U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO ___________
Commission file number 0-5887
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RTI INC.
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(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2163152
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O.BOX 3048, 301 ANTONE, SUNLAND PARK, NEW MEXICO 88063
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(Address of principal executive offices) (Zip Code)
(505) 589-5431
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(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section l3 or l5(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No [
]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
OCTOBER 31, 1998 - 1,611,166 shares of common stock
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Transitional Small Business Disclosure Form Yes [ ] No [X]
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
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RTI INC. AND SUBSIDIARIES
(UNAUDITED)
BALANCE SHEET
ASSETS SEPTEMBER 30, DECEMBER
31,
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ - $ 11,712
Accounts receivable, net of allowance
of $ 12,092 in 1998, and $11,482 in 1997 59,093 234,993
Inventory 1,216,593 1,979,893
Prepaid expenses and other 361,556 163,357
Total current assets 1,637,242 2,389,955
PROPERTY, PLANT AND EQUIPMENT, NET 1,874,016 1,902,066
DUE FROM RELATED PARTIES 101,445 135,605
INTANGIBLE ASSETS, net of amortization
of $63,721 1998 and $72,353 in 1997 1,106,309 1,204,193
OTHER ASSETS 59,854 38,111
Total assets $ 4,778,865 $ 5,669,930
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The Notes to Financial Statements are an integral part of these consolidated
statements.
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RTI INC. AND SUBSIDIARIES
(UNAUDITED)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
CURRENT LIABILITIES
Notes payable to related parties $ 200,000 $ 593,000
Due to related parties 180,385 94,900
Accounts payable 1,603,238 796,521
Accrued expenses 1,007,999 133,886
Accrued interest 50,679 49,780
Short Term Loans 564,002 -
Other current liabilities-Future Environmental Cost 180,000 180,000
Current portion of long-term debt 133,011 654,613
Total current liabilities 3,919,314 2,502,700
LONG-TERM DEBT, net of $22,000
discount in 1997 873,177 257,344
Non-current notes to related parties 388,383 -
Provision for Future Environmental Cost 782,600 782,600
OTHER LIABILITIES 167,957 231,485
Total liabilities 6,131,431 $ 3,774,129
STOCKHOLDERS' EQUITY
Preferred stock, $.05 par value - shares
authorized 2,000,000; shares issued
and outstanding 100,000 5,000 5,000
Common stock; $.08 par value - shares
authorized 25,000,000, issued and
outstanding 1,481,166 at year-end 1997
and 1,611,166 at March 31, 1998 128,893 118,494
Additional paid-in capital 18,170,768 17,679,579
Accumulated deficit (19,657,227) (15,907,272)
Total stockholders' equity (1,352,566) 1,895,801
Total liabilities and stockholders' equity $ 4,778,865 $ 5,669,930
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RTI INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30,
1998 1997
Net sales $ (12,354) $ 997,025
Cost of sales 998,403 1,012,581
Gross profit (loss) (1,010,757) (15,556)
Selling, general and administrative expenses 1,320,369 509,497
Product Development 28,660 32,491
Total operating expenses 1,349,029 541,988
Loss from operations (2,359,786) (557,544)
Other income (expense)
Rental income for Rockaway Industrial Park, net 7,926 (11,371)
of expenses
in both years -
Interest income (expense) (87,498) (14,250)
Other income - -
Total other income (expenses) (79,572) (25,621)
Loss from continuing operations (2,439,358) (583,165)
Discontinued operations
Loss from irradiation operations - -
Net loss before income taxes (2,439,358) (583,165)
Income taxes -
Net loss $ (2,439,358) $ (583,165)
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Weighted Average Shares 1,577,356 1,481,166
Net loss per share ($1.55) ($0.39)
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RTI INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
Net sales $ 2,296,591 $ 2,291,640
Cost of sales 3,365,741 2,406,869
Gross profit (loss) (1,069,150) (115,229)
Selling, general and administrative expenses 2,234,108 1,330,614
Product development 226,667 79,626
Total operating expenses 2,460,775 1,410,240
Loss from operations (3,529,925) (1,525,469)
Other income (expense)
Rental income for Rockaway Industrial Park, net 23,830 22,181
