION OF INTELLECTUAL PROPERTY VALUES
4.1 The intellectual property
Patent - Passive Leak Detection System
R-Tec Technologies has obtained the right to a
patent which is the world's first and only passive
leak detection system. This system enables the
visual detection of gasses at the point from which
they have been emitted. Essentially, the R-Tec
principle product is a substance which is able to
detect molecular gas leaks on the surfaces to
which it is applied by the fact that it changes
color once there is any leakage of gas.
There are a number of industries in which this
type of technology may be useful. These include
chemical plants, refineries, nuclear power plants,
and the aviation and space industries.
Environmentally, it could also prove useful in the
prevention of natural gas disasters, and the
monitoring of harmful gases, such as CFCs, which
deplete the environment and contribute to global
warming.
This innovative product has received many
favorable reviews:
The Department of Environmental Protection (City
of New York) Division of Emergency Response &
Technical Assessment said " The possibilities of
uses for the product you have patented seem to be
endless. If it does all you have indicated it will
do, it would revolutionize the way that utilities
and chemical facilities protect themselves against
leaks and spills." They further enforced their
sentiments by recommending a pilot project with
the Department of Citywide Administration
Services.
It further received a widespread publicity in a
recent NBC Broadcast where the product was labeled
as "The most important breakthrough in the
technological era"... A new technology that could
save your life.
There are clearly a number of instances in which
this technology could be applied:
The most conventional is simple gas detection. Gas
leaking on a molecular level contributes to many
disasters from aviation crashes to toxic
explosions. An application of the product will
reveal any gas leak in the early stages thus
helping in the prevention of potential problems.
The company feels that in time they will be able
to extend this usage to the point where the
product will not only reveal the gas leak but
neutralize it as well.
[ Graphic]
Another area in which the technology could be
applied is in the field of medicine, specifically
in the detection of changing levels of blood
gases. An example of this would be in the early
detection of coronary artery disease. An
application of the product on the surface of the
skin would reveal any increased levels of CO2 in
the blood stream thus indicating the possiblility
of some form of restriction in blood flow. This
has important implications since it will allow for
the early detection of an impending heart attack
or stroke and ensure that preventative steps are
taken. Typically a patient would apply a gel to
their skin and a certain color (for instance
Green) would indicate exceptable CO2 levels where
as another (for instance Red) would indicate that
there was the potential risk of Heart Attack or
Stroke.
[Graphic]
R-Tec is currently undertaking feasibility studies
in the food industry wher they are determining the
possibility of using a thin detective strip across
chicken packages which would change color in the
event of the chicken becoming contaminated with
salmonella thus warning consumers that the food is
unsuitable for consumption. A typical example is
shown below where a green strip would indicate the
product us healthy where as green indicates the
food is spoilt.
[Graphic]
There is also currently an inquiry by the Los
Almos National Laboratories into the potential
uses for R-Tec's technology in their nuclear
weapons cleaning project which uses CO2.
4.2 Financial Analysis
A financial analysis was conducted to determine
the earnings of the R-Tec Technologies business in
which the intellectual property is used. The
results of the financial analysis are set out in
Annexure 1.
The financial analysis involves forecasting annual
turnover figures and sustainable profitabilities
of the business over the expected life of the
intellectual property of the R-Tec Technology
business. This was done by using management's
forecast figures and by holding discussions with
the management of the business. These forecasts
represent management's best estimates and they are
solely responsible therefor. The figures are based
on detailed costing and expected sales in terms of
current negotiations with numerous parties some of
which include the following:
Carrier (United Technologies)
Natural Gas & Electric Utility Companies
DuPont
Panasonic
Los Alamos National Laboratories (U.S. Nuclear
Missile Labs)
Global Technologies
Itushu
Electrolux
AGA Gas Inc.
MVE Applied Technologies
U.S. Air Force
E.P.A. Environmental Protection Agency
It will be noted from Annexure 1 that the business
is predicting a compound annual growth rate of
14.87% in turnover for the valuation period with a
profitability averaging 41.64% over the 10 year
valuation period.
