AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 11, 2001
FILE NO. 333-48724
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
THIRD AMENDMENT TO FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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R-TEC TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
New Jersey 22-3615979
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
37 Ironia Road, Floor 2, Flanders, New Jersey 07836
(973) 252-5233
(Address and telephone number of Registrant's principal executive offices)
Phillip Lacqua
37 Ironia Road, Floor2
Flanders, New Jersey 07836
(973) 252-5233
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Jay Hait, Esq.
Jaffe, Freedman & Hait, LLP
39 Hudson Street, Suite 102
Hackensack, NJ 07601
Tel: (201) 441-9377
Fax: (201) 441-9370
time to time after this registration statement becomes effective. The offering
period will end ninety days after the registration statement becomes effective
unless extended for another sixty days by the Company.
------------------------------
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, 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. / /
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<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
---------------------- -------------------- --------------------- --------------------- --------------------
Title Of Each Class Amount To Be Proposed Maximum Proposed Maximum Amount of
Of Securities To Be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Share (1) Price (2)
---------------------- -------------------- --------------------- --------------------- --------------------
---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock 3,500,000 Shares $1.00 $3,500,000.00 $924.00
(no par value per
share)
---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
(1) The registration fee has been calculated in accordance with Sections 13(e)
and 14(g) of the Securities Act of 1933, as amended.
(2) Assumes maximum shares are sold.
------------------------------
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED JANUARY __, 2001 INFORMATION CONTAINED IN THIS
PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT
RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON FORM SB-2. THESE SECURITIES MAY NOT BE SOLD NOR MAY AN OFFER TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE.
THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
3,500,000 COMMON SHARES
R-TEC TECHNOLOGIES, INC.
---------------
Our Common Shares are traded on the over-the-counter Electronic Bulletin
Board under the symbol "RTTC."
This Prospectus relates to:
- the offer and sale from time to time of up to 3,500,000 shares of our
Common Stock;
2
<PAGE>
This is an offering of shares of common stock of R-Tec Technologies, Inc.
(hereinafter 'R-Tec', 'R-Tec Technologies', or the 'Company') All of the shares
to be sold in the offering are being sold by the company. There is currently a
very limited public market for the common stock. R -Tec Technologies expects
that the offering price of the common stock will be about $1.00 per share.
The shares will be sold to the public by R-Tec's officers and directors
who will not be compensated for their sales efforts. The company is not required
to sell any specific number or dollar amount of common stock, but will use its
best efforts to sell all of the shares being offered.
While it does not plan to do so at this time, the company may engage
the services of broker-dealers to assist it in selling the shares. If it does
so, the maximum commission paid to any such broker-dealer will be 10% of the
offering price.
The shares are quoted on the NASD Electronic Bulletin Board under
the symbol "RTTC."
Investing in the common stock involves a high degree of risk. See "Risk
Factors" beginning on page 8.
Price To Proceeds To
Public Company (1)
-------------- --------------
Per Share. . . . . . . . . . . . . . $ 1.00 $ 1.00
Total Maximum (3,500,000 Shares). . $ 3,500,000.00 3,500,000.00
----------------------------------------------------------
(1) Before deducting expenses payable by the Company in connection with the
Offering estimated at approximately $100,000 if the maximum is sold. These
expenses include filing fees, printing, legal and accounting fees. Net proceeds
to the Company after such expenses are estimated to be $3,400,000 if the maximum
is sold.
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL DILUTION TO
PUBLIC INVESTORS. A PROSPECTIVE PURCHASER MAY LOSE HIS TOTAL INVESTMENT. SEE
"RISK FACTORS" AND "DILUTION."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
=================================================================
You should read this Prospectus carefully before you invest in our Company.
PLEASE PAY PARTICULAR ATTENTION TO THE "RISK FACTORS" APPEARING ON PAGE 8 OF
THIS PROSPECTUS.
The date of this Prospectus is January ___, 2001.
The following table of contents has been designed to help you find important
information contained in this Prospectus.
3
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
------- --------
Prospectus Summary.......................................... 5
Description of Securities Purchase Agreement................ 6
Risk Factors................................................ 8
Information on Selling Stockholders......................... 9
Dilution......................... .......................... 10
Use of Proceeds............................................. 11
Management's Discussion and Analysis........................ 15
The Company................................................. 16
Company Properties.......................................... 21
Long Term Compensation Awards............................... 25
Directors, Executive Officers, Promoters and Control
Persons................................................... 22
Executive Compensation...................................... 25
Plan of Distribution........................................ 30
Certain Relationships and Related Transactions.............. 27
Description of Securities................................... 28
Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 29
Litigation.................................................. 31
Legal Matters............................................... 31
Experts..................................................... 32
Security Ownership of Certain Beneficial Owners and
Management................................................ 35
Where To Find Additional Information........................ 40
Financial Statements........................................ F-1
4
<PAGE>
5
<PAGE>
Prospectus Summary
The following summary is qualified in its entirety by the detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus and, accordingly, should be read in conjunction
with such information and statements. The summary discloses all the material
provisions of the underlying documents.
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 gas leaks. R-Tec has recently commenced limited 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 the Company's third-party distributor, 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. A more complete synopsis of this
testing, and a copy of the consent of Motors & Armatures to utilize the results
of this testing has previously been filed with the Commission by R-Tec, and is
incorporated by reference to our fourth amendment to the registration statement
on Form S-1, submitted on August 5, 1999.
Motors & Armatures' standards for leak testing might not be the same as
testing standards used by other third-parties and potential customers. To date,
R-Tec has devoted 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 securities offerings. In addition, R-Tec
has begun selling Ripefully Yours in several supermarket chains.
R-Tec's proprietary technology is protected by a patent which is owned by
R-Tec, a copy of the assignment thereof has previously been filed with the
Commission by R-Tec, and is incorporated by reference to exhibit number 5.1 of
our first amendment to the registration statement on Form S-1, submitted on
April 28, 1999. An additional U.S. patent expanding the scope of the issued
patent and foreign patent applications are pending. The original patent was
purchased by R-Tec's issuance of 100,000 common shares and a payment in the
amount of $450,000. (See "Certain Relationships and Related Transactions").
We have developed three gas detecting paints. The paints change
color when gas escapes through the coated junction allowing for rapid detection
of gas leaks. We believe our existing products have broad application in areas
such as the manufacture and installation of air conditioning and refrigeration
systems.
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, or
butane, using our patented technology. We believe that our 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.
We are pleased with the initial launch results of our Ripefully Yours
product, which removes ethalene gas from your refrigerator while acting as a
deodorizer. The removal of ethalene gas is believed to keep your produce from
spoiling, wilting or browning for up to six weeks. Sales from this product has
increased each month since sales commenced in June of 2000. In the few months
this product has been on the market, it has been sold in 33 grocery chains
located in the northeast and midatlanic U.S. and the Caribbean. The product is
packaged by Pac-rite in Passaic, New Jersey.
Currently, the Company spends bulk of its time actively marketing this
product. If financially feasible, the Company hopes to develop advertising
campaign to aid its marketing efforts as soon as possible. The Company also
expects sales to continue growing and coverage expanding.
SUMMARY FINANCIAL INFORMATION
The following table summarizes certain selected financial data of the Company
and is qualified in its entirety by the more detailed financial statements
contained elsewhere in this document.
<TABLE>
<CAPTION>
Income Statement:
Year Ending Nine Months Ending
December 31, 1999 September 30, 2000
<S> <C> <C>
Sales - 57,476
Cost Of Goods - 20,914
------- -------
Gross Profit - 36,562
Operating Expenses 502,377 515,984
Other Income - 20,332
Other Expenses - (7,779)
Net Profit(Loss) (502,377) (466,869)
Per share (0.17) (0.19)
Shares Outstanding 2,916,666 2,502,876
Dividends - -0-
</TABLE>
Balance Sheet
<TABLE>
<CAPTION>
as of: December 31, September 30
1999 2000
<S> <C> <C>
Cash And Cash Equivalents 448 40,607
Working Capital (deficit) (938,189) 69,657
Total Assets 1,204,940 949,783
Current Liabilities 945,049 56,655
Long Term Debt - -
Stockholders' (deficit) (168,109) 893,128
Equity
</TABLE>
6
<PAGE>
THE OFFERING
We are offering hereby on a best efforts basis a maximum of 3,500,000
Common Shares at an offering price of $1.00 per Share. We determined the
offering price of the Shares. Such prices bear no relation to the book value,
assets or earnings of the Company, or to any other generally recognized
objective criteria of value.
Common Stock Offered: 3,500,000
Offering Price $1.00 per share
Trading Market
and Symbol NASD Electronic Bulletin Board
"RTTC"
Total Number of
Shares Outstanding
after the Offering
(assuming all offered
shares are sold) 6,698,735 shares
Estimated Net Proceeds
(assuming all offered
shares are sold) $3,400,000.00
Use of Proceeds We intend to use the maximum net proceeds
of this offering principally for production
and research equipment, laboratory overhead
and usage costs, salaries, patent expenses,
inventory, advertising, samples,
administrative overhead and working capital
The maximum proceeds of this Offering will
enable us to expand marketing of our entire
line of products, and to build an inventory
of our products. (See "Use of Proceeds.")
Dividend Policy We do not intend to pay any cash
dividends for the foreseeable future.
Risk Factors Investing in R-Tec involves a high degree
of risk. Only persons that can bear the
risk of the loss of his or her entire
investment should invest in the common
stock. An extensive discussion of some
of the principal risks is presented in the
"Risk Factors" section of this prospectus.
7
<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 THE COMPANY DOES NOT OBTAIN FINANCING IT MAY CEASE TO OPERATE WITHIN SIX
MONTHS
R-Tec believes that it currently has enough operating capital to ensure the
Company's continued operation for at least six months. If R-Tec is unable to
find suitable financing sources on acceptable terms, either via the shares being
registered herewith or via alternative financing, R-Tec may not have sufficient
funds to operate after six months and 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 AND IT MAY LACK THE
NECESSARY EXPERIENCE AND MARKET PRESENCE TO SUCCESSFULLY IMPLEMENT ITS BUSINESS
PLAN, WHICH MAY HAVE A NEGATIVE IMPACT ON ITS BUSINESS.
We may not be able, upon completion of this offering, to successfully
implement our proposed business plan or operate profitably. R-Tec has no
significant assets other than a patent. R-Tec has no current substantial
business operations nor any history of operations.
Due to our short operating history, our operations are subject to all the
risks inherent in the establishment of a new business enterprise, such as access
to capital, acceptance of our products in the market and limited revenue from
operations. Our intended activities or plan of operation may not be successful
or result in revenue or profit to the Company. (See "Managagement's Discussion
and Analysis" section (history of Company)).
