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, 1999
--------------------
[ ] 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
------
RTI INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NEW YORK 11-2163152
------------------------------ -------------------
(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
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(505) 589-5431
--------------
(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 20, 1999 - 1,611,166 shares of common stock
---------------- -----------
Transitional Small Business Disclosure Form Yes [ ] No [X]
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
RTI INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BALANCE SHEET
ASSETS MARCH 31, DECEMBER 31,
1999 1998
CURRENT ASSETS
Cash and cash equivalents $ - $ 9,361
Accounts receivable, net of allowance
of $4,177 in 1999, and $ 4,876 in 1998 264,372 191,497
Inventory 1,636,071 1,317,649
Prepaid expenses and other 265,782 54,228
Total current assets 2,166,225 1,572,735
PROPERTY, PLANT AND EQUIPMENT, NET 1,735,929 1,787,312
DUE FROM RELATED PARTIES 102,505 111,206
INTANGIBLE ASSETS, net of accumulated
amortization of $20,994 in 1999, and $21,687 1998 1,073,692 1,135,057
OTHER ASSETS 35,649 31,635
Total assets $ 5,114,000 $ 4,637,945
The Notes to Financial Statements are an integral part of these consolidated
statements.
<PAGE>
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH 31, DECEMBER 31,
1999 1998
CURRENT LIABILITIES
Notes payable to related parties $ 588,383 $ 627,811
Due to related parties 293,384 174,469
Notes payable 1,276,084 1,173,363
Due to costomer 385,000 404,207
Accounts payable 1,067,000 1,088,297
Accrued expenses 142,254 387,208
Accrued warranty 556,473 621,312
Accrued interest 170,726 139,578
Current portion of capital lease obligation 60,843 19,987
Other current liabilities 141,219 180,000
Current portion of long-term debt 564,002 667,926
Total current liabilities 5,245,368 5,484,158
LONG-TERM DEBT
917,517 209,858
Provision for future Environmental Cost 919,607 927,140
OTHER LIABILITIES 460,210 167,258
Total liabilities 7,542,702 6,788,414
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 1,611,166 at year-end 1998
and 1,611,166 at March 31, 1999 128,894 128,493
Additional paid-in capital 18,115,261 18,115,261
Accumulated deficit (20,677,857) (20,399,624)
Total stockholders' equity (2,428,702) (2,150,870)
Total liabilities and stockholders' equity 5,114,000 $ 4,637,544
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31,
1999 1998
Net sales $ 836,660 $ 974,406
Cost of sales 537,181 1,163,803
Gross profit (loss) 299,479 (189,397)
Selling, general and administrative expenses 320,493 409,987
Research and development expenses 38,703 250,140
Total operating expenses 359,196 660,127
Loss from operations (59,717) (849,524)
Other income (expense)
Rental income 19,510 19,510
Expenses of Rockaway Industrial Park,
including interest expense of $5,500
in every year (19,510) (17,032)
Interest income (expense) (154,682) (63,005)
Other income - 753
Total other income (expenses) (154,682) (59,774)
Loss from continuing operations (214,399) (909,299)
Discontinued operations
Loss from irradiation operations - -
Net loss before income taxes
Income taxes
Net loss $ (214,399) $ (909,299)
Weighted Average Shares 1,611,166 1,507,555
Net loss per share ($0.13) ($0.60)
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (214,399) $ (909,299)
Adjustments to reconcile net loss to
net cash applied to operating activities:
Depreciation and amortization 101,261 82,848
Allowance for doubtful accounts 4,178 4,876
Allowance for warranty expense 8,356 9,744
Imputed interest on note payable - -
(Increase) decrease in:
Accounts receivable (72,875) (95,548)
Restricted deposits - -
Due from affiliate - -
Inventories (318,422) 657,278
Other assets (4,014)
Prepaid expenses and other (211,554) (56,429)
Increase (decrease) in:
Due relatives parties 79,487
Due to customers (19,207)
Accrued warranty (64,839)
Accounts payable (21,297) (126,934)
Accrued interest 31,148
Accrued expenses (244,954) 38,025
Other liabilities 191,099 (41,442)
TOTAL ADJUSTMENTS (541,634) 472,420
Net cash applied to operating activities (756,033) (436,879)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (46,123) (10,206)
Reduction in notes receivable - -
Purchase of business, net of cash acquired
Purchases of other assets - (19,162)
Net cash (applied to) provided by
investing activities (46,123) (29,368)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock - 490,439
Proceeds from notes payable 809,374
Proceeds from related party notes
Payments on related party notes
Payments on short-term loans -
Payments on long term debt - (5,810)
Net cash provided by (applied to) 809,374 484,629
financing activities
Net increase (decrease) in cash and cash equivalents (30,093) 18,382
Cash and cash equivalents, beginning of period 30,093 11,712
Cash and cash equivalents, end of period $ - $ 30,093
</TABLE>
<PAGE>
RTI INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of March 31, 1999 and 1998, and
for the three months then ended on 1999 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, 1999, its results of operations and
its cash flows for the three months ended March 31, 1999 and 1998. Results of
operations for the three-month period ended March 31, 1999 are not necessarily
indicative of the results to be expected for the year ending December 31, 1999.
