SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934
Check the appropriate box:
[_] Preliminary Information Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
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Biogan International, Inc.
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Payment of Filing Fee (Check the appropriate box): [X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies: Not
Applicable
2) Aggregate number of securities to which transaction applies: Not Applicable
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): Not Applicable
4) Proposed maximum aggregate value of transaction: Not Applicable
5) Total fee paid: Not Applicable
[_] Fee paid previously with preliminary materials. Not Applicable
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid: Not Applicable
2) Form, Schedule or Registration Statement No.: Not Applicable
3) Filing Party: Not Applicable
4) Date Filed: Not Applicable
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INFORMATION STATEMENT
Concerning the Distribution of 4,266,797 shares of R-Tec Holding, Inc., common
stock to shareholders who owned Biogan International, Inc. common stock on
September 15,1999
By Biogan International, Inc.
This Information Statement is being furnished by Biogan International, Inc. (the
"Company") in connection with the distribution of a special stock dividend of
one share of R-Tec Holding, Inc. common stock for each twenty shares of Biogan
common stock (with fractional shares being "rounded-up), held as of the close of
regular trading on September 15, 1999 (the "Record Date"). The special stock
dividend was distributed to and is being held in escrow by American Securities
Transfer and Trust, Inc, the transfer agent until such time as the Form 10SB
registration of R-Tec Holding, Inc. common stock with the Securities and
Exchange Commission is effective, or until June 30, 2000, whichever is earlier.
Management of R-Tec filed Form 10SB with the SEC on April 25, 2000, and the
effective date is normally 60 days after filing. The receipt of the stock
dividend should not result in any taxable gain or loss to stockholders for
federal income tax purposes.
We Are Not Asking You for a Proxy and You are Requested Not To Send Us a Proxy.
No Vote is to be Made on any Matter.
There is not going to be a shareholders meeting and no matter is to be voted
upon. This Information Statement is to report to you actions taken by the board
of directors and to inform you of current developments.
On August 18, 1999, the Board of Directors of Biogan International, Inc.
organized R-Tec Holding, Inc., an Idaho corporation, (the "Company") as a wholly
owned subsidiary, and transferred Biogan's 50% stock ownership of IntorCorp,
Inc. in exchange for 4,266,797 shares of Common Stock of Company.
On September 27, 1999, Biogan distributed as a stock dividend its 4,266,797
shares of the Company stock (all of its shares), proportionately to Biogan's
shareholders of record one share of Company for each 20 shares of Biogan stock
oustanding. As a result of the special stock dividend the Company became
independent of Biogan, the shareholders retained the same proportionate interest
in the IntorCorp Motor, and enabled IntorCorp to develop the IntorCorp Motor
independently of Biogan.
On November 3, 1999, the Company issued 4,266,797 shares of Common Stock (50%
ownership) in a private placement transaction, to the two shareholder-owners of
R-Tec Corporation, an engineering company located in Meridian, Idaho, in
exchange for 80% of the
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outstanding stock of R-Tec Corporation. In addition, the Company contributed its
stock of IntorCorp, Inc. to R-Tec Corporation. Other material terms of the
acquisition transaction are that R-Tec Corporation agreed (i) to pay $51,209 of
its retained earnings to the two shareholder- owners and (ii) to redeem the
remaining 20% of R-Tec Corporation stock from the two shareholder-owners within
12 months for the price of $100,000. The net effect of the transaction was that
a. Shareholders descended from Biogan own 50% of the Company and the two
shareholder-owners of R-Tec Corporation own 50%.
b. The Board of directors of the Company has five members, and for a
period of 5 years, the two shareholder-owners from R-Tec Corporation
will have the right (by virtue of a shareholder agreement with certain
shareholders of the Company) to elect 3 members of the board.
c. The Company owns 100% of R-Tec Corporation with the redemption of the
20% outstanding stock by R-Tec Corporation from the
shareholder-owners.
d. R-Tec Corporation owns 50% of the stock of IntorCorp, Inc. (owner of
the intellectual technology for the IntorCorp Motor), which will
enable the development of the Motor under the direction and management
of R-Tec Corporation.
The Company is the holding company of and will be consolidated with R-Tec
Corporation for tax and reporting purposes. The Company at the present time has
no other business interests.
R-Tec Corporation, a subsidiary of the Company.
R-Tec Corporation was initially organized in 1995 as a small individually
operated company in a modified garage for the purpose of developing and
fabricating High-Tech custom manufacturing equipment, primarily for a single
customer. Most of the contracts during the first 18 months were for the
duplication of manufacturing tools going overseas for Hewlett Packard including
mech-op stations, servo writers, and transfer writers for the disk drive
industry. Presently R-Tec Corporation continues to, under contract from the
respective customers, develop, fabricate and manufacture High-Tech custom
manufacturing equipment, as well as to custom manufacture other types of
manufacturing equipment and/or parts for installation in customer products as an
OEM provider. R-Tec Corporation expertise includes engineering, development of
controls, machine design and tooling, and services include consulting, prototype
development, tooling and manufacturing. Production includes mechanical fixtures,
sub-assemblies, electronic testing devices, automatic robot work cells, and
other similar products all of which incorporate one or more complete disciplines
of mechanical, electrical, software, machine vision, and controls.
R-Tec Corporation developed technology currently includes CAD-based,
Electro-mechanical Devices, Tool Design, PC Board Layout, International
EC-Marked products, Machine Vision, Specialty Tooling, Engineering Design,
Motion Control, robotics, Software Development, and PLC Programming.
Significant clients include Iomega Corporation, Hewlett Packard, Pro-Precision
Machining,
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Steelhead Metals, SCP Global Technologies, System Integration (Division of
Micron), Intel, TECHNIT Interconnection Products, 3Com Corporation, Preco, Inc.,
Motorola, Micron Communications, Inc., Ford Microelectronics, Inc. and
Anadigics.
