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U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number: 0-21811
TORQUE ENGINEERING CORPORATION
(Name of small business issuer in its charter)
Delaware 83-0317306
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2932 Thorne Drive, Elkhart, Indiana 46514
(Address of principal executive offices, including ZIP Code)
Issuer's telephone number: (219) 264-2628
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
[ ] No [ X ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year ended December
31, 1999 were $91,300.
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The aggregate market value of the 2,546,272 shares of the issuer's
outstanding common stock held by non-affiliates of the issuer was $3,819,408
as of May 15, 2000, based on the closing bid price of $1.50 per share as
reported on the OTC Bulletin Board on that date.
The issuer had 7,832,940 shares of its common stock issued and
outstanding as of May 15, 2000, the latest practicable date before the filing
of this report.
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<TABLE>
<CAPTION>
TORQUE ENGINEERING CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-KSB
Page
<S> <C>
PART I .........................................................................................................1
Item 1. Description of Business................................................................1
Item 2. Description of Property...............................................................11
Item 3. Legal Proceedings.....................................................................11
Item 4. Submission of Matters to a Vote of Security Holders...................................11
PART II ........................................................................................................12
Item 5. Market for Common Equity and Related Stockholder Matters..............................12
Item 6. Management's Discussion and Analysis..................................................15
Item 7. Financial Statements..................................................................18
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure..................................................................18
PART III ........................................................................................................18
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act................................................18
Item 10. Executive Compensation................................................................21
Item 11. Security Ownership of Certain Beneficial Owners and Management........................23
Item 12. Certain Relationships and Related Transactions........................................25
Item 13. Exhibits and Reports on Form 8-K......................................................26
SIGNATURES.......................................................................................................28
</TABLE>
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PART I
The matters addressed in this report on Form 10-KSB, with the
exception of the historical information presented, contain forward-looking
statements involving risks and uncertainties. Torque Engineering's actual
results could differ materially from those expressed or implied in these
forward-looking statements as a result of certain factors, including those
factors set forth in the Description of Business, Risk Factors and Disclosure
Regarding Forward Looking Statements section and elsewhere in this report.
ITEM 1. DESCRIPTION OF BUSINESS.
Torque Engineering Corporation was formerly known as Quintessence Oil
Company. Quintessence Oil was formed under Wyoming law on June 26, 1996 to
purchase, develop and operate oil and gas leases. On December 3, 1996,
Quintessence Oil voluntarily filed a registration statement on Form 10 with
the SEC to become a publicly reporting company. Prior to May 28, 1999,
Quintessence Oil was essentially inactive and had no operations. Quintessence
Oil had previously acquired one undeveloped oil and gas lease, but had not
initiated drilling or other production operations.
In May 1999, Quintessence Oil's new management began the first phase
of a transition from an inactive oil and gas company to a manufacturer of
high-performance production engines for the boating and transportation
industry. On May 28, 1999, Quintessence Oil issued 1,500,000 shares of its
common stock to acquire IPSL, Inc. Prior to that, on approximately April 29,
1999, IPSL acquired the proprietary rights to continue to research and
develop the Torque V-12, an aluminum, gasoline-powered engine for the luxury
off-shore marine industry, in exchange for $3 million in cash. By acquiring
IPSL and other assets, Quintessence Oil obtained those same proprietary
rights. On November 17, 1999, Quintessence Oil re-incorporated under Delaware
law and changed its name to Torque Engineering Corporation.
Torque Engineering's current management has experience in the design
and production of high-performance, marine race and pleasure engines.
Beginning in 1986, under the name Lightning Performance Products, Inc., Torque
Engineering's current president and chief operating officer, Raymond B. Wedel,
Jr., developed and sold after-market performance-enhanced parts and equipment
for marine racing and pleasure engines.
The high-performance marine race and pleasure engines Lightning
Performance originally produced were custom-made. As a result, the market for
these products was extremely limited. In early 1992, Mr. Wedel sold Lightning
Performance to Richard Streffling where Lightning Performance, as an Indiana
corporation under the name Torque Engineering continued operations. Mr. Wedel
joined that business after the sale and began to transition it from the
production of race engines to the development of a light-weight, high-power
marine engine which could be built on a production-line basis for the luxury
performance pleasure craft industry.
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In 1997, Mr. Wedel left the prior Torque Engineering to pursue other
opportunities in the marine industry. However, that company, utilizing many of
the same employees who worked for Mr. Wedel, continued to develop the Torque
V-12. In 1999 IPSL purchased the assets and proprietary rights to continue to
research and develop the Torque V-12 from the prior Torque Engineering entity
for $3 million in cash.
On May 21, 1999, Quintessence Oil and IPSL entered into a Plan and
Agreement of Reorganization under which Quintessence Oil agreed to acquire all
of the issued and outstanding shares of common stock of IPSL. Under the plan,
IPSL's sole shareholder, Michel Attias, irrevocably granted Quintessence Oil
the right to exchange 1,500,000 shares of its common stock for all of the
outstanding shares of common stock of IPSL at any time prior to June 15, 1999.
On May 28, 1999 Quintessence Oil exercised its right to close the transaction
and to acquire IPSL and the assets and proprietary rights to research and
develop the Torque V-12. As described above, Quintessence Oil then
reincorporated and changed its name to Torque Engineering.
Since acquiring IPSL and the rights to develop and manufacture the
Torque V-12, Torque Engineering has formulated a plan of operation based on
management's belief that even as boat manufacturers increase the size of
pleasure craft, marine industry consumers are unwilling to settle for lesser
performance than what is available in smaller craft. Management believes that
in order to provide the same level of performance, the standard
automotive-based gasoline V-8 engine is being asked to perform beyond its
engineered limits. Owners of luxury offshore pleasure craft are therefore
forced to resort to installing three or four high performance V-8 engines or
installing heavier and noisier diesel engines. As a result, Torque Engineering
has developed and is now manufacturing and marketing the Torque V-12, a
high-powered, 12- cylinder, 14 liter/860 cubic inch V-12 aluminum marine
engine. Torque Engineering presently offers the Torque V-12 in the following
three models:
* The TORQ 1000 - 900 horsepower engine with 1050
ft.-lbs. of torque,
* The TORQ 1100 - 1,050 horsepower engine with
1100 ft.-lbs. of torque,
and
* The TORQ 1200 - 1,150 horsepower engine with
1150 ft.-lbs. of torque.
PRODUCTS
The Torque V-12 is an all-aluminum, electronically fuel-injected
engine designed to run on premium gasoline. The engine has a broad torque band
which allows the Torque V-12 to generate significant power at low throttle
settings, thus providing for greater fuel economy. As of May 15, 2000 Torque
Engineering is unaware of any other marine engine manufacturer that produces
an all-aluminum, gasoline-powered V-12 engine that provides the same
performance characteristics of the Torque V-12 engines.
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In September 1999, the Torque V-12 became an available power plant in
the Carlson Model 2000, 33 foot sport cruiser boat line. Torque Engineering
anticipates that the first boat in the Model 2000 series with the Torque V-12
installed will be completed in the spring of 2000 and will be displayed at
various marine industry trade shows throughout the year. Currently, Magnum,
Cigarette, NorTech and Skater boats also list the Torque V-12 as a power plant
selection for some of their current models.
The Torque V-12 is designed for installation in luxury marine
pleasure craft. After significant production of the Torque V-12 begins, Torque
Engineering anticipates that it will analyze whether the Torque V-12 may be
commercially adapted to other uses, including potential military, industrial,
agricultural or mining uses. In addition, Torque Engineering has engaged in
discussions with various third parties about adapting the Torque V-12 to other
marine uses outside of the luxury pleasure craft industry. However, these
discussions are of an extremely broad and preliminary nature. There is no
assurance that Torque Engineering will adapt its Torque V-12 to additional
marine or other uses, or that the Torque V-12 will be appropriate for uses other
than in the luxury marine pleasure craft market.
Retail prices for the Torque V-12 range from $85,000 to $109,500.
Torque Engineering offers a one year limited warranty on all three Torque V-12
models. Each warranty limits the total number of hours a purchaser may use the
Torque V-12 during the one year warranty period and still remain eligible for
warranty protection. The warranty period for the TORQ 1000 covers 75 hours of
total use and for the TORQ 1100 and TORQ 1200 covers 50 hours of total use.
PRODUCT MARKET
Torque Engineering's products are designed for the marine pleasure
craft industry. That industry is divided primarily into the high-end stern drive
segment and the outboard segment. The Torque V-12 is targeted toward the stern
drive segment.
More specifically, Torque Engineering's Torque V-12 engines are
currently targeted toward a limited niche market for purchasers and owners of
high-powered, luxury pleasure craft sold in the U.S. Torque Engineering believes
this niche market is generally characterized as having consumers who are
concerned primarily with:
- the performance of the high-powered engines they
purchase,
- the dependability of those engines, and
- the overall useful life of those high-powered
engines.
Prices for the marine craft for which the Torque V-12 engines are designed
generally range from $250,000 to $1,000,000.
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INDUSTRY OVERVIEW
According to the National Marine Manufacturers' Association, the
recreational boating industry generated approximately $23 billion in overall
sales in 1999.
There were 96,200 new sales of stern drive boats in 1999. Of these,
19,852 were 25' or more in length. Approximately 90% of these boats would have
two or more engines. Torque Engineering's management hopes to capture 2-1/2% to
4% of this market over the next three to five years. However, there can be no
assurance Torque Engineering will be able to do so.
Management believes recreational marine industry sales are impacted by
factors such as:
- the general state of the economy,
- interest rates,
- consumer spending,
- technology,
- dealer effectiveness,
- demographics,
- weather conditions,
- fuel availability and price, and
- government regulations.
During the period from 1983 to 1992, the recreational marine industry
experienced both its largest growth (from 1983 to 1988) and its largest decline
(from 1988 to 1992) in over 30 years. The growth was stimulated not only by
increasing real disposable income, but also by readily obtainable marine loans
that required no down payment and could be financed over a term of over ten
years. The contraction in sales from 1988 to 1992 was due to the recession
during the early 1990s and to the increased level of sales in the late 1980s.
Many boat owners had loan balances in the early 1990s that exceeded the value of
their boats, which made trade-up sales more difficult to obtain. In addition, in
1990 the U.S. government imposed a luxury tax on boats sold at prices in excess
of $100,000. However, the luxury tax was repealed in 1993 and boats over 24 feet
continue to be one of the largest growth sectors in the market.
Torque Engineering also believes there are three primary factors
affecting the recreational marine industry today.
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- There are an increasing number of consumers over the
age of 50. These older consumers typically have
larger discretionary income per capita and increased
leisure time. Torque Engineering believes that these
consumers are purchasing larger and more luxurious
boats.
- Torque Engineering believes there is increasing
interest in upgrading existing boats through
equipment-based accessories and repowerment. Torque
Engineering's research indicates that approximately
1% of the existing boat engines in use are replaced
on an annual basis.
- Women are increasingly influencing or making
purchasing decisions. Torque Engineering estimates
there are currently approximately 500,000 women
powerboat owners in the U.S. and that the number is
expected to grow thereby increasing the potential
customer base.
MANUFACTURING
Torque V-12 engines were developed and are produced in Torque
Engineering's Elkhart, Indiana manufacturing facility using computer-controlled
machining centers.
In November 1999, Torque Engineering completed installation of
additional computer-controlled machining centers it uses to manufacture Torque
V-12 engine components. Haas Automation manufactured these additional
computer-controlled machining centers and Torque Engineering leased the
machining centers from CNC Associates, Inc.
The Torque V-12 engine is machined and also hand-assembled by Torque
Engineering's employees at the Elkhart, Indiana production facility. Each
engine is tested on a dynamometer and research is conducted using both a 41
foot test boat and a 50 foot Skater test boat. Management believes that this
manufacturing arrangement will be sufficient as production begins to meet
consumer demand for the Torque V-12.
RAW MATERIALS
Torque Engineering plans to produce internally as many of the necessary
components for the Torque V-12 as possible. Torque Engineering expects that the
computer-controlled manufacturing machines acquired in November 1999 will
facilitate the internal component production process. However, subcontractors
and supplies will still be needed for some components, such as crankshafts,
electronic controls, and raw aluminum block castings. Torque Engineering
solicits competitive quotes for these components whenever possible. Whenever the
price of a component can be substantially reduced by volume buying Torque
Engineering plans to do so. Torque Engineering believes that adequate sources of
supply exist and will continue to exist, at competitive prices, for all of
Torque Engineering's raw material requirements.
5
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MARKETING
Torque Engineering currently markets its Torque V-12 engines on a
direct sale basis through leads derived from trade shows, magazine articles and
personal contacts of our employees in the power boating industry. Torque
Engineering markets its products not only to boat manufacturers, but also to
pleasure boat users in an effort to increase demand through consumer awareness
thereby generating consumer requests to boat manufacturers for the Torque V-12
as an available power plant in luxury pleasure craft.
DISTRIBUTION
Torque Engineering does not currently have a distribution network set
up for the Torque V-12. If Torque Engineering's sales increase substantially,
Torque Engineering may in the future establish Service Representatives in
various areas to service its products. Torque Engineering believes that it will
be able to adequately ship the Torque V-12 to manufacturers who purchase the
Torque V-12 through normal shipping avenues.
COMPETITION
Torque Engineering anticipates that it will face intense competition in
the market in which Torque Engineering will produce and sell its Torque V-12
engines. The marine engine production market generally has high barriers to
entry due to the capital investment and technological expertise required in
manufacturing marine engines. As a result, the marine engine market is
concentrated among large U.S., Japanese and European manufacturers. Industry
estimates are that U.S.-based Brunswick Corporation maintains approximately 70
to 80 percent of the stern drive market segment with Volvo Penta Corporation
enjoying a large portion of the remaining market share. In the outboard engine
market, management believes Brunswick and Outboard Motor Corporation control
roughly 80 percent of the market.
In the niche market for high-powered marine engines in which Torque
Engineering will participate, there are several manufacturers who build gasoline
engines with 700 or more horsepower, including Mercury Marine/ Brunswick.
Management's experience is that generally these engines are either modified V-8s
with enhanced aspiration such as turbo-chargers, or diesel fueled engines. As a
result, Torque Engineering does not believe that these engines are competing
with the Torque V-12 on an identical product line basis.
Nonetheless, Torque Engineering's competitors, including Brunswick and
Volvo Penta are large, vertically integrated companies that have greater
resources, including financial resources, than Torque Engineering. Economies of
scale give these companies distinct advantages in the market. For example,
Brunswick and its subsidiaries have established dealer networks that offer sales
as well as service and warranty repair and production schedules afford them
larger margins than other competitors in the market. The vertical integration of
Torque Engineering's competitors allow them to offer consumers different
combinations of boat, engine and stern drive packages at various pricing levels.
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There is no assurance that Torque Engineering will be able to
successfully compete against these companies in the stern drive segment of the
marine engine market.
INTELLECTUAL PROPERTY
In developing its business strategy for the Torque V-12 Torque
Engineering expects to rely on patented and other proprietary technology. In
addition, Torque Engineering expects to rely on confidentiality agreements and
other contractual covenants to establish and protect its technology and other
intellectual property rights. Wherever legally permissible and appropriate,
Torque Engineering plans to file patent applications and to register its
trademarks.
Torque Engineering has registered the trademark "Torque" for its
products and also holds a U.S. patent for its Torque V-12 engines' lubrication
system which patented system has a substantial impact on the useful life of the
Torque V-12. This patent was granted on August 18, 1998 to Torque Engineering as
the assignee of Raymond B. Wedel and Richard Moser. Torque Engineering cannot
assure you that any future patent applications it submits will result in patents
being issued or that, if issued, such patents or pre-existing patents will
afford adequate protection against competitors with similar technology. In
addition, Torque Engineering's competitors may independently develop superior
technology.
Torque Engineering also cannot assure you that any patents issued to or
licensed by Torque Engineering will not be infringed upon or designed around by
others, that others will not obtain patents that Torque Engineering will need to
license or design around or that Torque Engineering's products will not
inadvertently infringe upon the valid patents of others. In addition, Torque
Engineering cannot assure you that the Torque Engineering patent will not be
invalidated or that Torque Engineering will have adequate funds to finance the
high cost of defending or prosecuting patent validity or infringement issues.