WE HAVE LOST, AND MAY CONTINUE TO LOSE MONEY, AND IF WE DO NOT ACHIEVE
PROFITABILITY WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS
If we do not achieve profitability we may not be able to continue our
operations. We have incurred operating losses for our fiscal years ended
December 31, 1998 and 1999, and expect to sustain additional operating losses in
the future. Our operating losses are attributable to the developing nature of
our business and have resulted primarily from:
- significant costs associated with the development of our products;
- marketing and distribution of our products;
- interest charges and expenses related to our previous debt and equity
financings; and
- minimal sales history of our recently developed products. (See
"Management's Discussion and Analysis section" section(Business of the
Company))
WE WILL REQUIRE ADDITIONAL FUNDS TO ACHIEVE OUR CURRENT BUSINESS STRATEGY WHICH
MAY NOT BE AVAILABLE TO THE COMPANY ON FAVORABLE TERMS IF AT ALL
The development of our business and the development, sale and delivery of
our products and services requires significant expenditures. A substantial
portion of these expenditures must be made before the Company realizes any
material material revenues. Certain of our expenditures, including marketing,
sales and general general and administrative costs are expensed as they are
incurred, while others certain others are deferred until the applicable network
or product is completed and operational. We will continue to incur significant
expenditures in connection with the construction, acquisition, development and
expansion of our products, services and customer base. We may require additional
financing in the the future. Required additional financing may not be available
to the Company on favorable terms if at all. The Company may obtain additional
financing on terms that may materially dilute the ownership of our shareholders.
(See "Management's Discussion and Analysis" section(liquidity and capital
resources).
8
<PAGE>
SINCE OUR SUCCESS DEPENDS UPON THE EFFORTS OF KEY MEMBERS OF OUR MANAGEMENT AND
OUR EMPLOYEES, OUR FAILURE TO RETAIN MANAGEMENT MEMBERS OR EMPLOYEES WILL
NEGATIVELY AFFECT OUR BUSINESS
Our future success largely depends on the continued services of our
officers and directors, and upon their ability to manage and conduct our
operations and implement our business plan. The loss of services of these
officers and directors could adversely affect our ability to achieve our
business goals. The continued employment of Philip Lacqua is critical to the
Company's proposed product development and the conduct of the Company's
business. The Company is the sole beneficiary of a key man insurance policy.
(See "Management and Affiliates" section)
ALL OF OUR PRODUCTS ARE NEW AND MAY NOT BE COMMERCIALLY FEASIBLE WHICH MAY
NEGATIVELY AFFECT OUR BUSINESS.
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. R-Tec may 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. Since our products have never been produced in commercial
quantities, there can be no assurance that commercial production will be
feasible. (See "Management's Discussion and Analysis" section(our proposed
business))
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. (See "Management's Discussion and Analysis section(our proposed
business))
9
<PAGE>
R-TEC MAY NOT BE ABLE TO COMPETE WITH LARGER AND BETTER FINANCED COMPETITORS
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. 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, creates a significant competitive disadvantage. (See "Management's
Discussion and Analysis" section)
OUR STOCK IS THINLY TRADED AND MAY EXPERIENCE PRICE VOLATILITY WHICH WOULD
NEGATIVELY AFFECT OUR BUSINESS AND SHAREHOLDER VALUE.
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. Only an extremely limited market exists for
R-Tec's common stock. A market may not develop for the securities. If a market
does develop it may not continue. If we are unable to qualify for the NASDAQ
Small Cap Market listing, we believe that our stock will continue to qualify for
trading on over-the-counter market on the OTC Bulletin Board. Consequently,
selling your common stock could be 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. (See 'Management's Discussion and
Analysis" section(liquidity and capital resources.)
WE MAY BE UNABLE TO SELL STOCK IN SOME STATES DUE TO THE INABILITY TO COMPLY
WITH BLUE SKY REGULATIONS, WHICH MAY IMPEDE OUR ABILITY TO OBTAIN FINANCING.
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. Stock
registrations in various or all states may not be approved. If registration is
not approved, it will be more difficult for us to sell the shares. (See "Plan of
Distribution" section)
OUR OFFERING PRICE HAS BEEN ARBITRARILY DETERMINED WHICH MAY RESULT IN LOSS OF
SOME OR ALL OF YOUR INVESTMENT.
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 much less than the price paid by you. (See "Description of
Securities" section(market price of common equity).
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. (See "Plan of Distribution" section)
R-TEC'S COMMON STOCK IS SUBJECT TO THE PENNY STOCK RULES THUS INVESTORS MAY FIND
IT MORE DIFFICULT TO SELL THEIR SECURITIES.
If the trading price of the common stock stays below $5.00 per share,
trading in the common stock would be subject to 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. These rules require the delivery of a disclosure
schedule explaining the penny stock market and the risks associated therewith.
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. (See "Description of
Securities").
MANAGEMENT HAS BROAD DISCRETION IN THE USE OF PROCEEDS OF THIS OFFERING WHICH
MAY CHANGE AND CAUSE INEFFICIENCY.
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. This may change the present
estimated use of proceeds which may cause inefficiency, thus increasing the risk
of the investment. (See "Use of Proceeds" section, Page 11).
PRESENT STOCKHOLDERS WILL DERIVE GREATER BENEFITS AND HAVE LESS RISK IF WE ARE
SUCCESSFUL.
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. Two of our current
officers and directors, Philip Lacqua and Nancy Vitolo, and one of our officers
and directors who resigned from his positions with us effective April 5, 2000,
Mark Scola, collectively have given total consideration of $574,755 for
2,916,666 presently outstanding shares of R-Tec's common stock. Investors in
this offering will pay a total purchase price of $3,500,000.00 assuming all
3,500,000 shares are sold. The officers and directors will beneficially own
43.54% of the outstanding shares and investors in this offering will own 52.25%
of the outstanding shares. (See "Dilution" section)
WE DO NOT EXPECT TO PAY DIVIDENDS AND INVESTORS SHOULD NOT BUY OUR COMMON STOCK
EXPECTING TO RECEIVE DIVIDENDS
We have not paid any dividends on our common stock in the past, and do
not anticipate that we will declare or pay any dividends in the foreseeable
future. Consequently, you will only realize an economic gain on your investment
in our common stock if the price appreciates. You should not purchase our common
stock expecting to receive cash dividends. (See "Description of Securities"
section( dividend policy))
10
<PAGE>
SALES PURSUANT TO RULE 144 BY INSIDERS MAY ADVERSELY IMPACT ON THE MARKET PRICE
OF THE STOCK
Our Officers, Directors and/or affiliates of the Company own over 2,900,000
Common Shares of the Company, all of which are, subject to quantity limitations
discussed below, available for sale. Such shares are "restricted securities"
under Rule 144, as promulgated by the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended, which shares may not be
freely resold. Rule 144 provides, in essence, that any shareholder of the
Company, after holding restricted securities for a period of one year, may,
every three months, sell them in an unsolicited brokerage transaction in an
amount equal to 1% of the Company's outstanding Common Shares, or the average
weekly trading volume, if any, during the four weeks preceding the sale. After
two years, non-affiliated shareholders holding restricted securities are no
longer subject to the 1% limitation and may sell unlimited amounts of shares
they own. If a substantial part of the shares which can be sold were so sold,
the price of the Company's Common Shares might be adversely affected. (See
"Principal Shareholders" and "Underwriting.")
R-TEC'S BUSINESS IS DEPENDENT ON PATENT PROTECTION WHICH CANNOT BE ASSURED.
R-Tec holds two patents on its technology. The Company's patents will not
expire until July 21, 2015, and September 14, 2016, respectively. The company
has applied for several other patents, and plans to apply for several more
patents. Such protection may not preclude competitors from developing products
with features similar to the Company's products. The Company believes that its
products, trademark and other proprietary rights do not infringe on the
proprietary rights of third parties. It is possible, however, that third parties
will assert infringement claims against the Company in the future. The
successful assertion of such claims would have a material adverse effect on the
Company's business, operating results and financial condition. See "Business of
the Company ."
IF HONEYWELL TERMINATES ITS RELATIONSHIP WITH THE COMPANY, THE FUTURE PROSPECTS
OF THE COMPANY'S BUSINESS WILL BE NEGATIVELY AFFECTED.
The Company has an understanding with Honeywell to continue researching the
viability of the Company's technologies in various industries. Honeywell has
recently been purchased by General Electric and the Company may be adversely
affected. The Honeywell's new management may not be interested in continuing
their agreement with our Company. If Honeywell terminates our relationship, the
Company may be adversely affected.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
In addition to historical information, this Prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and information based on our current views of our
business and our assumptions concerning future events. The words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"believes," "estimates," "projects" or similar expressions are intended to
identify these forward-looking statements. These statements are subject to risks
and uncertainties that could cause our business and results of operations to
differ materially from those reflected in our forward-looking statements.
Forward-looking statements are not guarantees of future performance. Our
forward-looking statements are based on trends which we anticipate in our
industry and the effect on those trends of such factors as industry capacity,
product demand and pricing and the other matters referred to in the "Risk
Factors" section of this Prospectus. In addition, such forward-looking
statements are subject to the Company reversing the current negative trend in
our financial results. Accordingly, you are cautioned not to place undue
reliance on our forward-looking statements. We are not required to update any
forward-looking statements we make and we may not make any updates.
WHERE TO FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 in
connection with the securities offered under this Prospectus. As permitted by
SEC rules, this Prospectus does not contain all of the information contained in
the registration statement or in the exhibits to the registration statement.
For further information you may read and copy documents at the public
reference room of the SEC at 450 5(th) Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC at 7 World Trade Center, Suite 1300, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The SEC charges a fee for copies. Copies of this
material should also be available through the Internet at the SEC EDGAR Archive,
the address of which is http://www.sec.gov.
No person is authorized by the Company to give any information or to make
any representations other than those contained in this Prospectus, and, if given
or made, you should not rely upon such information.
REPORTS TO SHAREHOLDERS
We are a "Reporting Company" under the Securities Exchange Act of 1934. In
order to fulfill our reporting obligation under the Securities Exchange Act of
1934, we intend to continue filing audited annual reporst with the Securities
and Exchange Commission on Form 10KSB andunaudited quarterly reports on Form
10QSB. We intend to furnish our shareholders with annual reports containing
audited financial statements as soon as practicable at the end of each fiscal
year.
Dilution
As of September 30, 2000, R-Tec's common stock had a net tangible book
value (total tangible assets less total liabilities) of $893,128 or
approximately $0.28 per share. The following table sets forth the difference
between the price to be paid by new shareholders and the net tangible book value
per share at June 30, 2000, as adjusted to give effect to this offering.
