United States Securities and Exchange Commission
Washington, D.C. 20549
Pre-Effective Amendment No. 3 to Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
R-TEC HOLDING, INC.
(Name of small business issuer in its charter)
IDAHO 82-0515707
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1471 E. Commercial Ave., Meridian, Idaho 83642
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (208)-887-0953 Fax: (208) 888-1757
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Securities registered under 12(g) of the Exchange Act:
COMMON STOCK
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<PAGE>
INFORMATION REQUIRED IN REGISTRATION
STATEMENT
Part I
Item 1. Description of Business
R-Tec Holding, Inc. (the "Company")
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 the 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
outstanding. 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 Gary A. Clayton and Douglas G.
Hastings the two shareholder-owners of R-Tec Corporation, an engineering company
located in Meridian, Idaho, in exchange for 80% of the outstanding stock of
R-Tec Corporation. In addition, the Company contributed its stock of IntorCorp,
Inc. to R-Tec Corporation. On November 4, 1999, R-Tec Corporation redeemed the
remaining 20% of R-Tec Corporation stock from the two shareholder-owners for the
price of $100,000 paid with an interest bearing promissory note payable from
available earnings commencing in January of 2001. The net effect of the
transactions is that:
a Shareholders of the Company 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. With the R-Tec Corporation redemption of the 20% outstanding
stock from the shareholder-owners the Company owns 100% of R-Tec
Corporation.
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.
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The financial statements for the Company have been prepared according to
"reverse purchase" accounting by which R-Tec Corporation, the dominant business
entity, is considered the purchaser of R-Tec Holding, Inc. For a more complete
discussion of the accounting refer to the last paragraph on page 6 of the
Consolidated Financial Statements of R-Tec Holding, Inc. and R- Tec Corporation
December 1998 and 1999 included in Part F/S of this Form 10SB.
R-Tec Corporation management is familiar with the IntorCorp Motor by virtue of
engineering work performed on the Motor in 1997 when Biogan International had a
consulting engineering agreement with R-Tec Corporation to perform engineering
and development work on the Motor. R-Tec was paid at that time with cash and
Biogan International common stock for the consulting services. The consulting
services were discontinued approximately mid 1998 for lack of funds to continue
the project.
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 High-Tech manufacturing tools going overseas for Hewlett Packard.
Presently R-Tec Corporation, under contracts with various customers, develops,
engineers and fabricates High-Tech custom manufacturing equipment and parts to
be incorporated into customer owned and operated manufacturing equipment and
manufactured products. R-Tec Corporation expertise includes engineering,
development of controls, machine design and tooling, consulting services,
prototype development, tooling and manufacturing. Typical production includes:
mechanical fixtures; "mech-op stations" (devices for testing mechanical
operations and performance of equipment); "servo-writers" and "transfer
stations"(devices that write code instructions for reading disc drives in
manufacturing stations); "sub-assemblies" (an assembly of electrical components
as a unit to be integrated with other units to complete a device or product);
"automatic robot work stations" (a machine that automatically constructs part of
a manufactured product); and electronic testing devices. Essentially all of the
products and services incorporate one or more complete disciplines of
mechanical, electrical, software, machine visions (a vision camera that
digitizes information for testing purposes) and controls.
Developed technology currently includes CAD-based software (computer aided
design software), electro-mechanical devices, tool design, PC Board Layout
(printed circuit board layout technology from concept to manufactured product),
International CE-Marked products (a quality designation in China similar to "UL"
marked products in the US) Machine Vision, Specialty Tooling, Engineering
Design, Motion Control, Robotics, Software Development, PLC Programming
(programmable logic controller which is a low level computer for controlling
functions).
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All of the revenues in 1999 were from custom engineering contracts with
customers. However, Management is currently exploring the manufacture of
standard products for generic application and has revenues of $1,982 as of
August 31, 2000.
Significant clients of R-Tec Corporation include Iomega Corporation, Hewlett
Packard, Pro- Precision Machining, 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.