RESEARCH AND DEVELOPMENT
Torque Engineering did not spend any material funds on research and
development during 1998 or 1999. In September 1999, Torque Engineering
completed a private placement of 461,540 shares of common stock to raise a
total of $1,500,005 for working capital purposes, including continued
development of the Torque V-12 engine. A portion of the proceeds of this
private offering were used as a down payment to lease the computer-controlled
manufacturing equipment Torque Engineering uses in the production of its
Torque V-12 engines.
Management believes that the prior Torque Engineering entity spent
significant funds on research and development prior to IPSL's acquisition of
the assets and proprietary rights to develop and manufacture the Torque V-12.
These expenditures were included as part of the acquisition price and will
not be passed on to customers. The portion of funds spent after May 1, 1999
to convert to a production line is considered as overhead which will be
prorated over the manufacturing cost of the V-12 engines in accordance with
generally accepted accounting principles.
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ENVIRONMENTAL AND REGULATORY MATTERS
Torque Engineering is subject to regulation under various federal,
state and local laws relating to the environment and to employee safety and
health. These laws include those relating to the generation, storage,
transportation, disposal and emission into the environment of various
substances, those relating to drinking water quality initiatives, and those
which allow regulatory authorities to compel or seek reimbursement for clean-up
of environmental contamination at its owned or operated sites and at facilities
where its waste is or has been disposed. Permits are required for operation of
Torque Engineering's business, and these permits are subject to renewal,
modification and, in certain circumstances, revocation. Torque Engineering
believes that it is in substantial compliance with environmental laws and permit
requirements.
The EPA has adopted regulations governing emissions from marine
engines. The regulations relating to outboard engines phase in over nine years,
beginning in model year 1998 and concluding in model year 2006. For personal
watercraft the regulations phase in over eight years, beginning in model year
1999 and concluding in model year 2006. Marine engine manufacturers are required
to reduce hydrocarbon emissions from outboard engines, on average, by 8.3% per
year beginning with the 1998 model year, and emissions from personal watercraft
by 9.4% per year beginning in model year 1999. These regulations apply to
two-stroke engines and to personal water craft, such as jet skis. Since the
Torque V-12 is a four-stroke engine, Torque Engineering does not believe that
compliance with these standards will have a material adverse effect on the cost
of its engine products or its future sales.
Certain states, including California, have adopted environmental laws
that require marine engines to comply with future federal annual hydrocarbon
emissions standards more quickly than federal law requires. While Torque
Engineering has not been able to fully assess the impact that these standards
will have on its business, Torque Engineering does not believe these more
stringent state requirements will have a material adverse effect on the cost of
its engine products or its future sales.
Torque Engineering cannot predict the environmental legislation or
regulations that may be enacted in the future or how existing or future laws or
regulations will be administered or interpreted. Compliance with more stringent
laws or regulations, as well as more vigorous enforcement policies of the
regulatory agencies or stricter interpretation of existing laws, may require
expenditures by Torque Engineering.
EMPLOYEES
As of May 15, 2000, Torque Engineering employed a total of 14 people,
all of which are employed full time.
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RISK FACTORS AND DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
The above description of our business should be read together with the
financial statements and the related notes included in another part of this
report and which are deemed to be incorporated into this section. This
discussion contains forward looking statements that involve risks and
uncertainties. Our actual results may differ materially from those anticipated
in those forward looking statements. All statements, other than statements of
historical facts, included in this report that address activities, events or
developments that we expect, believe or anticipate will or may occur in the
future, including the following matters are forward looking statements:
- our ability to manufacture the Torque V-12 on a
production-line basis,
- the size of the limited niche market in which we plan
to sell the Torque V-12,
- business strategies, and
- expansion and growth of our operations.
The statements are based on assumptions and analyses made by us in
light of our experience and our perception of:
- historical trends,
- current conditions,
- expected future developments, and
- other factors we believe are appropriate in the
circumstances.
Those statements are affected by a number of assumptions including:
- risks and uncertainties,
- general economic and business conditions,
- the business opportunities that may be presented
to and pursued by us,
- changes in laws or regulations and other factors,
many of which are beyond our control, and
- availability to obtain additional financing on
favorable conditions.
Torque Engineering's actual results could differ materially from those
expressed or implied in these forward-looking statements as a result of certain
factors, including the following risk factors:
WE HAVE NO OPERATING HISTORY.
Torque Engineering is a development-stage manufacturing business that
has no operating history. Prior to May 1999 we were an inactive public company
originally formed for the
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purpose of purchasing, developing and operating oil and gas leases. Our business
strategy is to transition Torque Engineering away from the oil and gas business
and to manufacture an aluminum, gasoline-powered V-12 engine for use in the
offshore marine industry. We expect to incur operating losses and negative
operating cash flows as we begin operations. We cannot assure you that we will
succeed in our transition or that we will have sufficient funds to continue
operations until we reach profitability.
WE CANNOT ASSURE YOU THAT THE MARKET FOR THE TORQUE V-12 WILL BE SUFFICIENT TO
COVER OUR OPERATING EXPENSES.
Sales of the Torque V-12 are currently targeted toward owners of luxury
pleasure craft. This market is a limited niche market in which the price of the
boats for which the Torque V-12 is designed in many cases exceeds $500,000. We
cannot assure you that sales of engines in this market will be sufficient to
allow us to become profitable in the future.
WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO ADAPT THE TORQUE V-12 TO ANY OTHER
USE OUTSIDE OF THE LUXURY MARINE ENGINE MARKET.
Our current business strategy is to market and sell the Torque V-12 in
the high-performance marine engine industry. Because this is a limited niche
market, we also anticipate we will attempt to adapt the Torque V-12 to other
industries and uses in order for us to increase our future profitability. We
cannot assure you that we will be able to adapt the Torque V-12 to other uses or
to other industries.
WE HAVE NOT YET MANUFACTURED THE TORQUE V-12 ON A PRODUCTION BASIS.
Our current business strategy is to manufacture the Torque V-12 on a
production basis, as opposed to customizing the Torque V-12 per our customers'
requests. We have not yet implemented quantity production of the Torque V-12 and
cannot assure you that we will not experience initial or recurring quality
control or cost problems.
WE HAVE NOT YET ESTABLISHED A DISTRIBUTION CHANNEL FOR THE TORQUE V-12.
We currently market the Torque V-12 through OEM boat manufacturers, an
internet website, trade show appearances, magazine articles and personal
contacts of the members of our company in the pleasure craft marine industry. We
cannot assure you that these marketing efforts will prove sufficient to allow us
to be profitable.
WE EXPECT INTENSE COMPETITION.
Although we are not aware of any other gasoline-powered aluminum V-12
engine with performance characteristics similar to the Torque V-12, we believe
that if the Torque V-12
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becomes popular with consumers, other manufacturers will design and market their
own aluminum V-12 engines that will directly compete with the Torque V-12. Many
of our competitors have significantly greater name recognition and financial and
other resources than we do. We cannot assure you that we will succeed in the
face of strong competition from other engine manufacturers.
OUR SUCCESS IS DEPENDENT ON OUR KEY PERSONNEL.
We believe that our success will depend on the continued employment of
and active efforts of our senior management team, including Raymond B. Wedel,
Jr., I. Paul Arcuri and Richard D. Wedel. None of our senior management team
currently has an employment agreement. If one or more members of our senior
management team were unable or unwilling to continue in their present positions,
our business could be materially adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY.
Torque Engineering's business office and manufacturing facility is
located at 2932 Thorne Drive, Elkhart, Indiana 46514. Torque Engineering leases
a 33,000 square foot industrial type metal building on approximately 4 1/2 acres
in an industrial park area in Elkhart, Indiana. The initial term of lease is for
three years. The lease provides Torque Engineering the option to renew the lease
for two successive three year terms. Torque Engineering also has an option to
acquire the property during the initial term of the lease. Torque Engineering
believes that the property is sufficient for its current operating plans.
ITEM 3. LEGAL PROCEEDINGS.
As of May 15, 2000, Torque Engineering is not a party to any pending
legal proceeding and none of its property is subject to any legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
At the annual meeting of stockholders held on October 7, 1999, the
following individuals were elected to the board of directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Raymond B. Wedel, Jr. 4,863,750 0(1)
Richard D. Wedel 4,863,750 0
Donald Christensen 4,863,750 0
</TABLE>
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The following proposals were also voted on at the October 7, 1999 annual
meeting:
<TABLE>
<CAPTION>
Votes For Votes Against
--------- -------------
<S> <C> <C>
(1) A proposal to reincorporate Quintessence Oil 4,863,750 0(1)
under Delaware law and change the name of the
corporation to Torque Engineering Corporation.
Votes For Votes Against
--------- -------------
(2) A proposal to approve and adopt Torque 4,863,750 0(1)
Engineering's 1999 Stock Option Plan, which
provides for the issuance of up to 500,000 shares
of Torque Engineering common stock under
options granted under the plan.
</TABLE>
- ------------------
(1) A total of 7,370,000 shares of common stock were entitled to vote at the
annual meeting on October 7, 1999. At the annual meeting there were a total of
4,863,750 shares present. All 4,863,750 shares voted in favor of each proposal.
There were no broker non-votes, abstentions or votes withheld with respect to
the shares present at the meeting.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) PRINCIPAL MARKET OR MARKETS. Torque Engineering common stock is
traded in the over-the-counter market, and is presently quoted on the OTC
Bulletin Board under the symbol "TORQ." As a result of the late-filing of this
Form 10-KSB, Torque Engineering has been temporarily given the trading symbol
TORQE. Trading on the OTC Bulletin Board began on May 14, 1998 and prior to
October 22, 1999 the trading symbol was "QTSN". The following table sets forth
the high and low bid prices of the common stock on the OTC Bulletin Board during
each quarter from May 14, 1998 through March 31, 2000. These prices reflect
interdealer quotations, without retail mark-up, mark-down or commissions, and
may not represent prices at which actual transactions occurred.
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<TABLE>
<CAPTION>
Bid
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1998* .010 .010
September 30, 1998 .010 .000
December 31, 1998 .010 .010
March 31, 1999 .010 .010
June 30, 1999 9.875 .010
September 30, 1999 6.250 2.125
December 31, 1999 3.250 1.125
March 31, 2000 4.875 1.250
</TABLE>
*From the beginning of trading on May 14, 1998.
(b) APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK. The number of
holders of record of Torque Engineering common stock at May 15, 2000 was
approximately 30. This includes 952,615 shares held by brokers. Management
estimates that several hundred persons beneficially hold shares through their
brokerage accounts.
(c) DIVIDENDS. Holders of Torque Engineering common stock are entitled
to receive dividends if declared by the board of directors. No dividends on the
common stock have been paid by Torque Engineering since inception and Torque
Engineering does not anticipate paying dividends in the foreseeable future.
(d) RECENT SALES OF UNREGISTERED SECURITIES. Since its inception in
June 1996, Torque Engineering has sold securities in the transactions described
below without registering the securities under the Securities Act of 1933.
Unless otherwise indicated, no underwriter, sales or placement agent was
involved in the transactions.
1. On July 2, 1996, a total of 900,000 shares of common stock were
issued to seven (7) purchasers in exchange for a total of $18,000. These shares
were issued in reliance on the exemption from registration provided by Rule 504
of Regulation D under the Securities Act of 1933.
2. On October 9, 1996, a total of 100,000 shares of common stock were
issued to six purchasers in exchange for $32,000. These shares were issued in
reliance on the exemption provided by Rule 504 of Regulation D under the
Securities Act of 1933.
3. In March 1999, a total of 4,870,000 shares of common stock were
issued to fifteen individuals, including Torque Engineering's current president,
Raymond B. Wedel, Jr., current chief executive officer, Richard D. Wedel,
current vice president and chief financial officer, I. Paul Arcuri, and current
secretary, Donald Christensen. Those shares were issued in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933.
13
reve<PAGE>
4. In May 1999, 1,500,000 shares of common stock were issued to
Michel Attias, the sole shareholder of IPSL, Inc., in exchange for all of the
issued and outstanding shares of IPSL capital stock. These shares were issued
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
5. In September 1999, a total of 461,540 shares of common stock were
issued to Clement M. Lange, Glen A. Lange, Joey Lange and Sheila Wendholt at a
price of $3.25 per share or a total amount of $1,500,005. These shares were
issued in reliance on the exemption from registration provided by Section 4(2)
of the Securities Act of 1933.
6. In November 1999, Torque Engineering issued options to purchase a
total of 80,000 shares of common stock to various Torque Engineering employees
under the Torque Engineering 1999 stock option plan. These stock options vest
at a rate of 20% per year beginning one year after the grant of the options.
On November 12, 1999, the board of directors approved the immediate vesting of
20% of those stock options issued to all but one of the Torque Engineering
employees who were granted an option. That employee's option vests 20% on the
one year anniversary of the option grant. The exercise price of these stock
options is $1.80625 per share.
In November 1999, Torque Engineering issued options to purchase
10,000 shares of common stock to the following members of the board of
directors: Richard D. Wedel, Raymond B. Wedel, Jr., and Donald Christensen.
These options are immediately exercisable at a price of $3.25 per share for a
period of five years from the date of the option grant. Torque Engineering
also granted I. Paul Arcuri, its chief financial officer, an option to
purchase 100,000 shares of common stock at an exercise price of $3.25 per
share. Mr. Arcuri's option vested one-third at the time of the option grant,
and the remainder vests one-third twelve months from the date of the option
grant, and one-third twenty-four months from the date of the option grant.
Torque Engineering also granted Donald Christensen, an officer and a director,
an option to purchase 30,000 shares of common stock at an exercise price of
$3.25 per share with the same vesting provisions as for Mr. Arcuri's option.
The stock options described above were granted in reliance on the
exemption from registration provided by Section 4(2) of the Securities Act of
1933.
The facts relied on to make the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 available for the sale of
securities discussed in paragraphs 3 through 6 above were:
- the limited number of purchasers,
- the sophistication or accreditation of the
purchasers,
- their access to material information about
Torque Engineering,
14
<PAGE>
- the information furnished to them by Torque
Engineering,
- the absence of any general solicitation or
advertising, and
- restrictions on transfer of the securities issued to
them as indicated by a legend on the certificates
representing such securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS.
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF TORQUE ENGINEERING SHOULD BE READ TOGETHER WITH THE FINANCIAL
STATEMENTS INCLUDED IN THIS REPORT. THIS DISCUSSION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE EXPRESSED OR IMPLIED IN THOSE FORWARD-LOOKING STATEMENTS
AS A RESULT OF FACTORS DISCUSSED IN VARIOUS CAUTIONARY STATEMENTS IN THIS
REPORT, INCLUDING THOSE DISCUSSED IN THE RISK FACTORS AND DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS SECTION.
OVERVIEW
Torque Engineering is a development stage company which has devoted
most of its efforts toward establishing its planned transition from an
inoperative oil and gas company to a manufacturer of a lightweight,
high-powered marine engine built on a production line basis for the luxury
performance pleasure craft industry. Torque Engineering had a net loss of
$1,325,744 and negative cash flows from operating activities of $687,414 for
the year ended December 31, 1999, and an accumulated deficit of $1,336,328 as
of December 31, 1999. These conditions raise substantial doubt about Torque
Engineering's ability to continue as a going concern. Torque Engineering's
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Torque Engineering's ability to continue as a going concern is
dependent on management's ability to:
- begin production-line manufacturing of the
Torque V-12,
- increase sales of the Torque V-12, and
- obtain adequate levels of additional financing from
new investors or existing shareholders.
Management is endeavoring to obtain new sources of financing and to generate a
sufficient market for the Torque V-12 such that the full scale production can
begin. We can not assure you, however, that adequate levels of additional
financing can be obtained or that full scale production of the Torque V-12
will begin.
15
<PAGE>
Effective May 28, 1999, Torque Engineering acquired IPSL, a Nevada
corporation, in exchange for the issuance of 1,500,000 shares of Torque
Engineering common stock. IPSL owns property and equipment which Torque
Engineering intends to use in the manufacture of Torque V-12 engines.