R-Tec Corporation is presently expanding into the European and Asian markets,
and has expended approximately $50,000 in R and D for development of certain
products for the open market, both by special order and some by shelf inventory
with immediate availability. A significant portion of Company research and
development costs are borne by customers through contract provisions.
R-Tec Corporation presently employs 10 full time employees and 5 part time
employees.
Certain functions of some projects are, when needed, contracted to R-Tec Machine
Tools, Inc., an Idaho corporation, in which Doug Hastings and Gary Clayton own a
combined 50% interest. R-Tec Machine Tools, Inc conducts business as a machine
shop at the same location as R-Tec Corporation (See "Certain Relationships and
Related Transactions " page 7). However, some machine work is also contracted
with other machine shops depending on time of delivery constraints.
The Company had revenues from services provided to four customers that exceeded
10 percent of total revenues in each of the calendar years of 1998 and 1999,
however, only one of those customers exceeded 10 percent in both years.
Reference is made to the consolidated financial statements "Significant
Customers and Suppliers" on page 8 thereof.
Management's Discussion and Analysis
This Information Statement contains certain forward-looking statements which are
based on management's current expectations including, but not limited to,
general economic conditions; changes in interest rates; deposit flows;
competition; changes in accounting principles, policies or guidelines; changes
in legislation or regulations; and other economic, competitive, governmental,
regulatory and technological factors affecting the Company's operations,
pricing, products and services.
The consolidated financial statement of the Company revenues of $1,026,847 in
1998 resulting in a net income of $40,345, and revenues of $1,296,850 in 1999
with a net loss of $317,094. The net loss in 1999 was largely the result of a
change to operations for acquired in-process research and development costs of
$190,000 related to the IntorCorp acquisition. In addition the Company recorded
signing bonuses of $50,000 for the executive officers. The foregoing together
with new facility overhead, additional employees, and a significant effort put
on new product development, which will generate future revenues, the year end
1999 reflects a significant loss notwithstanding the increased revenues.
With the adjustments made in 1999, Management is projecting an increase in
revenues estimated at $2,000,000 for calendar year 2000 and a projected net
income in excess of $200,000. The first quarter revenues and contracts in
process appear to confirm Management's projections.
To realize its goals for 2000, Management has organized the business into three
areas of focus:
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1. The first area is custom automation, with a target of several
industries. R-Tec Corporation has excelled in this area of custom
solutions for its customers. Using 3Com as an example, R-Tec
Corporation designed and built approximately 20 automated functional
testers that tests the PalmV hand held organizer. These automated
testers test all of the functions without operator interaction. Other
custom automation include, pick-n-place stations, full robotic work
cells, Electrical/Maniacal test stations, table top testers, and full
automatic assembly lines. This business is based on contracts and has
somewhat of a cyclic model.
2. The second area of focus includes products R-Tec Corporation makes for
OEM and Resale. These products are sold to and are used by more than
one customer. Some examples of this type of product are the RS232
converter boxes that are used to translate communication levels.
Hewlett Packard and Jabil Circuit, Inc. as well as companies overseas
use them. Management is in the process of creating a web site to help
in the marketing of these products which, in Management's opinion,
will create more opportunities for product development.
3. The third area of focus is high-tech interconnect devices. R-Tec
Corporation presently has one of the very few sources for two
technologies, each of which gives an edge in the industry for high
frequency component testing. Management anticipates significant growth
and a steady stream of revenues as this area of the business is
developed.
The liquidity of the Company has been presently satisfied with the issuance of
the Series "A" Convertible Preferred stock for $500,000, and the LOC presently
in the amount of $100,000 that as of the date of this From 10SB is available to
the Company. The note payable for the redemption of the 20% common stock is
payable when funds are available from earnings.
Description of Property of R-Tec Corporation (Subsidiary)
R-Tec Corporation is a tenant in a single purpose industrial building located at
1471 E. Commercial Avenue, in Meridian, Idaho. The building is owned by H2C2 &
Associates, LLC, an Idaho limited liability company (owned by Mr. and Mrs.
Hastings and Mr. and Mrs. Clayton, shareholders of R-Tec Corporation) and leased
75% to R-Tec Corporation under a 5 year lease expiring November 30, 2004. The
other 25% of the building is leased to R-Tec Machine Tools, Inc., a machine shop
(owned 25% by Hastings and 25% by Claytons) see "Certain Relationships and
Related Transactions" at page 7. The building was constructed in 1998 according
to the applicable commercial building code requirements, on approximately 1.36
acres of land, and includes a parking area of 20 spaces.
R-Tec Corporation office space consists of approximately 1200 square feet, and
includes a reception area, conference room, and 6 individual offices. The
assembly area consists of approximately 1800 square feet and approximately 1500
square feet of warehouse area. The Company pays rent at the rate of $2,950 per
month, subject to Cost of Living Index increases on an annual basis.
R-Tec Corporation owns the furniture and fixtures, office equipment, phone
system and all shop equipment free of any liens or obligations, except that it
serves as collateral for the LOC when
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funds are drawn.
Company does not have any separate corporate offices, but uses, when required,
the offices of R- Tec Corporation for its purposes, without the payment of any
rent or other obligation, until such time as independent offices may be
required.
Intorcorp, Inc. is an Idaho corporation owned 50% by R-Tec Corporation and 50%
by C.T. Corporation an electrical engineering company. Intorcorp owns the
intellectual technology for the IntorCorp Smart Power Motor and Mr. Douglas G.
Hastings is President. Negotiations are presently in process for a consulting
agreement by IntorCorp with C.T. Corporation. Management is currently developing
the business plan, interviewing candidates for project managing of the
development and marketing of the IntorCorp Motor, as well as considering the
methods for financing the project.
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information regarding the shares of Common Stock
of Company and Preferred Stock that is convertible into common stock, that is
presently held beneficially by (i) each director of the Company, (ii) all
officers and directors as a group, and (iii) each person known by the Company to
beneficially own 5% or more of the outstanding shares of the Company's common
stock.