Dilution is the difference between the offering price of $1.00 per share
for the common stock offered hereby, and the net tangible book value per share
of common stock immediately after its purchase. The Company's net tangible book
value per share of Common Stock is calculated by subtracting R-Tec's total
liabilities from its total assets less intangible assets, and then dividing by
the number of shares then outstanding. The net tangible book value of R-Tec,
based on the September 30, 2000 financial statements was $893,128 or
approximately $0.28 per share of common stock. Assuming no changes in net
tangible book value subsequent to September, 2000, other than those resulting
from the sale of all the common stock offered hereby, the post offering pro
forma net tangible book value of R-Tec would be $4,393,128.00 or approximately
$0.66 per share, representing an immediate increase in net tangible book value
of $0.38 per share to existing stockholders and an immediate dilution of $0.34
per share or (66%) to new investors. The following table illustrates the
foregoing information with respect to dilution of new investors on a per share
basis.
Offering price per share $ 1.00
Net book value per share prior to offering $ 0.28
Increase attributable to purchase of shares by new
investors $ 0.38
Post offering pro forma net book value per share $ 0.66
Dilution to investors in this offering $ 0.34
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.
Average
Shares Price/
Owned Consideration Percent Share
--------- -------------- ------- ----------
Present Stockholders 3,198,360 $ 2,087,860.00 47.75% $0.66/Share
New Investors 3,500,000 $ 3,500,000.00 52.25% $1.00/Share
11
<PAGE>
Use of Proceeds
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 securing additional
patents.
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 projected use of proceeds if $ 3,500,000 Of
common stock is sold. We believe that the sale of 1,000,000 of the shares
offered would provide sufficient funds for R-Tec to operate for the nxt 12
months without revenue.
<TABLE>
<CAPTION>
If 66 1/3% of If 33 1/3% of
If 100% of Shares are Sold Shares are Sold Shares are Sold
-------------------------- ----------------------------- ---------------------------
Estimated % Estimated % Estimated %
Purpose Amount of Proceeds Amount of Proceeds Amount of Proceeds
------------ --------- --------------- --------- --------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Research & Development Activities $ 1,600,000 45.71% $ 1,100,000 47.14% $ 500,000 42.85%
Parts & Supplies Expense $ 250,000 7.14% $ 125,000 5.36% $ 50,000 4.28%
Salary Expense $ 500,000 14.29% $ 300,000 12.85% $ 125,000 10.71%
Offering Expenses (Legal, Printing
Accounting & Miscellaneous Expenses) $ 100,000 2.86% $ 100,000 4.28% $ 100,000 8.57%
Patent Expense $ 125,000 3.57% $ 125,000 5.36% $ 125,000 10.72%
Insurance Expense $ 25,000 0.71% $ 25,000 1.08% $ 25,000 2.15%
Sales & Marketing Expenses $ 800,000 22.85% $ 508,333 21.78% $ 216,666 18.57%
Travel Expense $ 100,000 2.86% $ 50,000 2.15% $ 25,000 2.15%
------------------------ ------------- ------------ ------------- ------------ ------------- ----------
Total Usage $ 3,500,000 100.00% $ 2,333,333 100.00% $ 1,166,666 100.00%
</TABLE>
Since the proceeds of this Offering will be applied over time, the actual
expenditure of such proceeds for any purpose could vary significantly from the
anticipated expenditures described above. The Company reserves the right,
therefore, to reallocate proceeds among the uses described above, including to
working capital, depending upon factors such as the results of the Company's
marketing efforts, the Company's success in developing new products, and
technological advances in the industry.
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 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.
If the Company is unable to fund all of its planned Research and
Development activities, it will prioritize its activities according to each
project's relative stage of completion and will then fund those projects which
are closest to being completed and which have the most likelihood of generating
revenue for the Company.
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.
12
<PAGE>
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 the patent expense.
13
<PAGE>
Selected Financial Data
The following table sets forth certain selected financial data for the year
ended December 31, 1999, and the fiscal quarters ended September 30, 1999 and
September 30, 2000. This information is derived from the Company's financial
statements which appear elsewhere in this Prospectus. The selected financial
data is qualified by reference to, and should be read in conjunction with, the
Company's financial statements and notes thereto included elsewhere in this
Prospectus and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS".
Income Statement:
<TABLE>
<CAPTION>
Nine Months Nine Months
Year Ended Ended Ended
December 31 September 30 September 30
1999 1999 2000
<S> <C> <C> <C>
Sales - - 57,476
Cost Of Goods - - 20,914
------ ------- -------
Gross Profit - - 36,562
Operating Expenses 502,377 302,938 515,984
Non-cash
Compensation - - -
Other Income - - 20,332
Other Expenses - (36,000) (7,779)
Net Profit(Loss) (502,377) (338,938) (466,869)
Per share (0.17) (0.12) (0.19)
Shares Outstanding 2,916,666 2,916,666 2,502,876
Dividends - - -
</TABLE>
Balance Sheet
<TABLE>
<CAPTION>
as of: December 31, September 30
1999 2000
<S> <C> <C>
Cash And Cash Equivalents 448 40,607
Working Capital (deficit) (938,189) 69,657
Total Assets 1,204,940 949,783
Current Liabilities 945,049 56,655
Long Term Debt - -
Stockholders' (deficit) (168,109) 893,128
Equity
</TABLE>
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 2000.
Actual
Long Term Liabilities 0
Stockholders' Equity:
Common Stock and additional
paid in capital, $0.00001 par
value authorized
50,000,000 shares;
issued and outstanding
3,198,360 shares; as
adjusted 4,198,360 2,102,860
Deficit Accumulated During
Development Stage (1,209,732)
Total Stockholders' Equity 893,120
Total Capitalization 893,120
15
<PAGE>
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
During 1999, R-Tec was a development stage company engaged in the
acquisition and development of patented technology, the development of a
business plan, arranging for potential suppliers and distribution channels and
raising capital. From inception through December 31, 1999, the Company issued
2,916,666 shares of stock to its founders. The Company's registration statement
was effective November 12, 1999, and sales commenced on January 7, 2000. R-Tec's
initial public ofering is for 1,250,000 shares of common stock to raise a
maximum of $10,000,000. Since sales commenced, the Company sold 166,819 shares
and raised $1,334,555. The offering closed in April, 2000.
On October 27, 2000, we filed this form SB-2 to register 1,000,000 of its
common shares at an anticipated sale price of $3.50 per share. Due to adverse
market conditions, the Company has hereby amended the registration statement
registering 3,500,000 shares at $1.00. The proceeds of the offering will be used
to pay research and development expenses, salaries, marketing and general
administrative expenses. There is no assurance that this offering will be
successful. Should this offering prove unsuccessful, it would be necessary for
us to obtain financing from some other source in order to continue operation.
R-Tec has operated at a loss from inception, incurring a loss of $127,272
during the three months ended September 30, 2000. In order to achieve profitable
operations, we will have to successfully manufacture, distribute and
commercialize our initial products. We will also have to secure all intellectual
property rights. For these reasons it is difficult for R-Tec to forecast our
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.
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 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.
To meet our obligations in consideration of our negative cash flows, we
have, and via this offering document intend to continue to isue additional
shares in our attempts to raise more capital. Since our last year-end, we have
issued an additional 281,694 shares. Part of the proceeds from the sale of these
shares were used to pay down our short term debt.
Although we have not made any commitments as of yet, 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. 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 financing 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 and 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.
16
<PAGE>
Business of the Company
History of Our Company
R-Tec was incorporated under the laws of the State of New Jersey on October
22, 1998. R-Tec has no significant assets with the exception of its patents.
During 1999 and 2000, the Company offered up to 1,250,000 shares of its common
stock for sale at $8.00 per share via a registered offering on Form S-1. The
Company sold 166,819 shares in 2000 and the offering was closed effective June
27, 2000. To date, a majority of activities have been related to organizational
matters, product research, developing a corporate business plan, patent filings,
fund raising activities, negotiating license agreements as well as launching its
"Ripefully Yours" product to the market. The Company believes it is nearing the
end of its initial phase of research in its patented leak detection methods and
believes there should be a commercially viable product ready for production by
February of 2001. In addition to the purchase of the patented technology, this
year the Company has spent in excess of $41,000 on continued research and
development of our products, as opposed to last year when the Company didn't
spend any money on research and development. The Company believes that its
agreement with Honeywell will enable it to continue research to explore the
viability of this technology in various commercial industries. Under the
agreement with Honeywell, Honeywell agreed to keep information concerning the
Company's technology confidential, to evaluate the Company's leak detection
technology and to advise the Company of its interest, or lack thereof, in the
technology. The Company agreed to disclose information to Honeywell regarding
the leak detection technology.
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.
Many different industries could potentially benefits from our products. Our
patented technology may be used to develop numerous products for industries
ranging from medical to air-conditioning, chemical and food industries. 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 as well as
reduce environmental damage caused by leaks of gases, which are believed to
cause ozone depletion and other hazardous problems.
Our Proposed Business
R-Tec was formed to develop and manufacture reactive paints and
other products to coat pipe junctions. Once sealed with the paint, gas escaping
through the painted junction, causes a chemical reaction resulting in a visible
color change of the paint.
R-Tec gas leak detection products including natural gas, CO2, propane,
refrigerants, sf6 are currently in the final phases of formulating and testing.
We expect all of these products to be commercially viable in the Spring of 2001.
The products were tested by Motors and Armatures. Blood gas detection and
chicken strips are projected to commence formulation and testing in the second
quarter of 2001. Ripefully Yours baking soda with ethylene eliminator has been
successfully tested, and is the only product currently generating revenue.
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.
Competition
In each of the product areas in which the Company operates it is subject to
competition from firmly established, very large and very numerous competitors
which have far greater resources, staffs, facilities and reputations than those
possessed by the Company. The same will be true after this offering. To date,
the Company has minimal sales. The Company was able to launch only one of its
products, which has limited name recognition compared to its competitors. The
Company has dire need for additional financing to develop, market and launch its
future products. The Company may not be able to sell its products successfully
in light of this competition, and even if it does succeed in selling its
products initially, the Company may not be able to withstand attempts by these
competitors to market against the Company. Further, any new market opened by the
Company may become the object of efforts by competitors to take over these
markets. Competitors may be able to develop products that are superior to or
marketed more successfully than the Company can market its products. In the
event that the Company cannot successfully compete against these larger
companies the business of the Company will be materially and adversely affected.
17
<PAGE>
The first 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 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 February of 2001. R-Tect 12 reactive paint should also be
available in February 2001, along with R-Tect 134A reactive paint. However, no
assurance canbe given that commercial production will, in fact, occur on this
timetable.
Two-Phase Business Plan
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.
o The commencement of commercial distribution of our reactive paint
products.
o R-Tect 22 freon leak detecting coating.
o R-Tect 12 freon leak detecting coating.
o R-Tect carbon reactive paint. Development of this product is expected
to be complete by April, 2001 at an additional cost of $50,000.
o During Phase 1, we will incur significant operating expenses. We do
not expect to generate significant operating revenues for a period of
at least six months after the completion of our offering.
o During Phase 1 R-Tec will require manufacturing facilities and
additional warehouse space. These facilities may be purchased or
leased and the manufacturing may be outsourced. We anticipate that we
will remain in our existing office space for the coming year but will
be required to expend additional funds on manufacturing and on
warehouse space.