RESULTS OF OPERATIONS
REVENUES
For the year ended December 31, 1999, Torque Engineering had
revenues of $91,300 primarily attributable to the sale of one Torque V-12.
Cost of sales were primarily for the manufacture of the Torque V-12 sold
during 1999 were $72,726, representing a gross profit of $18,574. Because
neither IPSL, the subsidiary acquired in may 1999, nor the predecessor
Quintessence Oil ever had operations, these were the first revenues generated
from operations since inception on June 26, 1996.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased to $321,016 for the
year ended December 31, 1999 from $2,192 for the year ended December 31, 1998.
This increase was primarily incurred from the period May 1, 1999 to December
31, 1999 coinciding with the acquisition of IPSL and management's efforts to
establish and execute Torque Engineering's business plan. The increase was
primarily attributable to increased payroll costs, rental expense, and
marketing and related travel expenses in connection with the establishment and
execution of Torque Engineering's business plan.
NET LOSS
Net loss increased to $1,325,744 for the year ended December 31, 1999
from $3,692 for the year ended December 31, 1998. This increase was primarily
attributable to the increase in general and administrative expenses discussed
above, and $643,703 of depreciation of property and equipment acquired through
the IPSL acquisition in order to establish and execute Torque Engineering's
business plan. Torque Engineering experienced a net realized loss in the
amount of $51,642 in connection with the sale of marketable securities which
were acquired through the IPSL acquisition. Net unrealized losses on
marketable securities for the year ended December 31, 1999 were $180,131.
LIQUIDITY AND CAPITAL RESOURCES
FUTURE CAPITAL REQUIREMENTS
Management anticipates that the capital requirements to conduct
Torque Engineering's business plan may be significant and we cannot assure you
that we will be able to obtain those funds or obtain the required capital on
terms favorable to us. We plan to satisfy our capital requirements for the
next twelve months by selling our securities, obtaining financing from third
16
<PAGE>
parties and from funds from the ongoing manufacture and sale of Torque V-12
engines. Management further anticipates that any funds obtained will be used
for working capital, administrative expenses, and towards the research and
development of the Torque V-12 for other potential uses in the marine and
other industries. If we are unable to obtain financing from third parties, the
sale of our securities or some other source, or if our funds from ongoing
operations are insufficient, it is unlikely that we will continue as a going
concern.
CASH FLOWS
For the year ended December 31, 1999, Torque Engineering raised net
cash of $1,500,005 from a private placement of its common stock. The proceeds
from this private placement were used for working capital. Torque Engineering
company also received proceeds on the sale of marketable securities in the
amount of $316,158, which was used to repay loans of $280,031 attributable to
the IPSL acquisition. This sale of marketable securities resulted in a net
realized loss of $51,642. The remaining marketable securities through the
IPSL acquisition were written down to $32,145, resulting in net unrealized
losses on marketable securities for 1999 of $180,131.
A total of $687,414 was used for operating activities during the year
ended December 31, 1999. The cash used in operating activities was primarily
expended on general and administrative expenses related to the implementation
of management's business plan.
As of December 31, 1999, Torque Engineering had cash and cash
equivalents of $798,019. Torque Engineering believes it will require
additional funding to continue operations. It intends to identify other
sources of capital and to aggressively seek out such additional capital if
available on favorable terms and as necessary to continue operations and to
increase sales and revenues. Management is continuing to evaluate the
company's projected capital needs for the future development and manufacture
of Torque V-12 engines. We believe but cannot assure you that Torque
Engineering will be able to finance management's business plan.
NEW ACCOUNTING PRONOUNCEMENT
The Financial Accounting Standards Board has recently issued one new
accounting pronouncement. Statement of Financial Accounting Standards ("SFAS")
No. 133, as amended by SFAS No. 137, "Accounting for Derivative Instruments
and Hedging Activities" establishes accounting and reporting standards for
derivative instruments and related contracts and hedging activities. This
statement is effective for all fiscal quarters and fiscal years beginning
after June 15, 2000.
Torque Engineering believes that the future adoption of this
pronouncement will not have a material effect on Torque Engineering's
financial position or results of operations.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
The independent auditors' report and the financial statements listed
on the accompanying index at page F-1 of this report are filed as part of this
report and incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
On April 25, 2000, the management of Torque Engineering reported
under Items 4 and 5 on Form 8-K that it had engaged Weinberg & Co., P.A., to
audit its consolidated financial statements for the year ended December 31,
1999. In addition, management reported that between April 17th and 19th, 2000,
it had learned that no audit of Quintessence Oil's financial statements had
been performed for the years ended December 31, 1997 or 1998. On May 19, 2000,
Torque Engineering's new management filed an amended Form 8-K reporting that
it had learned that no audit had ever been performed on Quintessence Oil's
financial statements.
The audit report for Torque Engineering's consolidated financial
statements included in this report covers the results of operations and cash
flows for the cumulative period from June 6, 1996 (date of inception) through
December 31, 1999, which includes the previously unaudited periods for
Quintessence Oil.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
(a) Directors and Executive Officers. The names and ages of the
directors and executive officers of Torque Engineering are as follows:
<TABLE>
<CAPTION>
Name Age Position Since
<S> <C> <C> <C>
Raymond B. Wedel, Jr. 58 President, Chief Operating Officer and Director 1999
Donald A. Christensen 69 Secretary and Director 1999
Richard D. Wedel 52 Chairman, Chief Executive Officer and Director 1999
I. Paul Arcuri 45 Vice President, Chief Financial Officer and Director 1999
Clement Lange 64 Director 1999
</TABLE>
Each director serves until the next annual meeting of shareholders or
until his successor is elected and qualified.
18
<PAGE>
The following sets forth information concerning the principal
occupations and business experience of the current officers and directors of
Torque Engineering:
Raymond B. Wedel, Jr.
Raymond B. Wedel, Jr. has been the President, and Chief Operating
Officer of Torque Engineering since 1999. From 1992 until 1997 he was the
President of Torque Engineering, a business of Glaval Corporation, which is
the predecessor to the current Torque Engineering. At the time of acquisition,
Quintessence obtained the right to continue business under the old name. From
1986 until 1992, Mr. Wedel was Vice-President of Lightning Performance
Products, also a predecessor to Torque Engineering. Mr. Wedel has an extensive
background in the marine industry going back to the 1970's. During 1997-1998
Mr. Wedel served as the Chief Operational Officer of Sonic Jet Performance,
Inc. a manufacturer of personal water-craft, recreational, and fire-rescue
boats, with factories in California, Florida and China. He has a B.S. degree
in Business Administration from the University of Evansville in Indiana.
Donald A. Christensen
Mr. Donald A. Christensen has been the secretary and a director of
Torque Engineering since March 1999. He is a business, financial and
international trade consultant with an engineering degree and extensive large
corporate management experience. He currently serves as president of European
Whitestone Company and has served in that capacity since 1992. From August
1997 to July 1998 Mr. Christensen was a director of Horizontal Ventures, Inc.,
a public company specializing in horizontal drilling sources for the oil and
gas industry which is now known as GREKA Energy Corporation. He has a degree
in Engineering from the University of Missouri.
Richard D. Wedel
Mr. Richard D. Wedel has been the chief executive officer and
chairman of the board of directors since 1999. He is a financial consultant
and since 1998, has been president of Wedel Consultants, a firm involved in
mergers and acquisitions. From 1997 through 1998, he was chief operating
officer and a director of Horizontal Ventures, Inc. From 1982 through 1997 Mr.
Wedel was president and a director of Petro Union Inc., an energy resource
exploration and production company which merged with Horizontal Ventures, Inc.
He is a past chairman of the American Petroleum Institute Eastern U.S.
Advisory Board. He has a degree in Business Administration from the University
of Evansville.
19
<PAGE>
I. Paul Arcuri
Mr. I. Paul Arcuri was elected to Torque Engineering's board of
directors in December 1999. He has served as president and financial principal
of the Carney Group, Inc., an investment banking firm, member of N.A.S.D.
since 1985. He has been a registered Broker since 1978 and was an Investment
Advisor registered with the Securities Exchange commission. He has extensive
background in financial management involving cash flow, cost and budgeting
analysis with emphasis on operations management. He was a Director and
Chairman of Gibraltar Savings and Loan Association from 1987 through 1992. He
has a B.A. in Accounting from St. Thomas University/Biscayne College in Miami,
Florida.
Clement Lange
Mr. Clement Lange was elected to Torque Engineering's board of
directors in December 1999. He is the chairman and chief executive officer of
Best Chairs Incorporated, a large, privately owned manufacturing company
located in Ferdinand, Indiana. Mr. Lange is the co-founder of Best Chairs and
has been its chairman and chief executive officer since 1993. Best Chairs
specializes in residential upholstered occasional seating.
Family Relationship
Raymond B. Wedel, Jr. and Richard D. Wedel are brothers.
SECTION 16(a) BENEFICIAL REPORTING COMPLIANCE
Under U.S. securities laws, directors, executive officers and persons
holding more than 10% of Torque Engineering's common stock must report their
initial ownership of the common stock and any changes in that ownership and
reports which must be filed with the SEC and Torque Engineering. The SEC has
designated specific deadlines for these reports and Torque Engineering must
identify in this Form 10-KSB those persons who did not file these reports when
due.
Based upon information provided to Torque Engineering by its
directors, executive officers and persons holding more than 10% of Torque
Engineering's common stock, Torque Engineering believes Raymond B. Wedel, Jr.,
Richard D. Wedel, and Donald Christensen inadvertently filed their respective
Form 3s late in connection with their initial acquisition of Torque
Engineering common stock in March 1999. Torque Engineering also believes
Raymond B. Wedel, Jr., Richard D. Wedel and Donald Christensen inadvertently
filed their respective Form 5s late in connection with Torque Engineering's
grant of stock options to these officers and directors. I. Paul Arcuri
inadvertently filed a Form 3 late in connection with his appointment as an
officer of Torque Engineering. In addition, Mr. Arcuri inadvertently filed a
Form 5 late in connection with Torque Engineering's grant to him of an option
to purchase 100,000 shares of
20
<PAGE>
common stock. Clement Lange inadvertently filed a Form 3 late in connection
with his election to Torque Engineering's board of directors.
Torque Engineering also believes that Michel Attias inadvertently
failed to file a Form 3 in May 1999, with respect to the acquisition of
1,500,000 shares of Torque Engineering's common stock.
As of the date of filing this Form 10-KSB, all of the required forms
for Michel Attias and Torque Engineering's current officers and directors have
been filed with the Securities and Exchange Commission.
ITEM 10. EXECUTIVE COMPENSATION.
The following table summarizes the total compensation Torque
Engineering awarded or paid to Torque Engineering's chief executive officer
for the year ended December 31, 1999. The current chief executive officer was
not employed by Torque Engineerign prior to March 1999. In addition, no other
executive officer of Torque Engineering had a total annual salary and bonus in
excess of $100,000 for 1999. Accordingly, Torque Engineering's chief executive
officer is the only executive officer of Torque Engineering named in the table
under SEC rules.
21
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------------------------
Annual Compensation Awards Payouts
-------------------------------------- ---------------------------- ---------
Other Restricted
Name and Annual Stock LTIP All Other
Principal Bonus Compen- Award(s) Options Payouts Compen-
Position Year Salary ($) ($) sation ($) ($) (#) ($) sation ($)
- --------------------- -------- ------------ --- ------------ ------------ --- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard D. Wedel 1999 $10,214(1) $0 $0 $0 10,000(2) $0 $0
Chief Executive
Officer
</TABLE>
- ---------------------------------
(1) Mr. Wedel's annual salary for 2000 is $50,000.
(4) Mr. Wedel received in his capacity as a director a grant of an option
to purchase 10,000 shares of Torque Engineering common stock. The
option is immediately vested and is exercisable for a period of five
years from November 12, 1999.
1999 OPTION/SAR GRANTS
(Individual Grants)
<TABLE>
<CAPTION>
Number of Percent of total
Securities options/SARS Exercise
Underlying granted to or base
Options/SARS employees in price Expiration
Name granted(#) fiscal year ($/Sh) date
<S> <C> <C> <C> <C>
Richard D. 10,000 .038% $3.25/Sh 11/12/2004
Wedel
</TABLE>
22
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN 1999
AND DECEMBER 31, 1999 OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of unexercised in-
Shares unexercised the-money
acquired options/SARS options/SARS
on Value at FY-end (#) at FY-end ($)
exercise realized exercisable/un- exercisable/un-
Name (#) ($) exercisable exercisable
<S> <C> <C> <C> <C>
Richard D. -- -- 10,000 0/$0(1)
Wedel
</TABLE>
(5) The exercise price for Mr. Wedel's options exceeded the closing bid
quotation for Torque Engineering common stock on the OTC Bulletin
Board as of December 31, 1999.
Other than the options to purchase 10,000 shares of Torque
Engineering common stock at an exercise price of $3.25 per share granted to
Torque Engineering's three directors in November, 1999, directors did not
receive compensation for their services in 1999. Non-employee directors are
reimbursed for their expenses incurred to attend meetings.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information regarding beneficial
ownership as of May 15, 2000 of Torque Engineering common stock by any person
who Torque Engineering knows to be the beneficial owner of more than five
percent of Torque Engineering's voting securities, and by each Torque
Engineering director and executive officer and by the directors and executive
officers of Torque Engineering as a group. As of May 15, 2000 there were
7,832,940 shares of common stock issued and outstanding.
All beneficial owners listed below have sole voting and investment
power with respect to the shares shown, unless otherwise indicated.
23
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL SHARES PERCENT OF
OWNER ------ CLASS
- --------------------- ----------
<S> <C> <C>
OFFICERS AND DIRECTORS
- ----------------------
Raymond B. Wedel, Jr. 1,746,668(1) 22.27%
1415 Meadow Lane
Elkhart, IN 46514
Richard D. Wedel 1,550,000(2) 19.76%
3900 Woodcastle
Evansville, IN 47711
Clement Lange 400,000(3) 5.11%
4481 W. Holland Road, East
Huntingburg, IN 47532
Donald Christensen 30,000(4) less than 1%
48 South Evanston Way
Aurora, CO 80012
I. Paul Arcuri 133,333(5) 1.6%
c/o Torque Engineering Corporation
2432 Thorne Drive
Elkhart, IN 46674
All officers and directors as a 3,860,001(1)(2) 48.82%
group (5 persons)
OTHER BENEFICIAL OWNERS
- -----------------------
Dana Wedel(6) 400,000 5.11%
1059 S. Hiawasee
Orlando, FL 32835
Trans American Energy Corporation(7) 400,000 5.11%
2104 E. Virginia Street
Evansville, IN 47715
Michel Attias 1,500,000 19.15%
4 Riviera Avenue
Costa De Caza, CA 92679
</TABLE>
- -------------------
24
<PAGE>
(1) Excludes 740,000 shares owned by Mr. Wedel's brother, Richard D. Wedel.
Includes 316,668 shares owned by Raymond B. Wedel, Jr.'s wife. Mr.
Wedel disclaims beneficial ownership of such shares. Excludes an
aggregate of 633,332 shares owned by Mr. Wedel's adult children who do
not live with him. Also includes 10,000 shares Mr. Wedel is entitled to
acquire within 60 days pursuant to an option granted to him as a member
of the board of directors. Excludes 10,000 shares owned by Wanda Pride
and 10,000 shares owned by Blanche Wedel. Ms. Pride and Ms. Wedel are
Mr. Wedel's sisters. Mr. Wedel disclaims beneficial ownership of such
shares.
(2) Includes 400,000 shares owned by Richard D. Wedel's wife. Mr. Wedel
disclaims beneficial ownership of such shares. Includes 400,000 shares
owned by Mr. Wedel's minor son who lives with him. Also includes 10,000
shares Mr. Wedel is entitled to acquire within 60 days pursuant to an
option granted to him as a member of the board of directors. Excludes
10,000 shares owned by Wanda Pride and 10,000 shares owned by Blanche
Wedel. Ms. Pride and Ms. Wedel are Mr. Wedel's sisters. Mr. Wedel
disclaims beneficial ownership of such shares.
(3) Excludes 61,540 shares owned by Mr. Lange's adult children, all of whom
maintain separate residences from Mr. Lange.