Information included in the consolidated balance sheet as of December
31, 1998 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,
1998, 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 the first quarter of 1999 the company was focused on recovering the
confidence in "AC2" central air conditioner and pushing the Evapcon and Aireze
lines as hard as possible.
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 current book value 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, 1997,1998 and the first quarter of 1999
totaling $314,558, which have been accrued in the financial statements under
"Other liabilities". 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, 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 October 1997, the Company submitted a remediation proposal to the DEP, the
cost of which would approach $1 million over an eight year period. The Company
has accrued $919,606.90 as March 31,1999 for long term environmental expenses
under "Environmental provision".
<PAGE>
The Company had also been named a respondent by the EPA in
environmental proceedings relating to the "Nascolite" Superfund site in New
Jersey. In May 1997, the Company paid $32,247 in settlement of EPA's Nascolite
claims.
Rockaway sales commitment
On April 20, 1999 the Company signed an agreement to sell the property. The
buyer will assume liabilities, including the environmental and taxes. The
Company believes that sale will occur during 1999.
As the sale of the Rockaway industrial park transpires the main responsibility
of cleaning the contamination will be at the expense of the buyer.
The sale will provide no funds to RTI and is essentially an assumption of
liabilities in exchange for the property. RTI did not generate the contamination
and has not been charged with contributing to the contamination of the property.
RTI has suffered the expense of this superfund site because it purchased the
property from the prior owner and RTI was the legal owner when the contamination
was discovered. Some of the major expenses associated with RTI owning the
facility have been:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Rockaway Property (including improvements @ current book value) $485,532
August 1996 payment to the New Jersey Department of
Environmental Protection (NJDEP) $575,000
Non Recourse Property Tax Accrued $314,558
Note to Thiokol (interest included) $312,499
Accrued for environmental provision (as of March 31, 1999) $919,606
There have also been other expenses for studies, consultants, and other cleaning
expenses that have been borne by RTI.
Some of the major liabilities RTI may be relieved of by the sale are:
Cash to be realized by RTI $0
Non Recourse Property Tax Accrued $314,558
Note to Thiokol (interest included) $312,499
Accrued for environmental provision (as of March 31, 1999) $919,606
Less: Rockaway Book Value net of Depreciation ($377,662)
</TABLE>
The signing of the sales commitment does not provide assurance that the
transaction will be completed or that all or all parts of the above liabilities
will be removed. No effect has been given to the pending sale in the company's
financial records.
Mexico:
The Juarez plant in Mexico is regulated by the SEMARNAP (Mexican Department of
Ecology). The plant has no industrial liquid emissions (only sewage from
employee bathrooms). The plant has solid waste that is disposed of in accordance
with regulations. Solid waste in the form of scrap material and other products
from USA origin are returned to the USA for disposal. Solid waste in the form of
scrap material and other products from Mexican origin are disposed of in Mexico.
The manufacturing facility uses dust traps to recover and reuse grinding dust.
Fume hoods are ducted to a central air cleaner before being exhausted. In March
and April 1999 the company underwent a major ecological review conducted by the
Mexican Government and received a clean report. The company expects to have
ongoing expenses for emissions controls and for periodic audits. The issuance of
a clean report in 1999 does not provide assurance that future reviews will also
be clean, and a future review could require unforeseen additional measures that
could have a material adverse effect on the company's business and financial
condition.
<PAGE>
5. SHORT TERM BORROWINGS
The Company had a related party note outstanding at March 31, 1999, for
$588,383 with its former Chairman and CEO, Theo W. Muller (Muller Note), and
another for $26,511 with Frellum Corporation (Frellum Note), which is owned 51%
by Mr. Muller. These notes, which were due on February 20, 1998, were
renegotiated effective February 21, 1998. The terms of the Muller Note was
increasing to 12% annual interest rate up to August 20 of 1998 and 18%
thereafter. The terms of the Frellum Note are 12% annual interest, the balance
along with accrued interest are due and payable on February 20, 2000.
The company has a related party note outstanding at March 31, 1999, for
$26,025.47 with its CEO Rick Bacchus( Rick's note) . The terms of Rick's Note
are 16%,the balance along with accrued interest are due upon request.
The Company entered into a factoring arrangement with a Financing company 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, 1999, the Company had factored accounts receivable
in the approximate amount of $200,910.
The Company also obtained a credit line up to $1.81 million with a financing
company, using as collateral its inventory ,As of March 31, 1999 the Company had
used $896,096 of the credit line.