18
<PAGE>
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.
The principal supplier of the Company's raw materials is Pac-Rite of
Passaic, New Jersey. In management's opinion, the relationship between the
Company and Pac-Rite is good.
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 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.
The primary distributor of our protective coating products, Motors &
Armatures, has placed an initial order for 5,000 kits of R-Tect 22 reactive
paint at $44.00 per kit, scheduled for delivery in March of 2001. We believe
that Motors & Armatures will distribute R-Tect kits for 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. The original
anticipated delivery date of R-Tect 22 to Motors & Armatures of October 31,
1999, was extended to February, 2000. That date has been extended again until
after we commence operations. 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.
In June, 2000, we began sales of our Ripefully Yours product which delays
the decay of refrigerated fuits and vegetables. Ripefully Yours is packaged by
Pac-Rite of Passaic, New Jersey, utilizing R-Tec's formulations. Pac-Rite is
toll manufacturing the product for the Company on a purchase order basis whereby
the Company pays a flat fee per box packaged. The Company has established net
ten terms with Pac-Rite. We believe that Pac-Rite can succesfully fulfill all of
our packaging requirements in the foreseeable future. The baking soda is
manufactured by Vitusa Products and the Ethylene eliminator component is
manufactured by GSA Resources. We received minimal revenues from the sale of
Ripefully Yours in the second quarter of this year. Currently, the sales of
Ripefully Yours are increasing steadily. The Company does not have a formal
marketing program for its Ripefully Yours product, but rather growth of this
product line has grown solely by word of mouth. In the few months this product
has been on the market, it has been sold in 33 grocery chains located in the
northeast and midatlanic U.S. and the Caribbean including Pathmark, ShopRite,
King Kullen and C&S Wholesale. To date we have been directing our efforts at
direct sales to large super-market chains. We believe that proper super-market
penetration will allow us to gain access to all marketing outlets nation-wide.
We anticipate that the majority of the Company's revenues in the near future
will be from the sale of Ripefully Yours.
19
<PAGE>
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 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 with 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.
20
<PAGE>
Phase 2-Expand Product Lines and Expand Internal Sales
R-Tec does anticipate entering Phase 2 during next fiscal year. 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. The Company believes that during this
phase it will seek to introduce new products, conduct test marketing and expand
its sales efforts.
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.
R-Tec intends to initially develop only R-Tect propane reactive paint
during this Phase. Further funding will be necessary to develop additional
products.
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.
21
<PAGE>
We plan 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, which its technology is able to do, the medical field may
have the ability to detect a change in the amount of carbon dioxide in the
blood. Although the Company has yet to begin formulation and testing of its
technology for this purpose, 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 would 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.
Employees
R-Tec currently has six full-time employees. Two of the employees are
officers and Directors of the Company. In addition, The Company employs one
sales person, a driver, and two clerical personnel. R-Tec has retained the
services of the following on a part-time basis: two scientists, accounting
personnel and one consultant and director. In the event of successful completion
of the offering, the Company intends to hire additional full-time employees.
Facilities
We lease 1,930 square feet of office space under a two year lease from Haas
Laser Technologies, Inc. at 37 Ironia Rd. in Flanders, New Jersey. The lease
payments are approximately $2,171 per month. The Company anticipates renting
additional production facilities upon the successful conclusion of this offering
or as required by demand for the Company's products. A copy of the lease is
incorporated by reference to the Company's Form 10-KSB filed on April 14, 2000.
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.
R-Tec also has two pending U.S. patent applications which, if granted would
expand the scope of present patent. R-Tec has foreign patent applications
pending for 32 countries. This patent is due to expire July 21, 2015.
In addition, based on some of the patented technology, the Company
filed two more patent applications (US Patent #5,951.909 and # PCT/US99/14937)
which the Company believes will protect additional technologies as well as
provide added protection to the initial patent. US patent # 5,951.909 was issued
on September 14, 1999, and is not due to expire until September 14, 2016.
PCT/US99/14937 is still pending. Both additional patent applications issued in
Australia, China, Japan, Korea, Mexico, Israel, Canada, as well as 37 European
nations.
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.
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<PAGE>
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 bore interest at the rate of 6% per annum and was to be paid in
full within 30 days following the completion of the initial public offering. By
letter agreement dated July 2, 1999, Mrs. Kaiser has agreed that in the event
625,000 shares were 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. On September 28,
1999, the note was further modified by providing for payment of $400,000 of the
total due by the issuance of 100,000 R-Tec shares with the remaining $450,000
being due within thirty days of R-Tec selling $2,000,000 of its shares in the
initial public offering. In February 2000, the Company issued 100,000 shares of
the Company's common stock and paid $450,000 in full satisfaction of amounts
owed under the purchase agreement.
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.
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.
23
<PAGE>
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 52 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
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. We have no independent
compensation committee.
Philip Lacqua, age 52, 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 owned and was employed by Garden State Heating and Air Conditioning
Corporation as a secretary from 1991 until February, 1998. Garden State became
one of the top 50 Bryant/Carrier Dealers in gross sales in the continental U.S.
and Canada. Beginning in March 1998, Ms. Vitolo worked with R-Tec as a
consultant until she became an employee in April, 1999. 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 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.
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.
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<PAGE>
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 had a one year consulting Agreement with Mr. Walsh which terminated
on January 1, 2000. Mr. Walsh had performed consulting services regarding
scientific experiments and research on reactive paints. Pursuant to the
agreement, R-Tec had paid Mr. Walsh $1,000 per month for a total of $12,000. 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
Shawn P. Walsh Scientific Consultant, Director
Robert J. Verdicchio Scientific Consultant
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
We have no independent compensation committee. R-Tec has entered into
employment agreements dated September 23, 1999 with Nancy Vitolo and Philip
Lacqua, who are officers and directors of R-Tec.
The employment agreement with Ms. Vitolo provides for the payment of
$50,000 plus bonus per year for a two-year term. Under the terms of the
employment agreement, the bonus is to be decided by the Board of Directors. Ms.
Vitolo is employed as Vice President, Secretary and director of R-Tec. Ms.
Vitolo has waived her salary due under the agreement through September 23, 1999.
The employment agreement with Mr. Lacqua provides for the payment of
$50,000 plus bonus per year for a two year term. Under the terms of the
employment agreement, the bonus is to be decided by the Board of Directors. Mr.
Lacqua is employed as President, Treasurer and director of R-Tec. Mr. Lacqua has
waived his salary due under the agreement through September 23, 1999.
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<PAGE>
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.
REMUNERATION OF OFFICERS AND DIRECTORS
The following table sets forth the compensation paid during the fiscal
years ended December 31, 1999, December 31, 1998, and the projected compensation
to be paid in 2000 pursuant to existing employment agreements with the Company's
Chief Executive Officer and each of the Company's officers and directors. No
person received compensation equal to or exceeding $100,000 in fiscal 1999 or
2000 and no bonuses were awarded during fiscal 1999 or 2000.
In March 2000, the Company issued stock options for 190,000 shares at $8.00
per share to various employees and consultants.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
Name Other Securities
and Annual Restricted Underlying LTIP All Other
Principal Compen- Stock Options/ Payouts Compen-
Position Year Salary($) Bonus($) sation($) Awards($) SARs ($) sation($)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Philip Lacqua 1998 --- --- ---- ---- ---- ---- ----
President, Treasurer 1999 12,500 --- ---- ---- ---- ---- ----
2000 50,000 --- ---- ---- ---- ---- ----
Nancy Vitolo 1998 --- --- ---- ---- ---- ---- ----
Secretary 1999 12,500 --- ---- ---- ---- ---- ----
2000 50,000 --- ---- ---- ---- ---- ----
Damon E. Palmer 1997 --- --- ---- ---- ---- ---- ----
Director 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
2000 --- --- ---- ---- ---- ---- ----
Shawn P. Walsh 1997 --- --- ---- ---- ---- ---- ----
Director 1998 --- --- ---- ---- ---- ---- ----
1999 --- --- ---- ---- ---- ---- ----
2000 --- --- ---- ---- ---- ---- ----
</TABLE>
26
<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
Principal Stockholder's Number of Percent Prior Maximum
Name and Addresses Shares Owned to Offering Offering Office(s) Held
<S> <C> <C> <C> <C>
Philip Lacqua 972,222 30.39% 14.51% Director,
1127 83rd Street President,
Brooklyn, New York 11228 Treasurer
Nancy Vitolo 934,223 29.20% 13.95% Director,
290 Green Road Vice President,
Sparta, New Jersey 07871 Secretary
Marc M. Scola 972,222 30.39% 14.51% Former Director,
61 Mallard Drive Vice President,
Allamuchy, New Jersey 07820 General Counsel
Damon E. Palmer -0- 0% 0% Director
8380 SW 39 Court
Davie, Florida 33328
Shawn P. Walsh -0- 0% 0% Director
538 Wren Way
Branchburg, New Jersey 08876
All Officers and
Directors as a Group 2,878,667 89.98% 42.98%
</TABLE>
27
<PAGE>
Certain Relationships and Related Transactions
Mr. Lacqua, Ms. Vitolo and Mr. Scola own 2,878,667 shares. They contributed
$632,834 in capital through June 30, 2000.
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.
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. Mrs. Kaiser is the mother of Stewart Kaiser and
Nancy Vitolo's mother-in-law. Ms. Vitolo is the wife of Stewart Kaiser.
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 bore interest at the rate of 6% per annum is to be paid in full
within 30 days following the completion of the initial public offering. By
letter agreement dated July 2, 1999, Mrs. Kaiser agreed that in the event
625,000 shares was not sold by January 10, 2001, 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. On September 28, 1999, the note
was further modified by providing for payment of $400,000 of the total due by
the issuance of 100,000 R-Tec shares with the remaining $450,000 being due
within thirty days of R-Tec selling $2,000,000 of its shares in the initial
public offering. In February 2000, the Company paid $450,000 and in March 2000,
the Company issued 100,000 shares of the Company's common stock in full
satisfaction of amounts owed under the purchase agreement.
Muriel Kaiser paid $850,000 to develop the patent. In May of 1999, Mrs.
Kaiser sold the patent to the Company for a promissory note for $850,000. In
February 2000, Mrs. Kaiser got paid $450,000 by the Company and Mrs. Kaiser
received 100,000 shares of the Company's stock in March 2000. Although the
Company's stock was being sold for $8.00 a share at the time, Mrs. Kaiser
received 100,000 shares because she received restricted stock.
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. During 1999, sums due Mr. Lacqua,
Ms. Vitolo and Mr. Scola were reduced or reclassified as equity. Mr. Lacqua, Ms.