(4) Includes 20,000 shares Mr. Christensen is entitled to acquire within 60
days pursuant to an option to purchase 10,000 shares granted to him as
a member of the board of directors and 10,000 shares vested under an
option to purchase 30,000 shares granted to him as secretary.
(5) Includes 33,333 shares vested under an option to purchase 100,000
shares granted to him as vice-president and chief financial officer.
(6) Ms. Wedel is the adult daughter of Richard D. Wedel.
(7) Thomas M. Johnson is an officer, director, and shareholder of
TransAmerican Energy Corporation
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Effective May 28, 1999, Torque Engineering acquired the outstanding
common stock of IPSL, a Nevada corporation, in exchange for the issuance of
1,500,000 shares of Torque Engineering common stock to Michel Attias, then the
sole shareholder of IPSL and now a significant shareholder of Torque
Engineering. The principal reason for Torque Engineering's acquisition of IPSL
was to acquire certain property and equipment to be used to manufacture the
Torque V-12, which property and equipment IPSL acquired from an Indiana
corporation under the name of Torque Engineering in April 1999.
During the year ended December 31, 1999, Torque Engineering through
IPSL made repayments on prior loans to IPSL by affiliates of Michel Attias in
the total amount of $280,031. As of December 31, $28,708 remained outstanding
under those loans.
25
<PAGE>
Torque Engineering received consulting income from Michel Attias, a
significant shareholder.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are furnished as part of this report:
Exhibit No. Description
2.1 Form of Agreement and Plan of Merger by and among
Quintessence Oil Company and Torque Engineering
Corporation (Filed as Exhibit A to the Registrants
Definitive Proxy Statement filed with the Securities
and Exchange Commission on September 24, 1999).
2.2 Plan and Agreement of Reorganization dated May 21,
1999 between IPSL, Inc. and Quintessence Oil
Company.*
2.3 Bill of Sale between IPSL and Torque Engineering
Corporation, an Indiana corporation, dated as of
April 29, 1999.**
2.4 Stock Purchase Agreement between Quintessence Oil
Company and certain investors dated March 26, 1999
(Filed as Exhibit 2.1 to the Registrants Current
Report on Form 8-K filed on April 19, 1999
3.1 Articles of Incorporation of Quintessence Oil Company
(filed on December 3, 1996 as exhibit 3.1 to the
registrant's Registration Statement on Form 10 (File
No. 0-21811) and incorporated herein by reference).
3.2 Certificate of Incorporation of Torque Engineering
Corporation.(Filed as Exhibit B to the Registrants
Definitive Proxy Statement filed with the Securities
and Exchange Commission on September 24, 1999).
3.3 Bylaws of Quintessence Oil Company (filed on December
3, 1996 as exhibit 3.2 to the registrant's
Registration Statement on Form 10 (File No. 0-21811)
and incorporated herein by reference).
3.4 Bylaws of Torque Engineering Corporation as amended
(Filed as Exhibit C to the Registrants Definitive
Proxy Statement filed with the Securities and
Exchange Commission on September 24, 1999).
10.1 Lease Rental Agreement between Quintessence and CNC
Associates dated October 6, 1999, Lease No. 99870001.**
26
<PAGE>
10.2 Lease Rental Agreement between Quintessence and CNC
Associates dated October 6, 1999, Lease No. 99870002.**
10.3 Lease Rental Agreement between Quintessence and CNC
Associates dated October 6, 1999, Lease No. 99870003.**
10.4 Lease Rental Agreement between Quintessence and CNC
Associates dated October 6, 1999, Lease No. 99870004.**
10.5 Real Estate Lease for Torque Engineering by and
between Richard W. Strefling Industries, Inc. and
Quintessence Oil Company dates April 29, 1999.*
10.6 Torque Engineering Corporation 1999 Stock Option Plan
(Filed as Exhibit E to the Registrants Definitive
Proxy Statement filed with the Securities and
Exchange Commission on September 24, 1999).
27.1 Financial Data Schedule*
99.1 IPSL, Inc. (A Development Stage Company) Financial
Statements as of May 28, 1999.*
- ---------------------
* Filed herewith
** To be filed by amendment
(b) Reports on Form 8-K. There were no reports on Form 8-K filed by
Torque Engineering during the fourth quarter of 1999. Torque Engineering did
file a report on Form 8-K during April 2000 and an amended Form 8-K on May 19,
2000.
27
<PAGE>
TORQUE ENGINEERING CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<S> <C> <C>
PAGE F-1 INDEPENDENT AUDITORS' REPORT
PAGE F-2 CONSOLIDATED BALANCE SHEET AS OF
DECEMBER 31, 1999
PAGE F-3 CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998 AND FOR THE
PERIOD FROM JUNE 26, 1996 (INCEPTION) TO
DECEMBER 31, 1999
PAGE F-4 CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE PERIOD
FROM JUNE 26, 1996 (INCEPTION)
TO DECEMBER 31, 1999
PAGE F-5 CONSOLIDATED STATEMENTS OF CASH
FLOWS FOR THE YEARS ENDED DECEMBER 31,
1999 AND 1998 AND FOR THE PERIOD FROM
JUNE 26, 1996 (INCEPTION) TO DECEMBER 31,
1999
PAGES F-6 - F-16 NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Torque Engineering Corporation
(a development stage company)
We have audited the accompanying balance sheets of Torque Engineering
Corporation and Subsidiary (a development stage company) as of December 31,
1999 and the related statements of operations, changes in stockholders' equity
and cash flows for the years ended December 31, 1999 and 1998 and for the
period from June 26, 1996 (Inception) to December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the financial position of Torque
Engineering Corporation and Subsidiary (a development stage company) as of
December 31, 1999 and the results of their operations and their cash flows for
the years ended December 31, 1999 and 1998 and for the period from June 26,
1996 (Inception) to December 31, 1999 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has suffered recurring losses from
operations and has negative cash flows from operating activities that raise
substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 12.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
May 17, 2000
F-1
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 798,019
Accounts receivable, net 2,289
Marketable securities 32,145
Prepaid expenses 4,768
Inventory 1,165,010
-----------------
Total Current Assets 2,002,231
PROPERTY & EQUIPMENT - NET 10,454,045
-----------------
TOTAL ASSETS $ 12,456,276
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 82,051
Obligation under capital lease - current portion 32,837
Due to related parties 28,708
-----------------
Total Current Liabilities 143,596
LONG-TERM LIABILITIES
Obligation under capital lease 575,536
-----------------
TOTAL LIABILITIES 719,132
-----------------
STOCKHOLDERS' EQUITY
Common stock, $.00001 par value, 50,000,000 shares authorized,
7,832,940 shares issued and outstanding 78
Additional paid in capital 13,330,715
Deficit accumulated during development stage (1,336,328)
Accumulated other comprehensive loss (180,131)
-----------------
11,814,334
Less Treasury Stock at cost (6,750 Shares) (56,970)
Less Deferred compensation expense (20,220)
-----------------
Total Stockholders' Equity 11,737,144
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,456,276
=================
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period from
June 26, 1996
For the year ended For the year ended (inception) to
December 31, 1999 December 31, 1998 December 31, 1999
---------------------- ---------------------- -----------------------
<S> <C> <C> <C>
SALES $ 91,300 $ - $ 91,300
COST OF SALES 72,726 - 72,726
---------------------- ---------------------- -----------------------
GROSS PROFIT 18,574 - 18,574
---------------------- ---------------------- -----------------------
OPERATING EXPENSES
Payroll and other
compensation 392,795 - 392,795
Amortization - 1,500 3,375
Depreciation 643,703 - 643,703
Rent 70,168 - 70,168
Other selling, general and
administrative 321,016 2,192 328,225
---------------------- ---------------------- -----------------------
Total Operating Expenses 1,427,682 3,692 1,438,266
---------------------- ---------------------- -----------------------
LOSS FROM OPERATIONS (1,409,108) (3,692) (1,419,692)
---------------------- ---------------------- -----------------------
OTHER INCOME (EXPENSE)
Consulting 120,500 - 120,500
Interest 14,506 - 14,506
Loss on marketable securities (51,642) - (51,642)
---------------------- ---------------------- -----------------------
Total Other Income
(Expense) 83,364 - 83,364
---------------------- ---------------------- -----------------------
NET LOSS (1,325,744) (3,692) (1,336,328)
OTHER COMPREHENSIVE
LOSS, NET OF TAX
Unrealized loss on marketable
securities - net (180,131) - (180,131)
---------------------- ---------------------- -----------------------
COMPREHENSIVE LOSS $ (1,505,875) $ (3,692) $ (1,516,459)
====================== ====================== =======================
Net loss per share - basic and
diluted $ (0.232) $ (.004) $ (0.571)
====================== ====================== =======================
Weighted average number of
shares outstanding during the
period -basic and diluted 5,717,440 1,000,000 2,340,615
====================== ====================== =======================
</TABLE>
See accompanying note to consolidated financial statements
F-3
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 26, 1996 (INCEPTION) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated Accumulated
Additional During Other
Common Stock Paid-in Development Comprehensive
Shares Amount Capital Stage Loss
----------- --------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Stock issued for cash 1,000,000 $ 10 $ 42,490 $ - $ -
Net loss 1996 - - - (2,833) -
----------- --------- ------------ ------------ --------------
Balance, December 31, 1996 1,000,000 10 42,490 (2,833) -
Net loss 1997 - - - (4,059) -
----------- --------- ------------ ------------ --------------
Balance, December 31, 1997 1,000,000 10 42,490 (6,892) -
Net loss 1998 - - - (3,692) -
----------- --------- ------------ ------------ --------------
Balance 31, 1998 1,000,000 10 42,490 (10,584) -
Recapitalization 4,870,000 48 (48) - -
Stock issued for acquisition of IPSL 1,500,000 15 11,759,985 - -
Acquired treasury stock, net - - - - -
Stock issued for cash 461,540 5 1,500,000 - -
Stock to be issued for marketing
services 1,400 - 2,688 - -
Stock options issued - - 25,600 - -
Unrealized losses on
available-for-sale securities - - - - (180,131)
Net loss 1999 - - - (1,325,744) -
----------- --------- ------------ ------------ --------------
BALANCE, DECEMBER 31, 1999 7,832,940 $ 78 $13,330,715 $(1,336,328) $ (180,131)
=========== ========= ============ ============ ==============
<CAPTION>
Deferred
Treasury Compensation
Stock Expense Totals
----------- ------------ ------------
<S> <C> <C> <C>
Stock issued for cash $ - $ - $ 42,500
Net loss 1996 - - (2,833)
----------- ------------ ------------
Balance, December 31, 1996 - - 39,667
Net loss 1997 - - (4,059)
----------- ------------ ------------
Balance, December 31, 1997 - - 35,608
Net loss 1998 - - (3,692)
----------- ------------ ------------
Balance 31, 1998 - - 31,916
Recapitalization - - -
Stock issued for acquisition of IPSL - - 11,760,000
Acquired treasury stock, net (56,970) - (56,970)
Stock issued for cash - - 1,500,005
Stock to be issued for marketing
services - - 2,688
Stock options issued - (20,220) 5,380
Unrealized losses on
available-for-sale securities - - (180,131)
Net loss 1999 - - (1,325,744)
----------- ------------ ------------
BALANCE, DECEMBER 31, 1999 (56,970) $(20,220) $11,737,144
=========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1999 December 31, 1998
---------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,325,744) $ (3,692)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 643,703 1,500
Compensation expense incurred in exchange for stock 5,380 -
options
Marketing expense incurred in exchange for common 2,688 -
stock
Write-off of investment 2,000 -
Write-off of organization costs 4,125 -
Loss on marketable securities 51,642 -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,289) -
Prepaid expenses (4,768) -
Inventories (146,202) -
Increase (decrease) in:
Accounts payable and accrued expenses 82,051 -
---------------------- ----------------------
Net cash used in operating activities (687,414) (2,192)
---------------------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,681) -
Proceeds from sale of available-for-sale-securities 316,158 -
Investment in oil and gas lease - -
Organization costs - -
---------------------- ----------------------
Net cash used in investing activities 265,477 -
---------------------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,500,005 -
Payments on capital lease obligations (25,809) -
Repayment of loans (280,031) -
---------------------- ----------------------
Net cash provided by financing activities 1,194,165 -
---------------------- ----------------------
NET INCREASE (DECREASE) IN CASH 772,228 (2,192)
CASH AND CASH EQUIVALENTS AT BEGINNING OF 25,791 27,983
PERIOD
---------------------- ----------------------
CASH AND CASH EQUIVALENTS AT END OF $ 798,019 $ 25,791
PERIOD
====================== ======================
<CAPTION>
For the period from
June 26, 1996
(inception) to
December 31, 1999
----------------------
<S> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (1,336,328)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 647,078
Compensation expense incurred in exchange for stock 5,380
options
Marketing expense incurred in exchange for common 2,688
stock
Write-off of investment 2,000
Write-off of organization costs 4,125
Loss on marketable securities 51,642
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (2,289)
Prepaid expenses (4,768)
Inventories (146,202)
Increase (decrease) in:
Accounts payable and accrued expenses 82,051
----------------------
Net cash used in operating activities (694,623)
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,681)
Proceeds from sale of available-for-sale-securities 316,158
Investment in oil and gas lease (2,000)
Organization costs (7,500)
----------------------
Net cash used in investing activities 255,977
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,542,505
Payments on capital lease obligations (25,809)
Repayment of loans (280,031)
----------------------
Net cash provided by financing activities 1,236,665
----------------------
NET INCREASE (DECREASE) IN CASH 798,019
CASH AND CASH EQUIVALENTS AT BEGINNING OF -
PERIOD
----------------------
CASH AND CASH EQUIVALENTS AT END OF $ 798,019
PERIOD
======================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During May 1999, the Company acquired IPSL in exchange for 1,500,000 shares of
its common stock having a fair value of $11,760,000.
During 1999, the Company acquired equipment totaling $634,182 under capital
lease obligations.
See accompanying notes to consolidated financial statements
F-5
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
ORGANIZATION
(A) ORGANIZATION
On June 26, 1996, Quintessence Oil Co. ("Quintessence") was
incorporated in Wyoming to engage in oil and gas activities.
Quintessence never commenced substantial operations, and in March
1999 common stock was issued to a new management group and an
acquisition of IPSL, Inc. ("IPSL") was consummated in May 1999.
(See Notes 9 and 10)
On November 17, 1999, Torque Engineering Corporation ("Torque" or
the "Company") was incorporated in Delaware and Quintessence was
merged into Torque to effect a domicile and name change. The
transaction was treated as a recapitalization and the effect is
shown retroactively in the accompanying consolidated financial
statements.
The Company intends to design and manufacture high performance
offshore marine performance production engines.
The Company is in the development stage and activities to date
include primarily fund raising, product design and development,
and establishment of markets.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, IPSL. All intercompany
balances and transactions have been eliminated in consolidation.
(C) USE OF ESTIMATES
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues
and expenses during the reported period. Actual results could
differ from those estimates.
(D) CASH AND CASH EQUIVALENTS
For purposes of the cash flow statements, the Company considers
all highly liquid investments with original maturities of three
months or less at the time of purchase to be cash equivalents.
F-6
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
(E) MARKETABLE SECURITIES
The Company invests in various marketable equity instruments. The
Company accounts for such investments in accordance with Statement
of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities." ("SFAS 115")
Management determines the appropriate classification of its
investments at the time of acquisition and reevaluates such
determination at each balance sheet date. Available-for-sale
securities are carried at fair value, with unrealized gains and
losses, net of tax, reported as a separate component of
stockholders' equity. Investments classified as held-to-maturity
are carried at amortized cost. In determining realized gains and
losses, the cost of the securities sold is based on the specific
identification method.
(F) CONCENTRATION OF CREDIT RISK
The Company maintains its cash in bank deposit accounts, which, at
times, exceed Federally insured limits. At December 31, 1999, the
Company had $685,959 in deposits, which exceeded Federally insured
limits. The Company has not experienced any losses in such
accounts through December 31, 1999.
(G) INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or
net realizable value, and consists of purchased parts and
work-in-process.
