<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from _______________
to ______________
Commission File Number: 333-35508
RX TECHNOLOGY HOLDINGS, INC.
----------------------------
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
NEVADA 82-0498177
------ ----------
(State of other jurisdiction of incorporation or (IRS Employer Identification No.)
organization)
</TABLE>
2264 Seventh Street, Mandeville, LA 70471
-----------------------------------------
(Address of principal executive offices)
(504) 727-9412
--------------
(Issuer's telephone number)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. |X| Yes |_|
No
The number of shares of common stock outstanding of each of the issuer's classes
of common stock, as of November 9, 2000 was 9,026,870.
Transitional Small Business Disclosure Format [ ] Yes [X] No
<PAGE> 2
RX TECHNOLOGY HOLDINGS, INC. AND SUBSIDIARY
FORM 10-QSB
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets -
September 30, 2000 (Unaudited) and December 31, 1999 .... 1
Condensed Statements of Operations -
Three and Nine Months Ended September 30, 2000
and 1999 (Unaudited) .................................... 2
Condensed Statements of Cash Flow -
Nine Months Ended September 30, 2000
and 1999 (Unaudited) ................................... 3
Condensed Statement of Changes in Stockholders'
Equity From December 31, 1999 Through
September 30, 2000 (Unaudited) .......................... 4
Notes to Condensed Financial Statements (Unaudited) ........... 5
Item 2. Management's Discussion and Analysis or
Plan of Operations
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 8
PART II OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 12
Item 2. Changes in Securities ......................................... 12
Item 3. Defaults Upon Senior Securities ............................... 12
Item 4. Submission of Matters to a Vote of Security Holders ........... 13
Item 5. Other Information ............................................. 13
Item 6. Exhibits and Reports on Form 8-K .............................. 13
SIGNATURES ................................................................. 14
</TABLE>
<PAGE> 3
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
September 30,
2000 December 31,
Unaudited 1999
------------- ------------
<S> <C> <C>
Current assets
Cash $ 137,826 $ 109,958
Accounts receivable, less allowance for doubtful
accounts of $27,500 and $2,500 393,268 286,750
Inventories 859,794 190,055
----------- -----------
Total current assets 1,390,888 586,763
Property and equipment - at cost, less accumulated depreciation and amortization 4,210,387 2,538,168
Notes receivable 422,152 --
Due from shareholder 86,638 11,341
Deposits 65,270 --
Other assets 77,868 25,981
----------- -----------
Total assets $ 6,253,203 $ 3,162,253
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable $ 1,738,846 $ 2,268,138
Accounts payable and accrued expenses 1,892,008 669,560
Other current liabilities -- 50,000
----------- -----------
Total current liabilities 3,630,854 2,987,698
Debt obligations, less current maturities 32,940 47,846
Deferred income taxes 93,063 93,063
----------- -----------
Total liabilities 3,756,857 3,128,607
----------- -----------
Stockholders' equity
Common stock, $.001 par value, 50,000,000 shares authorized,
9,026,870 issued and outstanding 9,027 2,027
Preferred stock, $.001 par value; 1,000,000 shares authorized, no shares
issued and outstanding -- --
Additional paid in capital 4,114,489 719,727
Retained (deficit) (1,627,170) (688,108)
----------- -----------
Total stockholders' equity 2,496,346 33,646
----------- -----------
Total liabilities and stockholders' equity $ 6,253,203 $ 3,162,253
=========== ===========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 4
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 4,656,552 $ 3,002,303 $ 7,739,468 $ 5,225,180
Cost of Revenues 2,045,351 1,526,493 3,451,876 2,651,333
------------ ------------ ------------ ------------
Gross profit 2,611,201 1,475,810 4,287,592 2,573,847
------------ ------------ ------------ ------------
Operating expenses
Photo sales expense 1,311,338 739,223 2,786,449 1,433,587
General and administrative 585,641 252,702 1,557,928 730,862
Depreciation and amortization 213,267 118,566 539,176 355,698
------------ ------------ ------------ ------------
Total Operating Expenses 2,110,246 1,110,491 4,883,553 2,520,147
------------ ------------ ------------ ------------
Income (Loss) from Operations 500,955 365,319 (595,961) 53,700
Other income (expense):
Interest income 10,042 -- 30,590 --
Interest expense (113,321) (136,906) (373,691) (451,210)