of expenses
Interest income (expense) (233,463) 13,769
Other income 753 46,071
Total other income (expenses) (208,880) 82,021
Loss from continuing operations (3,738,805) (1,443,448)
Discontinued operations
Loss from irradiation operations - (427)
Net loss before income taxes (3,738,805) (1,443,875)
Income taxes - -
Net loss $ (3,738,805) $ (1,443,875)
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Weighted Average Common Shares Outstanding 1,577,356 1,481,166
Net loss per share ($2.37) ($0.97)
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RTI INC. AND SUBSIDIARIES
(UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (3,738,805) $ (860,735)
Adjustments to reconcile net loss to net cash applied to
operating activities:
Depreciation and amortization 226,043 93,142
Allowance for doubtful accounts 12,092 -
Allowance for warranty expense 746,175 -
Imputed interest on note payable - 11,000
(Increase) decrease in:
Accounts receivable 163,808 (483,630)
Restricted deposits - 476,045
Due from related parties 34,160 -
Inventories 763,300 (2,001,105)
Prepaid expenses and other (198,199) (151,532)
Increase (decrease) in:
Accounts payable 806,717 501,224
Accrued expenses other than warranty 127,938 120,180
Due to related parties 85,485 -
Other liabilities 899 (24,247)
TOTAL ADJUSTMENTS 2,768,419 (1,458,923)
Net cash applied to operating activities (970,386) (2,319,658)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (134,218) (1,352,611)
Reduction in notes receivable - 605,000
Purchase of business, net of cash acquired - (697,731)
Purchases of other assets 21,743 (41,910)
Net cash applied to
investing activities (112,475) (1,487,252)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock - 330,600
Proceeds from sale of common stock 490,439 420,500
Lease Proceeds on Purchase of Equipment 68,000 -
Increase in notes to related parties (4,617) -
Payments on notes to related parties (26,511) -
Changes in short-term borrowings 579,502 563,000
Payments on long term debt (35,664) 25,224
Net cash provided by financing activities 1,071,149 1,339,324
Net increase (decrease) in cash and cash equivalents (11,712) (2,467,586)
Cash and cash equivalents, beginning of period 11,712 2,578,180
Cash and cash equivalents, end of period $ - $ 110,594
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RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of September 30, 1998 and 1997, for the three-months
then ended, and for the nine-months then ended is unaudited)
1. BASIS OF PRESENTATION
In the opinion of management of RTI Inc. (with its Subsidiaries, the
"Company"), the accompanying unaudited consolidated financial statements include
all adjustments necessary to present fairly, in all material respects, the
company's financial position as of September 30, 1998, its 1998 and 1997 results
of operations for the three months ended September 30 and nine months ended
September 30, and its 1998 and 1997 cash flows for the same nine month period.
Results of operations for the nine-month period ended September 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. In preparing July's financial statements, there was a
incident involving the Company's computer system that required reconstruction of
that month's financial statements manually. This reconstruction is nearly
complete, and management believes that any resulting adjustments will not be
material in nature.
Information included in the consolidated balance sheet as of December 31,
1997 has been derived from the Company's audited consolidated financial
statements in its Annual Report on Form 10-KSB for the year ended December 31,
1997, to which reference is made. Certain information included in the audited
consolidated financial statements and related notes prepared in accordance with
generally accepted accounting principles may have been condensed or omitted.
2. AIR CONDITIONING AND COOLER OPERATIONS
With its acquisition of the business of Quality Air, Inc. in February 1997, the
Company engaged in the manufacture, marketing and selling of residential coolers
and of central air conditioning equipment. The Company's new "AC2" central air
conditioner utilizes patented evaporative technologies to cool homes and small
businesses with air conditioning with reduced electricity usage when compared to
standard air conditioners. The AC2 is assembled in the Company's Westway, Texas
factory. In 1997, this factory was purchased, equipped for producing the AC2,
and a work force trained to manufacture the AC2.
