UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 Form 10-QSB |X|
  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
  ACT OF 1934For the quarterly period ended June 30, 2004|_|
  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
  EXCHANGE ACT OF 1934For the transition period from 
  _____________to _____________Commission file number:  0-30463 R-TEC
HOLDING, INC.(Name of small business issuer in its charter) IDAHO
  
  82-0515707(State or other jurisdiction of incorporation or organization)
  
  (I.R.S. Employer Identification No.)287 N. Maple Grove Rd., Boise, Idaho
  
  83704(Address of principal executive offices)
  
  (Zip Code)Issuers telephone number: (208)
  887-0953    FAX:  (208)
  888-1757 Check whether
the issuer (1) filed all reports required to be filed by Section 13 or 15(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 practical date: Shares
outstanding as of June 30, 2004 of the Companys common stock:  29,914,079 Transitional
Small Business Disclosure Format (Check one): 
Yes  |_|   No 
|X| Common Stock no par value
(Title of class)   1 TABLE OF CONTENTS
PART I  - FINANCIAL INFORMATIONItem 1.
  Financial Statements
  3Item 2.
  Managements Discussion and Analysis or Plan of Operation
  10Item 3.
  Controls and Procedures
  12PART II  OTHER
  INFORMATIONItem 1.
  Legal Proceedings
  12Item 2
  Changes in Securities
  12Item 4
  Submission of a Matter to a Vote of Security Holders
  12Item 5
  Other Information Changes in Directors and Officers, and
  Relocation of Corporate Offices
  13Item 6
  Exhibits and Reports on form 8-K
  13Exhibit 31Exhibit 32DISCLOSURE REGARDING FORWARD LOOKING
STATEMENTS
This
Report, including any documents incorporated by reference into this Report,
contains certain Forward-Looking Statements within the meaning of Section 27A
of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended, including without limitation, statements
regarding our products, our operating revenues or profits, our dependence on
products that are still undergoing research and development, exposure to
general economic fluctuations, government regulations which may affect our
production capabilities or products, competition to our products in both design
and pricing, employment factors including but not limited to adequate personnel
to support the design, manufacturing, and sales of our products, status of
patent protection to our intellectual properties, and our ability to raise
additional funding for continuing operations. Other than statements of
historical fact, all statements made within this Report may be construed to be
forward looking and are identified by terminology such as may, believe,
estimates, projects, anticipates, plans, hopes, or potential, or
the negative thereof or similar terminology. Although we believe that
statements made within the context of this Report are reasonable, there can be
no assurance that said expectations or any of the Forward-Looking Statements
will prove to be correct. Actual results may differ substantially from those
statements, projections, tabulations, or estimates, presented or projected. All
Forward-Looking Statements included in the Companys press releases or reports
to the Securities and Exchange Commission (SEC) contain inherent risk and are
expressly qualified by these cautionary statements.

2


PART I  FINANCIAL INFORMATION
Item 1. Financial Statements:
The following financial statements are filed as part of this report:
1)
  Consolidated Balance Sheet for the periods ending June 30, 2004,
  (unaudited) and December 31, 20032)
  Consolidated Statement of Operations for the periods ending June 30,
  2004, (unaudited) and June 30, 2003 (unaudited)3)
  Consolidated Statement of Cash Flows for the periods ending June 30,
  2004, (unaudited) and June 30, 2003 (unaudited)4)
  Notes to Financial Statements3

R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET

As of June 30, 2004 (Unaudited) and December
31, 2003

June 30,
  2004
  
  December
  31, 2003Current assetsCash
  
  $
  26,808
  
  
  $
  36,565Accounts
  receivable (net of $--allowance for doubtful accounts)
  
  
  108,326
  
  
  
  57,573Income taxes
  receivable
  
  
  
  
  
  
  11,625Insurance claim
  receivable
  
  
  
  
  
  
  68,986Inventory
  
  
  39,318
  
  
  
  36,200Prepaid expenses
  
  
  12,535
  
  
  
  16,990Total current
  assets
  
  
  186,987
  
  
  
  227,939Equipment and leasehold
  improvements, at cost, net of accumulated depreciation
  
  
  504,261
  
  
  
  618,340Other assets, at cost, net
  of accumulated amortization
  
  
  1,163
  
  
  
  6,214Total assets
  
  $
  692,411
  
  
  $
  852,493Current liabilitiesAccounts payable
  
  $
  208,494
  
  
  $
  291,931Accrued expenses
  
  
  93,755
  
  
  