<TABLE>
<CAPTION>
Name and Address Amount & Nature
of Beneficial Owner of Benef. Owner Percent
------------------- Common - Preferred Common Preferred
-------------------- -----------------
<S> <C> <C> <C> <C>
Gary A. Clayton (1)(3)(4)(5) 2,133,399 -0- 25% -0-
1471 E. Commercial Ave
Meridian, Idaho 83642
Douglas G. Hastings (1)(3)(4)(5) 2,133,398 -0- 25% -0-
1471 E. Commercial Ave
Meridian, Idaho 83642
Rulon L. Tolman (1)(3)(4) 490,417 531,643 5.75% 24.92%
7213 Potomac Drive
Boise, Idaho 83704
Robert C. Montgomery (1)(3) 116,900 108,377 1.37% 5.08%.
6940 Ashland Drive
Boise, Idaho 83709
George W. Wadsworth (1)(3) 138,334 67,735 1.62% 3.18%
214 S. Cole Road
Boise, Idaho 83709
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
John R. Hansen, Jr. (1)(3) 125,000 135,471 1.46% 6.35%
12035 Ginger Creek Dr.
Boise, Idaho 83713
L. William Glazier (3) 525,000 568,978 6.15% 26.67%
805 W. Cross Street
Woodland Hills, CA 95695
Ronald J. Tolman (2) 561,164(2) 599,272 6.58% 28.09%
2326 Bruins Avenue
Boise, Idaho 83704
All Officers and Directors
as a Group (6 persons) 5,137,448 2,011,476
Total Shares Issued and Outstanding 8,533,594 2,133,399(6) 60.20% 94.29%
</TABLE>
(1) These individuals are the directors and officers of the Company who
are shareholders.
(2) Mr. Ronald J. Tolman owns 377,920 shares of Common Stock and 409,613
shares of Preferred Stock in his own name, and 183,244 shares of
Common Stock and 189,659 shares of Preferred Stock are owned of record
in the name of his wife, Jacque L. Tolman.
(3) These shareholders, along with Keith Cline (56,500 shares of Common
Stock (00.662%) and 54,188 shares of Preferred Stock, with a combined
share ownership and voting percentage of 73.595% have entered into a
voting agreement under which Mssrs. Clayton and Hastings will have the
right to nominate 3 of the 5 directors, and the other participants
will have the right to nominate 2 of the 5 directors, and the combined
ownership would then be voted as a block for the nominated directors.
(4) These individuals are the present directors of R-Tec Corporation, Inc.
with Hastings as president and Clayton as v-president and secretary.
(5) These individuals are two of the four directors of IntorCorp, Inc.
with Hastings as president.
(6) If converted to Common Stock at the present conversion ratio, the
Preferred Stock would represent 20% of the after-conversion issued and
outstanding common stock.
Preferred Stock
The Company has amended its Articles of Incorporation to create 2,133,399
shares of Series "A" Convertible Preferred stock, par value $0.23437 per share,
all of which have been
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subscribed by nine individuals seven of whom are accounted in the above
"Security Ownership of Certain Beneficial Owners and Management". The
Description of the rights of the Preferred Stock is set forth in Item 8,
Description of Securities.
Directors and Executive Officers of R-Tec Holding, Inc.
<TABLE>
<CAPTION>
Name Age Position Date Appointed
----- --- -------- --------------
<S> <C> <C> <C>
Douglas G. Hastings 41 Director, President Nov. 3, 99
Gary A. Clayton 41 Director, V-P Engineering Nov. 3, 99
Rulon L. Tolman 49 Director, VP Finance Original
John R. Hansen, Jr. 69 Director Original
David R. Stewart 46 Director Nov. 3, 99
Robert C. Montgomery 47 Secretary Nov. 3, 99
George W. Wadsworth 54 Treasurer Nov. 3, 99
</TABLE>
The directors of the Company are elected to serve until the next annual
shareholder's meeting or until their respective successors are elected and
qualified. Officers of the Company hold office until the meeting of the Board of
Directors after the next annual shareholders's meeting or until removal by the
Board of Directors. There are no arrangements or understandings among the
Officers and Directors pursuant to which any of them were elected as Officers
and Directors.
Family Relationships:
Douglas G. Hastings is married to Rena Clayton Hastings, a sister of Gary
A. Clayton. Rulon L. Tolman and Ronald J. Tolman are cousins.
Business Experience of Officers and Directors:
Douglas G. Hastings, 1471 E. Commercial Ave, Meridian, Idaho 83642. Mr.
Hastings received a Micro M.B.A. in May of 1999. Mr. Hastings received special
training in Robotics, Machine Vision and software controls. Prior to starting
R-Tec Corporation in 1995, Mr. Hastings was employed by Hewlett Packard from
1981 to 1995 specializing in electrical and mechanical tool design and controls.
Gary C. Clayton, 1471 E. Commercial Ave, Meridian, Idaho 83642. Mr. Clayton
received a BS degree in Mechanical Engineering from BYU in 1983. He received
training in Robotics and Industrial Controls in 1987 (with honors), and a
Masters Degree in Mechanical Engineering in 1993 from the University of Utah.
Prior to 1995 (when joined R-Tec Corporation), Mr. Clayton was the Engineering
Manager for Lynn Industries of Boise, Idaho for a year, and prior thereto was
Project Engineer at Thiokol Corporation in Brigham City, Utah, for design,
implementation and project management of HVAC system, process equipment, CNC
type machine tools, and plant automation.
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Rulon L. Tolman, was appointed Director August , and is currently a Vice
President of the Company. Mr. Tolman has been with Mutual of New York since 1978
and has been Account Executive, Field Underwriter and Sales Manager. Previously
Mr. Tolman was a Production Supervisor with Boise Cascade Container Division
managing 80 employees.