During 1997, and in the first two quarters of 1998, the company
produced and sold each of its air conditioning and cooling products. During this
time period there was a significant dedication of resources to 1) product
development for the Company's AC2, including obtaining safety and energy
efficiency certifications, 2) development of production capacity at a factory
purchased and equipped for production of the AC2 in Westway, Texas, and 3) the
development of an air conditioner distribution network, currently limited to the
southern states of the US. In the first quarter, the development of the "fill
and drain" addition to the AC2 was completed, and distributors were encouraged
to return any remaining units from the 1997 sales season, to have the fill and
drain kit added at cost to the Company because of the significant improvement to
the product. The fill and drain kit enhances the salability of the product, as
well.
However, by the third quarter of 1998, the Company continued to
experience reliability problems on the fill and drain unit, as well as the
necessity of adding other items to resolve problems experienced in field
testing. Further engineering changes required the addition of an anti-siphon
valve, a device to prevent a water hammer effect in a small percentage of the
units, and an addition of an anode to eliminate corrosion caused by the chemical
make-up of water in some locals. All of these devices are inexpensive, and can
be added in the field. However, to resolve these problems and support the
product, the Company intends to upgrade every unit in the field. As a result,
most units in distributors' warehouses have been returned to RTI in the third
quarter for the upgrade. Upgrade operations are presently in progress, and when
completed, the units will be reshipped to the distributors. The Company also
performs significantly enhanced quality procedures to the returned units to
insure defect-free operation. To reflect the anticipated cost to upgrade units
in inventory and to upgrade units operating in the field, RTI has established a
reserve for future warranty in September 1998 for $722,000. It is anticipated
that the repairs will be completed within a year.
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3. ROCKAWAY INDUSTRIAL PARK
The Company owns a 248 acre parcel of land ("Parcel I") in Rockaway, New
Jersey (47 acres of which have been leased to SteriGenics International), that
is contiguous to a 15 acre operating parcel that is the site of an irradiation
processing facility leased to SteriGenics International("Parcel II" and, with
Parcel I, the "Rockaway Industrial Park"). Since 1985, the Company has been
seeking a buyer for Parcel I. However, the Company's ability to sell Parcel I is
impaired until the completion of an environmental cleanup and remediation
program, and its ability to recover its net investment of $50,000 in 201 acres
of Parcel I is impaired by unpaid outstanding non-recourse property taxes for
the years 1993, 1994, 1995, 1996, 1997, and the first nine months of 1998
totaling $232,250, which have been accrued in the financial statements under
"Other liabilities". It should be noted that RTI is at present negotiating with
a willing buyer for the facility. While the monetary proceeds are expected to be
negligible, the buyer, who states that he is experienced in environmental
matters, and will assume full and final financial obligation to complete the
cleanup and assume payment of all property taxes if the negotiations are
successful. There is no guarantee that such negotiations will be successful.
4. ENVIRONMENTAL INVESTIGATION AND REMEDIATION
As a result of engineering tests that commenced in 1981, the New Jersey
Department of Environmental Protection (the "DEP") issued a directive in 1986
ordering a remedial investigation and feasibility study (the "Study") designed
to determine the nature and extent of contamination on the Rockaway Industrial
Park property. The Company agreed to pay the costs of the Study and entered into
an Administrative Consent Order with the DEP. In 1989, the DEP issued a Second
Directive to pay for an additional environmental study and DEP oversight costs.
In 1993, the Company entered into an Administrative Consent Order ("ACO") with
the DEP. Cost reimbursement to the DEP under the ACO includes applicable DEP
expenditures beginning July 1, 1982 and future DEP oversight costs. In August
1996, the Company made a payment of $575,000 to the DEP as full settlement of
all outstanding claims asserted under the ACO. The Company subsequently paid
additional claims by the DEP for oversight costs through October 31, 1996. In
April 1996, the DEP responded to the Company's petition to change the Remedial
Action Work Plan under the Record of Decision (ROD), and advised the Company
that a pilot test of the CleanOx remediation program, undertaken by the Company
on its Rockaway property, was not considered conclusive. In September 1996, the
Company completed a second CleanOx test, which reduced the contamination, but
did not result in remediation of the groundwater. On March 7, 1997, the DEP
reaffirmed its requirement that the Company comply with the ROD.