------------ ------------ ------------ ------------
Net income (loss) $ 397,676 $ 228,413 $ (939,062) $ (397,510)
============ ============ ============ ============
Earnings per common share
Basic earnings (loss) per share .04 .05 (.11) (.08)
============ ============ ============ ============
Diluted earnings (loss) per share .04 .04 -- --
============ ============ ============ ============
Shares used in the calculation of earnings per share
Basic: 9,026,870 4,944,347 8,308,825 4,944,347
============ ============ ============ ============
Diluted: 10,785,056 5,299,540 -- --
============ ============ ============ ============
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 5
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
------------ ------------
<S> <C> <C>
Cash flows used in operating activities $ (166,058) $ (668,889)
----------- -----------
Cash flows used in investing activities:
Acquisitions of property and equipment (2,193,341) (830,207)
----------- -----------
Cash flows from financing:
Advances on short-term notes payable 647,826 2,211,300
Repayments debt (1,490,251) (786,958)
Advances on line-of-credit 208,666 --
Proceeds from issuance of common stock 3,171,026 --
Purchase of stock warrants (150,000) --
----------- -----------
Net cash flows provided by financing activities 2,387,267 1,424,342
----------- -----------
Net increase (decrease) in cash 27,868 (74,754)
Cash, beginning of period 109,958 93,697
----------- -----------
Cash, end of period $ 137,826 $ 18,943
=========== ===========
Supplemental cash flow disclosures
Interest paid $ 453,895 $ 443,308
=========== ===========
Noncash investing and financing activities
Common stock issued in exchange for advances payable $ 375,000 $ --
=========== ===========
Stock warrant issued for 222,733 shares of common stock $ -- $ 150,000
=========== ===========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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<PAGE> 6
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
December 31, 1999 Through September 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Paid - in Earnings
Stock Capital (Deficit) Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance as of December 31, 1999 $ 2,027 $ 719,727 $ (688,108) $ 33,646
Recapitalization in connection with reverse
Acquisition on February 16, 2000 4,973 16,795 -- 21,768
Purchase of warrant for 222,733 shares of common
stock -- (150,000) -- (150,000)
Issued 1,830,000 shares of common stock for cash
and loans net of issue cost of 63,975 1,830 3,136,695 -- 3,138,525
Issued 196,870 shares of common stock for cash 197 344,329 -- 344,526
Stock options vesting -- 24,750 -- 24,750
Stock options issued for professional services -- 22,193 -- 22,193
Net loss for nine months ended September
30, 2000 -- -- (939,062) (939,062)
----------- ----------- ----------- -----------
$ 9,027 $ 4,114,489 $(1,627,170) $ 2,496,346
=========== =========== =========== ===========
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
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<PAGE> 7
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The condensed consolidated financial statements included
herein have been prepared by RX Technology Holdings, Inc. (the
"Company", "we" or "our"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosures normally included in accordance
with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information
presented not misleading. The condensed consolidated financial
statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Registration Statement on
Form SB-2 and the Prospectus, dated August 8, 2000, included therein
relating to 501,493 shares of Common Stock, $.001 par value per share
("Common Stock"), underlying 501,493 Common Stock purchase warrants.
The unaudited condensed consolidated financial statements
included herein reflect, in the opinion of management, all adjustments
(consisting primarily only of normal recurring adjustments) necessary
to present fairly the results for the interim periods. The results of
operations for the nine months ended September 30, 2000 are not
necessarily indicative of results to be expected for the entire year
ending December 31, 2000, due, among other reasons, to the seasonal
nature of the Company's business.
2. Summary of Significant Accounting Policies
Organization
The Company is the successor consolidated entity formed by the
merger, on February 16, 2000, of RX Technology, Inc. ("RXT") and Valley
Excavation and Trucking, Inc. ("Valley"). Valley was originally
incorporated in Nevada on September 26, 1997. RXT was incorporated in
Nevada on December 22, 1993.