  114,425Notes and leases
  payable, current portion
  
  
  540,336
  
  
  
  1,056,700Notes payable to related
  parties, current portion
  
  
  
  
  
  
  100,000Total current
  liabilities
  
  
  842,585
  
  
  
  1,563,056Accrued preferred dividends
  payable
  
  
  
  
  
  
  211,616Accrued interest
  payable
  
  
  97,461
  
  
  
  Notes and leases payable
  
  
  570,900
  
  
  
  Notes payable to related
  parties
  
  
  300,000
  
  
  
  100,000Total liabilities
  
  
  1,810,946
  
  
  
  1,874,672Shareholders deficitSeries A cumulative
  convertible preferred stock, par value $0.23437 per share, 5,000,000
  authorized, 74,756 and 2,646,094 shares issued and outstanding, respectively
  
  
  23,950
  
  
  
  619,350Common stock, no
  par value per share,60,000,000 authorized, 29,914,079 and 22,878,994 shares
  issued and outstanding, respectively
  
  
  3,748,645
  
  
  
  2,924,804Additional
  paid-in capital
  
  
  538,123
  
  
  
  538,123Accumulated
  deficit
  
  
  (5,429,253
  )
  
  
  (5,104,456
  )Total
  shareholders deficit
  
  
  (1,118,535
  )
  
  
  (1,022,179
  )Total liabilities and shareholders deficit
  
  $
  692,411
  
  
  $
  852,4934

R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS

Three Months Ended June 30, 2004 and June 30,
2003 (unaudited)

Three Months Ended June 30,
  
  Six Months Ended June 30,2004
  
  2003
  
  2004
  
  2003Revenues
  
  $
  222,438
  
  $
  491,297
  
  $
  499,938
  
  $
  791,928Operating costs
  
  
  159,198
  
  
  363,440
  
  
  350,073
  
  
  742,481Gross profit
  (loss)
  
  
  63,240
  
  
  127,857
  
  
  149,865
  
  
  49,447Selling, general and
  administrative expenses
  
  
  276,707
  
  
  321,523
  
  
  424,137
  
  
  631,832Research and development
  
  
  4,212
  
  
  33,992
  
  
  8,778
  
  
  59,063Operating loss
  
  
  (217,679
  )
  
  (227,658
  )
  
  (283,050
  )
  
  (641,448
  )Interest expense
  
  
  35,505
  
  
  83,237
  
  
  74,074
  
  
  161,087Loss before income taxes
  and extraordinary item
  
  
  (253,184
  )
  
  (310,895
  )
  
  (357,124
  )
  
  (802,535
  )Income taxes expense
  
  
  
  
  
  
  
  
  
  
  
  Net loss before
  extraordinary item
  
  
  (253,184
  )
  
  (310,895
  )
  
  (357,124
  )
  
  (802,535
  )Extraordinary item
  
  
  49,155
  
  
  
  
  
  49,155
  
  
  Net loss
  
  
  (204,029
  )
  
  (310,895
  )
  
  (307,969
  )
  
  (802,535
  )Preferred stock dividends
  
  
  2,249
  
  
  14,627
  
  
  16,828
  
  
  29,291Net loss
  available to common shareholders
  
  $
  (206,278
  )
  $
  (325,522
  )
  $
  (324,797
  )
  $
  (831,826
  )Net loss per common share
  
  $
  (0.01
  )
  $
  (0.01
  )
  $
  (0.01
  )
  $
  (0.04
  )Weighted average shares
  outstanding
  
  
  28,832,444
  
  
  22,090,121
  
  
  25,855,719
  
  
  22,043,9865

R-TEC HOLDING, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS

Six Months Ended June 30, 2004 and June 30,
2003, (unaudited)

2004
  
  2003Cash flows
  from operating activitiesNet loss
  
  $
  (307,969
  )
  $
  (802,535
  )Adjustments to
  reconcile net loss to net cash used by operating activitiesDepreciation and
  amortization
  
  
  119,339
  
  
  131,034Options issued
  for consulting services
  
  
  
  
  
  24,000Notes payable
  issued for deferred compensation
  
  
  100,000
  
  
  Changes in assets
  and liabilitiesAccounts
  receivable
  
  
  (50,753
  )
  