John R. Hansen, Jr., 12035 Ginger Creek Dr., Boise, Id. 83713. Mr. Hansen
received his J.D. degree from UCLA in 1956, and has practiced law from 1957 to
1968 in California and from 1968 to the present in Idaho, primarily in
securities and business practice. Mr. Hansen is presently outside counsel to the
Company.
David R. Stewart, 9486 Fairview Ave, Boise, Idaho. Mr. Stewart is a
Certified Public Accountant with Stewart, Harding & Co with 20 years experience,
and as President of the company for the past 6 years. He obtained his BS desgree
in Accounting in 1979 from the University of Utah.
Robert C. Montgomery, is presently Secretary of the Company. He received
his JD Degree from the University of Idaho in 1974, and is a member of the bar
in Idaho, Oregon and Washington. He was a former adjunct professor of Business
Law and Ethics at Boise State University, and has practiced law in Idaho since
1974.
George W. Wadsworth has been a partner in the accounting firm of Wadsworth
and Smith, Chartered, for the past 23 years. He is the treasurer and consulting
accountant for the Company.
Executive Compensation.
R-Tec Corporation paid executive compensation for the years ended December
31, 1998 and 1999 to the following, plus an employment agreement signing bonus
of $25,000 to each in the calendar year 1999:
Douglas G. Hastings, President. $53,175 and 78,912 respectively.
Gary C. Clayton, Vice President. $56,100 and 78,912 respectively.
On December 1, 1999, R-Tec entered into five year employment agreements with
Douglas G. Hastings to be the CEO and President of R-Tec, and with Gary C.
Clayton to be Vice President of Engineering, each with an annual salary of
$81,120 with a bonus of $25,000 to be paid during the first year, provided
certain goals are attained. In addition, each of the employees will receive the
standard benefits package for employees, including medical, sick leave and
vacation time. The above employees each have a company automobile.
There is no agreement for the payment of any salary or compensation at this
time for the directors of R-Tec Corporation, or for the executive officers or
directors of R-Tec Holding, Inc. However, the Company anticipates that any out
of pocket expenses of directors will be paid, and that directors who are not
employed by either the Company or R-Tec Corporation will receive compensation
for attendance and other duties performed as directors.
Certain Relationships and Related Transactions
R-Tec Corporation currently leases 75% of the building it presently
occupies at 1471 E. Commercial Ave, Meridian, Idaho 83642 from H2C2 &
Associates, LLC, an Idaho limited
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liability company owned by Mr. and Mrs. Hastings and Mr. and Mrs. Clayton under
a five year lease ending November 30, 2004, with an option to extend the lease
for an additional five years. The rental rate is $2,950 per month subject to
annual Cost of Living Index increases.
In addition, the other 25% of the building is presently leased by R-Tec
Machine Tools, an Idaho "S" corporation, which is owned 25% by each of Mr.
Hastings and 25% by Mr. Clayton. R-Tec frequently contracts machine work to
R-Tec Machine Tools at competitive prices, as well as contract work to other
machine shops, the selection of which is based on competitive pricing as well as
speed of work completion.. R-Tec Machine Tools, also contracts work with other
manufacturers.
The Company has machine tooling performed by R-Tec Machine Tool, Inc. which
is owned 25% each by Douglas Hastings and Gary Clayton. Purchases from Machine
Tool for 1999 and 1998 were $188,643 and $77,680, respectively. During 1998,
R-Tec Corporation purchased equipment which was financed for 100% of the
purchase price. The equipment was leased to Machine Tool and the lease payments
received in 1999 and 1998 were $20,580 and $33,535, respectively. In 1999,
Machine Tool acquired the equipment from the Company by assuming the underlying
debt of $138,675 at the time of transfer.
Description of Securities, including dividend, voting and preemptive rights.
The Company presently has two classes of capital stock authorized
consisting of 30,000,000 shares of voting Common stock, without par value, and
5,000,000 shares of Preferred Stock, of which 2,133,399 shares have been
designated Series "A" Convertible Preferred shares, as hereinafter described,
and with authority vested in the board of directors to prescribe the classes,
series, and the number of each class or series of the remaining Preferred Stock,
and the voting powers, designations, preferences, limitations, restrictions and
relative rights of each class or series of Preferred Stock as authorized in
ss.30-1-602, Idaho Code.
As of the date of this registration there are issued and outstanding
8,533,594 shares of Common Stock, and, either issued or subscribed, 2,133,399
shares of Series "A" Convertible Preferred stock.
A. Common stock:
The holders of the Company's Common Stock are entitled to one vote per
share on each matter submitted to vote at any meeting of shareholders. The
shares of Common Stock do not carry cumulative voting rights in the election of
Directors.
Shareholders of the Company have no pre-emptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is not
subject to redemption rights and carries no subscription or conversions rights.
In the event of liquidation of the Company, the share of Common Stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities. All shares of the Common Stock now outstanding are fully paid for
and non- assessable.
Dividends:
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Holders of Common Stock are entitled to receive such dividends as the Board
of Directors may from time to time declare out of funds legally available for
the payment of dividends. The Company has never paid a dividend, and the present
focus of Management is for growth and expansion of its business through the
reinvestment of profits, if any, and does not anticipate that it will pay
dividends in the foreseeable future. Holders of Common Stock:
The number of holders of record of the Company's Common Stock is
approximately 776 as of November 3, 1999, as reported by the Company's transfer
agent. The Common Stock of all holders, except for two (Hastings and Clayton),
is currently held in escrow by the transfer agent pending registration of such
stock with Securities and Exchange Commission by filing Form 10SB.
B. Series "A" Convertible Preferred stock:
Voting: Series "A" Convertible Preferred shareholders vote at shareholder
meetings as if they had converted their stock, provided, if the
Company defaulted in its obligation to redeem the stock for two
redemption dates, then the Series "A" Convertible Preferred
shareholders, as a class, have the right to elect the majority of
the directors of the Company.