Vitolo and Mr. Scola did not receive any additional outstanding shares. The
expenses were treated as a capital contribution.
On September 25, 1999, our executive officers, Mr. Lacqua, Ms.
Vitolo as well as the then Director, Mr. Scola, transferred 12,083,334 common
shares to the Company, reducing the total number of shares held by them as a
group to 2,916,666. This transaction was to facilitate the 1999 public offering.
On September 25, 1999, our executive officers, Mr. Lacqua, Ms. Vitolo
as well as the then Director, Mr. Scola, transferred 12,083,334 common shares
to the Company, reducing the total number of shares held by them as a group
to 2,916,666. This transaction was to facilitate the 1999 public offering.
R-Tec presently has one independent director. The transactions noted above
were ratified by this independent director who does 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. The Company has
obtained an insurance liability policy for this purpose at a cost of
approximately $37,000 per year.
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<PAGE>
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
As soon as the money from this offering is made available, R-Tec expects to
make all arrangements necessary so that it can commence full scale commercial
operations immediately thereafter.
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 3,198,735 shares of common stock, all of
which are validly issued, fully paid and non-assessable. The Board of Directors
of the Company has the authority to isue all or any portion of the Company's
authorized but unissued shares of common stock. Should the Board of Directors
elect to issue a large amount of additional shares, the Company's existing
shareholders could be significantly diluted; the Company could experience a
change in the control block; the business of the Company could be significantly
changed; the Company's share value could drop significantly; all of which could
have a significant adverse affect on the value of the Company and its shares.
Common Stock
The shares being offered are shares of common stock. Currently
there are no active markets for the common stock and there can be no assurances
there will ever be an active public market in the future.
R-Tec is presently authorized to issue 50,000,000 shares of $.00001
par value common stock. There are 3,198,735 shares issued and outstanding, and a
maximum of 3,500,000 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 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. The rights of the Company's shareholders cannot be changed without a
vote of a majority or nore of the Company's outstanding shares, voting as a
class.
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.
29
<PAGE>
Transfer Agent
American Stock Transfer & Trust Co.
59 Maiden Lane
New York, NY 10038
Telephone (212) 936-5100
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.
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 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. 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.
MARKET PRICE OF COMMON EQUITY
Market for Common Stock
The Company's Common Stock is quoted on the Over the Counter Bulletin Board
(OTC:BB) under the symbol "RTTC." The company initiated trading on June 30, 2000
and a total of seven thousand (7,000) shares have traded since that time at
prices between $8.00 and $1.40.
As of October 17, 2000 there were 259 shareholders of the Company's Common
Stock. In addition, under the Company's adopted stock option plan, the Company
granted options for some of its employees and directors to purchase 190,000
common shares at $8 per share.
Prior to the offering, there has been almost no market for the securities
of the Company. There can be no assurance that a market for the Company's
securities will develop after completion of this offering or, if developed, that
it will be maintained. As a consequence of such a limited market, a purchaser of
the Shares may be unable to sell the Shares when desired and may have to hold
the Shares indefinitely. The determination of the offering price of the Shares
was made arbitrarily by the Company.
30
<PAGE>
Plan of Distribution
The Company is offering hereby up to a maximum of 3,500,000 Shares on a
"best efforts" basis. There is no minimum amount required to close this
Offering. The securities offered hereby may be sold by selected broker/dealers
who are members of the National Association of Securities Dealers, Inc. ("NASD
Member Firms").
The Company will pay to such firms a commission not to exceed 10% of the
gross amount of all Shares sold by such an NASD Member Firm. All other sales
will be effected by the Officers and Directors of the Company, without
compensation. Officers and directors of the Company may purchase up to ninety
(90) percent of this Offering.
The offering will terminate 90 days after the Effective Date, unless
extended for an additional sixty (60) days by the Company. There will be no
escrow account. All subscriptions will be accepted or rejected within one day of
receipt.
Prior to this Offering, there has been a limited public market for the
Securities. The Common Stock was traded on the Over The Counter Electronic
Bulletin Board under the symbol "RTTC." Currently there are only two market
makers for our Common Stock and there can be no assurance that a market for our
shares will continue with any consistency. Consequently, the offering prices of
the Securities have been arbitrarily determined by the Company and are not
necessarily related to the Company's asset value, net worth or other established
criteria of value. The factors considered in such public offering price, in
addition to prevailing market conditions, include the history of and prospects
for the industry in which the Company competes, an assessment of the Company's
management, the prospects of the Company, its capital structure and certain
other factors as were deemed relevant.
The Company and any broker-dealer that acts in connection with the sale of
Common Stock may be deemed to be an "underwriter" within the meaning of Section
2(11) of the Securities Act of 1933. Any commissions received by broker-dealers
and any profit on the resale of Common Stock sold by them while acting as a
principal may be deemed to be underwriting discounts or commissions. The Selling
Stockholders may agree to indemnify any agent or broker-dealer that participates
in a transaction involving sales of Common Stock against certain liabilities.
Under Rule 3a4-1 of the Exchange Act, none of the 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 a broker or dealer, or an associated person of a broker dealer, within
the preceding 12 months; and (c) none will participate in selling an offering of
securities for any issuer more than once every 12 months.
Residents of California purchasing shares 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.
31
<PAGE>
Legal Proceedings
On December 14, 1999, IBS Interactive, Inc. filed a suit against R-Tec. The
case is pending in the Morris County Superior Court in Morris County, New Jersey
for approximately $75,000 allegedly owed for services provided to R-Tec on its
website. R-Tec has counterclaimed on a damages claim for approxiamtely $175,000
for improper closure of its website by IBS Interactive, Inc. We believe that
this matter will not be assigned a trial date for at least another year to year
and a half. We are unaware of any other material itigation pending or threatened
against R-Tec.
Legal Matters
Jay Hait, Esq., 39 Hudson street, Suite 102, Hackensack, New Jersey 07601
is passing upon the validity of the shares of common stock offered by the
prospectus.
Experts
The financial statements of R-Tec as of December 31, 1999, 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. R-Tec's Board of
Directors approved the decision to change auditors.
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. Subsequent to the issuance
of the audit report of Jurewicz & Duca, P.C., information came to the attention
of Jurewicz & Duca, P.C. which they have concluded materially impacts the
fairness and reliability of their audit report and the underlying financial
statements. Due to the dismissal of Jurewicz & Duca, P.C., they have not
addressed these issues and therefore have withdrawn their audit report dated
January 7, 1999. No reliance should be placed on this audit report or the
underlying financial statements.
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
Persons may subscribe for shares by filling in and signing the subscription
agreement and delivering it to us prior to the expiration date. Subscribers must
pay $1.00 per share in cash or by check, bank draft or postal express money
order payable in United States dollars to "R-Tec Technologies, Inc." The
offering is being made on a "best efforts" basis. This means that only some, if
any, of the shares offered hereby may be sold.
32
<PAGE>
Financial Statements
INDEPENDENT AUDITORS' REPORT
To the Board of Directors,
R-Tec Technologies, Inc.:
We have audited the accompanying consolidated balance sheet of R-Tec
Technologies, Inc. (a development stage company) as of December 31, 1999, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year ended December 31, 1999 and for the period from inception
(October 22, 1998) through December 31, 1998 and for the period from inception
(October 22, 1998) through December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of R-Tec Technologies,
Inc. as of December 31, 1999, and the results of its operations and its cash
flows for the year ended December 31, 1999 and for the period from inception
(October 22, 1998) through December 31, 1998 and for the period from inception
(October 22, 1998) through December 31, 1999 in conformity with generally
accepted accounting principles.
/s/ James Moore & Co., P.L.
Gainesville, Florida
March 29, 2000
F - 1
33
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
ASSETS
December 31,
1999
------------
Current assets
<S> <C>
Cash and cash equivalents $ 448
-----------
Office equipment, net of accumulated
depreciation of $2,524 6,860
-----------
Other assets
Patent, net of accumulated amortization of $49,841 829,744
Deferred offering costs 365,888
Deposits 2,000
-----------
Total other assets 1,197,632
------------
Total Assets $ 1,204,940
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 135,308
Due to stockholders 284,491
Notes payable 505,250
Convertible note payable 20,000
-----------
Total current liabilities 945,049
-----------
Common stock payable 428,000
-----------
Commitments and contingencies (Note 3)
Stockholders' equity
Common stock, par value $.00001 per share, 50,000,000
shares authorized, 2,916,666 shares issued and
outstanding 29
Additional paid-in capital 574,726
Deficit accumulated during the development stage (742,864)
------------
Total stockholders' equity (168,109)
------------
Total Liabilities and Stockholders' Equity $ 1,204,940
============
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this statement.
F - 2
34
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Inception Inception
(Oct. 22, (Oct. 22,
Year Ended 1998) 1998)
Dec. 31, Through Through
1999 Dec. 31, Dec. 31
1998 1999
------------ --------- --------
<S> <C> <C> <C>
Revenues $ - $ - $ -
----------- --------- --------
Expenses
Administrative fees to stockholders 174,212 231,000 405,212
Administrative and start-up 242,504 5,487 247,991
Interest expense 33,296 4,000 37,296
Amortization and depreciation 52,365 - 52,365
------------ --------- --------
Total expenses 502,377 240,487 742,864
------------ --------- --------
Net loss $ (502,377) $ (240,487) $ (742,864)
============ ========= ========
Net loss per common share $ (.17) $ (.08) $ (.25)
============ ========= ========
Weighted average common shares 2,916,666 2,916,666 2,916,666
outstanding ============ ========== =========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F-3
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Deficit
Accumulated
Additional During the Total
Common Stock Paid-In Due from Development tockholders'
Shares Par Value Capital Stockholders Stage Equity
------ ---------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Initial capitalization, October 1998 2,916,666 $ - $ - $ - $ - $ -
Additional capital contributed by
stockholders, October 1998 through
December 1998 - 29 419,971 (96,160) - 323,840
Net loss - - - - (240,487) (240,487)
---------- ----------- --------- ---------- --------- --------
Balance, December 31, 1998 2,916,666 29 419,971 (96,160) (240,487) 83,353
Additional capital contributed by
stockholders January 1999 through
December 1999 - - 154,755 96,160 - 250,915
Net loss - - - - (502,377) (502,377)
---------- ---------- -------- --------- ----------- -----------
Balance, December 31, 1999 2,916,666 $ 29 $574,726 $ - $(742,864) $ (168,109)
========== =========== ========= =========== =========== =========
The accompanying notes to consolidated financial statements are
an integral part of this statement.