Concurrent with the merger, Valley, a publicly held company
and the legally surviving parent company, changed its name to that of
the Company. For accounting purposes, the merger has been treated as a
reverse acquisition, with RXT as the acquiror, and is accounted for as
a recapitalization of RXT.
RXT consummated the reverse acquisition of Valley on February
16, 2000. RXT's stockholders were issued 5,000,000 Valley shares on a
prorata basis in exchange for 2,027,139 shares of RXT.
The accompanying consolidated balance sheet as of September
30, 2000 includes the accounts of RXT and Valley. As a reverse
acquisition, the historical operating results prior to the acquisition
are those of RXT and only include the operating results of Valley after
the acquisition. All significant intercompany balances and transactions
have been eliminated.
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<PAGE> 8
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
2. Summary of significant accounting policies (continued)
The Company designs, installs, operates and services digital
image processing equipment, which performs the electronic capture and
presentation of pictures of guests at theme parks. In most theme parks
where the Company has operations, the Company hires and manages sales
staff. The Company has operations in the United States, Argentina,
Mexico and Canada.
Earnings per Share
The Company follows SFAS No. 128, "Earnings per Share" (EPS).
Basic EPS is calculated by dividing income attributable to common
shareholders by the weighted-average number of common shares
outstanding for the applicable period, without adjustment for potential
common shares outstanding in the form of options, warrants, convertible
securities or contingent stock agreements. For the calculation of
diluted EPS, the number of common shares outstanding are increased (if
deemed dilutive) by the number of additional common shares that would
have been outstanding if the dilutive potential common shares had been
issued, determined using the treasury stock method were appropriate.
A reconciliation of the income and share amounts that affect
the diluted Earnings per Share calculation appear below:
<TABLE>
<CAPTION>
Three Months Ended September 30, Three Months Ended September 30,
2000 1999
-------------------------------------- ---------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 397,676 9,026,870 .04 $ 228,413 4,944,347 .05
Stock options 1,732,100 132,488
Convertible debt 26,086 --
Stock warrants -- 222,705
---------- ---------- ---- ---------- --------- ---
Diluted EPS $ 397,676 10,785,056 .04 $ 228,413 5,299,540 .04
</TABLE>
For the three months ended September 30, 2000 stock warrants
to shareholders of record on May 1, 2000 for 501,493 common shares at
$6 per share were outstanding. They were not included in the
computation of diluted EPS because the warrant's exercise price was
greater than the average market price of the common shares. Diluted EPS
has not been calculated for the nine months ended September 30, 2000
and 1999. These periods show net losses, therefore, all options,
warrants and convertible debt would be antidilutive.
Stock-Based Compensation
The Company accounts for stock-based employee compensation
arrangements in accordance with provisions of Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and complies with the disclosure provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." Under APB Opinion No.
25, compensation expense for employees is based on the excess, if any,
on the date of grant, of fair value of the Company's stock over the
exercise price.
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<PAGE> 9
RX TECHNOLOGY HOLDINGS, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Stock-Based Compensation (continued)
The Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS No. 123 and
Emerging Issues Task Force Issue No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services." All transactions in
which goods or services are the consideration received for the issuance
of equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument
issued, whichever is more reliably measurable. The measurement date of
the fair value of the equity instrument issued is the earlier of the
date on which the counterparty's performance is complete or the date on
which it is probable that performance will occur.
3. Notes Receivable
The Company converted certain advances and receivables from
related parties to notes during March, 2000. The full balance of the
notes, plus interest at 8% per annum, is due on December 31, 2000.
4. Convertible Debt
On September 21, 2000, the Company executed two notes payable
each in the amount of $100,000, due October 21, 2000, with interest at
approximately 13.25%. The notes state that if not paid by October 21,
2000, each can be converted into common shares of RX Technology
Holdings, Inc. stock at $0.75 per share. At October 21, 2000, the notes
payable were still outstanding and the option to convert the notes to
common shares of RX Technology Holdings, Inc. stock had not been
exercised.