4.3 Tangible assets
In order to avoid overvaluation of the
intellectual property, it is necessary to make a
fair change for the value of the tangible assets
employed by the business. The reasoning behind
this is that until a fair return has been made on
the fixed assets and working capital tied up in
the business, it cannot be said that the trade
mark or copyright or any other intangible asset is
adding value to the business. As a fair change
rate we have used the rate at which a merchant
bank would lend to a company like R-Tec
Technologies, being 6%. The deduction of the
remuneration of the capital employed, leaves a
residual return which reflects the return on the
intangible assets of the business. These residual
earnings are entirely attributed to the intangible
assets of the business.
4.4 Intellectual property value added analysis
Once the earnings stream directly related to the
intangible assets of the business has been
determined, it is then necessary to identify the
earnings that are directly attributed to the
intellectual property being valued (as opposed to
earnings attributable to other intangible assets).
This has been done by conducting interviews with
management of the business and by reviewing and
assessing all key business drivers so as to
identify, through a structured process of
intellectual property value added analysis, an
income percentage which is attributed to the
patent. The results are also benchmarked against
all our previous experience with patent
valuations. Having concluded this process, we are
of the opinion that 35.07% of intangible asset
earnings may be attributed to the patent of the
business.
4.5 Tax
As a net cash flow is being discounted, income
tax must be deducted from the relevant income
streams. We applied the present rate of company
tax of 35%.
4.6 Duration
The duration of the aforementioned income streams
must then be determined. It may be assumed that
the income streams will endure for the economic
life of the intellectual property . The economic
life of the intellectual property is generally not
commensurate with the legal life of intellectual
property. The legal life of patent varies around
the world but it is generally between 17 to 20
years. However, it would be speculative as to
whether the economic life of any form of
intellectual property will extend beyond a period
of ten years. Businessmen would find it extremely
difficult to make business plans for periods of
ten years or more. Accordingly, and after
discussion with management, we are of the view
that a period of ten years is appropriate.
4.7 Discount factor
The next step in the exercise was to determine an
appropriate discount factor. In this regard, it is
customary to determine what a risk-free after tax
rate would be and thereafter to make provision for
such factors as risk and illiquidity. In this
regard, we noted that 5.25% 30-year treasury bond
is yielding in the region of 5.8% 30-year treasury
bond is added back an amount of 6% in respect of
risk and illiquidity and thereby arrive at a
figure of 9.77%.
* * * * *
<PAGE>
5. CONCLUSION
Based on the methodology outlined above and using
the aforementioned parameters, the calculation of
the value of the intellectual property appears on
Annexure 2. Applying the parameters mentioned, we
are of the opinion that the value of the patent is
U.S. $31,977 m.
Yours faithfully
INTELLECTUAL PROPERTY VALUATORS
- -----------/S/--------------
Per: J.P. DE CHALAIN
<PAGE>
<TABLE>
<CAPTION>
Financial Analysis - R-Tec
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------ ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------
- ------------------ ---------------- ---------------- ---------------- ---------------- ---------------- ---------------- ----------
Year
1 2 3 4 5 6 7 8 9 10
- ------------------ ---------- ---------- ---------- --------- ---------- ---------- ---------- ---------- --------- ----------
Turnover 31,000 37,200 44,000 51,920 61,205 88,617 76, 652 88,074 90,403 107,971