Beginning approximately two and one-half years ago distribution of products and
services has primarily been made through Browand, LaMeire & Associates (B.L.&
A.) A Manufacturer's Representative firm who has sales representative agents in
the US, Europe and Asia. Currently B.L.&A. Has four representative firms in the
U.S. with twelve sales persons. Management is currently entering into the
European and Asian markets through B.L.&A. who has three European agents for
Germany, France and England, and five Asian agents for Singapore, Malaysia,
Taiwan and Japan.
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 in the same building as R-Tec Corporation (See "Certain Relationships and
Related Transactions "). However, some machine work is also contracted with
other machine shops depending on time of delivery constraints. R- Tec Machine
Tools, Inc. exclusively machines raw metal into custom parts on contract with
its customers, one of which is R-Tec Corporation. In comparison, R-Tec
Corporation makes manufacturing equipment, which sometimes needs machined metal
parts which R-Tec Machine Tools (or some other machine shop) will make. The two
companies do not compete for the same type of work, nor do they combine or share
resources. There is no common personnel, equipment, nor management. Building
expenses are allocated to the two occupants based on square footage occupied.
The custom-parts manufacturing industry is vast with many major competitors who
are larger and financially stronger than R-Tec Corporation, such as Wright
Industries, Technistar, and Acufab. Major companies such as Motorola and Micron
frequently have their own internal tooling development groups to develop their
own equipment requirements and who on occasion will "out source" their over-load
demands to companies like R-Tec Corporation. Management is not aware of any
information to estimate a market share of the industry, but is confident that
R-Tec Corporation has a very small share of the overall market. Management of
R-Tec Corporation primarily relies on it manufacturer's representative to sell
it products and services.
Materials for products, such as aluminum, bar stock, plate stock, wire and
plastics are provided by several subcontractors who bid to provide supplies
according contract specifications. To the
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best knowledge of Management the required materials are of a generic nature with
ample availability from several sources, and therefore there is no dependence on
a source of raw materials.
During 1999 R-Tec Corporation had contracts (in different stages of performance)
with approximately 43 customers (some had multiple contracts), four of which
customers provided in excess of 10% of annual revenues, i.e. 3COM Corporation,
Micron System Integration, Palm Computing, Inc., and Performance Design, Inc.,
for a combined total of 52.2% from the four. Management presently estimates that
2 customers with contracts in process will exceed 10% of estimated revenues in
2000, i.e. Manufacturers Services, SLC Operation, and Exatron. The nature of the
"custom parts" engineering business is such that customers producing material
revenues generally change from year to year and no dependence on any specific
customers develops. Management has a goal that approximately 10% of revenues in
2000 will be from sales of standard products to customers. As the business
expands and standard products sales increase, R-Tec corporation's dependence on
custom parts contract customers is expected to decrease.
Prior to 1999 R-Tec Corporation did not have any patents or other proprietary
property interests. In 1999 it had in application stage two patents, one of
which was issued for a "Test Probe Positioning Device, and one of which has been
re-applied. The patent issued is #6,064,195 dated May 16, 2000, and will expire
on May 15, 2017. The patent is for a self-aligning device for positioning a test
probe in a socket of a printed circuit board to be tested.
Neither the products nor services provided by R-Tec Corporation presently
require any governmental approval. Management is not currently aware of any
existing or probable governmental regulation on any part of the business.
During 1999 R-Tec Corporation did not expend material funds on research and
development. Any activity that may be considered as research and development has
been only in connection with the performance under a contract with a customer
for services and/or products the cost of which has been paid by the customer as
part of the contract terms.
Item 2. Management's Discussion and Analysis or Plan of Operation
The consolidated financial statement of R-Tec Holding reflects 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 including in operations acquired in- process research and
development costs of $190,000 related to the IntorCorp acquisition, R-Tec
Corporation recorded signing bonuses of $50,000 for the executive officers,
$50,356 in new facility overhead (compared to $18,006 for 1998), and three
additional skilled employees. The new facilities, and additional employees, are
part of an investment effort by Management put on new product development to
generate revenues from sales of standard products in inventory.