(H) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using
the straight-line method over the estimated economic useful lives
of 3 to 10 years. Expenditures for maintenance and repairs are
charged to expense as incurred. Major improvements are capitalized.
(I) STOCK OPTIONS
In accordance with Statement of Financial Accounting Standards No.
123, ("SFAS 123") the Company has elected to account for Stock
Options issued to employees under Accounting Principles Board
Opinion No. 25 ("APB Opinion No. 25") and related interpretations.
The Company accounts for stock options issued to non-employees
under the fair value method of SFAS 123.
(J) REVENUE RECOGNITION
The Company recognizes revenue upon shipment of products.
F-7
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
(K) INCOME TAXES
The Company accounts for income taxes under the Financial
Accounting Standards Board Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("Statement 109").
Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
(L) COMPREHENSIVE INCOME (LOSS)
The Company accounts for Comprehensive Income (Loss) under the
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive
income and its components, and is effective for fiscal years
beginning after December 15, 1997.
The unrealized gains and losses, net of tax, resulting from the
valuation of available-for-sale securities at their fair market
value at year end (see Note 1 (E)) are reported as Other
Comprehensive Income (Loss) in the Statement of Operations and as
Accumulated Other Comprehensive Income (Loss) in Stockholders'
Equity and in the Statement of Stockholders' Equity.
(M) NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has recently issued one
new accounting pronouncement. Statement No. 133 as amended by
Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities" establishes accounting and reporting standards
for derivative instruments and related contracts and hedging
activities. This statement is effective for all fiscal quarters
and fiscal years beginning after June 15, 2000.
The Company believes that its future adoption of these
pronouncements will not have a material effect on the Company's
financial position or results of operations.
(N) LOSS PER SHARE
Basic and diluted net loss per common share for the years ended
December 31, 1999 and 1998 and for the period from June 26, 1996
(inception) to December 31, 1999 is computed based upon the
weighted average common shares outstanding as defined by Financial
Accounting Standards No. 128, "Earnings Per Share".
F-8
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
Common stock equivalents have not been included in the computation
of diluted loss per share since the effect would be anti-dilutive.
At December 31, 1999 there were 240,000 common stock options
issued and outstanding that could potentially dilute earnings per
share in future periods.
(O) BUSINESS SEGMENTS
The Company applies Statement of Financial Accounting Standards
No. 131 "Disclosures about Segments of an Enterprise and Related
Information". The Company operates in one segment and therefore
segment information is not presented.
NOTE 2 MARKETABLE SECURITIES
The Company's marketable securities, purchased principally for the
purpose of selling them in the near future, as defined under SFAS
115, are comprised of equity securities, all classified as
available-for-sale securities, which are reported at their fair
value based upon the quoted market prices of those investments at
December 31, 1999, with unrealized losses reported in a separate
component of stockholders' equity until they are sold. Any
realized gains or losses are included in net earnings at the time
of sale.
The composition of marketable securities at December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
<S> <C> <C>
Common stock $ 212,276 $ 32,145
================= ===================
</TABLE>
Investment expenses for the year ended December 31, 1999 consisted
of the following:
<TABLE>
<S> <C>
Net realized losses on the sale marketable securities $ (51,642)
======================
Unrealized losses included in other comprehensive loss
for the year ended December 31, 1999 consisted of
the following:
Net unrealized losses on marketable securities $ (180,131)
======================
</TABLE>
NOTE 3 ACCOUNTS RECEIVABLE AND CONCENTRATIONS
At December 31, 1999, approximately 90% of accounts receivable
were due from one customer. Sales during 1999 primarily relate to
one engine sale to the above customer.
F-9
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
NOTE 4 INVENTORIES
Inventory at December 31, 1999 consisted of the following:
Raw materials $ 307,067
Work in process 857,943
----------------
$ 1,165,010
================
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1999 consisted of the
following:
Special tooling $ 9,269,944
Machinery and equipment 1,146,664
Equipment under capital leases 634,182
Vehicles 5,206
Computer equipment 12,596
Furniture and fixtures 29,156
----------------
11,097,748
Less: Accumulated depreciation (643,703)
----------------
Property and equipment - net $ 10,454,045
================
Depreciation expense for the year ended December 31, 1999 was
$643,703.
NOTE 6 COMMITMENTS AND CONTINGENCIES
(A) YEAR 2000 ISSUES
The Company is aware of the issues associated with the
programming code in existing computer systems caused by the
arrival of the millennium (Year 2000). The "Year 2000"
problem is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of
the two-digit year to 00. The issue is whether computer
systems will properly recognize date-sensitive information
when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or
cause a system to fail.
The Company uses a standard off the shelf accounting software
package for its accounting requirements. Management has
contacted the software vendor and confirmed that the
accounting software is Year 2000 compliant. Management has
contacted its critical vendors and suppliers, to determine
their own Year 2000 efforts and has not identified any Year
2000 compliance issues with those parties. Costs of
investigating Year 2000 compliance issues have not been
material to date. As a result, management believes that the
effect of investigating and
F-10
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
resolving Year 2000 compliance issues will not have a
material effect on the Company's future financial position
or results of operations. As of the date of this report, the
Company has not been significantly affected by Year 2000
issues.
(B) CAPITAL LEASES
As of December 31, 1999, the Company leases four production
machines under non-cancelable capital lease agreements, dated
September 27, 1999.
Future minimum lease payments under the capital lease are as
follows at December 31, 1999:
<TABLE>
<S> <C>
Total future minimum lease payments $ 748,464
Less: interest (140,091)
------------------
608,373
Less: current portion (32,837)
------------------
Long-term obligation under capital lease $ 575,536
==================
</TABLE>
<TABLE>
Future minimum lease payments by year for the capital leases
are as follows at December 31, 1999:
<S> <C>
2000 $ 32,837
2001 113,324
2002 122,633
2003 132,707
2004 206,872
------------------
$ 608,373
==================
</TABLE>
(C) OPERATING LEASE AGREEMENT
The Company leases corporate office space under an operating
lease. The lease has a remaining term through 2002.
Future minimum lease payments for the operating lease are as
follows at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 120,000
2001 120,000
2002 40,000
</TABLE>
Rent expense for the year ended December 31, 1999 amounted to
$70,168.
F-11
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
NOTE 7 STOCKHOLDERS' EQUITY
(A) PRIVATE PLACEMENT
In September 1999, the Company offered common stock
subscriptions pursuant to Rule 506 of Regulation D of the
Securities Act of 1933, as amended. The purchase price was
$3.25 per share. As of December 31, 1999, cash of $1,500,005,
for 461,540 shares were received.
(B) STOCK OPTIONS
On October 7, 1999, the 1999 Stock Option Plan (the "Plan")
was adopted by the Board of Directors of the Company and
approved by the Company's stockholders. The Plan was
developed to provide a means whereby directors, officers,
employees of, and certain persons rendering services to the
Company or any subsidiary may be granted stock to purchase
common stock of the Company.
The Plan authorizes options up to 500,000 shares of the
Company's common stock and is administered by the Board of
Directors of the Company or a committee of two or more
members of the Board of Directors (the "Plan Committee").
The Company grants incentive and nonqualified stock options.
Incentive stock options are only granted to employees of the
Company or any subsidiary thereof. The exercise price which
is established by the Plan Committee may not be less than
85% of the fair market value of the common stock at the time
of grant for nonqualified stock options, may not be less
than 100% of the fair market value of the common stock at
the time of grant for incentive stock options and may not be
less than 110% of the fair market value of the common stock
at the time of grant if incentive stock options are granted
to employees owning more than ten percent of the total
voting power or value of all classes of stock of the
Company. The term of the stock options is determined by the
Plan Committee and shall not exceed ten years from the date
of grant. In the case of incentive stock options which are
granted to employees owning more than ten percent of the
total voting power or value of all classes of stock of the
Company, the term may not exceed five years. During the year
ended December 31, 1999, the Company issued 240,000 stock
options under the plan to employees and Board of Director
members.
In accordance with SFAS 123, for options issued to employees,
the Company applies APB Options No. 25 and related
interpretations in accounting for the options issued.
Accordingly, compensation cost of $5,380 and deferred
compensation expense of $20,220 was recognized as of December
31, 1999, computed in accordance with the intrinsic value
method. Had compensation cost for the Company's options been
determined based on the fair market value of the options at
the grant date, consistent with SFAS 123, the Company's net
loss for the year ended December 31, 1999 and for the period
from June 26, 1996 to
F-12
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
December 31, 1999, would have been increased to the pro-forma
amounts indicated below.
<TABLE>
<CAPTION>
For the period from
June 26, 1996 to
December 31, 1999 December 31, 1999
------------------------- --------------------------
<S> <C> <C> <C>
Net loss As reported $ (1,325,744) $ (1,336,328)
Pro forma $ (1,463,953) $ (1,474,537)
Net loss per share As reported $ (0.232) $ (0.571)
Pro forma $ (0.256) $ (0.630)
</TABLE>
The effect of applying Statement No. 123 is not likely to be
representative of the effects on reported net income for
future years due to, among other things, the effects of
vesting.
For financial statement disclosure purposes the fair market
value of each stock option granted was estimated on the date
of grant using the Black-Scholes Option-Pricing Model in
accordance with SFAS 123 using the following weighted-average
assumptions: expected dividend yield 0%, risk-free interest
rate of 5.86%, volatility 118% and expected term of three
years.
A summary of the options issued to employees and Board of
Director members as of December 31, 1999 is presented below:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price
------------------- ------------------
<S> <C> <C>
STOCK OPTIONS
Balance at beginning of period - $ -
Granted 240,000 $ 2.77
Exercised - -
Forfeited - $ -
------------------- -------------------
Balance at end of period 240,000 $ 2.77
=================== ===================
Options exercisable at end of period 87,333 $ 3.02
Weighted average fair value of options
granted during the period $ 1.50
</TABLE>
The following table summarizes
information about stock options
outstanding at December 31, 1999:
F-13
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------------------------------------------------------
Weighted
Number Average Weighted Number Weighted
Range Of Outstanding At Remaining Average Exercisable Average
Exercise December 31, Contractual Exercise At December, Exercise
Price 1999 Life Price 31, 1999 Price
----- ---- ---- ----- -------- -----
<S> <C> <C> <C> <C> <C>
$ 1.81 80,000 8.92 Years 1.81 14,000 1.81
$ 3.25 160,000 4.92 Years 3.25 73,333 3.25
---------------- --------------
240,000 6.25 Years 2.77 87,333 3.02
================ ==============
</TABLE>
NOTE 8 INCOME TAXES
The Company and its subsidiary have elected to file separate tax
returns. Income tax expense (benefit) for the years ended December
31, 1999 and 1998 for the parent company is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
Federal $ - $ -
State - -
Deferred-Federal and State 226,400 1,255
Change in Valuation Allowance (226,400) (1,255)
------------------- -------------------
Income tax expense (benefit) $ - -
=================== ===================
</TABLE>
The Company's tax expense differs from the "expected" tax expense
for the years ended December 31, 1999 and 1998, as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
U.S. Federal income tax provision
(benefit) $ (226,400) $ (1,255)
Effect of net operating loss
carryforward 226,400 1,255
------------------- -------------------
$ - $ -
=================== ===================
</TABLE>
The tax effects of temporary differences that gave rise to
significant portions of deferred tax assets and liabilities at
December 31 are as follows:
F-14
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward $ 230,000 $ 1,255
------------------- -------------------
Total gross deferred tax assets 230,000 1,255
Less valuation allowance (230,000) (1,255)
------------------- -------------------
Net deferred tax assets $ - $ -
=================== ===================
</TABLE>
At December 31, 1999, the Company had net operating loss
carryforwards of approximately $676,000 for U.S. Federal income
tax purposes available to offset future taxable income expiring on
various dates through 2020.
The valuation allowance at January 1, 1999 was $3,600. The net
change in the valuation allowance during the year ended December
31, 1999 was an increase of approximately $226,400.
NOTE 9 RECAPITALIZATION
In March 1999, the Company issued 4,870,000 common shares to a new
management group in consideration of the new management group
seeking an acquisition candidate. (See Note 10) This issuance was
treated as a recapitalization of the Company with the par value of
the stock charged to additional paid-in capital.
NOTE 10 ACQUISITION
Effective May 28, 1999, the Company acquired the outstanding
common stock of IPSL, a Nevada corporation, incorporated on April
27, 1998, in exchange for 1,500,000 shares of the Company's common
stock. The acquisition was accounted for under the purchase method
of accounting and the stock was valued at $7.84 per share, based
on the average quoted trading price before and after the purchase
was determined and the announcement was made. The resulting
purchase price was $11,760,000 and was allocated, based upon an
independent appraisal performed for allocation purposes, to the
assets acquired and liabilities assumed as follows:
<TABLE>
<S> <C>
Marketable securities $ 637,045
Inventory 1,018,808
Special tooling 9,256,014
Machinery and equipment 1,122,509
Furniture, fixtures, and other 34,363
Loan fee payable (200,875)
Loan to stockholder (107,864)
------------------
$ 11,760,000
==================
</TABLE>
F-15
<PAGE>
TORQUE ENGINEERING CORPORATION AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED STATEMENTS
AS OF DECEMBER 31, 1999
The table below reflects the pro forma combined results of the
Company as if the acquisition had taken place at January 1, 1998:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Net Sales $ 91,300 $ -
Net Loss $ (1,928,287) $ (3,692)
Loss per share (0.337) (0.004)
</TABLE>
NOTE 11 RELATED PARTIES
Pursuant to an agreement entered into between IPSL and affiliates
of a principal stockholder of IPSL prior to the acquisition (see
Note 10), the Company owed the affiliates $28,708 at December 31,
1999 relating to prior loans made to the Company.
Consulting income as of December 31, 1999, included $118,500
received from a principal stockholder.
NOTE 12 GOING CONCERN
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company
incurred a net loss of $1,325,744 and negative cash flows from
operating activities of $687,414 during 1999, and had an
accumulated deficit of $1,336,328 at December 31, 1999. These
conditions raise substantial doubt about the Company's ability to
continue as a going concern.
In view of these matters, realization of a major portion of the
assets in the accompanying balance sheet is dependent upon
continued operations of the Company, which in turn is dependent
upon the Company's ability to meet its working capital
requirements, and the success of its future operations. Management
believes that action presently being taken to revise the Company's
operating and financial requirements provide the opportunity for
the Company to continue as a going concern.
F-16
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TORQUE ENGINEERING CORPORATION
Date: May 25, 2000 By: /s/ Raymond B. Wedel, Jr.
----------------------------------
Raymond B. Wedel, Jr., President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
/s/ Raymond B. Wedel, Jr. Date: May 25, 2000
- -----------------------------------
Raymond B. Wedel, Jr.
President, Chief Operating Officer,
and a Director
/s/ Donald A. Christensen Date: May 25, 2000
- -----------------------------------
Donald A. Christensen
Director
/s/ Richard D. Wedel Date: May 25, 2000
- -----------------------------------
Richard D. Wedel
Chairman, Chief Executive officer
and Director
/s/ I. Paul Arcuri Date: May 25, 2000
- -----------------------------------
I. Paul Arcuri
Vice President and Chief Financial
Officer
/s/ Date: May _____, 2000
- -----------------------------------
Clement Lange
Director
28
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
Quintessence Oil Company, a Wyoming corporation, hereinafter referred to as
"QTSN," the shareholders of IPSL, Inc. who are collectively the "SHAREHOLDERS"
of IPSL, Inc. ("IPSL"), agree as follows:
ARTICLE 1. PLAN OF REORGANIZATION
PLAN ADOPTION
Section 1.01 A Plan of Reorganization of QTSN and IPSL, pursuant to the
provisions of Section 368(a)(1)(B) of the Internal Revenue code of 1986, is
adopted as follows:
(a) SHAREHOLDERS will transfer to QTSN one hundred percent (100%) of the
issued and outstanding shares of the common stock of IPSL as set forth in
Exhibit "A" attached hereto.
(b) In exchange for the shares transferred by SHAREHOLDERS, QTSN will
issue and cause to be delivered to SHAREHOLDERS 1,500,000 shares of common
stock, par value $0.00001, of QTSN.