Growth Year on Year 20.00% 18.28% 18.00% 18.00% 12.00% 12.00% 12.00% 12.00% 12.00%
CAGR 1 - 10 14.87%
Profit 14,000 16,600 20,500 20,768 27,447 30,741 34,430 38,561 36,561 43,188
Profitability 45.16% 44.62% 46.59% 40.00% 40.00% 40.00% 40.00% 40.00% 40.00% 40.00%
Average Profitability 1-10 41.04%
- ------------------ ---------------- ---------------- ---------------- --------------- ---------------- ---------------- -----------
</TABLE>
<PAGE>
Intellectual Property Valuation - R-TEC
<TABLE>
<CAPTION>
Discount Rate 9.77% Patent Earnings-R-Tec 35.07%
Charge for Capital 6.00%
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------- -------- -------- -------- -------- --------- -------- -------- -------- -------- --------- -------- --------
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
- ----------- -------- -------- -------- -------- --------- -------- -------- -------- -------- --------- -------- --------
Turnover 31,000 37,260 44,000 51,920 61,266 68,617 76,852 86,074 96,403 107,971
Net Income before tax 14,000 16,600 20,500 20,768 24,506 27,447 30,741 34,430 38,561 43,182
Tangible Capital Employed 20,000 23,606 27,158 31,262 36,064 39,928 44,228 49,022 54,365 60,322
Charge for Capital 1,200 1,416 1,629 1,876 2,164 2,398 2,654 2,941 3,262 3,619
Intangible Earnings 12,800 15,184 18,871 18,892 22,342 25,051 28,087 31,488 35,299 39,569
Patent Earnings 4,429 5,325 6,613 6,626 7,836 8,786 9,850 11,043 12,380 13,877
Tax Rate 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35 0.35
Post Tax Brand Earnings 2,918 3,161 4,302 4,307 5,093 5,711 6,400 7,178 8,047 9,020
MPV Patent 31,977
Total 31,977
</TABLE>
<PAGE>
Office Address: Postal Address
4th Floor, PO Box 652361
INTELLECTUAL PROPERTY VALUATORS JG&M House, Benmore, 2010
VALUATIONS OF TRADE MARKS, 72 Grayston Drive, South Africa
COPYRIGHT IN COMPUTER SOFTWARE, Sandown
PATENTS & TRADE SECRETS
Tel: (011) 784 4210
Fax: (011) 784-4215 IPV
Docex: 456
email:[email protected]
CONSENT TO USE NAME
-------------------
I, JEAN PIERRE DE CHALAIN, an authorized representative of Intellectual Property
Valuators (Pty) Limited, with a principle address of 4th Floor, JGM House, 72
Grayston Drive, Sandown, Johannesburg, Republic of South Africa, hereby consent
to allow R-Tec Technologies, Inc. to use our firm name in their S-1 Registration
Statement filed with the Securities and Exchange Commission for their Initial
Public Offering of the Company Stock.
We have prepared a Patent Appraisal dated May 20, 1999 on their behalf.
/S/
- ----------------------
JEAN PIERRE DE CHALAIN
Authorized this 31st day of May, 1999.
Intellectual Property Valuators (Pty) Limited.
Director: J.P. eo Chalain B Sc (Chem Eng) B Proc H Dip Co Law
Chemical Engineer, Attorney, Patent & Trade Mark Attorney, F.L.L.P.L.
Reg No PB/04888/C7
Exhibit 10.20
PROMISSORY NOTE
$ 850,000.00 Warren County, New Jersey
Six Percent (6.0%) May 10, 1999
FOR VALUE RECEIVED, the undersigned and maker of this Note, R-TEC
TECHNOLOGIES, INC. promises to PAY TO THE ORDER OF MURIAL KAISER at the address
of 290 Green Road, Sparta, New Jersey 07871 (the "holder") the sum of Eight
Hundred Fifty Thousand Dollars ($850,000.00) at Six Percent (6.0%) per annum
payable in full within thirty (30) days of the completion of the funding of the
initial public offering.
ADDRESS OF MAKER: The undersigned represents and warrants that the
undersigned is located at 61 Mallard Drive, Allamuchy, New Jersey, and agrees to
notify the holder of any change of residence within 10 days of such change.
WAIVERS: The undersigned hereby waives (1) presentment, demand,
protest, notice of dishonor and/or protest and notice of nonpayment; (2) the
right, if any, to the benefit of, or to direct the application of, any security
hypothecated to the holder until all indebtedness of the undersigned to the
holder, howsoever arising, shall have been paid; and (3) the right to require
the holder to proceed against or to pursue any remedy against any party other
than the undersigned.