The Company has expectations that in the following months based on how the 1999
business plan is met the Company can raise money from the stock market. No
assurances can be given that funds will be raised, but for the first quarter of
1999 the company met its 1999 business plan.
6. STATEMENT OF CASH FLOWS
Supplemental disclosures of cash flow information are as follows:
Three months ended March 31,
1999 1998
----------- ----------
Interest paid $154,682 $64,564
Income taxes paid -- --
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, 1999 AND
1998.
Net sales for the three months ended March 31, 1999, were $836,660
Compared to $974,406 in 1998. Sales of the AC2 unit in 1999 were $129,594
compared to $655,394 in 1998. This reduction was caused by the problems that AC2
had in 1998 but, the product is regaining confidence.
Cost of sales dropped from $1,153,083 in the first quarter of 1998
compared to $537,181 for the same period in 1999. Better material usage and
standard production of the AC2 made that possible. Additionally, the 1999 costs
to upgrade prior year units were applied to Warranty reserve, The company
upgrade approx. 600 units with a cost of $71,352.
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 $320,493 in the first
quarter of 1999 compared to $409,987 in the same period of 1998. Research and
development costs totaled $38,703 in the quarter ending March 31, 1999, while
they were $250,140 in the same quarter of 1998.
For the first quarter of 1999 rental income from the Rockaway Industrial
Park, was offset by its expenses compared with the net income of $2,478 in 1998
same period.
Because of the costs described above, the Company incurred a loss from
operations of $214,399 in the first quarter of 1999. This compares with an
operating loss of $909,299 for the same period in 1998.
For the three months ending March 31, 1999 the Company incurred net
interest expense of $154,682 as compared with net interest expenses of $63,005
in the first quarter of 1998. Interest expense has increased due to the Company
factoring its receivables and obtaining inventory loans to fund operations and
the buildup of accounts receivable and inventory in anticipation of seasonal
sales in the second and third quarters of 1999, reflecting working capital
demands of a seasonal business. The net loss of $214,399 or $0.13 per share for
the first quarter of 1999, compares with a loss of $909,299 or $0.60 per share
in the first quarter of 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the first three months of 1999, the Company generated $809,374
in cash from its notes payable from a financing company, and applied that
primarily to operations such as building inventory ,accounts receivables and
interest.
The net cash of zero as of March 31,1999 was decreased compare to $30,093 at the
end of the first quarter of 1998.
The Company will have significant equity capital and working capital needs in
1999. 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 seasonally of the air cooling and air conditioning business. The Company is
presently seeking financing through capital investment regarding a private
placement of common stock. There can be no assurance that such private placement
will be consummated. Should the Company be unable to obtain any financing, it
may have to limit its operations and inventories, and therefore its future sales
volume.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
During the first quarter of 1999 several vendors started legal action
to collect their payments, The Company has accrued $20,000 since September 1998
for that propose. The renegotiations of the debt were largely accomplished with
about 65% of the vendors but some of the agreements have not been funded due to
lack of cash to make payments.
The original agreement than the Company had with the Internal Revenue Service
was too high (the payment for back taxes) to accomplish, therefore the company
started a new negotiation to make lower payments and a longer period to pay. As
March 31,of 1999 total debt to IRS is for $182,917.
The company received a bridge loan on April of 1998 for $540,000 payable on
January 22 of 1999 which is in default, as well as another bridge loans was
received on September 1998 for $25,000 , payable on June 22 of 1999. The first
bridge loan notes have not been renegotiated, the note holders can take legal
action or exercise the warrants of $4.50 each , which will expire on April 22 of
2003.
Beginning the Third quarter of 1998 Officers of the company Rick Bacchus, Ron
Bacchus and Rocky Bacchus had not received the full payroll check, Total
delinquent payroll accrued as March 31,of 1999 is $70,469.23.
ITEM 2. CHANGES IN SECURITIES
None.
<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.
RTI INC.
Date: May 7, 1999 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 A SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED CONSOLIDATED BALANCE SHEET AS OF MARCH 31,1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 264,372
<ALLOWANCES> 4,177
<INVENTORY> 1,636,071
<CURRENT-ASSETS> 2,166,225
<PP&E> 2,254,141
<DEPRECIATION> 518,212
<TOTAL-ASSETS> 5,114,000
<CURRENT-LIABILITIES> 5,484,158
<BONDS> 0
0
5,000
<COMMON> 128,493
<OTHER-SE> 18,115,261
<TOTAL-LIABILITY-AND-EQUITY> 5,114,000
<SALES> 836,660
<TOTAL-REVENUES> 856,170
<CGS> 537,181
<TOTAL-COSTS> 896,377
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 154,682
<INCOME-PRETAX> (214,399)
<INCOME-TAX> 0
<INCOME-CONTINUING> (214,399)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (214,399)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