CLOSING DATE
Section 1.02 Subject to the conditions precedent set forth herein, the
parties shall consummate the transaction and the plan of reorganization on or
prior to May 30, 1999, without the mutual consent of the parties hereto, or at
such other time as selected by QTSN, but no later than June 15, 1999.
ARTICLE 2. WARRANTIES AND REPRESENTATIONS
OF QUINTESSENCE OIL, INC.
Section 2.01 QUINTESSENCE OIL is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Wyoming.
Section 2.02 QUINTESSENCE OIL has the corporate power and authority to
enter into this Plan and Agreement of Reorganization.
Section 2.03 QUINTESSENCE OIL has at least 1,500,000 shares of common stock
authorized but unissued as of the date of this transaction.
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
Section 2.04 There are no liens, pledges, chattel mortgages, or other
encumbrances of any kind against the 1,500,000 shares of common stock to be
issued by QUINTESSENCE OIL pursuant to this transaction.
Section 2.05 There are no undisclosed interest, present or future, in the
shares to be issued by QUINTESSENCE OIL, nor does QUINTESSENCE OIL know of any
assertion of such an interest.
Section 2.06 QUINTESSENCE OIL is not required by any provision of federal,
state, or local law to take any further action or to seek any governmental
approval of any nature prior to the issuance by it of the QUINTESSENCE OIL
shares.
Section 2.07 There are no provisions of any contract, indenture, or other
instrument to which QUINTESSENCE OIL is a party or to which the QUINTESSENCE OIL
shares could be subject to which would prevent, limit or condition the issuance
of the QUINTESSENCE OIL shares to IPSL.
Section 2.08 QUINTESSENCE OIL will provide all documentation necessary to
comply with the Certificate of Incorporation, Bylaws nor any other agreement or
corporate resolutions that all steps were taken as and if required by
QUINTESSENCE OIL to obtain stockholder approval or other necessary approvals
prior to QUINTESSENCE OIL issuing shares to IPSL.
Section 2.09 QUINTESSENCE OIL currently has no subsidiaries.
Section 2.10 QUINTESSENCE OIL currently is an active business activity.
Section 2.11 QUINTESSENCE OIL is publicly traded on the OTC:BB.
Section 2.12 QUINTESSENCE OIL has delivered to SHAREHOLDERS the 1997 10K
and the 10Q filings for the subsequent three quarters.
Section 2.13 QUINTESSENCE OIL is not a party to nor has it been threatened
with any litigation or governmental proceeding which, if decided adversely to
it, would have a material adverse effect upon the transaction contemplated
hereby, or upon the financial condition or net worth of QUINTESSENCE OIL, or
which would create a material liability on the part of QUINTESSENCE OIL.
2
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
Section 2.14 QUINTESSENCE OIL has filed all federal income tax returns and,
in each state where qualified or incorporated, all state income tax or franchise
tax returns which are required to be filed, has paid all taxes as shown on said
returns as have become due, and has paid all assessments received to the extent
that such assessments have become due.
Section 2.15 The shares of stock of QUINTESSENCE OIL which are to be issued
and delivered to SHAREHOLDERS pursuant to the terms of this Agreement, when so
issued and delivered, will be validly authorized and issued, and will be fully
paid and non-assessable. No shareholders of QUINTESSENCE OIL will have any
preemptive right of subscription or purchase in respect thereof.
ARTICLE 3. WARRANTIES AND REPRESENTATIONS OF
IPSL INC. AND THE SHAREHOLDERS OF IPSL INC.
Section 3.01 IPSL is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Nevada.
Section 3.02 IPSL has the corporate power and authority to enter into this
Plan an Agreement of Reorganization.
Section 3.03 By executing this Agreement and Plan of Reorganization, IPSL
is acting solely for its own behalf.
Section 3.04 SHAREHOLDERS are acquiring the 1,500,000 shares of common
stock of QUINTESSENCE OIL for their own behalf and not with a view to distribute
or transfer the shares to a third party.
(a) Seller will not, directly or indirectly, offer or sell, transfer
or otherwise dispose of all or any portion of the Shares, or solicit
any offer to buy, purchase or otherwise acquire all or any portion of
the Shares, after the Closing Date, unless the Shares are duly
registered under the Securities Act of 1933, as amended (the "Act")
and under applicable state securities laws, or such proposed offer,
sale, transfer or other disposition of the Shares is exempt from the
registration requirements of the Act and applicable state securities
laws.
(b) Certificates representing the Shares may bear a legend in form
and substance satisfactory to counsel for Buyer referring to the
investment commitment contained
3
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
in this Agreement, that the Shares have not been registered under the
Act or any state securities laws, and that no transfer of the Shares
may be made unless the Shares are registered under the Act or an
exemption from such registration is available.
(c) Seller will provide Buyer will all information relating to
Seller, including complete details as to their proposed disposition of
the Shares, required in connection with any Registration Statement
filed pursuant to this Agreement and any amendments thereto or
required by the Securities and Exchange Commission.
Section 3.05 The assets of QUINTESSENCE OIL are sufficient to permit it to
purchase the IPSL shares in accordance with the terms of this Agreement;
Section 3.06 SHAREHOLDERS are not prevented by any federal, state or local
law or by any provision of any contract, mortgage, indenture or other instrument
from purchasing the QUINTESSENCE OIL shares as contemplated by this Agreement.
Section 3.07 SHAREHOLDERS and IPSL have had access to the extent it deems
necessary to the financial information of QUINTESSENCE OIL sufficient to permit
it to evaluate the business of QUINTESSENCE OIL and the merits and risks
associated with the purchase of the QUINTESSENCE OIL shares described herein;
Section 3.08 IPSL recognizes that QUINTESSENCE OIL has had a limited
business history and that the QUINTESSENCE OIL shares to be acquired must be
regarded as speculative and subject to a high degree of risk. IPSL has received
no assurance whatsoever as to the value of the QUINTESSENCE OIL shares to be
issued, nor has QUINTESSENCE OIL or any other officer or director of
QUINTESSENCE OIL made any representations or promises to IPSL or SHAREHOLDERS
regarding any potential appreciation in the value of the QUINTESSENCE OIL shares
to be issued.
ARTICLE 4. COVENANTS OF QUINTESSENCE OIL, INC.
Section 4.01 At the Closing, QUINTESSENCE OIL shall undertake to deliver to
IPSL certificates for the QUINTESSENCE OIL shares to be issued;
Section 4.02 From the date of execution of this Agreement, QUINTESSENCE OIL
shall take no action that would encumber or restrict the QUINTESSENCE OIL shares
to be issued;
4
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
Section 4.03 QUINTESSENCE OIL will file all disclosure documents required
by state and federal securities law upon the execution and consummation of this
Agreement.
ARTICLE 5. COVENANTS OF QUINTESSENCE OIL, INC.
Section 5.01 QUINTESSENCE OIL will assist IPSL in filing all disclosure
documents required by state and federal securities law upon the execution and
consummation of this Agreement.
ARTICLE 6. CONDUCT OF THE BUSINESS OF
QUINTESSENCE OIL INC. PENDING CLOSING
Section 6.01 (a) QUINTESSENCE OIL will afford SHAREHOLDERS and accredited
representatives, from the date hereof until consummation of the plan of
reorganization, full access during normal business hours to all books, accounts,
contracts, commitments, and records of every kind of QUINTESSENCE OIL in order
that SHAREHOLDERS may have full opportunity to investigate the affairs of
QUINTESSENCE OIL.
(b) SHAREHOLDERS will use any information so secured only for
his own purposes in connection with the consummation of the transaction
contemplated hereby and will not divulge the information to any person snot
entitled thereto.
ARTICLE 7. CONDUCT OF BUSINESS
OF IPSL PENDING CLOSING
Section 7.01 (a) SHAREHOLDERS will cause IPSL to afford the officers and
accredited representatives of QUINTESSENCE OIL, from the date hereof until
consummation of the plan of reorganization, full IPSL during normal business
hours to all books, accounts, contracts, commitments, and records of every kind
of IPSL in order that QUINTESSENCE OIL may have full opportunity to make such
investigation as it shall desire to make of, and to keep itself informed with
respect to, the affairs of IPSL.
(b) QUINTESSENCE OIL will use any information so secured only
for its own purposes in connection with the consummation of the transaction
contemplated hereby and will not divulge the information to any persons not
entitled thereto.
5
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
Section 7.02 SHAREHOLDERS will cause IPSL to carry on its business in
substantially the same manner as heretofore.
ARTICLE 8. CONDITIONS PRECEDENT TO
OBLIGATIONS OF IPSL TO CLOSE
Section 8.01 The obligations of IPSL to consummate the plan of
reorganization shall be subject to the following conditions precedent:
(a) Representations and warranties of IPSL contained herein
shall be true as of the closing date with the same effect as though made on the
closing date,
(b) The irrevocable obligation to close as described in
Section 12.
ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS
OF QUINTESSENCE OIL TO CLOSE
Section 9.01 The obligations of QUINTESSENCE OIL to consummate the plan of
reorganization shall be subject to the following conditions precedent:
(a) Representations and warranties of QUINTESSENCE OIL contained herein
shall be true as of the closing date with the same effect as though made on
the closing date. QUINTESSENCE OIL shall have performed all obligations and
complied with all covenants required by this agreement to be performed or
complied with by it prior to the closing date.
(b) All permits required by any state or federal securities regulatory
agency for the lawful consummation of the reorganization shall have been
obtained.
(c) On the closing date QUINTESSENCE OIL will have no more than 10,000,000
shares of common stock issued and outstanding and no more than 1,000,000
warrants, and 1,000,000 options to purchase the company's shares will be
outstanding.
ARTICLE 10. CONSUMMATION OF TRANSACTION
6
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
Section 10.01 SHAREHOLDERS shall deliver to QUINTESSENCE OIL, on demand on
or before May 30, 1999, certificates representing one hundred percent (100%) of
the issued and outstanding shares of stock of IPSL. See Section 12 regarding
irrevocable requirement of the Shareholders of IPSL to close.
Section 10.02 QUINTESSENCE OIL shall deliver to SHAREHOLDERS, on the
closing date, certificates representing 1,500,000 shares of common stock of
QUINTESSENCE OIL.
Section 10.03 QUINTESSENCE OIL shall pay its own expenses, and SHAREHOLDERS
shall pay their own expenses and costs incident to the preparation of this
agreement and to the consummation of the plan of reorganization.
ARTICLE 11. INTERPRETATION AND ENFORCEMENT
Section 11.01 Any notice or other communication required or permitted
hereunder shall be deemed to be properly given when deposited in the United
States mails for transmittal by certified or registered mail, postage prepaid.
Section 11.02 (a) Except as limited by the provisions of subsection (b) of
this Section, this Agreement shall be binding upon and inure to the benefit of
the respective successors and assigns of the parties, as well as to the parties.
(b) Any assignment of this agreement or the rights hereunder
of any of the parties, without the written consent of the other parties hereto,
shall be void.
Section 11.03 This instrument and the exhibits hereto contain the entire
agreement between the parties with respect to the transaction contemplated
hereby. It may be executed in any number of counterparts, each of which shall be
deemed an original, but such counterparts together constitute only one and the
same instrument.
Section 11.04 The validity, interpretation, and performance of this
Agreement shall be controlled by and construed under the laws of the State of
California.
7
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
ARTICLE 12. IRREVOCABLE REQUIREMENT FOR THE SHAREHOLDERS
OF IPSL TO CLOSE
Section 12.01 The shareholders of IPSL upon signing this Agreement will
tender their shares to the attorney for Quintessence Oil, to be held for a
period ending no later than June 15, 1999. The Shareholders, further acknowledge
that QTSN and its Board at their sole discretion have the right to consummate
this transaction at any time up and through 5:00 P.M. Pacific Standard Time on
June 15, 1999.
Section 12.02 The Shareholders further understand that by their signatures
below they have given an irrevocable right to QTSN to exchange shares of QTSN
for their shares of IPSL. Further, that after the date of the signature below,
the shareholder acknowledges that they have no right to withdraw from this
transaction.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the dates set forth below.
QUINTESSENCE OIL
By: /s/ Raymond Wedel Dated: 5/21/99
------------------------------------ -------------------
Raymond Wedel, President
IPSL, INC.
By: /s/ Michel Attias Dated: 5/21/99
------------------------------------ -------------------
Michel Attias, President
8
<PAGE>
PLAN AND AGREEMENT OF REORGANIZATION
AN EXCHANGE BY IPSL CORPORATION
OF 100% OF ITS OUTSTANDING COMMON STOCK
FOR 1,500,000 SHARES OF THE COMMON STOCK OF
QUINTESSENCE OIL CORPORATION
EXHIBIT "A"
SHAREHOLDERS OF IPSL, INC.:
Shares Owned: 1,000
-----------
By: /s/ Michel Attias Dated: 5/21/99
------------------------------------ -------------------
Michel Attias
A-1
<PAGE>
REAL ESTATE LEASE
THIS AGREEMENT OF LEASE ("Agreement" or "Lease"), made and entered into
this 29th day of April, 1999, by and between Richard W. Strefling Industries,
Inc. (herein the "LANDLORD"), an Indiana corporation, and Quintessence Oil Co.,
Inc., a ____________ corporation (herein the "TENANT").
WITNESSETH:
In consideration of the rents, covenants, and agreements hereinafter set
forth, LANDLORD and TENANT hereby agree as follows:
1. LEASED PREMISES. LANDLORD hereby leases to TENANT, and TENANT hereby
leases from LANDLORD the following described real estate located in Elkhart
county, State of Indiana, to-wit:
Legal Description: See Exhibit "A" attached
together with the building and improvement located thereon and commonly known as
2932 Thorne Drive, Elkhart, Indiana (such real estate, buildings, and
improvements herein being referred to as the "Premises").
2. TERM OF LEASE. The term of this Lease shall be a period of three (3)
years commencing on the 1st day of May, 1999 and ending on the 30th day of
April, 2002, unless sooner terminated pursuant the terms hereof, or renewed as
provided in Section 20 hereof.
3. RENT. TENANT agrees to pay, and LANDLORD agrees to accept, as the rent
for the Premises for the first year of the term the sum of One Hundred Twenty
Thousand Dollars ($120,000.00) payable in the following manner: Ten Thousand
Dollars ($10,000.00) concurrently with the execution of this Lease, the receipt
of which is hereby acknowledged by LANDLORD; Ten Thousand Dollars ($10,000.00)
on the 1st day of June, 1999, and Ten Thousand Dollars ($10,000.00) on the 1st
day of each of the succeeding Eleven (11) months thereafter. On the one year
anniversary of the date hereof, and on each subsequent anniversary, the rental
rate shall be adjusted by multiplying the then current rental rate by a
fraction, the numerator of which is the most recently available Consumer Price
Index (as defined below), (the "Current CPI") and the denominator of which is
the Consumer Price Index for the period ended one year prior to the date of the
Current CPI. As used herein, the term Consumer Price Index means the Consumer
Price Index published by the United States Department of Labor - Bureau of Labor
Statistics All Urban Consumers (CPI-U), 1982-1984=100.
Each installment shall be payable without notice or demand and without
relief from valuation or appraisement laws in advance upon the first day of each
month to the LANDLORD. Payment shall be made to the LANDLORD at PO Box 1647,
Elkhart, Indiana 46515, or at such other place or places as the LANDLORD may
hereafter designate in writing.
<PAGE>
4. ADDITIONAL RENT.
(a) As addition rent for the Premises, TENANT agrees to pay all
taxes, municipal services charges and assessments assessed against the Premises
which become payable during the term of this Lease commencing with the taxes due
November, 1999. TENANT shall pay directly to the appropriate governmental
authority the full amount of such taxes, charges and assessments on or before
the due date, and shall furnish evidence to LANDLORD showing such payments.
(b) TENANT further agrees to pay all personal property taxes levied
against any fixtures, equipment, inventory or any other personal property
located at, on or upon the Premises, whether installed by TENANT or LANDLORD,
and TENANT shall indemnify and defend LANDLORD for any claim of personal
property taxes assessed against LANDLORD for any such property situated on the
Premises during the term of this Lease. See Exhibit B
(c) TENANT further agrees to pay as additional rent for the Premises
all premiums on policies of insurance procured by LANDLORD on TENANT's behalf
insuring the Premises during the term of the Lease against loss by fire,
windstorm, and other perils commonly covered by extended risk insurance.