Dividends: The Series "A" Convertible Preferred Stock is entitled to an
annual dividend of $0.0222 per share (9%), cumulative if not paid,
but does not bear interest. No dividends can be paid on Common
Stock unless all dividends are paid on Preferred Stock. If the
Corporation pays more than the equivalent rate on the Common Stock
in any year, then Series "A" Convertible Preferred shareholders
participate with the Common Stock proportionately for any
additional dividends.
Liquidation: Series "A" Convertible Preferred Stock get first preference to
receive their par value back on liquidation. Then assets are
distributed to Common Stock until they get an equivalent amount
per share. If any assets are left, the Preferred and Common shares
participate proportionately.
Conversion: Series "A" Convertible Preferred shares convert at their par
value, share for share, for Common Stock, provided, that the
conversion price is subject to adjustment on a full ratchet basis
for any dilutionary distributions or recapitalization. Preferred
shares may be converted up to 5 days before any "redemption date",
before any public offering, and any time after three years. They
will automatically convert to Common Stock (i) on a vote of 2/3 of
the Preferred Stock; (ii) on the closing of a firm commitment of
public offering netting to the Corporation $1M or more at a price
of $5.00 or more per share.
Redemption: At the option of the Series "A" Convertible Preferred Stock
holder, starting in January of 2006, the Preferred Stock is to be
redeemed 1/3 each year for three years.
There are currently nine shareholders who have either subscribed or have
paid for the
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Preferred Stock.
Fiscal Year End:
The Company's fiscal year is December 31.
Transfer Agent:
The Company's transfer agent is American Securities Transfer & Trust, Inc.,
12039 West Alameda Parkway, Lakewood, CO 80228, phone (303) 986-5400 and Fax:
(303) 986-2444.
Reports to Shareholders:
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable at the end of
each fiscal year. In addition, the Company may, in its discretion, distribute
quarterly reports containing unaudited financial statements for each of the
first three quarters of each fiscal year.
Market for Stock
There presently is no market for either the Common Stock or Preferred
Stock.
Legal Proceedings.
None
Accountants.
The principal accountant for the Company is Wadsworth & Smith, Certified
Public Accountants. The auditor for the Company is Balukoff Lindstrom & Co., PA.
Financial Information
Attached hereto is the Consolidated Financial Statements of the Company and
Subsidiary for the fiscal years ended December 31, 1999, and 1998, audited by
Balukoff Lindstrom & Co., P.A.
Costs
The cost of mailing this Information Statement has been or will be borne by
the Company. In addition to solicitation by mail, arrangements may be made with
brokerage houses and other custodians, nominees and fiduciaries to send this
Information Statement to their principals, and the Company may reimburse them
for the costs thereof.
Biogan International, Inc.
By /s/
---------------------------------
Robert C. Montgomery, Secretary
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Consolidated Financial Statements
R-TEC HOLDING, INC.
AND SUBSIDIARY
December 31, 1999 and 1998
<PAGE>
TABLE OF CONTENTS
Page No.
--------
INDEPENDENT AUDITORS' REPORT ........................................... 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet ........................................... 2
Consolidated Statements of Operations ................................ 3
Consolidated Statements of Cash Flows................................. 4
Consolidated Statements of Changes in Shareholders' Equity (Deficit).. 5
Notes to Consolidated Financial Statements ........................... 6
<PAGE>
[LOGO]
BALUKOFF LINDSTROM & Co., P.A.
Certified Public Accountants
877 West Main Street, Suite 805
Boise, Idaho 83702
(208) 344-7150
FAX: (208) 344-7435
www.blco.com
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
R-Tec Holding, Inc.
Boise, Idaho
We have audited the accompanying consolidated balance sheet of R-Tec Holding,
Inc. and Subsidiary as of December 31, 1999, and the related consolidated
statements of operations, changes in shareholders' equity (deficit), and cash
flows for the years ended December 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 Holding, Inc.
and Subsidiary as of December 31, 1999, and the results of their operations and
their cash flows for the years ended December 31, 1999 and 1998, in conformity
with generally accepted accounting principles.
/s/ Balukoff, Lindstrom & Co., P.A.
February 3, 2000
-1-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
December 31, 1999
1999
--------------
Current assets
Cash $ 3,609
Accounts receivable (net of $4,975 allowance
for doubtful accounts) 105,480
Costs and estimated earnings in excess
of billings on uncompleted contracts 63,205
Prepaid expenses 3,330
Notes receivable, current portion 6,091
--------------
Total current assets 181,715
Equipment, at cost, net of accumulated depreciation 54,432
Notes receivable, less current portion 21,045
--------------
Total assets $ 257,192
==============
Current Liabilities
Accounts payable $ 87,839
Accrued expenses 54,900
Line of credit 64,000
Income taxes payable 4,204
Deferred income taxes 8,197
Billings in excess of costs and estimated
earnings on uncompleted contracts 25,978
--------------
Total current liabilities 245,118
Long-term debt 100,000
--------------
Total liabilities 345,118
Shareholders' deficit
Preferred stock, no par value per share,
5,000,000 authorized, no shares
issued and outstanding
Common stock, no par value per share,
30,000,000 authorized, 8,533,594 shares
issued and outstanding 221,729
Accumulated deficit (309,655)
--------------
Total shareholders' deficit (87,926)
--------------
Total liabilities and shareholders' deficit $ 257,192
==============
See accompanying notes
-2-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
1999 1999
------------ -------------
Revenues $ 1,296,850 $ 1,026,847
Operating costs 1,103,719 865,645
------------ -------------
Goss profit 193,131 161,202
Selling, general and administrative expenses 310,920 113,199
Acquired in-process research and development 190,000 --
------------ -------------
Operating income (loss) (307,789) 48,003
Interest expense (14,423) (14,239)