F - 4
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash and Cash Equivalents
Inception Inception
(October 22, (October 22,
1998) 1998
Year Ended Through Through
December 31, December 31, December 31,
1999 1998 1999
------------------ ----------------- --------------
Cash flows from operating activities
<S> <C> <C> <C>
Net loss $(502,377) $ (240,487) $ (742,864)
---------- ------------ ---------
Adjustments to reconcile net loss to
net cash used in operating activities:
Unreimbursed expenses contributed to
capital by shareholders 117,462 231,000 348,462
Common stock payable for services 28,000 - 28,000
Depreciation and amortization 52,365 - 52,365
Interest expense - amortization of
discount on note payable 31,250 4,000 35,250
Increase in deposits (1,000) (1,000) (2,000)
Increase in accounts payable and
accrued expenses 128,161 147 128,308
---------- ---------- ---------
Total adjustments 356,238 234,147 590,385
---------- ---------- ---------
Net cash used in operating activities (146,139) (6,340) (152,479)
Cash flows from investing activities ---------- ---------- --------
Patent costs (64,585) (5,000) (69,585)
Purchase of equipment (9,384) - (9,384)
---------- --------- --------
Net cash used in investing activities (73,969) (5,000) (78,969)
Cash flows from financing activities ---------- --------- --------
Increase in deferred offering costs (320,888) (38,000) (358,888)
Proceeds from notes payable 80,000 - 80,000
Increase in due to stockholders 284,491 - 284,491
Capital contributed by stockholders 133,453 92,840 226,293
--------- --------- -------
Net cash provided by financing activities 177,056 54,840 231,896
Net increase (decrease) in cash --------- --------- -------
and cash equivalents (43,052) 43,500 448
Cash and cash equivalents, beginning of period 43,500 - -
--------- --------- -------
Cash and cash equivalents, end of period $ 448 $ 43,500 $ 448
========= ========= ========
Supplemental disclosures of noncash
investing and financing activities
Purchase of patent with common stock and note payable $ - $ 810,000 $ 810,000
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these statements.
F - 5
37
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 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. and subsidiary (the Company) which affect
the accompanying consolidated 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 and its subsidiary have devoted substantially all
their efforts to date to raising capital to commercialize their technology and
have no revenues. Therefore, these consolidated financial statements have been
prepared in accordance with Statement of Financial Accounting Standards No. 7
Accounting and Reporting by Development Stage Enterprises. The consolidated
financial statements include the Company and its wholly owned subsidiary. All
intercompany accounts and transactions have been eliminated.
(c) 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.
(d) 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.
(e) Office equipment-Office equipment is recorded at cost. Depreciation is
calculated using the straight-line method over the useful lives of the assets,
ranging from 3 to 7 years. The Company recorded depreciation expense of $2,524
in 1999.
(f) 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.
(g) 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. These assets are being amortized using the straight-line method over
their estimated useful life of seventeen years. The Company recorded $49,841 in
amortization expense in 1999.
(h) 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
38
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(1) Summary of Significant Accounting Policies: (Continued)
(i) Loss per common share-Loss per common share is computed using the
weighted average number of shares outstanding during each period
presented in accordance with Statement of Financial Accounting
Standards No. 128 Earnings Per Share.
(j) Start-up costs-The initial costs incurred to organize the Company are
expensed when incurred.
(k) Advertising-Advertising costs are expensed when incurred.
(2) Public Offering of Common Stock:
The Company is offering up to 1,250,000 shares of its common stock for sale at
$8.00 per share, which is expected to raise between $1 to $10 million. No
proceeds were received in 1999. There is no assurance the offering will be
successful (see Note 9).
(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 $150,000 beginning
September 30, 1999.
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 were granted in 1999 (see Note 9).
An office is leased from a stockholder under a two year lease at $2,000 per
month. Rent expense for this and other operating leases was $24,000 for 1999 and
$10,000 for 1998, respectively.
In connection with the proposed public offering as described in Note 2, the
Company entered into an agreement with a placement agent contingent on the
Company raising at least $1 million. The Company agreed to pay the placement
agent 9% of the amount raised plus 2.25% of the amount raised for nonaccountable
expenses and issued warrants to purchase 12,500 shares at $13.20 per share on a
pro rata basis for each $1 million raised. The warrants expire in five years.
Amounts due under this agreement are currently in dispute, however, no amounts
were due as of December 31, 1999.
F - 7
39
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(3) Commitments and Contingencies: (Continued)
In connection with the public offering as described in Note 2, the Company
entered into an agreement with a financial consultant contingent on the Company
raising at least $2 million in capital. The consultant will be paid $2,000 per
month plus expenses during the first twelve months following the Company raising
$2 million in capital. The agreement renews for an additional year unless
canceled at the end of the initial year.
The Company has recorded an expense and an obligation to issue 7,000 shares of
unregistered common stock in the amount of $28,000 at December 31, 1999, for
amounts due to consultants. The stock payable obligation is recorded at a value
of $4.00 per share which is 50% of the public offering price (see Note 2)
because the stock is under various trading restrictions and because there is no
active market for the stock.
The Company is the defendant and plaintiff in a lawsuit with a vendor. The
vendor alleges unpaid amounts due by the Company for services rendered. The
Company has countersued for breech of contract and damages. The Company believes
the vendor's suit is without merit and is vigorously defending its position,
however there is no guarantee of a favorable outcome. The Company has not
recorded any potential liability from this matter in the accompanying financial
statements.
(4) Patent Acquisition and Notes Payable:
The Company purchased a patent from a related party (see Note 6) on December 1,
1998, the terms of which were substantially modified in May 1999 and September
1999. The Company is obligated to issue 100,000 shares of the Company's common
stock valued at $400,000 and issued a promissory note in the amount of $450,000.
The stock payable obligation is recorded at a value of $4.00 per share which is
50% of the public offering price (see Note 2) because the stock is under various
trading restrictions. The promissory note is initially non interest bearing and
is due in full within thirty days of $2 million being raised in the proposed
stock offering described in Note 2; or if $2 million is not raised by May 1,
2000, then interest at 6% is payable quarterly from May 1, 2000 until May 1,
2002 at which time quarterly payments of $22,500 plus accrued interest are due
until paid in full. As of the date of the agreement, the patent, stock payable
obligation and note payable have been recorded at $810,000 which represents the
net present value of the stock payable obligation and note payable (see Note 9).
In June 1999, the Company received $80,000 under two notes payable. The $60,000
promissory note is due in full within thirty days of $2 million being raised in
the stock offering described in Note 2; or if $2 million is not raised the note
is due in full on or before November 15, 2000. Interest at 8.5% is due monthly.
The $20,000 promissory note plus interest at 8.5% is due in full within thirty
days of the completion of the stock offering described in Note 2 or is
convertible into unregistered common stock at $4.00 per share at the option of
the holder (see Note 9).
F-8
40
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(5) Income Taxes:
No provision of income taxes has been recorded for 1999 or 1998 due to net
losses incurred.
The Company has a deferred tax asset of approximately $273,000 at December 31,
1999, 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, 1999 and 1998, due to the uncertainty of realization of the future benefit
of these future deductions. Therefore, no income tax benefit is provided in the
accompanying statements of operations for 1999 or 1998.
(6) Related Party Transactions:
Certain unreimbursed administrative expenses of the Company were incurred by the
founding shareholders. The Company recorded $174,212 as administrative fees to
stockholders expense; a liability due to stockholders in the amount of $284,491;
and $65,111 as an increase in additional paid in capital for the year ended
December 31, 1999. The Company recorded $231,000 as administrative fees to
stockholders and as an increase in additional paid in capital for the period
ended December 31, 1998.
The Company was owed $96,160 from stockholders for amounts due for additional
paid-in capital as of December 31, 1998. This amount was 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
100,000 shares of common stock and $450,000 at December 31, 1999 (see Note 9).
(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 $398 at December 31, 1999. The Company has no policy of
requiring collateral or other security to support its deposits.
F-9
41
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(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, 1999:
Carrying
Amount Fair Value
--------- ----------
Financial Assets
Cash and cash equivalents $ 448 $ 448
----------- -------------
Total financial assets $ 448 $ 448
========== =============
Financial Liabilities
Accounts payable and accrued expenses $ 135,308 $ 135,308
Due to stockholders 284,491 284,491
Notes payable 505,250 510,000
Convertible note payable 20,000 20,000
Common stock payable 428,000 428,000
--------- ----------
Total financial liabilities $ 1,373,049 $ 1,377,799
========= =========
The fair value of financial instruments approximates carrying value due to the
short-term maturity of the instruments.
(9) Subsequent Events:
In February 2000, the Company received approximately $1,327,000 in proceeds from
the stock offering described in Note 2.
In February 2000, the Company repaid $284,491 in amounts due to stockholders or
to companies controlled by stockholders.
In February 2000, the Company paid $450,000 on a note payable.
In February 2000, the Company paid $20,000 and entered into a promotional
contract related to its subsidiary.
In March 2000, the Company issued 100,000 unregistered shares to satisfy its
obligation under the patent acquisition as described in Note 4.
In March 2000, the Company issued 7,000 unregistered shares to consultants for
work performed in 1999.
In March 2000, the Company issued stock options for 190,000 shares at $8.00 per
share to various employees and consultants.
In March 2000, the Company entered into a two year building lease with monthly
payments of $2,171.
F-10
42
<PAGE>
R-TEC TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(10) Subsidiary:
In July 1999, the Company's founding shareholders incorporated Ripefully Yours,
Inc. On February 22, 2000, these shareholders amended the articles of
incorporation of Ripefully Yours, Inc. to reflect all the outstanding common
stock of Ripefully Yours, Inc. as owned by the Company. No value was assigned to
this transaction as Ripefully Yours, Inc. has no assets and no operations. The
accompanying financial statements reflect this subsidiary of the Company from
the date of its inception.
F-11
43
<PAGE>
Unaudited Financial Statements for the Period Ending September 31, 2000
44
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
See accompanying notes to financial statements.