In November of 1997, the Company submitted a Proposed Remedial Action Work Plan
to the NJDEP. This plan, which required the installation of a single recovery
well, rather than three wells as was previously required, was reviewed by the
NJDEP and accepted in February 1998, subject to certain modifications. Under the
modified plan, the "Clean-Ox" technology was permitted, and required RTI to
begin implementing the plan according to the proposed schedule. In 1998, the
installation of the groundwater recovery system was to occur, with ground water
remediation to follow for a five-year time frame, subject to regulatory
concurrence based upon favorable results as groundwater is monitored. RTI has
accepted the modified plan, but requested a delay to the original schedule for
administrative purposes. Permits have been applied for and granted for the
installation of the groundwater recovery system. Draft applications for the
Treatment Work Approval and air permit to construct and operate the recovery
system have been prepared, and ready to be finalized. The Company has accrued
$962,600 for long term environmental expenses under "Other liabilities".
Considering the ongoing remediation and DEP involvement in this matter, there
can be no assurances that the cleanup, remediation, and DEP oversight accruals
will represent the Company's ultimate liability.
5. SHORT TERM BORROWINGS
As of September 30, 1998, RTI has several notes outstanding. Two of the notes
are related party notes with its former Chairman and CEO, Theo W. Muller (Muller
Note), and another with Frellum Corporation (Frellum Note). Frellum is a
corporation owned 51% by Mr. Muller. These notes, which were due on February 20,
1998, were subsequently renegotiated effective February 21, 1998, for principal
and accrued interest in the amounts of $588,383 and $53,022 for the Muller and
Frellum Notes, respectively. The terms of the Muller Note are 12% annual
interest payable quarterly and installments of $100,000 each six months
beginning August 20, 1998, until principal is fully paid. The Muller note is
secured by the patents owned by the Company. The terms of the Frellum Note are
12% annual interest. The Company has already paid the first payment of $26,511
plus interest in April. The balance of $26,511 along with accrued interest is
payable on October 20, 1998. The Company is delinquent in payment of the
required payments at August 20 for the Muller note and October 20 for the
Frellum note. Mr. Muller has not demanded payment for either note in
anticipation of equity funding being pursued by RTI.
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The Company in April 1998 entered into a bridge financing in the form
of nine-month Promissory Notes (Notes) bearing 10% interest. The Notes are
secured by a security interest in the Company's assets. The Notes will
automatically rollover into a private placement proposal (Proposal) upon
shareholder approval. Should the Proposal not be approved, the Notes will
remain debt instruments and become due at maturity.
The Company entered into a $68,000 computer lease-purchase agreement
in July 1998 with a financing institution. Only two payments have been made
to date, and the Company is two months behind in its monthly payments of
$2,700.
The Company entered into a factoring arrangement with Texas Capital
Corporation in February 1998. The terms are for interest of 2.75% for the
first 30 days, with an additional charge of 1% for each additional 15 days the
invoice is outstanding. As of September 30, 1998, the Company had factored
accounts receivable and inventory loans in the approximate amount of $132,000.
6. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows:
Nine months ended September 30,
1998 1997
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Interest paid $157,717 $ 362
Income taxes paid -- --
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
1997.
Net sales for the three months ended September 30, 1998, were ($12,354
compared to $997,025 in 1997. Sales of the AC2 unit in third quarter of 1998
were ($272,180), which resulted from the return of the units to RTI to be
retrofitted with upgraded components.
Cost of sales decreased slightly from $1,012,581 in the third quarter
of 1997 compared to $998,403 for the same period in 1998.