Gain on disposition of assets 16,495 --
Other 1,024 6,581
------------ -------------
3,096 (7,658)
------------ -------------
Income (loss) before income taxes (304,693) 40,345
Income taxes 12,401 --
------------ -------------
Net income (loss) $ (317,094) $ 40,345
============ =============
Net income (loss) per common share $ (0.04) $ --
Weighted average shares outstanding 8,533,594 8,533,594
See accompanying notes
-3-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1999 and 1998
1999 1999
------------ -------------
Cash flows from operating activities
Net income (loss) $ (317,094) $ 40,345
Adjustments to reconcile net income (loss)
to net cash provided (used) by operating
activities
Depreciation 32,298 29,823
Gain on asset dispositions (16,495) --
Acquired in-process research and development 190,000 --
Changes in assets and liabilities
Accounts receivable 5,447 (37,662)
Costs and estimated earnigns in excess
of billings on uncompleted contracts 93,884 (136,838)
Prepaid expenses (1,670) (1,660)
Accounts payable (11,166) 97,989
Accrued expense 23,198 8,582
Income taxes payable 4,204 --
Deferred income taxes 8,197 --
Billings in excess of costs and estimated
earnings on uncompleted contracts (26,999) 29,812
------------ -------------
Net cash provided (used) by
operating activities (16,196) 30,391
Cash flows from investing activities
Purchase of equipment (27,489) (185,885)
Purchase of investment -- (100)
------------ -------------
Net cash used by investing
activities (27,489) (185,985)
------------ -------------
Cash flows from financing activities
Collectioins on loans 70,970 13,000
Loans made -- (98,106)
Dividends paid (6,813) (15,400)
Borrowings on line of credit 64,000 --
Proceeds from debt -- 247,868
Payments on debt (84,201) (24,992)
------------ -------------
Net cash provided by financing
activities 43,956 122,370
------------ -------------
Net increase (decrease)
in cash 271 (33,224)
Cash at beginning of year 3,338 36,562
------------ -------------
Cash at end of year $ 3,609 $ 3,338
============ =============
Supplemental disclosures of cash flow
information
Interest paid $ 15,008 $ 13,654
Noncash investing and financing activities
Dividend paid through investment
distribution $ 57,631 $ --
Sale of equipment with debt assumption $ 138,675 $ --
Stock redumption with debt issuance $ 100,000 $ --
See accompanying notes
-4-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Accumulated
Other
Common Retained Comprehen-
Stock Earnings sive Income Total
----- -------- ----------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1998 $ 31,729 $ 146,938 $ -- $ 178,667
Net income -- 40,345 -- 40,345
Unrealized losses on securities
net of reclassification adjustment -- -- (4,542) (4,542)
---------
Comprehensive income 35,803
Dividends -- (15,400) -- (15,400)
--------- --------- --------- ---------
Balance at December 31, 1998 31,729 171,883 (4,542) 199,070
Net loss -- (317,094) -- (317,094)
Unrealized gain on securities
net of reclassification adjustment -- -- 4,542 4,542
---------
Comprehensive income (312,552)
Dividends -- (64,444) -- (64,444)
Issuance of stock for IntorCorp acquisition 190,000 -- -- 190,000
Stock redemption -- (100,000) -- (100,000)
--------- --------- --------- ---------
Balance at December 31, 1999 $ 221,729 $(309,655) $ -- $ (87,926)
========= ========= ========= =========
</TABLE>
See accompanying notes
-5-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Company Operations
R-Tec Holding, Inc., (the Company), is a system integrator, designer, and
manufacturer of automation and manufacturing equipment, primarily to the
high-tech industry.
Entity
R-Tec Holding, Inc. was formed as a wholly owned subsidiary of Biogan
International, Inc. (Biogan) on August 18, 1999. Biogan is a development stage
company which is publicly held and is traded in the over the counter market.
Biogan transferred its 50 % ownership in IntorCorp, Inc. (IntorCorp) to R-Tec
Holding, Inc. IntorCorp was formed in 1998 for the purpose of completing the
research and design on motor technology. The technology was developed within
Biogan and all rights to the technology were transferred to IntorCorp. There
have been no operations or activities in IntorCorp since its formation. Biogan
paid a stock dividend to shareholders on September 15, 1999, consisting of one
share of R-Tec Holding, Inc. stock for 20 each shares of Biogan stock. The
dividend resulted in the shareholders of Biogan receiving 4,266,797 shares of
R-Tec Holding, Inc. common stock.
R-Tec Corporation (R-Tec) has been in existence since 1995. On September 27,
1999, R-Tec Holding, Inc. and R-Tec Corporation entered into a definitive
agreement under which the shareholders of R-Tec transferred 80% of their common
stock holdings of R-Tec Corporation in exchange for 4,266,797 shares of R-Tec
Holding, Inc. R- Tec Holding also agreed to contribute its investment of
IntorCorp to R-Tec Corporation. The transaction closed on November 3, 1999. On
November 4, 1999, R-Tec Corporation redeemed the remaining 20% ownership from
the shareholders. The redemption resulted in recording a $100,000 note payable
to the former shareholders. The stock redemption resulted in R-Tec Corporation
being a wholly owned subsidiary of R-Tec Holding, Inc.
The financial statements for the Company have been prepared in accordance with
reverse purchase accounting. The newly formed holding company, R-Tec Holding,
Inc. had no activity prior to the acquisition, and accordingly, is considered to
be the acquired entity. R-Tec Corporation is considered the acquirer on the
basis that it had previous operations.
Valuation of the technology, considered to be in-process research and
development, received by R-Tec Corporation in its acquisition of R-Tec Holding,
Inc. and its 50% investment in IntorCorp was determined by external appraisal.
The appraisal value was based on a determination of the value of stock given up
by the shareholders of R-Tec Corporation to complete the exchange. Management
determined the shareholders gave up 40% of their holdings in the exchange which
they estimated the value at $190,000. The technology rights received have not
yet reached technical feasibility and
-6-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
had no alternative future use. The entire $190,000 acquisition price was
allocated to in-process research and development and was expensed as a charge to
operations.