INSOLVENCY: It is agreed that if the undersigned, at any time fail
in business or become insolvent, or commit an act of bankruptcy, or if any
deposit account or other property of the undersigned be attempted to be obtained
or held by writ of execution, garnishment, attachment or other legal process, or
if any assessment for taxes against the undersigned other than taxes on real
property, is made by the federal or state government, or any department thereof,
or if the undersigned fails to notify the holder of any material change in its
financial condition, then in such case all of the obligations of the undersigned
shall, at the option of the holder, become due and payable immediately without
demand or notice.
WARRANTY OF RECEIPT OF VALUE: The undersigned does hereby expressly
represent and warrant to the holder with the intent that the holder rely on such
representation and warranty as a specific inducement to the making of this
instrument, that the undersigned have received full value for this note.
<PAGE>
Promissory Note/R-Tec Technologies, Inc./Vitolo/Page Two
ASSIGNABILITY: This note shall be assignable only by the holder
provided that such assignment shall not impair or enlarge the obligations of the
undersigned. The undersigned shall not assign obligations under this note to any
third party without the written consent of the holder.
LAW GOVERNING: This Promissory Note shall be governed by the laws of
the State of New Jersey and the undersigned do hereby voluntarily submit
generally to the jurisdiction of the courts of New Jersey should it become
necessary for the holder hereof to enforce any of his rights under the terms
hereof.
DEFAULT: The maker also agrees to pay all costs and expenses
incurred by the holder hereof, including all reasonable attorneys' fees for the
collection of this Note and the indebtedness evidenced hereby, or the
enforcement of the holder's rights hereunder or under any other instruments
creating any collateral security or guaranty now or hereinafter given to secure
this loan.
The maker acknowledges that the $850,000.00 of this Note represents
the purchase of the Patent entitled "Composition for the Detection of
Electrophlic Gases and Methods of Use Thereof" GSEN 3.0-001, Serial No.
08/837355.
ACCELERATION: The maker further agrees that if the Corporation is
subsequently sold or transferred, all payments due and owing under this Note
will become due at the time of the subsequent sale.
Attested By: R-TEC TECHNOLOGIES, INC.
_______________________ By:__________________________L.S.
MARC M. SCOLA, PHILIP LACQUA,
Vice President and President
General Counsel
Dated: May 10, 1999 Dated: May 10, 1999
PROMISSORY NOTE
$75,857.00 Warren County, New Jersey
Six Percent (6.0%) May 10, 1999
FOR VALUE RECEIVED, the undersigned and maker of this Note, NANCY
VITOLO promises to PAY TO THE ORDER OF R-TEC TECHNOLOGIES, INC. at the address
of 61 Mallard Drive, P.O. Box 221, Allamuchy, New Jersey 07821 (the "holder")
the sum of Seventy Five Thousand Eight Hundred Fifty Seven Dollars ($75,857.00)
at Six Percent (6.0%) per annum payable as follows:
$75,857.00 within ninety (90) days of the completion of the Companys
Initial Public Offering.
ADDRESS OF MAKER: The undersigned represents and warrants that the
undersigned is located at 290 Green Road, Sparta, New Jersey, and agrees to
notify the holder of any change of residence within 10 days of such change.
WAIVERS: The undersigned hereby waives (1) presentment, demand,
protest, notice of dishonor and/or protest and notice of nonpayment; (2) the
right, if any, to the benefit of, or to direct the application of, any security
hypothecated to the holder until all indebtedness of the undersigned to the
holder, howsoever arising, shall have been paid; and (3) the right to require
the holder to proceed against or to pursue any remedy against any party other
than the undersigned.
INSOLVENCY: It is agreed that if the undersigned, at any time fail
in business or become insolvent, or commit an act of bankruptcy, or if any
deposit account or other property of the undersigned be attempted to be obtained
or held by writ of execution, garnishment, attachment or other legal process, or
if any assessment for taxes against the undersigned other than taxes on real
property, is made by the federal or state government, or any department thereof,
or if the undersigned fails to notify the holder of any material change in its
financial condition, then in such case all of the obligations of the undersigned
shall, at the option of the holder, become due and payable immediately without
demand or notice.