R-TEC TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
ASSETS
September 30, 2000
Current assets
<S> <C>
Cash and cash equivalents $ 40,607
Accounts receivable 20,617
Inventory 53,005
Prepaid expenses 12,083
-------------------
Total current assets 126,312
Equipment, net 23,332
Other assets
Patent, net 794,639
Deposits 5,500
-------------------
Total other assets 800,139
-------------------
Total Assets $ 949,783
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenss $ 21,655
Notes payable 35,000
-------------------
Total current liabilities $ 56,655
Commitments and contingencies (Note 3)
Stockholders' equity
Common stock, par value $.00001 per share, 50,000,000
shares authorized, 3,198,360 shares issued and
outstanding 32
Additional paid-in capital 2,102,828
Accumulated deficit (1,209,732)
-------------------
Total stockholders' equity 893,128
-------------------
Total Liabilities and Stockholders' Equity $ 949,783
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three-Months Ended Nine-Months Ended
September 30, September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenue $ 38,515 $ - $ 57,476 $ -
Cost of revenues 9,881 - 20,914 -
--------------- --------------- -------------- --------------
Gross profit 28,634 - 36,562 -
Selling, general and administrative expenses 170,323 101,264 515,984 302,938
---------------- --------------- ---------------- -------------
Loss from operations (141,689) (101,264) (479,422) (302,938)
Other income (expenses)
Other income 15,161 - 20,332 -
Interest expense (744) (12,000) (7,779) (36,000)
---------------- --------------- ----------------
Total other income (expenses) 14,417 (12,000) 12,553 (36,000)
---------------- --------------- ----------------
Net loss $ (127,272) $ (113,264) $ (466,869) $ (338,938)
Net loss per common share $ (.04) $ (.04) $ (.19) $ (.12)
Weighted average common shares outstanding 3,198,360 2,916,666 2,502,876 2,916,666
</TABLE>
46
See accompanying notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
R-TEC TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash and Cash Equivalents
(Unaudited)
Nine-Months Ended September30,
________________________________
2000 1999
-------------- ----------------
Cash flows from operating activities
<S> <C> <C>
Net loss $ (466,869) $ (338,938)
Adjustments to reconcile net loss to net cash used in operating activities:
Unreimbursed expenses contributed to capital by shareholders 1,584 14,500
Stock issued for services 3,000 -
Salaries contributed by stockholders 26,001 -
Depreciation and amortization 44,038 -
Interest expense - amortization of discount on note payable - 36,000
Increase in accounts receivable (20,617) -
Increase in inventory (53,005) -
Increase in prepaid assets (12,083) -
Increase in deposits (3,500) (1,000)
Increase (decrease) in accounts payable and accrued expenses (110,649) 95,044
--------------- ------------------
Total adjustments (125,231) 144,544
--------------- ------------------
Net cash used in operating activities (592,100) (194,394)
Cash flows from investing activities
Patent costs (3,700) (53,585)
Purchase of equipment (6,706) (10,083)
Net cash used in investing activities (10,406) (63,668)
---------------- ------------------
Cash flows from financing activities
Decrease (increase) in deferred offering costs 25,526 (297,926)
Proceeds from notes payable - 80,000
Repayments of notes payable (465,000) -
Increase (decrease) in due to stockholders (252,416) 264,035
Proceeds from sale of stock 1,334,555 -
Capital contributed by stockholders - 169,003
Net cash provided by financing activities 642,665 215,112
--------------- ----------------
Net increase (decrease) in cash and cash equivalents 40,159 (42,950)
Cash and cash equivalents, beginning of period 448 43,500
--------------- ----------------
Cash and cash equivalents, end of period $ 40,607 $ 550
Supplemental disclosures of cash flow information --------------- ----------------
Cash paid during the period for interest $ 4,750 $ -
Supplemental disclosures of noncash investing and financing activities:
Issuance of common stock for repayment of debt 30,000 -
Issuance of common stock in satisfaction of obligation 428,000 -
</TABLE>
47
<PAGE>
48
<PAGE>
R-TEC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
The information presented herein as of June 30, 2000, and for the three and
six-months ended September 30, 2000 and 1999, is unaudited.
(1) Basis of Presentation:
The accompanying financial statements of R-Tec Technologies, Inc. and subsidiary
(the Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal required adjustments)
considered necessary for a fair presentation have been included.
Prior to April 1, 2000, the Company was considered a development stage
enterprise.
Operating results for the three and six-month periods ended June 30, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the financial
statements and footnotes included in the Company's annual report of Form 10-KSB
for the year ended December 31, 1999.
(2) Stock Offering:
During 1999 and 2000, the Company offered up to 1,250,000 shares of its common
stock for sale at $8.00 per share. The Company sold 166,819 shares in 2000 and
the offering was closed effective June 27, 2000.
(3) Commitments and Contingencies:
On April 14, 1999, the Company adopted a stock bonus plan and reserved 1,000,000
shares of its authorized but unissued common stock under this plan. In March
2000, the Company issued stock options for 190,000 shares at $8.00 per share to
various employees and consultants. As of June 30, 2000, no options had been
exercised.
In connection with the public offering as described in Note 2, the Company
entered into an agreement with a placement agent contingent on the Company
raising at least $1 million. The Company agreed to pay the placement agent 9% of
the amount raised plus 2.25% of the amount raised for nonaccountable expenses
and issue warrants to purchase 12,500 shares at $13.20 per share on a pro rata
basis for each $1 million raised. The Company canceled the agreement and paid
$50,000 during the second quarter of 2000.
The Company is the defendant and counter-plaintiff in a lawsuit with a vendor.
The vendor alleges unpaid amounts due by the Company for services rendered. The
Company has countersued for breech of contract and damages. The Company believes
the vendor's suit is without merit and is vigorously defending its position,
however there is no guarantee of a favorable outcome. The Company has not
recorded any potential liability from this matter in the accompanying financial
statements. 7
49
<PAGE>
R-TEC TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(4) Patent Acquisition and Notes Payable:
The Company purchased a patent from a related party on December 1, 1998, the
terms of which were substantially modified in May 1999 and September 1999. In
February 2000, the Company issued 100,000 shares of the Company's common stock
and paid $450,000 in satisfaction of amounts owed under the purchase agreement.
In June 1999, the Company borrowed $60,000. The promissory note is due in full
within thirty days of $2 million being raised in the stock offering described in
Note 2; or if $2 million is not raised the note is due in full on or before
November 15, 2000. Interest at 8.5% is due monthly. As of June 30, 2000, $15,000
in principal had been paid by the Company. Additionally, 5,000 shares of common
stock have been issued by the Company in satisfaction of $20,000 in principal.
No interest has been paid on the note.
In June 1999, the Company also borrowed $20,000. The promissory note plus
interest at 8.5% is due in full within thirty days of the completion of the
stock offering described in Note 2 or is convertible into unregistered common
stock at $4.00 per share at the option of the holder. As of June 30, 2000, 3,500
shares of common stock have been issued by the Company in satisfaction of
$10,000 in principal. No interest has been paid on the note.
(5) Net Loss Per Common Share:
Net loss per common share is computed in accordance with the requirements of
Statement of Financial Accounting Standards No. 128 (SFAS 128). SFAS 128
requires net loss per share information to be computed using a simple weighted
average of common shares outstanding during the periods presented.
(6) Segments:
The Company has two segments, gas-detecting paints and household products. The
following reflects financial information about the segments as of 6/30/00:
Paints Household products
------------------- -------------------
Total assets $ 1,024,066 $ 71,473
=================== ===================
Revenues $ - $ 18,961
=================== ===================
Net loss from operations $ (312,977) $ (26,621)
=================== ===================
50
<PAGE>
SUBSCRIPTION AGREEMENT
The undersigned hereby subscribes for ______________ Shares of the offering of
R-TEC Technologies, Inc. described herein. Subscriber acknowledges receipt of
the Prospectus in which the Subscription Agreement is included.
------------------------------- -------------------------------
(Signature of Subscriber) (Signature of Subscriber)
------------------------------- -------------------------------
Print Name Print Name
------------------------------- -------------------------------
Date Date
------------------------------- -------------------------------
Address Address
------------------------------- -------------------------------
Social Security or Taxpayer Social Security or Taxpayer
Identification number Identification number
Form of Ownership Resided (check one):
[ ] Individual
[ ] Joint Tenants with rights of survivorship [ ] Tenants in Common [ ] Trust [
] Corporate [ ] Partnership
51
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. Indemnification of Directors and Officers.
The By-Laws of the Company provide for indemnification of officers and
directors to the maximum extent allowed by the law of New Jersey.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers, and persons controlling 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.
Item 25. Expenses of Issuance and Distribution
The other expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are estimated as
follows:
Securities and Exchange Commission Registration Fee $ 925.00
Legal Fees 35,500.00
Accounting Fees 15,000.00
Printing and Engraving 20,000.00
Blue Sky Qualification Fees and Expenses 25,500.00
Miscellaneous 1,075.00
Transfer Agent Fee 2,000.00
---------
TOTAL $ 100,000.00
52
<PAGE>
Item 26. Recent Sales of Unregistered Securities
In October, 1998 the Company issued 5,000,000 shares each to its founders,
Philip Lacqua, Nancy Vitolo and Marc Scola. The Company later cancelled
4,027,778 shares held by each of the founders, without any consideration, in
preparation of its offering on Form S-1. This left Philip Lacqua, Nancy Vitolo
and Marc Scola each with 972,222 unregistered shares issued as founders stock.
In June 1999, the Company borrowed $20,000. The promissory note plus
interest at 8.5% was due in full within thirty days of the completion of a
proposed stock offering which was never completed. As at June 30, 2000, 3,500
shares of common stock have been issued by the Company in satisfaction of
$10,000 of the principal. This transaction was exempt from registration under
Section 4(2) of the Securities Act and Rule 144 thereunder. Stock issued under
these exemptions carries certain resale restrictions and the stock certificates
bear restrictive legends
In March, 2000 the Company issued 7,000 shares of its common stock in
exchange for debts of $28,000 due to consultants. The stock payable obligation
is recorded at a value of $4.00 per share which was 50% of the public offering
price because the stock is under various trading restrictions and because there
is no active market for the stock. This transaction was exempt from registration
under Section 4(2) of the Securities Act and Rule 144 thereunder. Stock issued
under these exemptions carries certain resale restrictions and the stock
certificates bear restrictive legends.
In March 2000, the Company issued 100,000 shares of its common stock to
satisfy its obligation under a patent acquisition. This transaction was entered
into at the Company's inception, and the shares issued thereby were exempt from
registration under Section 4(2) of the Securities Act and Rule 144 thereunder.
Stock issued under these exemptions carries certain resale restrictions and the
stock certificates bear restrictive legends.
In March 2000, the Company issued stock options for 190,000 shares of its
common stock at $8.00 per share to various employees and consultants. The then
current price for the Company's common stock was $8.00 a share. This transaction
was exempt from registration under Section 4(2) of the Securities Act and Rule
144 thereunder. Stock issued under these exemptions will carry certain resale
restrictions and the stock certificates will bear restrictive legends.
Neither we nor any person acting on our behalf offered or sold the above
listed securities by means of any form of general solicitation or general
advertising. Nones of the shares were underwritten, and no commissions or other
compensation was given in connection with any of the sales. Purchasers or the
beneficial owners of purchasers which are entities are friends or business
associates of Philip Lacqua, President of the registrant. No services were
performed by any purchaser as consideration for the shares issued.
All purchasers represented that they acquired the securities for their own
accounts. A legend was placed on the stock certificates stating that the
securities have not been registered under the Securities Act and cannot be sold
or otherwise transferred without an effective registration or an exemption
therefrom.
53
<PAGE>
Item 27. Exhibits
Exhibits marked by asterisk(s) have not been included with this
Registration Statement on Form SB-2, but instead have been incorporated by
reference to other documents filed by the Company with the Commission.