Selling, general and administrative costs were $1,320,369 in the third quarter
of 1998 compared to $509,497 in the same period of 1997. The increased costs in
1998 resulted from sizing the Company to match significant levels of sales in
1998, which did not materialize due to the product upgrades required. A
significant portion of the increase was due to the warranty reserve of $722,000.
Without the warrant reserve, selling, general and administrative costs would be
$598,369, compared to $509,497 for the same period of 1997. Product development
costs totaled $28,660 for the third quarter of 1998, while they were $32,491 in
the same period of 1997. Management has recently reduced selling, general and
administrative costs significantly from those costs experienced in June and July
of 1998.
1998 rental income net of expenses $7,926 from the Rockaway Industrial
Park increased in 1998 compared with net expenses of ($11,371) for the same 1997
period.
Because of the costs described above, the Company incurred a loss from
operations before interest and other income of $2,439,358 for the three months
ended September 30, 1998. This compares with a loss of $583,165 for the same
period last year.
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For the three months ended September 30, 1998 the Company incurred net interest
expense of $87,498, as compared with net interest expense of $14,250 in 1997.
Interest expense has increased due to the Company factoring its receivables to
fund operations and the buildup of inventory for in anticipation of seasonal
sales in the third and third quarters of 1998, reflecting working capital
demands of a growing business. In 1997, the Company earned interest income on
the funds received from the sale of the contract irradiation line of business.
The net loss of $2,429,358, or $1.55 per share for the third quarter of 1998,
compares with a loss of $583,165, or $0.39 per share in the same period of 1997.
The air cooling and air conditioning business is highly seasonal, and partial
year results are not an indicator of results for the year.
COMPARISON OF OPERATIONS FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
1997.
Net sales for the nine months ended September 30, 1998, were
$2,296,591, and compared to $2,291,640 in 1997. Sales of the AC2 unit in
through September 30 of 1998 were $1,011,297. During the same period of 1997
AC2 sales were approximately $937,000.
Cost of sales increased from $1,330,614 in the first nine months of
1997 compared to $3,354,741 for the same period in 1998. Air cooling and air
conditioning production represents a full nine months in 1998, while 1997 first
quarter operations began on February 24, 1997, the date of the acquisition of
Quality Air, Inc. The Company has encountered lower than expected AC2 production
this year due to improper operation of the new "fill and drain" kit. There were
also a series of technical and supply setbacks for the fill and drain kits in
the first nine months. The Company is redesigning the "fill and drain" kit prior
to shipping such units in 1999, and will replace all components necessary to
insure that all units remain operational. Additionally, the 1998 costs include a
warranty reserve of $722,000 for expected costs to upgrade prior year units,
including costs to be paid to contractors to complete the upgrade on units
previously installed in the field. Most of the upgrades are anticipated to be
completed in 1998 and early 1999.
Selling, general & administrative (SG&A) costs were $2,234,108 in the
first nine months of 1998 compared to $1,330,614 in the same period of 1997.
Note that SG&A costs, without the warrant reserve of $722,000 would be
$1,512,108 compared to $1,330,614 in the same period of 1997. Product
development costs totaled $226,667 through September 30, 1998, while they were
$79,626 in the same period of 1997.
1998 rental income from the Rockaway Industrial Park, net of expenses
was approximately the same through September in 1997 and 1998.
Because of the costs described above, the Company incurred a loss from
operations before interest and other income of $3,738,805 through September
1998. This compares with a loss of $1,443,875 for the same period last year.
For the nine months ended September 30, 1998 the Company incurred net
interest expense of $233,463, as compared with net interest income of $13,769
in 1997. Interest expense has increased due to the Company factoring its
receivables to fund operations. Additionally, the Company is paying interest
on the Norwest and SBA loans for the Westway property, and the Bridge Loan
received in April of 1998. In contrast, in 1997 the Company earned interest
income on the funds received from the sale of the
contract irradiation line of business.
The net loss of $3,738,805, or $2.37 per share for the first nine
months of 1998, compares with a net loss of $1,443,875, or $0.97 per share for
the same period in 1997.