WARRANTY OF RECEIPT OF VALUE: The undersigned does hereby expressly
represent and warrant to the holder with the intent that the holder rely on such
representation and warranty as a specific inducement to the making of this
instrument, that the undersigned have received full value for this note.
<PAGE>
Promissory Note/Nancy Vitolo/R-Tec Technologies, Inc./Page Two
ASSIGNABILITY: This note shall be assignable only by the holder
provided that such assignment shall not impair or enlarge the obligations of the
undersigned. The undersigned shall not assign obligations under this note to any
third party without the written consent of the holder.
LAW GOVERNING: This Promissory Note shall be governed by the laws of
the State of New Jersey and the undersigned do hereby voluntarily submit
generally to the jurisdiction of the courts of New Jersey should it become
necessary for the holder hereof to enforce any of his rights under the terms
hereof.
DEFAULT: The maker also agrees to pay all costs and expenses
incurred by the holder hereof, including all reasonable attorneys' fees for the
collection of this Note and the indebtedness evidenced hereby, or the
enforcement of the holder's rights hereunder or under any other instruments
creating any collateral security or guaranty now or hereinafter given to secure
this loan.
The maker acknowledges that the $75,857.00 of this Note represents
the balance of my capital contribution to the company.
ACCELERATION: The maker further agrees that if the Corporation
is subsequently sold or transferred, all payments due and owing under this Note
will become due at the time of the subsequent sale.
Attested By:
_______________________ By:_____________________________
NANCY VITOLO, Individually
RELEASE
This Release, dated May 10, 1999 is given
BY the Releasor(s) MURIEL KAISER, having an address at 10110 Boynton Place
Circle, Boynton Beach, Florida 33437 TO R-TEC TECHNOLOGIES, INC., having an
address at 61 Mallard Drive, P.O. Box 282, Allamuchy, New Jersey 07820. If more
than one person signs this Release, "I" shall mean each person who signs this
Release.
1. RELEASE. I release and give up any and all claims and rights which I may have
in a Patent entitled "Composition for the Detection of Electrophlic Gases and
Methods of Use Thereof", GSEN 3.0-001, Serial No. 08/837355, filed in the United
States and Foreign Countries and any amendments thereto. This releases all
claims including those of which I am not aware and those not mentioned in this
release. This release applies to claims resulting from anything which has
happened up to now. I specifically release the following:
2. PAYMENT. I will receive a total of $850,000.00, in full payment for making
this Release. I agree that I will not seek anything further including any other
payment from you.
3. WHO IS BOUND. I am bound by this Release. Anyone who succeeds to my rights
and responsibilities, such as my heirs or executor of my estate, is also bound.
This Release is made for your benefit and all who succeed to your rights and
responsibilities, such as your heirs or the executors of your estate.
4. SIGNATURES. I understand and agree to the terms of this release. If this
release is made by a corporation, its proper corporate officers sign and its
corporate seal is affixed.
<PAGE>
Witnessed and Attested by:
- --------------------------- --------------------------
MURIEL KAISER
STATE OF FLORIDA, COUNTY OF PALM BEACH, SS:
I CERTIFY that on May ___, 1999
MURIEL KAISER personally came before me and acknowledged under oath, to my
satisfaction, that this person or persons: (a) is named in and personally signed
this document; and (b) signed, sealed and delivered this document as his or her
act and deed.
-----------------------------
A Notary Public of the
State of Florida
RESOLUTION
ADOPTED BY BOARD OF DIRECTORS OF
R-TEC TECHNOLOGIES, INC.
A NEW JERSEY CORPORATION
WHEREAS, there being a special meeting of the board of directors of R-Tec
Technologies, Inc. on June 1, 1999, to take certain steps to transact such
business as it shall deem necessary and proper.