5. Stock options
On August 16, 2000, the Company granted options to purchase up
to 150,000 shares of RX Technology Holdings, Inc. common stock at $2.50
per share prior to August 9, 2005. These stock options were granted for
marketing services performed and to be performed by these individuals.
6. Income Taxes
The Company has not recorded any income tax expense or benefit
for the three months ended September 30, 2000 and 1999 or the nine
months ended September 30, 2000 and 1999. The Company has recorded an
income tax valuation allowance equal to the benefit of income tax
carryforwards because the Company has no history of earnings.
- 7 -
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995, and is including this statement for purposes of these safe harbor
provisions. Forward-looking statements, which are based on certain assumptions,
describe future plans, strategies and expectations of the Company, are generally
identified by use of the words "believe," "expect," "intend," "anticipate,"
"estimate," "project," or similar expressions. The Company's ability to predict
results or the actual effect of future plans or strategies is inherently
uncertain. The Company's actual results and future developments could differ
materially from those expressed in or implied by the forward-looking statements
herein. Further information concerning the Company and its business, including
factors that could materially affect the Company's results and future
developments, is included in the Company's Registration Statement on Form SB-2
and the Prospectus, dated August 8, 2000, included therein relating to 501,493
shares of Common Stock underlying 501,493 Common Stock purchase warrants.
The Company does not undertake and specifically disclaims any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
The following management's discussion and analysis of financial condition and
results of operations should be read in conjunction with the financial
statements and accompanying notes appearing herein and in the Company's
Registration Statement on Form SB-2 and the Prospectus, dated August 8, 2000,
included therein relating to 501,493 shares of Common Stock underlying 501,493
Common Stock purchase warrants.
OVERVIEW
The Company is in the business of designing, building, installing, assembling,
servicing, operating and maintaining digital imaging photo systems. These photo
systems capture digital images at theme parks and display them on video monitors
to prospective purchasers desiring to purchase photographic copies of the
images.
The Company's primary revenue source is from sales of digitally captured
photographic images at theme parks. This revenue is primarily generated at the
"thrill rides" at the theme parks, but, for 2000, also includes revenue from
sales of digital images of park guests taken at random locations in the park as
they walk around the park facilities. In addition to these retail operations,
the Company sells supplies and services at wholesale to third party photo
operators. Such sales include photographic paper on which pictures are printed,
and computer hardware and software for capturing, printing and recording the
sales of photographic images. We also receive maintenance fees for the computer
hardware and software sold.
The business of the Company is highly seasonal in nature. Sales of digital
pictures at the theme parks can only occur during the operating season of the
park. While some theme parks are open year round, the vast majority of the parks
where the Company has operations are only open during the months of May-October,
with the beginning and ending portions of the season open only on weekends. Our
wholesale business is also highly seasonal in nature as our wholesale customers'
businesses follow the same seasonal pattern as the Company's. This highly
seasonal nature of our operating periods creates the need for additional
financing during the months when sales are limited.
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<PAGE> 11
As of September 30, 2000, we had 51 retail operating sites. Of these sites, 44
are located at 19 theme parks in the United States and 7 are located at
international theme parks in Argentina, Mexico and Canada. Our historical number
of retail operating sites are: 1996--7; 1997--8; 1998--19; and 1999--27.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had no available lines of credit or sources of
financing other than credit extended by trade suppliers, which is limited.
In the first quarter of 2000, we obtained approximately $3.5 million through the
sale of our Common Stock, and in May, 2000, we obtained a $200,000 increase in a
previously existing line of credit, the funds from which have already been
received. On May 15, 2000, we failed to make a scheduled payment on outstanding
debt causing the debt to be placed in default. All amounts due were paid with
funds from operations on June 21, 2000, and this default was waived by the
lender. In June, 2000, we reached two agreements to borrow $150,000 each at an
effective interest cost of approximately 13% with principal payments due in
installments with final payments due on December 15, 2000. In July, 2000, we
drew down an additional $278,572 under an existing loan agreement. On September
21, 2000, we reached two agreements to borrow $100,000 each at an effective
interest cost of approximately 13.25% with principal and interest payment due
October 21, 2000. The September 21, 2000 borrowings were not repaid when due,
which allows the lenders the option to convert these loans to Common Stock at
$0.75 per share.