Principles of Consolidation
The consolidated financial statements include the accounts of R-Tec Holding,
Inc. and subsidiary, after elimination of significant intercompany items and
transactions.
Revenue Recognition
The Company recognizes revenues on the percentage-of-completion method, measured
by the percentage of cost incurred to date to estimated total cost for each
contract. Management considers total cost to be the best available measure of
progress on the contracts.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance, such as indirect labor, supplies, tools,
repairs and depreciation. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted contracts
are made in the period in which such losses are determined. Changes in job
performance, job conditions and estimated profitability may result in revisions
to costs and income, which are recognized in the period in which the revisions
are determined.
The assets and liabilities relating to the "costs and estimated earnings in
excess of billings on uncompleted contracts" and the "billings in excess of
costs and estimated earnings on uncompleted contracts" on these contracts are
recorded as current assets and current liabilities on the balance sheet as they
will be liquidated in the normal course of contract completion.
Credit Risk
The Company grants credit to customers primarily in the Western states. These
customers are primarily in the high-tech industry. The accounting loss incurred
if all parties failed entirely to perform on their obligation is equal to the
balance outstanding for trade accounts receivable.
Cash Equivalents
The Company considers all highly liquid investments maturing in three months or
less as cash equivalents.
Marketable Securities
Management determines the appropriate classifications of its investments in
equity securities at the time of purchase and reevaluates such determination at
each balance sheet date. The Company uses
-7-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
the specific identification method for valuing investments. The Company's
investments in equity securities are classified as available for sale at
December 31, 1998. Securities classified as available for sale are carried at
fair value, with the unrealized gains and losses, reported as a separate
component of shareholders' equity. At December 31, 1999 and 1998 the Company had
no investments that qualified as trading or held to maturity.
Equipment
Capital additions are classified as equipment and are recorded at cost.
Depreciation is recorded by use of the straight-line method. The book value of
each asset is reduced by equal amounts over its estimated useful life.
Maintenance and repairs are charged to operations as incurred. When an asset is
disposed of, accumulated depreciation is deducted from the original cost, and
any gain or loss arising from its disposal is credited or charged to operations.
Significant Customers and Suppliers
The Company recorded revenue from services provided to customers that exceeded
10 percent of total revenue as follows:
1999 1998
--------------- ----------------
Company A $ 158,682 $ --
Company B -- 177,830
Company C -- 88,650
Company D -- 153,472
Company E 204,725 --
Company F 167,524 160,741
Company G 146,245 --
---------------- ----------------
$ 677,176 $ 580,693
================ ================
The Company has no vendors that supplied 10% or more of Company purchases,
however; the Company does contract with Browand, LaMeire & Associates to provide
marketing services. Amounts paid to this entity in 1999 and 1998 were $174,240
and $67,995, respectively.
Income Taxes
Prior to January 1, 1999, the Company elected to be taxed as an "S" Corporation
as defined by the Internal Revenue Code, wherein the shareholder reports net
earnings of the Corporation on his personal tax return. Accordingly, no
provision or liability for income taxes has been included in the
-8-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
financial statements for periods prior to 1999. Previously taxed earnings were
distributed to the shareholders during 1999.
Effective January 1, 1999, the shareholders elected to have the Company taxed as
a "C" Corporation as defined by the Internal Revenue Code. Effective December
31, 1998 the Company elected to change its method of reporting taxable income
from the cash basis to the accrual basis. The election requires amortizing the
cash to accrual difference into income over a period not to exceed four years.
The remaining unamortized balance at December 31, 1999 and 1998, was $41,968 and
$62,952, respectively.
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due or recoverable and
deferred taxes related primarily to differences between the bases of assets and
liabilities for financial and income tax reporting.
Value of Financial Instruments
The Company has a number of financial instruments. The Company estimates that
the fair value of all financial instruments, at December 31, 1999, do not differ
materially from the aggregate carrying values of its financial instruments
recorded in the accompanying balance sheet. The estimated fair value amounts
have been determined by the Company using available market information and
appropriate valuation methodologies. Considerable judgment is required in
interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
Estimates
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities, and reported
revenues and expenses. Significant estimates used in preparing these financial
statements include those assumed in determining the collectibility of
receivables, computing profit percentages under the percentage-of-completion
revenue recognition method, and determining the value assigned to the
acquisition of IntorCorp technology. It is at least reasonably possible that the
significant estimates used will change within the next year.
Earnings Per Share
Earnings per share is computed by dividing net income applicable to common
shareholders by the weighted average number of shares outstanding.
-9-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE B - MARKETABLE SECURITIES
Investments in marketable securities classified as available for sale are as
follows:
Market Unrealized
Cost Value (Loss)
------------- ------------- ----------
December 31, 1998
Common Stocks $ 35,968 $ 31,426 $ (4,542)
The Company had realized gains of $21,663 and $-- on the sale of securities
classified as available for sale for the years ended December 31, 1999 and 1998,
respectively. The Company had a reclassification adjustment of $4,542 during
1999.
NOTE C - UNCOMPLETED CONTRACTS
Costs, estimated earnings and billings on uncompleted contracts consist of:
1999
----------------
Costs incurred on uncompleted contracts $ 143,641
Estimated earnings 26,860
----------------
170,501
Billings to date 133,274
----------------
$ 37,227
================
1999
----------------
Balance sheet captions are:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 63,205
Billings in excess of costs and estimated
earnings on uncompleted contracts (25,978)
----------------
$ 37,227
================
-10-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
NOTE D - EQUIPMENT
Equipment consists of:
1999
----------
Equipment $ 42,242
Vehicles 31,172
Software 18,143
Office equipment and furnishings 13,691
----------
105,248
Accumulated depreciation and amortization (50,816)
----------
$ 54,432
==========
NOTE E - REVOLVING LINE OF CREDIT
The Company has available for borrowing a line of credit of $100,000 of which
$64,000 was outstanding at December 31, 1999. The line bears interest at a
variable interest rate of 2% over the published Wall Street Journal prime rate,
and is secured by accounts receivable and equipment.