<PAGE>
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs using a
two-digit format, as opposed to four digits, to indicate the year. Such
computer systems will be unable to interpret dates beyond the year 1999, which
could cause a system failure or other computer errors, leading to disruption
in operations.
RTI has completed its internal assessment of the Year 2000 issue, and
believes that it is in a state of readiness internally with a single exception.
The exception is that the uses an older Unix based operating system to operate
its accounting software that will not address the full four digits of the year
field, and thus, will operate only until December 31, 1999. The remedy is being
assessed in conjunction with other accounting system decisions. Before July of
1999, the Company intends to complete installation of either an upgrade to its
Unix operating system to a more current version that has resolved the Year 2000
problem, or to replace its current accounting system with a system that operates
in the Windows NT environment. It is anticipated that replacement of the Unix
operating system will be at a cost of approximately $1,000, and replacement of
the accounting system will be in a range of $50,000 to $100,000.
The Windows NT environment was purchased in 1998 and installed to
operate internal office communications, and is Year 2000 compliant. The
Company is currently assessing new accounting software that may replace the
existing Unix based software and operate in the Windows NT environment. The
accounting software decision process is not driven by Year 2000 issues, but
Year 2000 is relevant to the decision.
In 1998, RTI purchased and installed upgraded computers and software
in order to meet business requirements. The computer purchase and software
installations were also made with the Year 2000 issue in mind. The costs to
complete this upgrade were approximately $70,000.
RTI's manufacturing area utilizes a single computerized test machine,
which operates in a Windows 95 environment, and is Year 2000 compliant.
Because of 1) the probability of resolving all known issues by July
1999, and 2) the proactive position of the Company in 1998 in installing
upgraded computer equipment and software that is Year 2000 compliant (other than
the Unix operating system mentioned above), it is the Company's assessment that
there is little risk associated with the Year 2000 problem internally.
RTI's has multiple supply sources for most purchases required for its
products. Only a few suppliers of production materials are sole suppliers.
In 1998 and early 1999, RTI will communicate with each of the sole suppliers
and determine the level of compliance for each sole supplier, and provide for
alternate supply source if, in it's assessment, RTI believes there is a risk
of supply chain interruption. The Company has yet to determine the costs that
will be incurred in connection with the
third party area.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1998, funds were internally generated
from inventories of $763,000, increased accounts payable of $806,000 and a
decrease in receivables of $163,000.
The Company has received cash from financing activities just over
$1,070,000 in 1998. This includes net proceeds of approximately $490,000
from the private placement that closed in April 1998 of 130,000 shares of
common stock sold in units of 5,000 shares at a purchase price of $20,000 per
unit. A bridge loan of approximately $540,000 was received in late April
pursuant to a third private placement. It addition, a bridge loan was
received in September in the amount of $38,000.
The Company invested cash in assets of approximately $130,000 in the
first nine months of 1998, compared to $1,353,000 in 1997. The net beginning
cash of $11,712 was decreased to $0 by the end of the third quarter of 1998.
In 1997 cash decreased from $2,578,180 to $110,594 by the end of the third
quarter.
The Company has significant capital and working capital needs at
present. The Company continues to seek an agreement with an investment-banking
firm to act as Placement Agent for an offering of common stock to capitalize
the Company adequately. This private placement offering will be subject to
shareholder approval. There can be no assurance that the shareholders will
approve the private placement, or if approved that it will be consummated.
Should the Company be unable to obtain any such
financing, it may have to limit its operations and inventories, and therefore
its future sales volume.
RTI has a significant need to make payments to its vendors who have
had outstanding balances for many months. In negotiation with its
investment-banking firm, RTI is attempting to schedule payments for most
vendors over an extended period of time. This will be required since the
company is not sufficiently capitalized to both continue production and make
payments to its vendors, except at a minimal level over the next 12 months.
RTI is also behind in payment of taxes. Unpaid federal and state
taxes at the end of September totaled approximately $120,000.