During the third quarter of 2000, we became delinquent in the payment of
approximately $200,000 in payroll taxes due to lack of available funds, thereby
causing a default in an existing loan agreement. The payroll taxes were
subsequently paid with the proceeds of the borrowings on September 21, 2000, and
we are seeking a waiver of the default in the loan agreement.
The Company does not currently generate sufficient cash flow to timely meet its
obligations, nor does it expect to generate sufficient cash flow to fund its
operations during the next two quarters when revenues are down due to park
closings in the fall and winter. Moreover, as of November 1, 2000, the Company
was delinquent in the approximate amount of $352,400 for taxes and indebtedness.
The Company is currently seeking up to an additional $10 million of funding
through the sale of its Common Stock in order to meet debt service requirements,
fund capital expenses and its working capital and other cash needs. In addition,
we are pursuing additional debt financing. If we do not receive additional
funds, it is uncertain how long the Company will be able to continue to fund its
operations. Whether the Company will be able to obtain additional funding cannot
be assured, and the failure to do so will have a material adverse effect on the
Company.
On September 5, 2000, the Company signed a letter of intent to acquire the stock
and certain assets of ITech International Limited and affiliated entities
("ITech") for $210,000 cash, 900,000 shares of Common Stock and options to
purchase 900,000 shares of Common Stock at an exercise price of $1.75 per share.
The transaction is subject to negotiation and execution of definitive
agreements. ITech, a software oriented company in business since 1999,
implements digital imaging systems that include retail imaging workstations,
photo ID systems and real estate office and imaging software. All of ITech's
systems are designed to be Internet and e-commerce enabled.
- 9 -
<PAGE> 12
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 2000 TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1999
Net income for the three months ended September 30, 2000 was $397,676. This is
an increase of $169,263 from the same period in 1999. Earnings per share on a
fully diluted basis for the three months ended September 30, 2000 and 1999 were
$0.04.
Gross revenues for the three months ended September 30, 2000 were $4,656,552, an
increase of $1,654,249 or 55% compared to $3,002,303 for the same period of
1999. This increase is the net result of sales from a larger number of retail
photo sales booths in operation during the third quarter 2000 and lower
wholesale sales to third party photo operators. The increase in retail photo
sales from new sites beginning service during 2000 was partially offset by lower
sales from existing operations in service during 1999. These lower sales in 2000
from sites in service during 1999 is due primarily to lower attendance at the
theme parks where the Company's operations are located. As complete information
on the reason for this lower attendance is not readily available to the Company,
it cannot be predicted whether this represents a trend that will continue.
Cost of sales for retail photo operations is composed of commissions/royalties
paid to the host theme park where our photo booths are located and direct cost
of supplies including the photographic paper that our pictures are printed on
and decorative folders in which the pictures are displayed. Cost of sales for
wholesale operations includes the cost of supplies and/or services sold at
wholesale to third parties.
Third quarter 2000 cost of sales was $2,045,351, an increase of 34% from
$1,526,493 in the same period of 1999, and a 7% improvement as a percent of
revenues to 44% in 2000 from 51% in 1999. The improvement in cost of sales as a
percentage of revenues was due to lower park commissions.
Photo sales expenses include labor and other expenses associated with staffing
and maintaining photo booth operations. In the third quarter 2000, photo booth
operation costs were $1,311,338 compared to $739,223 in the comparable period
1999, or 77% higher than the third quarter 1999. This increase is primarily
caused by the costs associated with a larger number of booths in operation.
Higher labor costs of approximately $622,000 and higher travel costs of
approximately $64,000 were partially offset by lower costs in several other
categories including lower booth repair costs of approximately $37,100.