1. The Board voted and authorized the confirmation of the following
information:
Patent Agreement:
1. Agreement dated May 19, 1999, with Muriel Kaiser, STATUS: Replaced by #2.
2. Agreement dated May 10, 1999, with Muriel Kaiser, STATUS: In Force.
Promissory Note Payable - Patent:
3. Promissory Note dated December 1, 1998, to Nancy Vitolo & Muriel Kaiser,
$4,000,000.00, STATUS: Replaced by #4.
4. Promissory Note dated April 14, 1999 to Muriel Kaiser, $425,000.00, STATUS:
Replaced by #5.
5. Promissory Note dated May 10, 1999 to Muriel Kaiser, $850,000.00 STATUS: In
Force.
Notes Payable to Stockholders:
6. Promissory Note dated January 6, 1999, from Marc M. Scola, $75,000.00,
STATUS: Replaced by #8.
7. Promissory Note dated January 6, 1999, from Marc M. Scola, $29,840.22,
STATUS: Replaced by #9
8. Promissory Note dated April 22, 1999, from Marc M. Scola, $37,500.00, STATUS:
Amount converted to capital and note was canceled.
9. Promissory Noted dated April 22, 1999, from Marc M. Scola, $14,920.11,
STATUS: Amount converted to capital and note was canceled.
10. promissory Note dated January 6, 1999, from Philip Lacqua, $203,000.00,
STATUS: Replaced by #11.
11. Promissory Note dated April 22, 1999, from Philip Lacqua, $101,500.00,
STATUS: Amount converted to capital and note was canceled.
12. Promissory Note dated April 22, 1999, from Nancy Vitolo, $61,000.00, STATUS:
Amount converted to capital and note was canceled.
WHEREAS, the above items on the agenda were put to a vote and it carried
unanimously.
WHEREAS, the current stockholders and directors of the corporations and
their respective percentages of issued and outstanding stock voted as follows:
STOCKHOLDERS
NAME PERCENTAGE VOTES
Nancy Vitolo 33.33% Unanimous
Philip Lacqua 33.33% Unanimous
<PAGE>
Marc M. Scola 33.33% Unanimous
NOW, THEREFORE, be it RESOLVED:
DIRECTORS Votes
Name Office in Favor
Nancy Vitolo Secretary/Director Unanimous
Philip Lacqua President/Treasurer/ Unanimous
Director
Marc M. Scola Vice President/Director
and General Counsel Unanimous
Damon E. Palmer Director Unanimous
Shawn Walsh Director Unanimous
BE IT RESOLVED that the transaction herein referred to, being herewith
approved, the President and Secretary of this Corporation be and they are hereby
directed, authorized and empowered to execute, acknowledge and deliver such
instruments and papers and perform such acts as may be legally, properly and
reasonably required or necessary for the purpose of changing the corporate
records.
I, Marc M. Scola, Vice President and General Counsel of R-Tec Technologies,
Inc., a Corporation of the State of New Jersey, certify that the foregoing is a
true copy of a resolution as it appears in the records of the corporation and
was duly and legally adopted at a special meeting of the Board of Directors of
the corporation called for that purpose and held on June 1, 1999,
<PAGE>
pursuant to and in accordance with the By-laws of said Corporation.
R-Tec Technologies, Inc.
By:______________________________
Dated: June 1, 1999 Marc M. Scola
Vice President & General Counsel
[R-TEC TECHNOLOGIES, INC. LETTERHEAD]
July 2, 1999
Muriel Kaiser
10110 Boynton Place Circle
Boynton Beach, Florida 33437
Dear Mr. Kaiser:
This letter will confirm our conversation and agreement with regard to the
Promissory Note dated April 14, 1999 in the amount of $850,000.00 and Patent
Agreement dated May 10, 1999.
In the event that R-Tec Technologies, Inc. does not sell 625,000 shares
prior to January 10, 2000, you have agreed that R-Tec Technologies, Inc. may pay
sum due to you over a five (5) year payment with equal amortized payments at six
(6) percent.