  370,896Income taxes receivable
  
  
  11,625
  
  
  Insurance claim
  receivable
  
  
  68,986
  
  
  Costs and
  estimated earnings in excess of billings on uncompleted contracts
  
  
  
  
  
  (33,461
  )Prepaid expenses
  
  
  4,454
  
  
  68,754Inventory
  
  
  (3,118
  )
  
  (15,306
  )Accounts payable
  
  
  (83,437
  )
  
  173,709Accrued expenses
  
  
  76,791
  
  
  (17,339
  )Billings in
  excess of costs and estimated earnings on uncompleted contracts
  
  
  
  
  
  (61,594
  )Net cash used by
  operating activities
  
  
  (64,082
  )
  
  (161,842
  )Cash flows from investing
  activitiesPurchase of
  equipment and other assets
  
  
  (212
  )
  
  (182
  )Cash flows from financing
  activitiesProceeds from
  debt
  
  
  61,877
  
  
  75,000Payments on debt
  
  
  (7,340
  )
  
  (37,682
  )Net cash provided
  by financing activities
  
  
  54,537
  
  
  37,318Net decrease in
  cash
  
  
  (9,757
  )
  
  (124,706
  )Beginning cash
  
  
  36,565
  
  
  172,572Ending cash
  
  $
  26,808
  
  $
  47,866Supplemental disclosures of
  cash flow informationInterest paid
  
  $
  4,185
  
  $
  72,897Noncash investing
  and financing activitiesAccounts payable
  forgiven
  
  $
  49,155Preferred stock
  dividends payable
  
  $
  16,828
  
  $
  29,290Common stock
  issued through conversion of preferred stock and accrued preferred dividends
  
  $
  595,400
  
  $
  40,772Accrued preferred stock
  dividends payable converted
  to common stock
  
  $
  228,445
  
  $
  9,022Notes payable
  issued for deferred compensation
  
  $
  100,000
  
  $
  6

R-TEC HOLDING, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS

June 30, 2004 and 2003 (unaudited)

NOTE A  STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements
The accompanying unaudited financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all adjustments and disclosures
necessary to a fair presentation of these financial statements have been
included. These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Companys 2003 Annual
Report on Form 10-KSB for the year ended December 31, 2003, as filed with the
Securities and Exchange Commission.  Certain
reclassifications and other corrections for rounding have been made in prior
period financial statements to conform to the current period presentation. The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary. All significant inter-company transactions and
balances have been eliminated in consolidation.
Stock Based Compensation
The Company has an incentive stock option plan wherein 2,000,000 shares
of the Companys common stock can be issued. 
The Company granted no options during the six month period ended June
30, 2004.  The Company issued 2,410,000
stock options under the plan during the six months ended June 30, 2003.  Our auditors have informed us that
certain options granted to members of the board of directors and officers of
the Corporation and audit committee members fall within the options covered by
the plan, resulting in options being granted in excess of those permitted under
the plan.  We are currently working to resolve this issue through
negotiations with the holders of those options.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, which established
financial accounting and reporting standards for stock-based compensation.  This standard defines a fair value method of
accounting for an employee stock option or similar equity instrument.  In December 2002, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 148,
which revised certain provisions of adopting a fair value method of accounting
for stock options and required certain additional disclosures regarding stock
options.  These statements give entities
the choice between adopting the fair value method or continuing to use the
intrinsic value method under Accounting Principles Board (APB) Opinion No. 25
with footnote disclosures of the pro forma effects if the fair value method had
been adopted.  The Company has opted for
the latter approach.

The Company accounts for its stock options under Accounting Principles Board
(APB) Opinion No. 25 using the intrinsic value method.  The Company has
elected not to adopt the provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation
(FAS 123).  In accordance with Financial
Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure, pro-forma net income, stock-based compensation
expense, and earnings per share using the fair value method are stated as
follows:



Six Months Ended June 30,2004
  
  2003Net Loss as
  Reported
  
  $
  (324,797
  )
  $
  (831,826
  )Deduct:
  stock based compensation expense determined under fair market value method,
  net of tax
  
  $
  41,716
  
  $
  7,525Pro forma
  net loss
  
  $
  (366,513
  )
  $
  (839,351
  )Loss per
  share:Basic and
  diluted  as reported
  
  $
  (.01
  )
  $
  (.04
  )Basic and
  diluted  pro forma
  
  $
  (.01
  )
  $
  (.04
  )7

Assumptions used to calculate the income statement impact of stock
options granted as if the Company had adopted FAS 123 were as follows:




Six Months Ended June 30,2004
  
  2003Weighted
  Average:Risk-free
  interest rate
  
  5.00%
  
  5.00%Expected
  life
  
  10 years
  
  10 yearsExpected
  volatility
  
  293%
  
  293%Expected
  dividends
  
  None
  
  NoneNOTE B  EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements consists of:




Equipment
  
  $
  908,815Vehicles
  
  
  2,633Office
  equipment and furnishings
  
  
  77,749Leasehold
  improvements
  
  
  118,4841,107,681Accumulated
  depreciation and amortization
  
  
  (603,420
  )$
  504,261NOTE C  OTHER ASSETS
Intangible assets consist of:

Software
  
  $
  76,326Accumulated
  amortization
  
  
  (75,163
  )$
  1,163The estimated useful life of software is three years.
NOTE D  INVENTORY
Parts inventory is stated at the lower of cost (last-in, first-out
method) or market.  Inventories consist
of finished goods of $39,318.
NOTE E  GOING CONCERN CONSIDERATIONS
The Companys recurring losses
in current and prior years raise substantial doubt about the Companys ability
to continue as a going concern. The financial statements do not include any
adjustments to reflect the possible effects on the recoverability and
classification of assets or amounts and classifications of liabilities that may
result from the possible inability of the Company to continue as a going
concern.  The Company is attempting to
raise additional capital to sustain operations. However, there can be no
assurance that these plans will be successful.
8


NOTE F  DEBT RESTRUCTURING

During June 2004, the Company restructured ten of the notes
payable.  The amount of principal owed
on these notes payable as of the restructure date was approximately
$771,000.  The restructure resulted in
an elimination of the accrued interest owing as of that date, and a reduction
in interest rates from approximately 12% to 8%.  The maturity dates were extended to May 28, 2006.  Of the ten notes, seven had common stock
conversion features which were eliminated with the restructure.  The three remaining notes, with principal
balances of $200,000, are related party notes payable.
The Company has accounted for the restructuring of these notes in
accordance with Statement of Financial Accounting Standards No. 15. This
standard requires that the Company determine the total current obligation under
the notes, principal and interest, and compare this current obligation to the
future cash payments under the restructuring. 
In performing this analysis, the Company determined the cash requirements
under the new terms exceeded the amounts related to the existing
obligation.  Accordingly, no gain on the
restructure was recorded.  The future
cash requirements exceeded the existing obligation by approximately
$26,000.  This difference will be recorded
as interest expense over the remaining period of the restructured obligation.
NOTE G  EXTRAORDINARY ITEM
In accordance with Statement of Financial Accounting Standards No. 15,
the Company recorded a troubled debt restructuring gain of $49,155 during June
2004.  The gain is the result of
negotiations with various vendors regarding amounts owing on accounts payable
balances.  The per share gain is $.002
for the three and six-months ended June 30, 2004.
NOTE H  PREFERRED STOCK CONVERSION
During the current quarter, the Series A preferred shareholders and the
Company agreed to allow conversion of the preferred stock into common as set
forth in the underlying agreements.  The
conversion resulted in accrued and unpaid dividends to be included in the conversion.  The Series A preferred stock was converted
to common stock at a conversion price of $.117185 per share.  Of the total outstanding Series A preferred
stock amounting to 2,646,094 shares, the Company converted 2,571,338 shares
into common stock of 7,030,285 shares. 
There are 74,756 shares of Series A preferred stock yet to be converted
as of June 30, 2004.
NOTE I  POTENTIAL SALE OF STOCK
On June 14, 2004 the Board of Directors of the Company approved a
preliminary transaction through which substantially all authorized and unissued
capital of the Company will be sold to Farris McMullin in exchange for shares
of stock in ConectL Corporation, an Idaho corporation. Faris McMullin is the
President and Chairman of ConectL Corporation and its primary shareholder.  No activity related to this event has been
recorded as of June 30, 2004, as the parties are still conducting due diligence
and finalizing terms of the agreement.
NOTE J  SUBSEQUENT EVENT
During July 2004, the Company vacated the main headquarters and
terminated the underlying lease.  The
Company has approximately $25,000 of unamortized leasehold improvements
remaining as of the lease termination. 
This remaining leasehold value will be charged to expense in the quarter
ending September 30, 2004.
9