LANDLORD shall maintain during the term of this Agreement limits not less than
$1,000,000 on said Premises.
(d) The failure of TENANT to pay such taxes, charges, assessments,
and insurance premiums at the time such payments become due and payable shall
constitute a default by TENANT under this Lease.
5. COVENANTS OF LANDLORD.
(a) LANDLORD covenants and agrees that so long as TENANT is not in
default in the performance of any of the conditions, payments, and provisions
hereof to be made by it, TENANT may peaceably hold and enjoy the possession of
the Premises during the term of this Lease without any interruption from
LANDLORD or any person, firm, or corporation lawfully claiming through LANDLORD.
(b) LANDLORD has responsibility for the roof and structure only.
6. COVENANTS OF TENANT. TENANT covenants and agrees as follows:
(a) That it will pay the rent and additional rent for the Premises at
the time and in the manner herein stated, together with all other sums owing by
TENANT to LANDLORD pursuant to the term of this Lease and all costs and expenses
caused by the nonpayment thereof or by the default of TENANT in the performance
of any of the terms of this Lease, including without limitation reasonable
attorney's fees and costs of collection.
2
<PAGE>
(b) Subject to the provisions of Paragraph 5(b), TENANT will make, at
its costs and expense, all replacement and repairs necessary for the proper
preventive maintenance of the Premises, including, by way of illustration and
not limitation, the changing or cleaning of filters, lubrication of mechanical
systems, replacing all broken glass with glass of the same size and quality of
that broken, etc., and upon the termination of this Lease by lapse of time or
otherwise, TENANT will peaceably yield up possession of the Premises to LANDLORD
in as good condition ad repair as the same were in on the date hereof, loss by
fire, lightning, windstorm, and ordinary wear and tear excepted and will deliver
keys to LANDLORD. TENANT will keep said Premises and appurtenances, as well as
all catch basins, drains, stools, lavatories, sidewalks, adjoining alleys and
all other facilities and equipment in a clean and healthy condition, according
to the applicable rules, regulations, laws and ordinances, and the direction of
the proper public officers, during the term of this Lease, at its own expense.
TENANT shall also keep the interior of the Premises, including but no limited
to, the electrical system, heating and air conditioning systems, refrigeration
systems, windows, doors, sprinkler and plumbing systems, and lock doors, seals
and levers, and the exterior of the Premises in good repair at its own expense.
TENANT will not commit or permit any nuisance to exist in or on the Premises, or
commit or permit any offensive activity or condition, whether noise, odor,
smoke, sewerage, chemical wastes or otherwise. TENANT has examined the Premises
prior to the execution of this Agreement and is satisfied with the physical
condition of Premises "AS IS", and TENANT's acceptance in taking possession
hereof shall be conclusive evidence of receipt thereof in good order and repair.
TENANT agrees and admits that no representations, statements, warranties, either
express or implied, in fact or by law, has been made by or on behalf of the
LANDLORD as to the condition or repair of the Premises, or the suitability of
the Premises for the TENANT's intended use, and TENANT further agrees and admits
that no agreement or promise to repair or improve the Premises not contained
herein as been made by LANDLORD. LANDLORD shall not be responsible for any
latent defect in the buildings or any part of the Premises.
(c) That LANDLORD shall not be liable for any injuries to the
property of TENANT or any loss or damage sustained by TENANT caused by or
resulting from the condition of the Premises or defective plumbing, wiring, or
heating equipment or from gas, water, steam, sewage, or as a result of the
breaking or bursting of any pipes or the bursting, leaking, or overflowing of
any tank, plumbing equipment, or pipes located in on about the Premises or from
any adjacent Premises or for any loss or damage resulting from or occasioned by
water, snow, or ice coming upon said Premises or as a result of any act or
neglect of the owners or occupants of any adjacent property or part thereof.
(d) That it shall not assign this Lease nor sublet the Premises nor
assign or transfer any option or right granted to it by this Lease without
obtaining the proper written consent of LANDLORD, which consent shall not be
unreasonably withheld. Any such assignment or transfer, with or without the
consent of LANDLORD, shall not relieve or release TENANT or any Guarantor from
any obligations, covenants, undertakings, representations, warranties, and
indemnifications set forth herein.
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LANDLORD hereby consents to TENANT's assignment or subletting of
all or a part of the Premises at all times during the term of this Lease to a
parent corporation of TENANT, to one or more subsidiaries of TENANT, to any
other company that is affiliated with TENANT or to the surviving corporation of
a merger with TENANT, provided, however, that TENANT shall give LANDLORD prior
written notice of any such assignment or subletting and TENANT shall not be
released or relieved of any of its duties, obligations or primary liability
under the Lease, whether past, present or future, as a result of any such
assignment or subletting unless LANDLORD, in LANDLORD's sole good faith
discretion, agrees in writing to such release. For purposes of this Lease, an
"affiliate" of an entity shall mean a parent or subsidiary corporation of TENANT
or any other entity controlled by, or controlling, or under common control with,
the first such entity ("control" for this purpose means ownership of fifty
percent (50%) or more of the legal and equitable interest in the entity
controlled).
(e) That it will so conduct and carry on its business in the Premises
in a manner that the reputation of the Premises shall not be injured, that the
rate of insurance thereon will not be increased, and in accordance with all
ordinances of the County of Elkhart, all laws of the State of INDIANA, and all
other lawful rules and regulations which are now or may hereafter be in effect
including, without limitation, those governing zoning, health, safety and
occupational hazards, and pollution and environmental control.
(f) That it will not make any changes, alterations, or additions to
the Premises without first having obtained the written consent of LANDLORD
thereto, which consent shall not be unreasonably withheld, and that if any of
said alterations, changes, or additions thereto are permitted by LANDLORD to be
made, then the same shall forthwith be and become a part of the Premises and
belong absolutely to LANDLORD and not subject to removal, change, or destruction
by TENANT. If the change will not reduce the appraised value of the leased
premises, such consent shall be granted.
If said alterations, repairs, or additions are made, then the
cost thereof shall be paid by TENANT whenever the same shall become due and
payable, and it shall not permit any mechanic's lien to be filed against, or
attached to, the afore described real estate, or any part thereof, for any
purposes whatsoever.
(g) That it shall pay as and when the same become due and payable the
entire cost of all electricity, gas, water, and other utilities used in or about
the Premises, and it will not permit the charges therefor to become delinquent.
The TENANT shall indemnify the LANDLORD against any and all liabilities or
damages arising on account of the failure of the TENANT to pay charges for said
utilities.
(h) That at all times during the term of this Agreement, at TENANT's
sole cost and expense, it shall maintain comprehensive general liability
insurance insuring against any and all damages and liability in amounts not less
than One Million Dollars ($1,000,000.00) per person. Two Million Dollars
($2,000,000.00) per occurrence, and Five Million Dollars ($5,000,000.00) general
total limit. The insurance coverage herein provided shall be with an
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insurance carrier acceptable to LANDLORD and shall further name LANDLORD as a
named insured. The coverage shall be evidenced by a certificate certifying the
existence of the above referenced coverage and agreeing that the policy may not
be modified or canceled without at least thirty (30) days prior written notice
to LANDLORD. The parties agree that the insurance coverage herein obtained and
provided by TENANT shall be considered the primary insurance coverage for any
risk or loss arising from the use or occupancy of the real estate and that any
other coverage available to LANDLORD or maintained by LANDLORD shall be
considered excess over and above the coverage provided by TENANT.
All insurance shall be carried in the name of the TENANT, and
shall name LANDLORD as an additional insured. TENANT shall further deliver to
LANDLORD certificates of insurance issued by each insurer and shall provide
LANDLORD with evidence of payment of all premiums within fourteen (14) days from
the date of this Agreement.
(i) That it will indemnify and save LANDLORD harmless from any and
all claims, demands, judgments, penalties, fines, losses, costs, expenses, suits
for damages, or damages, including exemplary or punitive damages, and attorney's
fees claimed to be directly or indirectly, in whole or in part, due to the
condition of the Premises or due to TENANT's use of said property.
(j) That LANDLORD and its designated representatives shall have the
right to enter upon the premise at all times for the purpose of examining,
exhibiting, repairing, altering, or making additions to the Premises, provided
that such actions by LANDLORD shall not unduly interfere with the use of the
Premises by TENANT.
(k) Except for claims resulting solely from the negligence of
LANDLORD, TENANT shall indemnify, defend, and hold harmless the LANDLORD and the
Premises, at the expense of TENANT, against any and all claims, expenses,
liabilities, demands, judgments, fines, penalties, costs, damages and attorney's
fees arising from the management and possession of the Premises or any
occurrence on or about the Premises or any default by the TENANT hereunder or
any act or omission, whether intentional, reckless or negligent, of the TENANT
or its agents, directors, officers, shareholders, employees, licenses, invitees
or any one under its control.
7. MECHANICS' LIENS. No person shall be entitled to any lien upon the
Premises, in whole or in part, or any interest or estate in any such property,
by reason of any work, labor, service or material claimed to have been performed
or furnished to or for the TENANT, or otherwise on account of any act or failure
to act on the part of the TENANT, and the TENANT shall neither cause nor permit
the filing of any such lien. If any such lien, claim or notice shall be filed,
the TENANT shall cause the same to be released within forty-five (45) days; and
if not so released, the LANDLORD, at its option, may pay up to the full amount
of such lien claim to cause its release, and such amount together with interest
thereon from the date of payment, shall be deemed additional rent due and
payable by the TENANT immediately. Nothing in this Agreement shall be deemed or
construed to constitute consent to or request by any party for the
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performance of any labor or services or the furnishing of any material for the
improvement, alteration or repair of the Premises; nor as giving the TENANT the
right or authority to contract for, authorize or permit the performance of any
labor or services or the furnishing of any material that would permit the
attachment of a valid mechanics' lien.
8. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT. This Lease and the
TENANT's interest hereunder is and shall be subject and subordinate to the lien
of any mortgage, ground lease, installment sale agreement or other instrument of
security now existing or hereafter placed upon any or all of the LANDLORD's
interest or estate in the property in or upon which the leased Premises is
located, and to all renewals, modifications, consolidations, replacements and
extensions thereof (all of which are hereinafter referred to collectively as a
"Mortgage" and the holder of such Mortgage, its successors and assigns, are
referred to as a "Mortgagee"), all automatically and without the necessity of
any further action on the part of the TENANT to effectuate such subordination.
In case the LANDLORD's interest or estate shall terminate by foreclosure or
otherwise, then the Mortgagee shall have all the rights of the LANDLORD under
this Agreement, following such termination. The TENANT, at the request of the
Mortgagee or the purchaser in connection with any foreclosure sale or deed in
lieu thereof, shall attorn to the Mortgagee or purchaser ( as the case may be).
Upon request of any Mortgagee, the TENANT shall execute and deliver such further
instruments evidencing the foregoing subordination and Attornment agreements as
shall be desired by such Mortgagee; provided, however, that the foregoing
subordination and attornment agreements are given upon the understanding, and
any such instrument shall contain the Mortgagee's agreement that, if the
Mortgagee or any such purchaser shall so succeed to the interest or estate of
the LANDLORD, through foreclosure or otherwise, the TENANT shall be allowed to
continue in possession of the leased Premises as provided in this Agreement so
long as the TENANT shall not be in default.
9. CONDEMNATION. In the event the Premises or any portion thereof are
condemned for any public use or purpose by any legally constituted authority and
by reason thereof the Premises are rendered untenable and unsuitable for use by
TENANT, then this Lease shall terminate from the time when possession is taken
by such public authority and the rental payments shall be prorated between
LANDLORD and TENANT as the date of the surrender of possession.
The entire award made with respect to the real estate shall belong to
the LANDLORD and the TENANT shall not be entitled to share in such award to any
extent; provided, however, the TENANT shall have the right to recover
compensation from the condemning authority for any loss or damage to its
business caused by such condemnation; further provided, however that such award
does not in any way reduce the award to the LANDLORD.
10. WAIVER OF SUBROGATION. LANDLORD and TENANT, and all parties claiming
by, under, or through them, hereby mutually release and discharge each other
from all claims and liabilities arising from or caused by any hazard covered by
insurance on the Premises or covered
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by insurance in connection with property on or activities conducted on the
Premises regardless of the cause of the damage or loss.
11. TENANT'S PROPERTY. The TENANT's property in, or about the leased
Premises shall be at its own risk, and the LANDLORD shall not be liable for any
damage to or theft of the TENANT's goods, commodities, materials, leasehold
improvements, or other property of the TENANT, however caused, including but not
limited to negligence of the LANDLORD, its employees or agents. The TENANT
agrees that any insurance policy or policies maintained with respect to its
property shall contain a clause waiving rights of subrogation against the
LANDLORD, its employees and agents.
12. HOLDOVER BY TENANT. LANDLORD and TENANT agree that if TENANT holds
over or occupies the Premises beyond the term of this Lease without the consent
of LANDLORD (it being agreed that there shall be no such holding over or
occupancy without LANDLORD's written consent), TENANT shall occupy the Premises
as TENANT from month to month and all other terms and provisions of this Lease,
except for the amount of rent, pertaining to TENANT's obligations shall be
applicable. TENANT further agrees that in the event the TENANT holds over or
occupies the Premises beyond the term of the Lease the TENANT shall pay to the
LANDLORD, as liquidated damages, one hundred fifty percent (150.00%) of the
monthly rental payments described in paragraph 3 herein for each month of
TENANT's holdover. TENANT further agrees that it shall be liable to the LANDLORD
for one hundred fifty percent (150.00%) of said monthly rental payment for any
holdover of less than one month. Nothing herein contained shall limit or
prohibit the right of LANDLORD to obtain a judgment of immediate possession and
damages in the event. TENANT shall hold over or occupy the Premises beyond the
term of this Lease without LANDLORD's written consent.
13. LANDLORD'S RIGHT-TO-CURE DEFAULTS. LANDLORD may, but shall not be
obligated to, cure at any time after thirty (30) days notice, any default
including but not limited to insurance, taxes, encumbrances, assessments, or
other charges by TENANT under this Lease; and whenever LANDLORD so elects, all
costs and expenses incurred by LANDLORD in curing such default, including
without limitation, reasonable attorneys' fees, together with interest on the
amount of costs and expenses so incurred at the rate of twelve percent (12.00%)
per annum, shall be paid by TENANT to LANDLORD on demand, and shall be
recoverable as additional rent.
14. DESTRUCTION OF PREMISES. In the event the Premises are only partially
destroyed or partially damaged and that damage was not caused by the negligence
of the TENANT or the TENANT's failure to perform so that some part thereof shall
not be fit for use by the TENANT, then the cash rent, or a fair and just
proportionate part thereof, according to the nature and extent of the damage
shall be suspended and abated and cease to be payable until said lease Premises
shall have been repaired, and made fit for use.
In the event the Premises are destroyed or substantially damaged by
fire, lightning, windstorm, or other hazard not caused by the negligence of the
TENANT or the
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TENANT's failure to perform and the Premises thereby become untenable,
dangerous, or unfit for occupancy and use by TENANT, then LANDLORD shall have a
period of thirty (30) days from the date of TENANT's written notice to LANDLORD
of such destruction or damage to notify TENANT of LANDLORD's intention to make
the Premises fit for occupancy. If LANDLORD does not give TENANT such notice of
intention within thirty (30) days from the date of TENANT's notice of such
destruction or damage or in the event LANDLORD gives such notice within thirty
(30) days but fails to have the Premises made fit for occupancy within one
hundred eighty (180) days after the date of such notice of destruction or
damage, then TENANT shall have the option to terminate this Lease by serving
upon LANDLORD its written notice of termination and TENANT shall not be liable
for any rent accruing after such termination. In this event, TENANT shall not be
liable for rent accruing after the date of such destruction or damage.