General and administrative costs for the second quarter 2000 were $585,641
compared with $252,702 in the third quarter 1999 resulting in a 132% increase.
Higher costs during the third quarter 2000 compared to the third quarter 1999
were primarily higher professional fees of approximately $154,200 for
accounting, consulting and legal services, higher labor costs of approximately
$45,200, higher estimated bad debt expense of approximately $25,000, higher
regulatory printing costs of approximately $34,600 and estimated penalties on
late tax payments of $23,600. Professional fees and regulatory printing are
higher primarily due to the additional expense the Company has incurred in
connection with the listing of its Common Stock on the OTC Bulletin Board.
Depreciation and amortization increased $94,701 in the third quarter 2000 over
the same period in 1999 due to additional operating sites being placed in
service.
Interest expense decreased $23,585 in the third quarter 2000 over the same
period in 1999 due to a lower amount of debt outstanding.
- 10 -
<PAGE> 13
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Net loss for the nine months ended September 30, 2000 was $939,062 or $541,552
greater than the comparable period in 1999. Net loss per share outstanding for
the nine months ended September 30, 2000 was $0.11 as compared to $0.08 for the
comparable period in 1999.
Gross revenues for the nine months ended September 30, 2000 were $7,739,468, an
increase of $2,514,288 or 48% compared to $5,225,180 for the same period of
1999. This increase is the net result of sales from a larger number of retail
photo sales booths in operation during the nine months ended September 30, 2000
and lower wholesale sales to third party photo operators. The increase in retail
photo sales from new sites beginning service during the nine months ended
September 30, 2000 was partially offset by lower sales from existing operations
in service during the comparable period in 1999. These lower sales in 2000 from
sites in service during the first nine months of 1999 is due primarily to lower
attendance at the theme parks where the Company's operations are located. As
complete information on the reason for this lower attendance is not readily
available to the Company, it cannot be predicted whether this represents a trend
that will continue.
Cost of sales for retail photo operations is composed of commissions/royalties
paid to the host theme park where our photo booths are located and direct cost
of supplies including the photographic paper that our pictures are printed on
and decorative folders in which the pictures are displayed. Cost of sales for
wholesale operations includes the cost of supplies and/or services sold at
wholesale to third parties.
For the nine months ended September 30, 2000, cost of sales was $3,451,876, an
increase of 30% from the $2,651,333 in the comparable period of 1999 and a 6%
improvement as a percent of revenues to 45% in 2000 from 51% in 1999.
Photo sales expenses include labor and other expenses associated with staffing
and maintaining photo booth operations. For the nine months ended September 30,
2000, photo sales expenses were $2,786,449 compared with $1,433,587 in the
comparable period 1999 for a 94% increase. This increase is primarily caused by
the costs associated with a larger number of booths in operation in the nine
months ended September 30, 2000 than the comparable period 1999 and booth
start-up expenses incurred in the first quarter 2000. Such costs include an
increase in labor staffing costs of approximately $918,800, higher travel
expense of approximately $158,100, and higher booth expense in several other
categories including: freight - $63,700; supplies - $55,700; telephone expense -
$52,600; and rental facilities - $37,100.
General and administrative costs for the nine months ended September 30, 2000
were $1,557,928 compared with $730,862 in the comparable period 1999 resulting
in a 113% increase. Cost increases for the nine months ending September 30, 2000
compared to the comparable period in 1999 were primarily higher labor expense of
approximately $138,100; higher professional fees of approximately $413,300 for
accounting, consulting and legal services and higher expenses in several other
categories including: bad debt expense - $70,600; commissions - $60,000;
regulatory printing - $69,100; freight - $41,800 and telephone - $16,600.
Professional fees and regulatory printing expense are higher primarily due to
the additional expense the Company has incurred in connection with the listing
of its Common Stock on the OTC Bulletin Board.
Depreciation and amortization increased $183,478 for the nine months ended
September 30, 2000 over the same period in 1999 due to additional operating
booths being placed in service.