Item 2. Managements Discussion
and Analysis or Plan of Operation:
RESULTS OF OPERATIONS
Revenues for the period ending June 30,
2004 were $222,438, compared to $491,297 for the period ending June 30, 2003.
The decrease of  $268,859, or 55% is
primarily due to the elimination of sales of custom automation projects, ending
December 2003.
The Companys operating expenses were
reduced from $363,440, for the period ending June 30, 2003, to $159,198, for
the same period ending June 30, 2004, a reduction of  $204,242, or 56%. The decrease is again attributable to the
elimination of sales of custom automation projects and related costs for these
sales.
Gross profit remained relatively constant
as a percent of sales, with gross profit of $63,240, or 28% of sales for the
period ending June 30, 2004, and $127,857, or 26% of sales for the same period
ending 2003.
Selling, general and administrative
expenses decreased from $321,523, for the period ending June 30, 2003, to
$276,707, for the period ending June 30, 2004, a decrease of $44,816, or 14%.
The decrease is reflective of the Companys continued efforts to control
overhead costs. Included in the $276,707 for the current period, is a one-time
charge for deferred compensation of $100,000 for present and prior services, as
approved by the Board of Directors. Deducting the one-time charge of $100,000
would have resulted in a decrease of $144,816 in selling, general and
administrative expenses, or 45%, compared to the period ending June 30, 2003.
Net loss decreased from $310,895 for the
period ending June 30, 2003, to $204,029, a decrease of $106,866, or 34%. The
decrease in net loss is attributable to a reduction in interest expense arising
from the replacement of matured, convertible notes, with new two-year
non-convertible notes for certain noteholders and a respective reduction in
interest rates. In addition, we recognized an Extraordinary Item gain of
$49,155 from our efforts to restructure and settle accounts payable at a
reduced percent of the balance owed.
In the
current quarter ending June 30, 2004, our Series A preferred shareholders
converted their shares of preferred stock, to common stock, inclusive of their
accrued preferred stock dividends. This action resulted in a reduction in
accrued preferred dividends for the quarter from $14, 627 at June 30, 2003, to
$2,249 at June 30, 2004. Effective for future periods, we will not incur
preferred dividend expense, a savings of approximately $4,888 per month.
LIQUIDITY AND CAPITAL RESOURCES
There were no commitments for capital
expenditures during the quarter ended June 30, 2004.
Our current ratio increased from .15 for
the period ending December 31, 2003, to .22, for the period ending June 30,
2004. The increase was primarily due to the change of certain convertible notes
that had matured, to new two-year notes, as previously discussed, resulting in
a reduction of notes payable, current portion, of $516,364. In addition, the
conversion of accrued preferred dividends payable of $211,616 to common stock
resulted in a decrease of $211,616 in liabilities.
We anticipate that we will need to
continue to seek funding as we are not yet generating enough revenues to
sustain operations. Additionally, our accounts payable balance at June 30, 2004
of $208,494, is comprised of approximately $123,000 that is over 90 days past
due. We will continue to seek settlements with some of our past due vendors in
an attempt to reduce our older vendor payables. We have been successful in negotiating
new notes with some of our convertible note holders, whose notes had matured,
but we still have some convertible noteholders who have not yet agreed to enter
into new notes. These remaining convertible notes represent a current liability
of approximately $478,959. We have also borrowed from Conectl Corporation on a
short term note payable,  approximately
$61,000, as of June 30, 2004 to help pay off vendor settlements and provide
some funding for ongoing operations. The note with Conectl, dated April 16,
2004, has a maturity date of July 31, 2004.
10