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With continued custom contract production and increased emphasis on standard
products, as well as additional marketing effort by the Manufacturer
Representative, Management is projecting revenues estimated at $2,000,000 for
calendar year 2000 and a projected net income in excess of $150,000. The
projection is based on the assumption that custom contract work will continue to
expand at approximately the same rate as for the past three years, and the
addition of standard product sales. The results of operations for the first
quarter of 2000 reflects revenues of $359,337 and an operating loss of $103,802
compared to revenues of $549,428 and an operating income of $42,161 for the
first quarter of 1999. The first quarter revenues and profits of 1999 were
disproportionate as demonstrated by the year end revenues and financial
statements. The first quarter of 2000 does not yet reflect the anticipated
revenues from contracts in process, and in addition reflects an extraordinary
loss in the buy back of a machine product for $50,000. Management anticipates
that the second quarter statement will continue with a less than proportionate
projected revenue statement, with revenues and profits at the projected level
for 2000 becoming evident in the 3rd and 4th quarters of the year.
To realize its goals for 2000, Management has organized the business into three
areas of focus:
a. 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 24 automated
functional testers that tests the Palm V 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.
b. 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 R-Tec Corporation has been presently satisfied with the
subscription of Series "A" Convertible Preferred stock in the amount of
$500,000, of which as of June 26, 2000,
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$393,650 has been received by the Company, and available institutional loans in
the amount of $100,000.
The $100,000 note payable to Clayton and Hastings for the redemption of the 20%
common stock is payable when funds are available from earnings.
Item 3. Description of Property
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 12. 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 rent is 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 line-of-credit when funds are drawn.
R-Tec Holding, Inc. 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.
Except for the described leasehold interest in the occupied premises by R-Tec
Corporation, neither R-Tec Holding, Inc., R-Tec Corporation nor IntorCorp, Inc.
has any investments in real estate, nor interests in real estate, real estate
mortgages, nor securities of or interests in persons primarily engaged in real
estate, activities.
IntorCorp, Inc. is an Idaho corporation owned 50% by R-Tec Corporation and 50%
by C.T. Corporation an electrical engineering company. The outstanding common
stock of IntorCorp was issued originally to C.T. Corporation and to Biogan
International in exchange for their respective interest in the intellectual
technology for the IntorCorp Motor. By virtue of the transactions described in
Item 1 hereof, the interest of Biogan International has descended to R-
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Tec Corporation. The board of directors of IntorCorp is comprised of four
members, two from each of C.T. Corporation and two (Gary A. Clayton and Douglas
G. Hastings) from R-Tec Corporation, with Mr. Douglas G. Hastings as President.
Negotiations are presently in process for a consulting agreement between
IntorCorp and C.T. Corporation. IntorCorp has never had assets other than the
intellectual technology for the IntorCorp Motor, nor has it conducted any
business. It is currently in the development stage. Presently Management of
IntorCorp is developing the business plan to raise development funds,
interviewing candidates for managing the project of the development and
marketing of the IntorCorp Motor.
Item 4. 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. Share ownership and subscriptions are reflected as of June 26, 2000.
<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) 490,417 531,638 5.75% 24.92%
7213 Potomac Drive
Boise, Idaho 83704
Robert C. Montgomery (1)(3) 116,900 106,669 1.37% 5.00%.
2160 S. Twin Rapid Way
Boise, Idaho 83709
George W. Wadsworth (1)(3)(7) 138,334 153,177 1.62% 7.18%
214 S. Cole Road
Boise, Idaho 83709
John R. Hansen, Jr. (1)(3) 125,000 135,469 1.46% 6.35%
1595 S. Lakemoor Way
Eagle, Idaho 83616
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
L. William Glazier (3)(7) 525,000 -0- 6.15% -0-%
805 W. Cross Street
Woodland Hills, CA 95695
Ronald J. Tolman (2) 561,164(2) 599,479 6.58% 28.10%
2326 Bruins Avenue
Boise, Idaho 83704
All Officers and Directors
as a Group (6 persons) 5,137,448 926,953 60.20% 43.45%
Total Shares Issued and Outstanding 8,533,594 2,133,379(6)(7)
</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%), 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
vice-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.
