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 MARCH 31, 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 [ ] No
[X]
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
APRIL 30, 1998 - 1,606,166 shares of common stock
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Transitional Small Business Disclosure Form Yes [ ] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
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RTI INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BALANCE SHEET
ASSETS MARCH 31, DECEMBER 31,
1998 1997
CURRENT ASSETS
Cash and cash equivalents $ 30,093 $ 11,712
Accounts receivable, net of allowance
of $ 4,876 in 1998, and $16,005 in 1997 325,665 234,993
Inventory 1,322,615 1,979,893
Prepaid expenses and other 219,786 163,357
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Total current assets 1,898,159 2,389,955
PROPERTY, PLANT AND EQUIPMENT, NET 1,891,860 1,902,066
DUE FROM RELATED PARTIES 135,605 135,605
INTANGIBLE ASSETS, net of accumulated
amortization of $21,687 1998 and $72,353 in 1997 1,132,266 1,204,193
OTHER ASSETS 125,277 38,111
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Total assets $ 5,183,167 $ 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
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1998 1997
CURRENT LIABILITIES
Notes payable to related parties $ 588,383 $ 593,000
Due to related parties 94,900 94,900
Accounts payable 669,587 796,521
Accrued expenses 171,911 133,886
Accrued interest 8,338 49,780
Other current liabilities 180,000 180,000
Current portion of long-term debt 314,272 654,613
---------- ------------
Total current liabilities 2,027,392 2,502,700
LONG-TERM DEBT, net of $22,000
discount in 1997 650,505 257,344
Provision for future Environmental Cost 782,600 782,600
OTHER LIABILITIES 245,729 231,485
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Total liabilities 3,706,226 $ 3,774,129
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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 15,000,000, issued and
outstanding 1,481,166 at year-end 1997
and 1,606,166 at March 31, 1998 128,493 118,494
Additional paid-in capital 18,170,768 17,679,579
Accumulated deficit (16,827,320) (15,907,272)
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Total stockholders' equity 1,476,941 1,895,801
Total liabilities and stockholders' equity $ 5,183,167 $ 5,669,930
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RTI INC. and SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1998 1997
Net sales $ 974,406 $ 217,537
Cost of sales 1,163,803 324,883
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Gross profit (loss) (189,397) (107,346)
Selling, general and administrative expenses 409,987 232,359
Research and development expenses 250,140 12,756
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Total operating expenses 660,127 245,115
Loss from operations (849,524) (352,461)
Other income (expense)
Rental income 19,510 20,928
Expenses of Rockaway Industrial Park,
including interest expense of $5,500
in both years (17,032) (8,094)
Interest income (expense) (63,005) 33,988
Other income 753 38,744
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Total other income (expenses) (59,774) 85,566
Loss from continuing operations (909,299) (266,895)
Discontinued operations
Loss from irradiation operations - (427)
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Net loss before income taxes (267,322)
Income taxes -
Net loss $ (909,299) $ (267,322)
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Weighted Average Shares 1,507,555 1,199,083
Net loss per share ($0.60) ($0.22)
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RTI INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOWS
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THREE MONTHS ENDED MARCH 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (909,299) $ (267,322)
Adjustments to reconcile net loss to
net cash applied to operating activities:
Depreciation and amortization 82,848 30,550
Allowance for doubtful accounts 4,876 1,100
Allowance for warranty expense 9,744 -
Imputed interest on note payable - 5,500
(Increase) decrease in:
Accounts receivable (95,548) (467,672)
Restricted deposits - 482,944
Due from affiliate - (124,695)
Inventories 657,278 (527,614)
Prepaid expenses and other (56,429) 2,235
Increase (decrease) in:
Accounts payable (126,934) 379,370
Accrued expenses 38,025 30,315
Other liabilities (41,442) (27,247)
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TOTAL ADJUSTMENTS 472,420 (215,214)
Net cash applied to operating activities (436,879) (482,536)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (10,206) (187,974)
Reduction in notes receivable - 615,000
Purchase of business, net of cash acquired (663,038)
Purchases of other assets (19,162) (159,553)
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Net cash (applied to) provided by
investing activities (29,368) (395,565)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock 490,439 420,500
Payments on short-term loans (850,000)
Payments on long term debt (5,810) -
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Net cash provided by (applied to) 484,629 (429,500)
financing activities ---------- ----------
Net increase (decrease) in cash and cash equivalents 18,382 (1,307,601)
Cash and cash equivalents, beginning of period 11,712 2,578,180
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Cash and cash equivalents, end of period $ 30,093 $ 1,270,579
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<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1998 and 1997, and
for the three 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 March 31, 1998, its results of operations and
its cash flows for the three months ended March 31, 1998 and 1997. Results of
operations for the three-month period ended March 31, 1998 are not necessarily
indicative of the results to be expected for the year ending December 31, 1998.
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 AC2 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 quarter of 1998, the company produced and
sold each of its air conditioning and cooling products. During this time there
was a significant dedication of resources to 1) product development for the
Company's new "AC2" central air conditioner, 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. 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.
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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 quarter of 1998 totaling
$235,985, which have been accrued in the financial statements under "Other
liabilities".
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 ground water 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 90 delay to the original schedule
for administrative purposes. 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.