MANAGEMENTS PLAN OF OPERATION
We recognize that one of our most
critical issues is the need for adequate working capital for operations and
retirement of debt obligations. Through our efforts to reduce operational
expenses, with the elimination of sales of certain non-profitable operations
relating to custom automation sales, and efforts to reduce overhead costs, we
believe we have been successful in reducing our capital burn rate.  As evidenced by our Consolidated Statement
of Cash Flows, herein incorporated, for the period ending June 30, 2004,
operations have eroded our capital base by only approximately $10,000, compared
to approximately $120,000 for the same period ending 2003. Our focus on our GCI
products and related interconnect products with associated machine shop
operations, have helped us achieve this reduction in our capital burn rate.
Our machine shop, which was originally
acquired to support the machining of sockets for interconnect customers, has
gone to the high tech business community of the city of Boise offering contract
services.  The manager of our machine
shop has a solid business reputation in the Boise area and his personal contacts
have assisted in increasing our sales for contract services. The machine shop
is now operating profitably and is a net contributor to the cash flow of the
Company.
The Companys management is of the
opinion that the future of R-Tec primarily lies in the interconnect business.
Through the Companys efforts to grow the interconnect business and
corresponding research with our customers, the resulting findings suggest that
with the Companys patented technology, the interconnect business has the
potential to become a high volume business with substantial gross margins.
Because the Companys production plant is already operational, management does
not feel the Company will experience any significant additional capital
requirements as we increase sales through the remainder of 2004 and into 2005.
Although current financial statements indicate low gross margins on operations,
this is primarily a result of underutilization of related fixed assets.
Management believes that operation of our production facility for GCI
products may become more profitable with higher volumes than we are currently
producing.
Managements primary goal is to get the
company on a firm footing and then, to promote the future. The Company has not
yet achieved a positive cash flow and the ability to survive without additional
operating capital. However, this position appears to be improving. Due to the
Companys operating losses in recent years, the Company many not be able to
raise money through outside investment or non-equity financing. As a result,
the Company is currently pursuing a conservative management philosophy that
promotes managing cash flow to minimize capital exposure, while focusing on
sales of our high margin interconnect products, including our patented GCI
products and associated sockets.
While the Company is implementing a
conservative capital management approach, management is also pursuing an
aggressive marketing and sales effort to begin a transition toward measurable,
increased sales. With the addition of David Ries as VP of Sales and Marketing,
we fully expect that we will see a positive curve on sales numbers as the year
progresses.  Mr. Ries has significant
experience in marketing within the high tech business sector.  One result of this transition is the fact
that there are currently customers preparing to test our GCI
products for various stages of their IC (integrated circuit) operations,
including their characterization labs, high-volume production facilities, and
burn-in testing facilities.
11

Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and
Procedures

Evaluation
of Disclosure Controls and Procedures:Under the
supervision of our management, including the chief executive officer and chief
financial officer we conducted an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures, as such term is
defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the Exchange Act), within 90 days of the filing date of
this report. Based on this evaluation, the chief executive officer and chief
financial officer have concluded that our disclosure controls and procedures
are effective. There were not changes in our internal control over financial
reporting during the quarter ended June 30, 2004 that have materially affected,
or are reasonably likely to materially affect, our internal controls over
financial reporting.
PART II  OTHER INFORMATION
Item 1. Legal Proceedings
On July 9, 2004, Doug Hastings received a
subpoena from the Idaho Department of Finance to testify, personally and on
behalf of the Corporation, regarding various matters relating to investment
security matters from prior periods. Subsequent to the subpoena and testimony,
the Department requested additional information, that has been furnished to it.
Previous information relating to the Department and its request for information
from us has been disclosed in our previous filings, i.e., December 31, 2003
10-KSB, and March 31, 2003 10-QSB, and are herein incorporated by reference.
Item 2. Changes in Securities
As
previously approved by our Board of Directors, our  Series A Preferred stockholders converted 2,571,338 of their
shares of preferred stock and accrued preferred stock dividends to common
stock.
The resulting conversion was as follows:



Date
  
  Preferred Shares
  
  Accrued Preferred
  Dividends
  
  Common Shares06/29/2004
  
  
  
  2,571,338
  
  
  
  $
  228,444.57
  
  
  
  
  7,030,285The described stock transactions were free of restricted legends under
the provisions of Section 4(2) of the Securities Act of 1933, as amended or
Rule 144K of the Securities and Exchange Commission thereunder.
Item 3: Defaults Upon Senior Securities

Nothing to
Report

Item 4: Submission of Matters to
a Vote of Security Holders
On June 15, 2004, a special meeting of
our shareholders was held to discuss the possibility of selling the remaining
shares of authorized but unissued shares to Faris McMullin in exchange for ten
percent (10%) of the authorized capital of ConectL Corporation. The
shareholders authorized our directors and officers to conclude due diligence
and consummate the transaction. If consummated, the proposed transaction will
give Mr. McMullin control of R-Tec Holding, Inc. The voting tabulation for the
special meeting was as follows: a) number of shares represented by shareholders
present, 19,629,401 or 69.7%, b) number of votes in favor, 17,505,583, c)
number of votes opposed, 1,823,818, and d) number of votes abstaining, 300,000.