(7) L. William Glazier subscribed to 452,493 shares of Preferred
Stock that has not yet been paid.
Preferred Stock
The Company has amended its Articles of Incorporation to create 2,133,399 shares
of Series "A" Convertible Preferred stock, at a no par value $0.23437 per share,
all of which was subscribed by eight 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.
As of June 26, 2000, the Preferred Stock has been issued as follows:
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Date # Shares Cash Subscriber
---- -------- ---- ----------
1/24/00 135,469 $ 31,750 John R. Hansen, Jr.
1/27/00 67,842 $ 15,900 George W. Wadsworth*
1/27/00 189,871 $ 44,500 Jacque L. Tolman
2/3/00 67,841 $ 15,900 John Smith*
2/25/00 409,609 $ 96,000 Ronald J. Tolman
2/25/00 531,638 $ 124,600 Rulon L. Tolman
4/4/00 106,669 $ 25,000 Robert C. Montgomery
6/26/00 85,335 $ 20,000 George W. Wadsworth*
6/26/00 85,335 $ 20,000 John Smith*
------ ---------
Totals 1,508,939 $ 353,650
* Partners in Wadsworth and Smith, Chartered, CPA firm.
Item 5. Directors, Executive Officers, Promoters and Control Persons of the
Company.
Name Age Position Date Appointed
----- --- -------- --------------
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 70 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
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 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.
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Gary A. 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.
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 degree
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.
Item 6. 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 A. Clayton, Vice President. $56,100 and 78,912 respectively.
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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 A.
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 the Company. 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.
Item 7. 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 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.
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.
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 R-Tec
Corporation by assuming the underlying debt of $138,675 at the time of transfer.
Item 8. Description of Securities.
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.
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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 have 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 has 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 and after
distributions to the preferred stock. All shares of the Common Stock now
outstanding are fully paid for and non-assessable.
Dividends:
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 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 until either the registration of the Common Stock is
effective, or until June 30, 2000, whichever is earlier.
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 income dividend of $0.0222 per share (9%), cumulative if
not paid, but does not bear
13
<PAGE>
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 no 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 Preferred Stock. Reference is made to the attached exhibit "Preferred
Stock Amendment to the Articles of Incorporation for a more detailed description
of the Preferred Stock.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder Matters.
There presently is no market for either the Common Stock or Preferred Stock.
Management does not anticipate that there will be any dividends payable on the
common stock for the forseeable future because all profits, if any, will be used
for expansion.
Item 2. Legal Proceedings.
There are no legal proceedings presently existing or threatened against either
the Company or any subsidiary.
Item 3. Changes in and Disagreements with Accountants.
14
<PAGE>
The principal accountant for the Company is Wadsworth and Smith, Chartered,
Certified Public Accountants. The auditor for the Company is Balukoff Lindstrom
& Co., PA. There have been no changes nor disagreements with accountants.
Item 4. Recent Sales of Unregistered Securities.
On November 3, 1999, the Company closed an Agreement and Plan of Reorganization
pursuant to which Company issued 4,266,798 shares of "restricted" Common Stock
1/2 to Gary A. Clayton and 1/2 to Douglas G. Hastings in a Private Placement in
exchange for 80% of the stock of R-Tec Corporation as described in Item 1 hereof
at page 2. The issuer is of the opinion that said stock was issued in compliance
with Section 4(2) exemption from registration under the Securities Act of 1933
in that none of the common stock was offered to any other persons, Clayton and
Hastings had available to them all of the material information about the Issuer,
they had the necessary experience to evaluate the merits of the investment, and
they represented that the investment in the stock was for investment purposes
and not with a view to the distribution thereof.
The 80% interest in R-Tec Corporation transferred to R-Tec Holding in exchange
for the restricted common stock has been appraised at $380,000, which is the
dollar value placed on the books of the Company. There was no other
consideration given for the said common stock.
The Series "A" Convertible Preferred shares herein described under the heading
of "Preferred Stock" was issued for cash at its no par value of $0.23437 per
share in the amounts and for cash consideration listed under Item 4 at page 10.