In September, RTI was delisted from the NASDAQ Small Cap Market
pursuant to a requirement to maintain tangible net assets in excess of
$4.0 million. This action by the NASDAQ will result in greater difficulty
in obtaining equity funding for the Company.
The Company is presently relying upon inventory, production of Aireze coolers,
and E2Pak heat exchangers, and financing from a finance company to continue
operations. Production of new AC2 air conditioners in 1998 is presently at a
minimal level because of the lack of financing and the need to modify existing
units in stock at distributors' warehouses. Production is continuing on the
Company's Aireze evaporative cooler and E2Pak heat exchangers and is the major
present source of operating capital in addition to funding from a finance
company.
RTI has signed a letter of intent for $1.8 million line of credit with the
finance company. This line is the first step in obtaining adequate funding to
smooth operations at RTI and allow the Company to pursue its plan of validating
performance of the AC2 air conditioner in 1999 and moving toward substantial
earnings in the year 2000.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no new legal proceedings during the quarter. RTI was sued for breach
of an advertising contract in 1997. The Company, at that time, felt that there
was no basis for recording the full outstanding obligation under the contract of
approximately $110,000, and that the $23,000 accrual in accounts payable was
sufficient reserve. In September 1998, RTI accrued an additional $75,000 as a
contingency since it has been unable to retain counsel to represent its case in
the Tennessee venue. Upon retaining counsel, RTI believes that it may prevail by
either negotiating with the complainant or litigating the issue. Either may
result in a payment lower than the total reserve of $98,000.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Because of the Company's need for capital injection, it has fallen
behind in payments of its debt instruments.
Refrigeration Technology Inc., RTI's wholly owned subsidiary has long-term notes
with the Westway property as collateral. Norwest note is for $350,000, and the
Small Business Administration (SBA) note, subordinated to the Norwest note is
for $250,000. The Company is presently 3 payments in arrears on the Norwest note
for a total of $14,794. Norwest has presented a demand letter requesting this
amount by November 20, 1998. RTI is providing for funds to meet this demand. RTI
is also required under the Norwest note to maintain certain financial ratio
minimums, which the Company is not in compliance at present. Norwest has
requested that the financial covenants be remedied by November 30, 1998.
Refrigeration Technology Inc. is presently 3 payments in arrears on the SBA note
for a total of $9,738. RTI is requesting a 6-month deferral of payments from the
SBA.
Refrigeration Technology Inc. has not made the August 20, 1998 $100,000 payment
on the $588,383 Muller note, nor the interest payments accrued at that date in
the amount of $35,303. Interest is due quarterly on May 20, August 20, November
20, and February 20. Mr. Muller has not demanded payment in anticipation of the
Company issuing equity securities.
RTI Inc. has an obligation under certain litigation for a mortgage on its
Rockaway New Jersey property. The mortgage is for $287,000, and requires annual
payments of $41,000 plus interest at 10.61% each year beginning in 1998. The
Company has not made its scheduled note or interest payments in 1998.
ITEM 4. MATTERS BEFORE SHAREHOLDERS
Annual Meeting Dates - RTI held an annual meeting of its stockholders in 1998.
Shareholders of record on July 27, 1998 were notified of the Annual Meeting to
be held on August 27, 1998. The meeting on August 27 was called to order and
postponed until September 1 to allow sufficient shareholder votes to be recorded
by the transfer agent. By September 1, sufficient votes were received and the
annual meeting was held accepting the votes of those present, and accepting the
votes by proxy for those not present. Each matter voted upon will be described
below. Because of a material change in proposal 3, the meeting was continued
until September 10, so that shareholders could be notified of the change, and
either be present for the continued Annual Shareholders Meeting or file votes by
proxy on that matter separately.
<PAGE>
The Company has 1,611,166 shares outstanding, plus 100,000 shares of preferred
stock with equal voting rights, for a total of 1,711,166 votes. Total shares
voted were 1,488,303, which exceeded the 50% required for a quorum. All
proposals passed, except proposal 3, which is discussed below in greater detail.
There were no other business matters brought before the shareholders at the
annual meeting.