12

Item 5: Other Information
Changes in Directors and Officers
The following changes and appointments in
Directors and Officers have occurred:

a)
  Effective
  June 14, 2004, Clyde B. Crandall was nominated and elected to fill the
  currently vacant seat on our Board of Directors, and to serve on the Board of
  Directors until our next regularly scheduled annual meeting of shareholders.
  Mr. Crandall was also nominated and elected to serve as the chair of our
  Audit Committee.b)
  Effective
  July 27, 2004, Robert C. Montgomery resigned as Corporate Secretary.c)
  Effective
  July 7, 2004, Ann Marie Baird was appointed as Corporate Secretary.Clyde Crandall, C.P.A., at present is
president and senior partner in the Boise CPA firm of Crandall, Swenson &
Gleason, Chtd., and is heavily involved in services that the firm renders to
its non-profit and other business clients. Previously, Mr. Crandall served as
the audit manager for Fox & Company (now Grant Thornton), with offices in
Boise, Idaho and Casper Wyoming. As Audit Manager for Foxs offices, Mr.
Crandall was responsible for the quality control of audit engagements and
financial statements issued as a result of those engagements. He also served as
an Instructor and Manager for Foxs National Staff Training courses which were
designed to teach auditing procedures to nearly 250 professionals joining the
firm each year. Mr. Crandall received his B.S. in Accounting from Brigham Young
University in 1971 and is a member of the American Institute of CPAs and Idaho
Society of CPAs.
Ann Marie Baird has served as office
manager/bookkeeper for Exact Research with offices in Boise, Idaho, for the
past 16 years. Other experience includes serving as office manager/bookkeeper
for ONeill Enterprises. Ms. Baird received Business Accounting and Private
Secretarial Degrees from the Kinman Business University in Spokane, Washington.

Relocation of Corporate Offices and Machine
Shop
Effective August 1, 2004, our corporate
offices and machine shop operations were relocated to the building leased by
the ConectL Corporation at 287 N. Maple Grove Rd., Boise, Idaho 83704. Our
interconnect plant will remain in its current location at 704 Ralstin,
Meridian, Idaho 83642.
Item 6: Exhibits and Reports on
form 8-K.
(a) Exhibits
The following documents are furnished as exhibits to this Form 10-QSB.
Exhibits marked with an asterisk are filed herewith. The remainder of the
exhibits have been previously filed with the Commission and are incorporated
herein by reference.
Number
  
  Exhibit10.1
  
  R-Tec
  Holding, Inc., 2000 Stock Option Plan, adopted by the registrants Board of
  Directors on December 12, 2000, filed with the Commission on Form S-8 on
  October 2, 2001, and incorporated herein by reference.31
  
  Rule
  13a-14(a) Certification, as adopted pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.*32
  
  Certification
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002.*99
  
  Form 8-K,
  for information relating to a special meeting of Shareholders, filed pursuant
  to Section 13 or 15(d) of the Securities Exchange Act of 1934 with the
  Commission on Jun 18, 2004, and is incorporated herein by reference.13

(b) Reports on Form 8-K.

On June 18,
2004, we filed a Form 8-K, which is incorporated herein by reference, and
reported the following items:
a)
  The
  nomination and election of Clyde B. Crandall on June 14, 2004, to the Board
  of Directors and nomination and election to serve as Chairman of our Audit
  Committee.b)
  A special
  meeting of our shareholders that was held on June  15, 2004, to discuss the possibility of selling our remaining
  authorized but unissued shares to Faris McMullin.SIGNATURES
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.
R-TEC
  HOLDING, INC./S/  Michael T. MontgomeryChief
  Financial OfficerInterim
  President and CEO14

INDEX
TO EXHIBITS

Number
  
  Exhibit10.2
  
  R-Tec
  Holding, Inc., 2000 Stock Option Plan, adopted by the registrants Board of
  Directors on December 12, 2000, filed with the Commission on Form S-8 on
  October 2, 2001, and incorporated herein by reference.31
  
  Rule
  13a-14(a) Certification, as adopted pursuant to Section 302 of the
  Sarbanes-Oxley Act of 2002.*32
  
  Certification
  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
  Sarbanes-Oxley Act of 2002.*99
  
  Form 8-K,
  for information relating to a special meeting of Shareholders, filed pursuant
  to Section 13 or 15(d) of the Securities Exchange Act of 1934 with the
  Commission on June 18, 2004, and is incorporated herein by reference.* Filed Herewith
15