There was no other consideration given for the Preferred Stock. The said stock
was not offered to any other persons, the subscribers were all "insiders" and
were informed of the material information about the Issuer, all of the
subscribers are sophisticated and able to evaluate the merits of the investment,
and each represented that the investment was made for investment purposes and
not with a view to the distribution thereof.
Item 5. Indemnification of Directors and Officers.
The Company and its affiliates may not be liable to its shareholders for errors
in judgment or other acts or omissions not amounting to intentional misconduct,
fraud or a knowing violation of the law, since provisions have been made in the
Articles of Incorporation and By Laws limiting such liability. The Articles of
Incorporation and By Laws also provide for indemnification of the officers and
directors of the Company in most cases for any liability suffered by them or
arising out of their activities as officers and directors of the Company if they
were not engage in intentional misconduct, fraud or a knowing violation of the
law.
Insofar as indemnification for liabilities arising under the federal securities
laws may be permitted to directors and controlling persons of the Registrant,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the law and is, therefore, unenforceable. In the event a demand for
indemnification is made, the Registrant will, unless in the opinion of its
counsel the matter has
15
<PAGE>
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the questions whether such indemnification by it is against public
policy as expressed in the law and will be governed by the final adjudication of
such issue.
PART F/S
Included herewith is the audited consolidated statement of R-Tec Holding, Inc.
and Subsidiaries as of December 31, 1999 and 1998, and the reviewed consolidated
statements for March 31, 2000 and 1999.
PART III
Item 1. Index to Exhibits
The exhibits listed and described below in Item 2 are filed as part of this
Registration Statement.
Item 2. Description of Exhibits
Charter, Charter Amendments, By Laws, Employment Contracts with Gary A. Clayton
and Douglas G. Hastings, and the Lease Agreement for the business premises.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
R-TEC HOLDING, INC.
(Registrant)
September 28, 2000 By /s/ Douglas G. Hastings, President
-------------------------------------
Douglas G. Hastings, President
16
<PAGE>
Consolidated Financial Statements
R-TEC HOLDING, INC.
AND SUBSIDIARY
December 31, 1999 and 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
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
</TABLE>
<PAGE>
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.
Balukoff, Lindstrom & Co., P.A.
Boise, Idaho
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 40,154
Other assets 14,278
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 12,401
Billings in excess of costs and estimated
earnings on uncompleted contracts 25,978
---------
Total current liabilities 245,118
Long-term debt 100,000
Series A cumulative convertible preferred stock, par value
$0.23437 per share, 5,000,000 authorized, no
shares issued and outstanding --
---------
Total liabilities 345,118
Shareholders' deficit
Common stock, no par value per share,
30,000,000 authorized, 8,533,594 shares
issued and outstanding 221,729
Additional paid-in capital 107,439
Accumulated deficit (417,094)
---------
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
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 1,296,850 $ 1,026,847
Operating costs 1,103,719 865,645
----------- -----------
Gross 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
</TABLE>
See accompanying notes
-3-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
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 earnings 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 12,401 --
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 and other assets (27,489) (185,885)
Purchase of investment -- (100)
--------- ---------
Net cash used by investing activities (27,489) (185,985)
--------- ---------
Cash flows from financing activities
Collections 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 redemption with debt issuance $ 100,000 $ --
</TABLE>
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
Additional Other
Common Retained Paid-in Comprehen-
Stock Earnings Capital sive Income Total
---------- ------------ --------------- ------------- -----------
<S> <C> <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)
Adjustment for terminatation
of subchapter S-Election (171,883) 171,883 -
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 $ (417,094) $ 107,439 $ - $ (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 Holding was formed to posture itself to effect a
business combination. R-Tec Holding had no tangible assets, liabilities or
earnings process prior to the combination. The only assets of R-Tec Holding at
the date of the combination were the in-process research and development assets.