Interest expense decreased $77,519 for the nine months ended September 30, 2000
over the same period in 1999 due primarily to the net effect of the recognition
of $62,500 in expense from the issuance of Common Stock in
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the first quarter 2000 and the recognition of $150,000 in expense associated
with the issuance and subsequent repurchase of a lender's warrant issued as
additional compensation for the lender's loan to RXT.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 5, 2000, the Company granted an employee options to purchase up to
100,000 shares of our Common Stock at $1.75 per share, subject to quarterly
vesting and exercise rights while employed by the Company. During the third
quarter 2000, options to purchase 25,000 shares of Common Stock pursuant to
such grant vested and became exercisable. These stock options were granted
in a transaction exempt from registration under the Securities Act of 1933,
as amended, in reliance on Section 4(2) thereof as a transaction not
involving a public offering.
On August 16, 2000, the Company granted options to purchase up to 75,000
shares of our Common Stock at $2.50 per share prior to August 9, 2005.
These stock options were granted in a transaction exempt from registration
under the Securities Act of 1933, as amended, in reliance on Section 4(2)
thereof as a transaction not involving a public offering. These options
were granted as partial consideration for past and future marketing
services.
On August 16, 2000, the Company granted options to purchase up to 75,000
shares of our Common Stock at $2.50 per share prior to August 9, 2005.
These stock options were granted in a transaction exempt from registration
under the Securities Act of 1933, as amended, in reliance on Section 4(2)
thereof as a transaction not involving a public offering. These options
were granted as partial consideration for past and future marketing
services.
On September 21, 2000, we reached two agreements to borrow $100,000 each at
an effective interest cost of approximately 13.25% with principal and
interest payment due October 21, 2000. The September 21, 2000 borrowings
were not repaid when due, which allows the lenders the option to convert
these loans into an aggregate of up to 266,666 shares of Common Stock.
Proceeds from these borrowing were used to pay delinquent payroll taxes. To
date, the lenders have not converted any of this debt into Common Stock.
These securities were issued in a transaction exempt from registration
under the Securities Act of 1933, as amended, in reliance on Section 4(2)
thereof as a transaction not involving a public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the third quarter of 2000, we became delinquent in the payment of
approximately $200,000 in payroll taxes due to lack of available funds,
thereby causing a default in an existing loan agreement. The payroll taxes
were subsequently paid with the proceeds of the borrowings on September 21,
2000, and we are seeking a waiver of the default in the loan agreement. The
debt outstanding under this loan agreement as of September 30, 2000 was
$939,268.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Description
------- -------------
3.0* Articles of Incorporation of Valley Excavation and Trucking,
Inc. dated September 26, 1997 (incorporated by reference to
Exhibit 3.0 to Form SB-2, registration no. 333-35508, filed
April 24, 2000).
3.1* Amended Articles of Incorporation of Valley Excavation and
Trucking, Inc. dated February 17, 2000 (incorporated by
reference to Exhibit 3.1 to Form SB-2, registration no.
333-35508, filed April 24, 2000).
3.2* Bylaws of the Valley Excavation and Trucking, Inc. dated
September 26, 1997 (incorporated by reference to Exhibit 3.5
to Form SB-2, registration no. 333-35508, filed April 24,
2000).
4.0* Form of Warrant Agreement with Interwest Transfer Co., Inc.
(incorporated by reference to Exhibit 4.0 to Form SB-2,
registration no. 333-35508 filed April 24, 2000).
4.1* Specimen Form of Common Stock Purchase Warrant (incorporated
by reference to Exhibit 4.1 to Form SB-2, registration no.
333-35508, filed April 24, 2000).
4.2* Specimen Form of Common Stock Certificate (incorporated by
reference to Exhibit 4.2 to Form SB-2, registration no.
333-35508, filed April 24, 2000).
27.0 Financial Data Schedule.
* Previously filed and incorporated herein by reference.
(b) Reports on Form 8-K
(i) None.
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<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RX TECHNOLOGY HOLDINGS, INC.
----------------------------
Date: November 10, 2000 By: /s/ Donald Rex Gay
------------------------
Donald Rex Gay
Chairman, President, and
Chief Executive Officer