Matters voted on:
To elect five directors for a one-year term expiring in 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Broker
Director For Against Abstain Non-vote
Rick E. Bacchus 1,441,495 46,808
Rockney D. Bacchus 1,451,449 36,854
Ronald A. Bacchus 1,441,449 46,854
Dr. Lanny Snodgrass 1,451,399 36,904
Joel S. Kanter 1,451,495 36,808
</TABLE>
Mr. Kanter is elected as a new director, and the remaining nominees
are elected as continuing directors.
To ratify the purchase of certain assets from Bacchus, Industries, Inc., an
affiliated company, in exchange for 450,000 shares of the Company's Common
Stock.
This issue passed with a 55% vote.
Broker
For Against Abstain Non-vote
736,547 40,672 151,078 560,006
To approve a private placement of Units (each Unit to consist of two (2) shares
of Common Stock and one (1) five (5) year Common Stock Purchase Warrant to
purchase one (1) share of Common Stock at an exercise price of $3.00) on the
revised terms set forth in the Revised Proxy Statement.
This issue failed for insufficient votes (see discussion below).
Broker
For Against Abstain Non-vote
546,873 11,583 1,399 928,448
To approve the granting of performance options for up to 1,564,000 shares of
Common Stock to certain members of management of the Company on the terms set
forth in the Proxy Statement.
This issue passed with a 55% vote.
Broker
For Against Abstain Non-vote
819,465 98,706 10,126 560,006
To approve an amendment to the Company's Certificate of Incorporation to
increase the authorized number of shares of Common Stock from 15,000,000 to
25,000,000.
This issue passed with a 96% vote.
Broker
For Against Abstain Non-vote
1,420,480 58,488 9,355
Proposal No. 3 was to approve a private placement of Common Stock to generate
minimum gross proceeds of $2,000,000 and maximum gross proceeds of $5,000,000.
The investment banking firm revised the terms of the private placement prior to
the August 27 shareholders' meeting, requiring a revised proposal No. 3 to be
voted on separately. A revised notice of Annual Meeting of Stockholders to be
held on September 10, 1998 was distributed to shareholders, with a proxy for
shareholders to return to the stock transfer agent. Unfortunately, insufficient
votes on this separate issue were returned to the stock transfer agent by
September 15th, the last day of voting.
RTI believes that there is a need for an additional capital injection, and
although Proposal No. 3 did not pass because of logistics, the vote tally from
those shareholders that were able to vote indicates strong shareholder support
for such a capital injection. RTI intends to resubmit a revised proposal similar
to Proposal No. 3 when it successfully obtains a firm commitment from an
investment-banking firm. RTI is presently negotiating such an agreement, but has
not finalized the terms. There is no guarantee that such terms will be reached,
that the proposal will be passed by the shareholders, or that the marketplace
will subscribe to the private placement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K
The Company filed a Report on Form 8-K dated February 2, 1998 regarding Item 6,
Resignation of Registrant's Directors (File No. 0-5887)
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: November 19, 1998
RTI INC.
By: /s/ RICK E. BACCHUS
---------------------------
Rick E. Bacchus
Acting Chief Executive Officer
and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 59,093
<ALLOWANCES> 12,093
<INVENTORY> 1,216,593
<CURRENT-ASSETS> 1,637,242
<PP&E> 3,812,228
<DEPRECIATION> 1,938,212
<TOTAL-ASSETS> 4,778,865
<CURRENT-LIABILITIES> 3,919,314
<BONDS> 287,000
0
5,000
<COMMON> 128,893
<OTHER-SE> 18,170,768
<TOTAL-LIABILITY-AND-EQUITY> 4,778,865
<SALES> 2,296,591
<TOTAL-REVENUES> 2,296,591
<CGS> 3,365,741
<TOTAL-COSTS> 5,826,510
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (233,463)
<INCOME-PRETAX> (3,738,805)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,738,805)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,738,805)
<EPS-PRIMARY> (2.37)
<EPS-DILUTED> (2.37)
</TABLE>