Top management of the newly combined company consists primarily of the previous
management personnel from R-Tec Corporation. Doug Hastings and Gary Clayton,
former owners of R-Tec Corporation are the President and Vice President of R-Tec
Holding. They control in excess of 50% of the common stock of R-Tec Holding
through their ownership acquired on November 3, 1999 and their other shares of
ownership related to Biogan. The Biogan share holdings, which were
-6-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
converted to R-Tec Holding shares as discussed above, approximate 63 shares of
R-Tec Holding stock. Based on the factors discussed above, the R-Tec Corporation
is considered the acquiring company. Pro forma balance sheets as of the most
recently required period are not deemed necessary given that there were no
tangible assets or operations at the last reporting period. Financial statements
presented are the historical financial statements of R-Tec Corporation as R-Tec
Corporation is the acquiring company.
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 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, under contract from the respective customers, develops, fabricates
and manufactures high-tech custom, automation manufacturing equipment robotics,
as well as custom manufactures other types of manufacturing equipment and/or
parts for installation in customer products. 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.
-7-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
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. As of December 31, 1999 one
customer, identified as Company F on the following page, owes approximately
$41,000.
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 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.
Other Assets
The estimated useful lives of software costs, included in the caption of other
assets, three years. Accumulated amortization on the software at December 31,
1999 is $3,865.
-8-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Investment in IntorCorp
R-Tec Corporation has a 50% ownership interest in InterCorp. InterCorp has had
no operations since its formation in 1998. The only assets of InterCorp are
in-process research and development technology, which have no value to report in
the balance sheet as of December 31, 1999. The value assigned to the in-process
research and development costs as of the acquisition of $190,000 was expensed in
the statement of operations for the fiscal year ended December 31, 1999. The
technology acquired relates to 5 HP motor technology which has not been fully
developed and does not currently have alternative future uses. Management is
considering completing the development of the 5 HP motor, or alternatively,
developing a larger 40 HP motor. Under either of the options the cost to develop
support functions, conduct the laboratory prototype phase development and
testing, complete production prototype phase development, and field test the
motors is estimated to take approximately two years and to cost approximately
$6,000,000.
Significant Customers and Suppliers
The Company recorded revenue from services provided to customers that exceeded
10 percent of total revenue as follows: 1999 1998
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 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.
-9-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
The Company reported on the cash basis for income tax reporting purposes through
December 31, 1998. The accrual basis was utilized for financial reporting
purposes. The change in method of reporting income for tax reporting purposes
resulted in income, which was not previously reported on the tax returns This
additional income would have normally given rise to deferred income taxes had
R-Tec Corporation been taxed as a "C" Corporation. Since R-Tec Corporation was
an "S" Corporation at the time of the change, no deferred taxes resulted. Upon
the election to terminate the "S" Corporation election on January 1, 1999,
deferred taxes were reported. 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.
-10-
<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
==============
-11-
<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
----------------
87,105
Accumulated depreciation and amortization (46,951)
----------------
$ 40,154
================
The estimated useful lives of equipment is five to seven years.
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.
-12-
<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 $ (5,199)
Change in method of accounting (4,826)
----------------
Deferred tax liability (10,025)
Deferred tax asset from:
Accrued expenses 12,374
Valuation allowance (2,349)
----------------
Net deferred liability 10,025
----------------
Net deferred tax $ --
================
-13-
<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 $ 9,980 $ -
State 2,421 -
-------------- ----------
12,401 -
Deferred
Federal - -
State - -
-------------- ----------
- -
-------------- ----------
$ 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 (8,347)
Effect of revocation of S-election 57,323
----------------
Federal income tax $ 9,980
================
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.
-14-
<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 per annum,
Incorporation in January 2000 to provide for the original preferred stock to be
divided into series, with the first series, Series A Preferred Stock, consisting
of 2,133,399 shares of cumulative convertible preferred stock with a par value
of $.23437. Dividends on this preferred stock are cumulative from the date of
issuance at the rate of $.0222 per share, payable out
-15-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
of funds legally available. Such dividends are payable only when, as, and if
declared by the Board of Directors, and shall accumulate from the date of issue,
payable annually. Unpaid dividends are not interest bearing. Dividends on Common
Stock can not be paid until all dividends on the Series A Preferred Stock have
been paid. Each Series A Preferred stock is convertible, at the option of the
holder, at any time on or before the fifth day before any redemption date
(January 31 each year) to the Company's Common Stock. The conversion price is
$.23437 per share of Common Stock. The Series A Preferred Stock shall be
automatically converted on the earlier of the date specified by vote or written
consent or agreement of at least two-thirds of the outstanding shares of such
series or immediately on the closing of the sale of public offering of Common
Stock in excess of $5.00 per share and $1,000,000 in proceeds. At the option of
each holder of Series A Preferred stock, the Company shall redeem, on the
redemption date starting with the year 2006 and continuing thereafter, the
number of shares requested by the holder, by paying cash at the rate of $.23437
per share. Since the Series A Preferred Stock is convertible, at the option of
holder, Series A Preferred Stock is presented in the liability section of the
balance sheet.