If this letter reflects your understanding of our conversation please sign
below in the presence of a Notary Public and return a copy to our office.
Very truly yours,
/S/
MARC M. SCOLA
V.P. and General Counsel
MMS/pg
Sworn to and subscribed I, Muriel Kaiser, understand
before me this 6th day and confirm information
July, 1999. mentioned above.
_______________________ ________________________
A Notary Public of Muriel Kaiser
the State of Florida
Dated: 7-6-99
[R-TEC TECHNOLOGIES, INC. LETTERHEAD]
July 6, 1999
VIA FACSIMILE * (352) 336-0505*/REGULAR MAIL
Bruce Brashear, Esq.
Brashear & Associates
926 N.W. 13th Street
Gainesville, FL 32601
Dear Mr. Brashear:
This letter will confirm our conversation with regard to the Companys
payment the undersigned's salaries. To the extent that proceeds from the
offering are insufficient to pay those salaries, such will be deferred until
there are sufficient corporate funds available.
___________________________
MARC M. SCOLA
V.P. and General Counsel
___________________________
PHILLIP LACQUA
President
____________________________
NANCY VITOLO
Secretary and V.P.
CHANGE IN CERTIFYING ACCOUNTANTS
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549
June 15, 1999
Ladies and Gentlemen:
We have read the statements made by the registrant in the section titled "Change
in Independent Accountants" of the Registration Statement (Form S-1 Amendment
No. 2 File No. 333-72405) and related Prospectus of R-Tec Technologies, Inc. in
response to Item 304 of Regulation S-K and are in agreement with the statements
contained in the second and third paragraphs therein. We have no basis to agree
or disagree with other statements of the registrant contained therein.
JUREWICZ & DUCA
Certified Public Accountants, P.C.
Garden City, New York
June 15, 1999
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No.333-72405) of our report dated May 25, 1999, on our audit of the financial
statements of R-Tec Technologies, Inc. We also consent to the reference to our
firm under the caption "Experts."
_____________/S/_______________
JAMES MOORE & COMPANY, P.L.
Gainesville, Florida
July 12, 1999
CONSENT TO USE NAME
-------------------
I, JEAN PIERRE DE CHALAIN, an authorized representative of Intellectual Property
Valuators (Pty) Limited, with a principle address of 4th Floor, JGM House, 72
Grayston Drive, Sandown, Johannesburg, Republic of South Africa, hereby consent
to allow R-Tec Technologies, Inc. to use our firm name in their S-1 Registration
Statement filed with the Securities and Exchange Commission for their Initial
Public Offering of the Company Stock.
We have prepared a Patent Appraisal dated May 20, 1999 on their behalf.
/S/
- ----------------------
JEAN PIERRE DE CHALAIN
Authorized this 31st day of May, 1999.
Intellectual Property Valuators (Pty) Limited.
Director: J.P. eo Chalain B Sc (Chem Eng) B Proc H Dip Co Law
Chemical Engineer, Attorney, Patent & Trade Mark Attorney, F.L.L.P.L.
Reg No PB/04888/C7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Financial Statements for the year ended December 31, 1998 and for the 3 months
ended March 31, 1999, and is qualified in its entirety by reference to such the
fiancial statements for quarterly period ended March 31,1999.
</LEGEND>
<MULTIPLIER> 1
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 MAR-31-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 43,500 25,474
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 43,500 25,474
<PP&E> 0 5,425
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 904,500 1,031,863
<CURRENT-LIABILITIES> 821,147 885,336
<BONDS> 0 0
<COMMON> 150 150
0 0
0 0
<OTHER-SE> 83,203 146,377
<TOTAL-LIABILITY-AND-EQUITY> 904,500 1,031,863
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 236,487 65,129
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,000 12,000
<INCOME-PRETAX> (240,487) (77,129)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (240,487) (77,129)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (240,487) (77,129)
<EPS-BASIC> .02 .01
<EPS-DILUTED> .02 .01
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