NOTE F - LONG-TERM DEBT
R-Tec redeemed stock from the shareholders on November 4, 1999 by issuing a note
for $100,000. The redemption represented the 20% minority interest as of that
date. The note is payable only from available earnings of R-Tec and is not
scheduled to commence until January 1, 2001. Interest accrues at the prime
lending rate.
NOTE G - LEASES
The Company leases its office and manufacturing space from a related party,
H2C2. H2C2 is owned by Doug and Rena Hastings and Gary and Patricia Clayton. The
lease term expires in December 2004, but may be extended, subject to cost of
living increases, for a five year term at the option of the Company. Doug
Hastings and Gary Clayton are Executive Officers of the Company.
-11-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Future minimum payments under the operating lease agreement at December 31, 1999
are:
2000 $ 35,400
2001 35,400
2002 35,400
2003 35,400
2004 32,450
-----------
$ 174,050
===========
Rent expense for 1999 and 1998 was $38,219 and $14,250, respectively.
NOTE H - PENSION PLANS
The Company has a Simplified Employees Pension Plan covering all employees who
are at least 21 years of age and worked at the Company for a minimum of 2 years.
The Plan allows the Company to make contributions up to 15% of compensation
subject to Federal maximum contribution limits. During the years ended December
31, 1999 and 1998, the Company recorded $3,644 and $--, respectively, in
contributions.
NOTE I - INCOME TAXES
Income taxes are provided for temporary differences between financial and tax
basis income. The components of net deferred taxes are as follows at December 31
using a combined deferred tax rate of 23%:
1999
----------
Deferred tax liability from:
Fixed assets $ (5,806)
Change in method of accounting (9,653)
Net overbillings on uncompleted contracts (5,112)
---------
Deferred tax liability 20,571)
Deferred tax asset from:
Accrued expenses 12,374
---------
Net deferred liability $ (8,197)
==========
-12-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
The components of income tax expense at December 31, are:
1999 1998
---------- --------
Current
Federal $ 2,661 $ --
State 1,543 --
---------- --------
4,204 --
Deferred
Federal 5,346 --
State 2,851 --
---------- --------
8,197 --
---------- --------
$ 12,401 $ --
========== ========
The following reconciles the federal tax provisions with the expected provisions
by applying statutory rates (34%) to income before income taxes as of December
31, 1999:
1999
----------
Federal tax benefit $ (103,596)
In-process research and development 64,600
Effect of graduated tax rates (10,320)
Effect of revocation of S-election 57,323
----------
Federal income tax $ 8,007
==========
As discussed in Note A, the Company changed its tax status from an S-Corporation
to a C-Corporation effective January 1, 1999. Accordingly, the net deferred tax
liability at the date the termination election was filed of approximately
$39,000, based on a combined tax rate of 23%, has been included in the current
year deferred tax provision.
NOTE J - RELATED PARTY TRANSACTIONS
The Company conducts business with other entities affiliated through common
ownership or control.
As described in Note G, the Company leases office and manufacturing space from
H2C2. Amounts paid during 1999 and 1998 for rent was $38,219, and $9,750. The
Company also pays H2C2 for utilities, which amounted to $2,450 and $443 for 1999
and 1998, respectively. During 1998, the Company leased a facility from Doug
Hastings. Total rental expense in 1998 for this rental was $4,500.
-13-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
The Company occasionally provides loans to affiliated entities. The notes are
unsecured. As of December 31, 1999, H2C2 owed the Company $27,136 on a note
receivable.
The Company has machine tooling performed by R-Tec Machine Tool, Inc. (Machine
Tool), which is owned 25% each by Doug Hastings and Gary Clayton. Purchases from
Machine Tool for 1999 and 1998 were $188,643 and $77,680, respectively. During
1998, R-Tec purchased equipment, which was leased to Machine Tool. Financing of
the equipment was provided through two lending institutions for 100% of the
purchase price. The lease payments received in 1999 and 1998 were $20,580 and
$33,535, respectively. In 1999, Machine Tool acquired the equipment by assuming
the underlying debt, $138,675, at the time of transfer. The Company has accounts
payable due to Machine Tool at December 31, 1999 and 1998 in the amount of
$21,390 and $3,634, respectively.
The Company owes Doug Hastings and Gary Clayton $25,000 each for signing bonuses
as of December 31, 1999. The amounts are included in accrued expenses.
NOTE K - COMMITMENTS
The Company has entered into five-year employment agreements with Doug Hastings
and Gary Clayton. The agreements provide for minimum base salaries of $81,120 to
each of them with bonuses determined in relationship to Company profits.
NOTE L - GOING CONCERN CONTINGENCY
The Company incurred an operating loss during 1999 of approximately $308,000.
This loss coupled with the excess of current liabilities over current assets of
approximately $64,000 and deficit equity of approximately $87,000 suggest that
the Company may not be able to continue as a going concern. The operating loss
was largely the result of recording the charge to operations for in-process
research and development cost related to IntorCorp for $190,000, and the $50,000
signing bonuses. The Company's ability to continue as a going concern is
primarily dependent upon three factors: minimizing unusual expenditures,
maximizing contract profits, and obtaining investor contributions. Management
does not anticipate additional unusual expenses and expects the profitability on
contracts to increase. The Company has issued $500,000 of stock subscriptions
for preferred stock subsequent to December 31, 1999. The Company has received
$108,050 of investor contributions related to these subscriptions subsequent to
December 31, 1999. The Board of Directors adopted an amendment to the Articles
of Incorporation in January 2000 to provide for the original preferred stock to
be divided into series, with the first series consisting of 2,133,399 shares of
convertible preferred stock with a par value of $.23437. The remaining preferred
shares outstanding, 2,866,601, shall be designated, as the Board of Directors
shall determine into classes, series, and preferences, limitations, restrictions
and relative rights of each class or series of preferred stock.
-14-