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.
-16-
<PAGE>
Consolidated Financial Statements
R-TEC HOLDING, INC.
AND SUBSIDIARY
March 31, 2000 and 1999
<PAGE>
TABLE OF CONTENTS
Page No.
INDEPENDENT ACCOUNTANTS' REVIEW REPORT ............................. 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet ....................................... 2
Consolidated Statements of Operations ............................ 3
Consolidated Statements of Cash Flows............................. 4
Notes to Consolidated Financial Statements ....................... 5
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Shareholders and Board of Directors
R-Tec Holdings, Inc.
Boise, Idaho
We have reviewed the balance sheet of R-Tec Holdings, Inc. as of March 31, 2000
and the related statements of income and cash flows for the three-month periods
ended March 31, 2000 and 1999. These financial statements are the responsibility
of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
/s/ Balukoff, Lindstrom & Co., P.A.
June 19, 2000
-1-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 2000
--------------
<S> <C>
Current assets
Cash $ 125,178
Accounts receivable (net of $36,232 allowance
for doubtful accounts) 299,631
Costs and estimated earnings in excess
of billings on uncompleted contracts 13,626
Prepaid expenses 5,307
Notes receivable, current portion 5,704
---------
Total current assets 449,446
Equipment, at cost, net of accumulated depreciation 84,605
Other assets 12,766
Notes receivable, less current portion 21,035
---------
Total assets $ 567,852
=========
Current liabilities
Accounts payable $ 65,632
Accrued expenses 67,004
Line of credit 100,000
Income taxes payable 2,401
Billings in excess of costs and estimated
earnings on uncompleted contracts 117,380
Notes payable 58,706
Notes payable, related parties 100,000
---------
Total current liabilities 511,123
Series A cumulative convertible preferred stock, par value $0.23437 per share,
5,000,000 authorized, 1,064,770
shares issued and outstanding 249,550
---------
Total liabilities 760,673
Shareholders' equity
Common stock, no par value per share,
30,000,000 authorized, 8,533,594 shares
issued and outstanding 221,729
Additional paid-in capital 107,439
Accumulated deficit (521,989)
---------
Total shareholders' equity (192,821)
---------
Total liabilities and shareholders' equity $ 567,852
=========
</TABLE>
See accompanying notes
-2-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended March 31,
2000 1999
-------------- -------------
Revenues $ 359,337 $ 549,428
Operating costs 285,436 365,198
--------------- -------------
Gross profit 73,901 184,230
Selling, general and administrative expenses 177,703 115,904
--------------- -------------
Operating income (loss) (103,802) 68,326
Interest expense (1,623) (6,925
Other 530 3,487
--------------- -------------
(1,093) (3,438
--------------- -------------
Income (loss) before income taxes (104,895) 64,888
Income taxes - 50,900
--------------- -------------
Net income (loss) $ (104,895) $ 13,988
=============== =============
Net income (loss) per common share $ (0.01) $ --
Weighted average shares outstanding 8,533,594 8,533,594
See accompanying notes
-3-
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $(104,895) $ 13,988
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities
Depreciation and amortization 5,690 10,249
Sale refund through issuance of note payable 58,706 --
Changes in assets and liabilities
Accounts receivable (194,151) 58,260
Costs and estimated earnings in excess
of billings on uncompleted contracts 49,579 (28,503)
Prepaid expenses (1,977) 92
Accounts payable (22,207) (56,227)
Accrued expense 12,104 (19,895)
Billings in excess of costs and estimated
earnings on uncompleted contracts 91,402 (15,128)
Income taxes payable (10,000) 32,089
Deferred income taxes -- 18,811
--------- ---------
Net cash provided (used) by operating activities (115,749) 13,736
Cash flows from investing activities
Purchase of equipment and other assets (48,629) (2,693)
Purchase of investment -- (8,428)
--------- ---------
Net cash used by investing activities (48,629) (11,121)