Exhibit Description
(3)Articles of Incorporation and By-Laws
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.
3.4a***** Amended Bylaws dated October 8, 1999.
(5) Opinion re: legality
5.1 Opinion of Jay Hait, Esq.
54
<PAGE>
(10)Material Contracts
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.
10.17a* November 9, 1999 Addendum to the Subscription Escrow Agreement
Between R-Tec Technologies, Inc. and the Bank of New York.
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.
10.26***** Consulting Contract with Stenton Leigh Capital Corp. dated
September 21, 1999.
10.27***** Proposed Agreement with Thornhill Group, Inc. dated September
21, 1999.
10.28***** Employment Agreement of Marc Scola dated September 23, 1999.
10.29***** Employment Agreement of Nancy C. Vitolo dated September 23,
1999.
10.30***** Employment Agreement of Philip Lacqua dated September 23, 1999.
10.31***** Revised Escrow Agreement with Bank of New York.
10.32***** Addendum to Patent Agreement of Muriel Kaiser dated May 10,
1999.
10.33***** Promissory Note dated September 28, 1999 between Michael
Selitto and R-Tec Technologies, Inc.
10.34****** R-Tec office lease with Haas Laser Technologies
10.35****** Amended Consulting Contract with Stanton Leigh Corp.
10.36****** Thornhill Contract
10.37****** Amended Thornhill Contract
10.38 Agreement with Honeywell
55
<PAGE>
(11)Statement re: computation of per share earnings................... Note 1
September 30, 2000
Financial Statements
(13)Annual or quarterly reports: Forms 10-QSB for the periods ending March 31,
2000, June 30, 2000, and September 30, 2000
and Form 10-KSB for the year ended
December 31, 1999.
(16)Letter regarding Changes in Certifying Accountant
16.00*** Jurewicz and Duca's letter regarding change in independent
accountants dated June 15, 1999.
16.01**** Jurewicz and Duca's letter regarding change in independent
accountants dated July 23, 1999.
(21)******Subsidiaries of the Registrant
(23) Consents of experts and counsel
23.0******* List of Subsidiaries
23.3***** Consent of Motors and Armatures.
23.4 Consent of James Moore & Co., P.L.
(27)Financial Data Schedule................................................
* Previously filed with Form S-1
** Previously filed with Form S-1 on June 11, 1999
*** Previously filed with From S-1 on July 12, 1999
**** Previously filed with Form S-1 on July 26, 1999
***** Previously filed with Form S-1 on October 11, 1999
****** Previously filed with Form 10-KSB on April 14, 2000
******* Previously filed with Form SB-2 on December 11, 2000
******** To be filed by amendment
58
<PAGE>
ITEM 28. Undertakings
The undersigned Registrant hereby undertakes that:
(A) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth 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, including (but not limited to) any
addition or deletion of a managing underwriter.
(B) That, for the purpose of determining any liability under the Securities
Act of 1933, 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 shall be deemed to be the initial bona
fide offering thereof.
(C) To remove from registration, by means of a post-effective amendment to
the Registration Statement, any of the securities offered hereby which are not
sold pursuant to the terms of this offering.
(D) Will provide to the purchasers at the closing certificates in such
denominations and registered in such purchasers' names to permit prompt delivery
to each purchaser
(E) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer 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
small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
59
<PAGE>
EXHIBIT 5.1 Opinion of Jay Hait
Jaffe, Freedman & Hait, LLP
39 Hudson Street, Suite 102
Hackensack, NJ 07601
Tel: (201) 441-9377
Fax: (201) 441-9370
January 15, 2001
Board of Directors
R-Tec Technologies, Inc.
37 Ironia Road, Floor2
Flanders, New Jersey 07836
RE: Opinion of Counsel on Legality of Issuance
of Securities by the Company
Gentlemen:
You have requested that I render an opinion as to the legality of the
issuance and sale of certain securities of R-Tec Technologies, Inc. (hereinafter
the "Company") in connection with the public offering of said securities which
are the subject of a Registration Statement, File No. 333-48724 on Form SB-2
filed with the Securities and Exchange Commission. These securities are
3,500,000 Common Shares (no par value).
As Counsel to the Company, I have examined the Company's charter documents
and have supervised the Company's Board of Directors in connection with the
authorization of the 3,500,000 Common Shares for sale to the public pursuant to
the terms set forth in the Registration Statement. After review of the
Securities Act of 1933, as amended, rules and regulations promulgated
thereunder, and other statutes, rules, regulations and such other sources of law
as deemed necessary, I render the following opinion in reliance upon the
representations of management and corporate records as presented to me by the
management of the Company:
(1) The Company is a duly incorporated and validly existing corporation
in good standing under the laws of the State of New Jersey and is duly
authorized to transact the business in which it is engaged and in which it
proposes to engage.
(2) The total authorized capital of the Company is Fifty million
(50,000,000) Common Shares (no par value).
(3) (a) When any of the Common Shares offered by Prospectus are
purchased in accordance with the terms of the Registration Statement, and
certificates for the 3,500,000 Common shares have been duly executed and
delivered upon payment to the Company of the agreed price per share, said Common
Shares will have been duly authorized and issued as fully paid and
non-assessable securities of the Company. The 3,500,000 Common Shares will be
entitled to the rights set forth in the Certificate of Incorporation of the
Company.
CONSENT
I HEREBY CONSENT TO THE INCLUSION OF THIS OPINION AS AN EXHIBIT TO THE
COMPANY'S REGISTRATION STATEMENT, AND TO THE USE IN THE REGISTRATION STATEMENT
AND RELATED PROSPECTUS OF MY NAME UNDER THE CAPTION "LEGAL MATTERS."
Sincerely,
/s/ Jay Hait
Jay Hait, Esq.
<PAGE>
EXHIBIT 10.38 Agreement with Honeywell
CONFIDENTIAL DISCLOSURE AGREEMENT
THIS AGREEMENT, by and between R-TEC Technologies, Inc. a corporation
organized and Existing under the laws of New Jersey, and having its office at 37
Ironia Road, Flanders, New Jersey (hereinafter referred to as the "Company",)
and Honeywell International Inc., a Delaware corporation having its principal
office at 101 Columbia Road, Morristown, New Jersey (hereinafter referred to as
"Recipient")
WITNESSETH
WHEREAS, Recipient wishes to obtain certain information from Company
concerning leak detection technology (the Technology.) developed by the Company
for the purpose of enabling Recipient's evaluation thereof and for that purpose
only (hereinafter referred to as the Specific Purpose), and
WHEREAS, the Company is willing to disclose information to Recipient
regarding the Technology, and
WHEREAS, Recipient wishes to receive the information regarding the
Technology for the Specific Purpose and for that purpose only.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Company and Recipient agree:
1. This agreement will become effective upon Recipient's signing,
dating, and returning one copy of the Agreement to the Company.
2. The Company will disclose to Recipient confidential information
regarding the Technology ("Confidential Information"). Recipient
will complete its evaluation of the Technology within no more
than sixty (60) days after its receipt, and will advise the
Company of its interest, or lack thereof within that period of
time.
3. Recipient recognizes that Company considers the Technology to be
confidential and that the Company believes it has exclusive
rights to the Technology.
4. With respect to all Confidential Information received from
Company which is (a) disclosing in writing and marked
"Confidential" or (b) which is disclosed orally and designated by
Company as confidential in writing within two (2) business days
after such disclosure, Recipient will:
a.) Keep same in its possession and treat all such information
as confidential;
b.) Not use any of the Confidential Information in any way other
than for the Specific Purpose;
c.) Refrain from making or having any recording or duplications
of Confidential Information except as may be necessary for
the Specific Purpose;
d.) Limit access to the Confidential Information to its
employees reasonably requiring it for the Specific Purpose
and who have executed a non-disclosure agreement with
Recipient with confidentiality obligations commensurate with
those contained herein;
5. Recipient's obligations under paragraph 4 will not extend to any
information disclosed by the Company and Confidential Information
shall not include information that is publicly available at the
date of its disclosure to Recipient; or which, after the date of
disclosure to Recipient, may become publicly available except by
breach of this Agreement by Recipient; or which is disclosed to
Recipient on a non-confidential basis from a third party having
no obligation of confidentiality to the Company with respect
thereto; or information which is in Recipient's possession prior
to disclosure by Company as shown by competent evidence by
Recipient; or information which is subsequent to disclosure
independently developed by or for Recipient. Recipient will not
be relieved of its obligations under Paragraph 4 as to
information, which is specific merely because that information is
embraced by disclosures falling within the provisions of this
Paragraph 5. Recipient will not be relieved of its obligations
under Paragraph 4 as to information, which is a combination of
features merely because any or all individual features are
included in such a disclosure.
6. Recipient will transmit to the Company upon written request of
the Company all Confidential Information in recorded form
provided by Company that is in Recipient's possession.
7. Recipient's obligations of confidentiality and non-use pursuant
to Paragraph 4 will continue for a period of (5) years from the
date of this Agreement. Any unexpired obligations will survive
termination of this Agreement.
8. Recipient will obtain no right of any kind to the Confidential
Information or any related rights other than the right to use the
Confidential Information for the Specific Purpose, and all
Confidential Information regarding the Technology remains the
property of the Company.
9. This Agreement contains the entire agreement between the parties
with respect to the subject matter hereof. No modifications to
this Agreement shall be effective unless made in writing and
signed by both parties. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware,
without regard to its conflicts of law principles.
IN WITNESS WHEREOF, the parties have caused the Agreement to be signed by their
duly authorized representatives.
R-TEC Technologies,Inc. Honeywell International Inc.
By: /s/ Philip Lacqua By: /s/ Terry Sutter
Name: Philip Lacqua Name: Terry Sutter
Title: President Title: VP & GM Fluorine Products
<PAGE>
EXHIBIT 23.4 Consent of James Moore & Co., P.L.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2
(File No. ___) of our report dated March 29, 2000, on our audit of the financial
statements of R-Tec Technologies, Inc. We also consent to the reference to our
firm under caption "Experts."
/s/ James Moore & Co., P.L.
James Moore & Co., P.l.
Gainesville, Florida
January 17, 2000
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Flanders and State of New Jersey, on the 11th
day of December, 2000.
R-TEC TECHNOLOGIES, INC.
BY: /S/ Philip Lacqua
Philip Lacqua, President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
/S/ Philip Lacqua President, Treasurer December 11, 2000
Philip Lacqua Director
/S/ Nancy Vitolo Director, Vice=President December 11, 2000
Nancy Vitolo Secretary,
/s/Damon E. Palmer Director December 11, 2000
Damon E. Palmer
/s/Shawn P. Walsh Director, December 11, 2000
Shawn P. Walsh
The following exhibits are included as part of this Registration Statement,
except those exhibits which are referenced as previously filed with the
Securities and Exchange Commission and are incorporated by reference to another
registration statement, report or document.