<PAGE>
5. SHORT TERM BORROWINGS
The Company had two related party notes outstanding at December 31,
1997, one for $543,000 with its former Chairman and CEO, Theo W. Muller (Muller
Note), and another for $50,000 with Frellum Corporation (Frellum Note). Frellum
is a corporation, which is 51% owned 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, 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. Should the Company complete a private placement of
equity securities, the Company will prepay $143,000 principal on the Muller Note
but be relieved of the first payment due August 20, 1998. The terms of the
Frellum Note are 12% annual interest, with a payment of $26,511 due on August
20, 1998, and the balance along with accrued interest due and payable on
February 20, 1999. However, the terms of the note provide that, if the Company
received a bridge loan pursuant to a private placement of equity securities, it
would prepay principal of $26,511 plus accrued interest, but would be relieved
of its payment obligation on August 20, 1998. The Company received bridge loan
funds pursuant to a private placement, and the Company paid principal and
interest of $27,713 to Frellum in April 1998, and is thus relieved of its
obligation for the August 20, 1998 payment.
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 March 31, 1998, the Company had factored accounts
receivable in the approximate amount of $237,000.
6. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows:
Three months ended March 31,
1998 1997
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Interest paid $64,564 $1,938
Income taxes paid -- --
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPARISON OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND
1997.
Net sales for the three months ended March 31, 1998, were $974,406,
Compared to $217,537 in 1997. Sales of the AC2 unit in 1998 were $655,394. There
were no AC2 sales in the first quarter of 1997. The Company is applying its
major resources to the AC2. The Company has encountered lower than expected AC2
production early in the year due to a supplier's inability to provide certain
components of the new "fill and drain" kit. There were a series of technical and
supply setbacks for the fill and drain kits in the first quarter, which now
appear to be fully resolved. The resulting low production has held first quarter
sales in 1998 back somewhat.
Cost of sales increased from $324,883 in the first quarter of 1997
compared to $1,163,083 for the same period in 1998. Air cooling and air
conditioning production represents a full 3 months in 1998, while 1997 first
quarter operations began on February 24, 1997, the date of the acquisition of
Quality Air, Inc. Additionally, the 1998 costs include costs to upgrade prior
year units.
The air cooling and air conditioning business is highly seasonal, and
the first quarter is not an indicator of results for the year. The majority of
Company sales take place in the second and third quarters of the year.
Selling, general & administrative costs were $409,987 in the first
quarter of 1998 compared to $232,359 in the same period of 1997. Research and
development costs totaled $250,140 in the quarter ended March 31, 1997, while
they were $12,756 in the same quarter of 1998. The cost increases compare
favorably with the Company's business plan, as it staffs for the anticipated
growth in 1998.
1998 rental income from the Rockaway Industrial Park, net of expenses
was down by approximately $1,000 compared to the same period in 1997.
Because of the costs described above, the Company incurred a loss from
operations of $909,299 in the first quarter of 1998. This compares with an
operating loss of $266,895 for the same period last year.
For the three months ended March 31, 1998 the Company incurred net
interest expense of $63,005, as compared with net interest income of $33,988
in the first quarter of 1997. Interest expense has increased due to the Company
factoring its receivables to fund operations and the buildup of accounts
receivable and inventory for in anticipation of seasonal sales in the second 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 $909,299, or $0.60 per share for the first quarter of
1998, compares with a loss of $267,322, or $0.22 per share in the first quarter
of 1997.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1998, the Company generated $657,000
in cash from its inventories, and applied that primarily to operations and also
reduced accounts payable by $126,000.
Net proceeds of approximately $490,000 were received from the private
placement of 130,000 shares of common stock sold in units of 5,000 shares at a
purchase price of $20,000 per unit.
The net cash of $11,712 was increased slightly to $30,093 by the end of
the first quarter.
The Company will have significant capital and working capital needs in 1998. The
anticipated sales levels require the infusion of additional equity capital, as
well as a line of credit to meet the working capital needs due to the
seasonality of the air cooling and air conditioning business. The Company is
presently seeking financing through an asset-based lender. The Company has also
entered in to an agreement with a capital investment regarding a private
placement of preferred stock with anticipated gross proceeds of $1.5 million.
The Company, subsequent to the reporting date, has received approximately
$500,000 of those funds through a bridge loan pursuant to a convertible
promissory note bearing interest at the rate of 10% per annum ("Note"). The
conversion of the Note into Common Stock and the completion of such private
placement are subject to shareholder approval at the next shareholders' meeting.
There can be no assurance that the negotiations with the asset-based lender will
be successful or that such private placement 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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no new legal proceedings during the quarter.
ITEM 2. CHANGES IN SECURITIES
None.
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)
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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.
RTI INC.
Date: May 20, 1998 By: /s/ RICK E. BACCHUS
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Rick E. Bacchus
Acting Chief Executive Officer
By: /s/ JAMES M. CAYLOR
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James M. Caylor
Controller and Principal
Accounting Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN
ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 30,093
<SECURITIES> 0
<RECEIVABLES> 325,665
<ALLOWANCES> 4,876
<INVENTORY> 1,322,615
<CURRENT-ASSETS> 1,898,159
<PP&E> 3,832,902
<DEPRECIATION> 1,941,042
<TOTAL-ASSETS> 5,183,167
<CURRENT-LIABILITIES> 2,027,392
<BONDS> 287,000
0
5,000
<COMMON> 128,493
<OTHER-SE> 18,170,768
<TOTAL-LIABILITY-AND-EQUITY> 5,183,167
<SALES> 974,406
<TOTAL-REVENUES> 993,916
<CGS> 1,263,803
<TOTAL-COSTS> 1,823,930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,005
<INCOME-PRETAX> (909,299)
<INCOME-TAX> 0
<INCOME-CONTINUING> (909,299)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (909,299)
<EPS-BASIC> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