--------- ---------
Cash flows from financing activities
Collections on loans 397 11,162
Proceeds from preferred stock 249,550 --
Borrowings on line of credit 36,000 --
Payments on debt -- (9,458)
--------- ---------
Net cash provided by financing activities 285,947 1,704
--------- ---------
Net increase (decrease) in cash 121,569 4,319
Beginning cash 3,609 3,338
--------- ---------
Ending cash $ 125,178 $ 7,657
========= =========
Supplemental disclosures of cash flow information
Interest paid $ 1,623 $ 5,288
Noncash investing and financing activities
Sale refund through issuance of note payable $ 58,706 $ --
</TABLE>
See accompanying notes
-4-
<PAGE>
<PAGE>
R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000 and 1999
NOTE A - UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited financial statements
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position of R-Tec Holdings, Inc. (the
Company) and the results of operations and cash flows. Certain reclassifications
of prior quarter amounts were made to conform with current quarter presentation,
none of which affect previously recorded net income.
NOTE B - EQUIPMENT
Equipment consists of:
Equipment $ 43,933
Vehicles 31,171
Office equipment and furnishings 60,630
---------
135,734
Accumulated depreciation and amortization (51,129)
---------
$ 84,605
=========
NOTE C - REVOLVING LINE OF CREDIT
The Company has available for borrowing a line of credit of $100,000 of which
$100,000 was outstanding at March 31, 2000. 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 D - NOTES PAYABLE
The Company entered into a $58,706 note payable with a customer during March
2000. The note was created as a result of a product return. Terms of the note
require twelve monthly payments of $4,892, commencing in April 2000. The Company
does not allow for product returns within the terms of their contracts. However,
to satisfy this customer, the product was repurchased.
NOTE E - NOTES PAYABLE, RELATED PARTIES
The Company 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.
-5-
<PAGE>
NOTE F - INCOME TAXES
The Company is in a net operating loss carryforward position as of March 31,
2000. The net operating loss approximates $115,000. A full valuation allowance
has been provided to offset the deferred tax assets related to the net operating
loss carryforward.
NOTE G - REDEEMABLE PREFERRED STOCK
The Company has issued $500,000 of stock subscriptions for preferred stock. 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, Series A Preferred Stock, consisting of 2,133,399
shares of cumulative convertible preferred stock with a par value of $.23437.
Dividends on this preferred stock are cumulative from the date of issuance at
the rate of $.0222 per share, per annum, payable out of funds legally available.
Such dividends are payable only when, as, and if declared by the Board of
Directors, and shall accumulate from the date of issue, payable annually. Unpaid
dividends are not interest bearing. Dividends on Common Stock can not be paid
until all dividends on the Series A Preferred Stock have been paid. Each Series
A Preferred stock is convertible, at the option of the holder, at any time on or
before the fifth day before any redemption date (January 31 each year) to the
Company's Common Stock. Since the Series A Preferred Stock is convertible, at
the option of holder, Series A Preferred Stock is presented in the liability
section of the balance sheet. The conversion price is $.23437 per share of
Common Stock. The Series A Preferred Stock shall be automatically converted on
the earlier of the date specified by vote or written consent or agreement of at
least two-thirds of the outstanding shares of such series or immediately on the
closing of the sale of public offering of Common Stock in excess of $5.00 per
share and $1,000,000 in proceeds. At the option of each holder of Series A
Preferred stock, the Company shall redeem, on the redemption date starting with
the year 2006 and continuing thereafter, the number of shares requested by the
holder, by paying cash at the rate of $.23437 per share.
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.
-6-