15. DEFAULT. If the rent or any additional rent shall at any time be in
arrears an unpaid, and without any demand being made therefor; or if TENANT
shall fail to keep and to perform any of the covenants, agreements, or
conditions of this Lease to be performed by TENANT, and such default is not
cured within fourteen (14) days after written notice from LANDLORD setting forth
the nature of such default; or if TENANT abandons or vacates the Premises; or if
TENANT shall be adjudged bankrupt, or shall make an assignment for the benefit
of creditors; or if the interest of TENANT hereunder shall be sold under
execution or other legal process; or if TENANT shall file a voluntary petition
in bankruptcy, or shall be placed in the hands of a receiver, it shall be lawful
for LANDLORD, its heirs or assigns without notice or process of law, to enter
into said Premises, and again have, repossess and enjoy the same as if this
Lease had not been made, and thereupon this Lease and everything herein
contained on the part of LANDLORD to be done and performed shall cease,
terminate and be utterly void, all at the election of LANDLORD; without
prejudice, however, to the right of LANDLORD to recover from TENANT, or assigns,
all rent and other amounts due up to the time of such entry. In case of any such
default and entry by LANDLORD, LANDLORD may, but is under not obligation to,
relet the Premises for the remainder of said term for the highest rent
obtainable and may recover from TENANT any deficiency between the amount so
obtained, and the rent hereinabove reserved. Failure on the part of the LANDLORD
to avail themselves of any right or remedy hereunder shall not constitute a
waiver thereof as to any future default or breach by TENANT, or its assigns.
16. DEFAULT OF TENANT. Upon the occurrence of an event of default,
LANDLORD shall have all the remedies of a secured party available under Indiana
law. These remedies include, without limitation, the right to take possession of
the collateral and for that purpose, LANDLORD may enter upon any Premises on
which the collateral, or any part of it, may be situated and remove it and
TENANT shall hold LANDLORD harmless from any liability sustained thereby, except
through wanton or willful misbehavior. LANDLORD may require that TENANT make the
collateral available to LANDLORD at a place to be designated by LANDLORD which
is reasonably convenient to both parties. Unless the collateral threatens to
decline speedily in value, or is of a type customarily sold on a recognized
market, LANDLORD shall give TENANT at least ten (10) days prior written notice
of the time and place of any public sale thereof or of the time in which any
private sale or any other intended disposition thereof is to
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be made. Expenses of retaking, holding, preparing for sale, selling and the like
shall include LANDLORD's reasonable attorney's fees and legal expenses.
17. AUTHORIZATION. This Lease Agreement is executed by duly authorized
officers of the parties, for and on behalf of the parties, and the persons
executing this Lease, for and on behalf of the said parties, acknowledge and
state that they have full power and authority to execute this Lease pursuant to
the law, the bylaws of the parties and authority of the parties' Board of
Directors.
18. SECURITY DEPOSIT. The TENANT shall pay to the LANDLORD as security
(and not as a payment of rent, final or otherwise) for the full and faithful
performance by TENANT of any and all of its obligations and duties under this
Lease and without any liability on LANDLORD for interest, the sum of Ten
Thousand Dollars ($10,000.00). The security deposit shall be held by LANDLORD
without liability for interest as security for the faithful performances by
TENANT of all of the terms, conditions and covenants of this lease.
In the event of default by the TENANT in the performance of any of the
obligations and duties to be performed by it under the terms of this Lease, the
LANDLORD may apply such sum to any liability, cost, or damages caused by TENANT
without waiving or limiting the LANDLORD's right to further hold TENANT
responsible for liability, costs, or damages otherwise due. If TENANT fully
performs its obligations hereunder, the LANDLORD shall repay to TENANT all or
such part of the sum paid as security as TENANT shall then be entitled to
receive upon completion of any repairs or when the Premises is deemed tenable or
within thirty (30) days of the termination of this Lease, whichever occurs last.
TENANT is responsible for providing LANDLORD with a forwarding address to which
any deposit return may be sent.
19. RENT ON NET RETURN BASIS. It is specifically agreed and understood by
the parties hereto and excepting only as otherwise expressly set forth herein,
the rent provided for in this Lease Agreement is intended to be and shall be an
absolute net return to the LANDLORD, free of any expense or charges with respect
to the leased Premises, including by way of illustration and not limitation, all
taxes, assessments, insurance, utilities, and repairs which shall be paid by the
TENANT as more particularly specified herein.
20. OPTION TO RENEW.
(a) It is agreed by and between the parties hereto that TENANT shall
have the option to renew this Lease for two periods of three (3) years each,
commencing immediately upon the expiration of the then current term.
Provided, however, in order for TENANT to exercise its option to
renew this Lease under the terms and conditions hereinafter more particularly
provided, TENANT must give LANDLORD notice of its election to renew this Lease,
which notice shall be in writing, and addressed to LANDLORD's address listed
herein. Such notice must be given by TENANT to
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LANDLORD and received by LANDLORD not less than one hundred eighty (180) days
prior to the termination of the original rental period of any extension thereof.
TENANT must not be in default of any of the terms and conditions of this
agreement and LANDLORD may, at his option, require an Environmental Assessment
prior to such option renewal of this Lease.
In the event TENANT shall elect to exercise its option to review
described above for the subject Lease Agreement, such renewal period will be
under the same terms and conditions as the original rental period with the
exception of the monthly rental of the leased Premises. The monthly rental rate
shall be adjusted by multiplying the then current rental rate by a fraction, the
numerator of which is the most recently available Consumer Price Index (as
defined below), (the "Current CPI"), and the denominator of which is the
Consumer Price Index for the period ended one year prior to the date of the
Current CPI. As used herein, the term Consumer Price Index means the Consumer
Price Index published by the United States Department of Labor - Bureau of Labor
Statistics All Urban Consumers (CPI-U), 1982- 1984=100.
In the event TENANT shall not exercise its option to renew this
Lease Agreement during the term hereinabove provided, such option shall be null
and void and of no further force and effect.
21. ENTIRE AGREEMENT. There are no representations, covenants, warranties,
promises, agreements, conditions, or undertakings, oral or written, between
LANDLORD and TENANT other than herein set forth. Except as herein otherwise
provided, no subsequent alteration, amendment, change, or addition to this Lease
shall be binding upon LANDLORD or TENANT unless in writing and signed by them.
22. PARTIAL INVALIDITY. If any provision of this Lease or the application
thereof to any person or circumstance shall to any extent be invalid or
unenforceable, the remainder of this Lease, or the application of such provision
to person or circumstances other than those as to which it is invalid or
unenforceable, shall not be affected thereby and each provision of this Lease
shall be valid and enforceable to the fullest extent permitted by law.
23. NUMBER AND GENDER. This Lease shall be construed without reference to
paragraph headings which are inserted only for convenience of reference. The use
herein of a singular term shall include the plural and use of the masculine,
feminine or neuter genders shall include all others.
24. HAZARDOUS MATERIALS.
(a) TENANT shall not cause or permit any hazardous material to be
brought upon, kept or used in or about the Premises by TENANT, its agents,
employees, contractors or invitees, or engage in or permit any other entity to
engage in operations at or upon the Premises which involve the generation,
manufacture, refining, transportation, treatment, storage, handling or disposal
of hazardous substances or hazardous waste, without the prior written consent of
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LANDLORD (which LANDLORD shall not unreasonably withhold as long as TENANT
demonstrates to LANDLORD's reasonable satisfaction that such hazardous material,
substance or waste is necessary or useful to TENANT's business and will be used,
kept, generated, manufactured, refined, transported, treated, handled, disposed
of and stored in manner that complies with any and all laws regulating any such
hazardous material waste or substance). LANDLORD hereby consents to all
hazardous materials, substances and wastes and activities related hereto
existing on the Premises at the time immediately prior to the date hereof or
used by Torque Engineering Corporation.
TENANT shall comply with the Environmental Protection Act and all
other federal, state, and local laws and ordinances relating to the environment,
and with the rules, orders, and regulations issued and promulgated thereunder.
TENANT shall be responsible for obtaining and maintaining any and all permits
required for any and all operations performed on Premises including but not
limited to construction and operation of any paint booths, fuel systems, or any
other similar type of fixtures, operations, or processes.
TENANT warrants that it will maintain and use the Premises free from
contamination by or from any "hazardous substances" or hazardous waste of any
type or nature (as such terms are defined and/or used in applicable local, state
or federal law or the regulations issued under them).
TENANT further covenants that it will not cause or permit to exist the
releasing, spilling, leaking, pumping, pouring, omitting, emptying, or dumping
from or on or about the Premises of any such hazardous materials.
TENANT agrees to indemnify and hld harmless LANDLORD or its successors
or assigns from any and all liability, damages, costs, claims, suits, actions,
legal or administrative proceedings, fines, penalties, interest, losses,
expenses, consultant's fees, expert fees, and reasonable attorney's fees
resulting from or arising out of or in any way connected with injury to or the
death of any person or physical damage to property of any kind wherever located
and by whomever owned arising out of or in any way connected with injury to or
the death of any person or physical damage to property of any kind wherever
located and by whomever owned arising out of or in any way connected with the
presence on, in, or under the Premises of any hazardous materials in violation
of the provisions of the Paragraph.
This indemnification is an independent covenant and shall survive the
termination of this lease. LANDLORD will perform a Phase Environmental Site
Assessment, according to current American Society for Testing & Materials (ASTM)
standards, at LANDLORD's expense prior to the execution of this lease to
determine if any condition existed before this Lease. Before the end of the
lease term, at TENANT's expense, TENANT shall cause a Phase I Environmental Site
Assessment, according to current ASTM standards, of the Premises to be performed
by a firm acceptable to LANDLORD, and TENANT shall correct any environmental
problems which were identified in that environmental audit at TENANT's sole
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cost and expense, to the satisfaction of LANDLORD and its counsel. Any
pre-existing conditions shall be the sole responsibility of the LANDLORD.
(b) LANDLORD represents, warrants and covenants to TENANT that, to
LANDLORD's best actual knowledge, including any duty of investigation or
inquiry, LANDLORD has not caused or permitted the Premises, the building, or any
other structures and other improvements on the land underlying the Premises and
building and such common areas (all such buildings, structures and improvements
being hereinafter referred to collectively as the "Project Improvements") or the
land underlying the building, to be used to generate, manufacture, refine,
transport, treat, store, handle, dispose, transfer, produce or process any
hazardous substances or hazardous materials or any other dangerous or toxic
substances, or solid waste, except in compliance with all applicable federal,
state and local laws or regulations, and LANDLORD has not caused or permitted
and, after reasonable investigation, has no knowledge of the presence of or of a
release or threatened release of any hazardous substances or hazardous materials
at, on, from or under the Premises, the building or any other project
improvements or the land including but not limited to soil and groundwater
underlying the building or any other project improvements, at, on, from, under
or off of any other property and affecting or impacting the building or any
other project improvements in any way
25. NOTICES. All notices from TENANT to LANDLORD required or permitted by
any provision of this Lease shall be directed to LANDLORD as follows:
Richard W. Strefling Industries, Inc.
Attention: Richard W. Strefling
PO Box 1647
Elkhart, IN 46515
cc: Michael C. Givler
All notices from LANDLORD to TENANT required or permitted by any
provision of this Lease shall be directed to TENANT as follows:
Richard D. Wedel
3900 Woodcastle
Evansville, IN 47711
All notices to be given by either party shall be written and sent by
registered or certified mail, postage prepaid, addressed to the party intended
to be notified at the address set forth above. Either party may, at any time, or
from time to time, notify the other in writing of a substitute address for the
above set forth, and thereafter notices shall be directed to such substitute
address for that above set forth, and thereafter notices shall be directed to
such substitute address. Notice given as aforesaid shall be sufficient service
thereof and shall be deemed given as of the date received, as evidenced by the
return receipt of the registered or certified mail, or three (3) days after
deposited in the United States mail, postage prepaid, which ever is earlier.
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26. WAIVER. No waiver by LANDLORD or TENANT of any breach of any term,
covenant or condition hereof shall be deemed a waiver of the same or any
subsequent breach of the same or any other term, covenant or condition. The
acceptance of rent by LANDLORD shall not be deemed a waiver of any earlier
breach by TENANT of any term, covenant or condition hereof, regardless of
LANDLORD's knowledge of such breach when such rent is accepted. No covenant,
term, or condition of this Lease shall be deemed waived by LANDLORD or TENANT
unless waived in writing.
27. BANKRUPTCY. Notwithstanding any of the provisions of this Lease to the
contrary, if TENANT or TENANT's creditors commence any proceeding under the
Federal Bankruptcy Code, then TENANT and any successor in interest of TENANT
(including but not necessarily limited to a Trustee in Bankruptcy) will, subject
only to orders of the Bankruptcy Judge, consent to an application for adequate
protection of LANDLORD's rights and interest, which will provide, at a minimum,
for additional assurance of the payment of all future installments of rent, by
paying to LANDLORD an amount equal to one-sixth (1/6th) of the annual rental due
under this Lease. TENANT and such successors agree that any action to terminate
possession of the property after commencement of proceedings under the
Bankruptcy Code brought because of any default under this Lease shall not be in
contravention of or subject to the restrictions of the 11 U.S.C. Section 365(e).
28. REMOVAL OF EQUIPMENT. Upon the termination of this Lease, by
expiration of time or otherwise or any other time during the continuance hereof,
the TENANT shall have the right, at its sole cost and expense to remove from the
Premises any trade fixtures, equipment, machinery, or other personal property
installed in, or attached to, the Premises by, or at the expense of the TENANT;
PROVIDED, HOWEVER, that at the time of such removal the portion of portions, if
any, of the Premises, injured by such removal shall be restored to its former
condition, ordinary wear and tear and damage by fire or other casualty excepted.
TENANT shall comply with any and all federal, state and local ordinances,
statutes and regulations, in shutting down the operation and removal of any such
fixtures.
29. LATE FEE. TENANT and LANDLORD further agree that the TENANT is liable
for additional late charges that will occur due to the payment of the TENANT
obligations being received by the LANDLORD after the fifth (5th) of each month.
LANDLORD will charge the TENANT a late fee of two (2) times the per diem rental
per day for each calendar day the TENANT is in default after the first day of
each month.
30. OPTION TO PURCHASE.
It is agreed by and between the parties hereto that TENANT shall have
the option to purchase said real estate for One Million Dollars ($1,000,000.00)
at any time during the initial three (3) year term of this Lease. It is also
agreed by and between the parties hereto that TENANT shall have the option to
purchase said real estate during the renewal period(s) at the greater of (a) the
amount of One Million Dollars ($1,000,000.00) or (b) at an adjusted amount
calculated by multiplying One Million Dollars ($1,000,000.00) by a fraction, the
numerator of
13
<PAGE>
which is the most recently available Consumer Price Index (as defined below),
the "Current CPI" and the denominator of which is the Consumer Price Index at
the date of the option to purchase, the date of this Lease. As used herein, the
term Consumer Price Index means the Consumer Price Index Urban Consumers
(CPI-U), 1982-1984=100. Provided, however, in order for TENANT to exercise its
purchase option, TENANT must give LANDLORD notice of its election to purchase,
which notice shall be in writing, and addressed to LANDLORD's address listed
herein or such other place as the LANDLORD may hereafter designate in writing.
Such notice must be given by TENANT to LANDLORD and received by LANDLORD not
less than one hundred and eighty (180) days prior to the termination of the
initial period or the renewal option period(s).
In the event TENANT shall not exercise its option to purchase during
the initial term or any extension option period herein above provided, such
option shall be null and void and of no further force and effect.
TENANT's obligations to consummate the purchase of the demised
premises under this Option are subject to satisfaction of the following
conditions, unless waived in whole or in part by TENANT, that:
(a) ENCROACHMENTS. There are no material encroachments upon the
demised premises, all improvements upon the demised premises are entirely within
the boundaries of such demised premises and are not in violation of any
applicable set back lines; and
(b) MARKETABLE TITLE. Marketable and merchantable title to the
demised premises shall be conveyed to TENANT subject only to the following
rights, duties, obligations, conditions and matters existing as of the date of
Closing:
(i) Those taxes, liens and assessments, if any, which TENANT
under the terms and conditions of the Option has agreed to pay; and
(ii) Covenants, conditions, restrictions and easements, if any,
set forth of record, provided the same do not prohibit the use of the
demised premises for its intended use; no violations currently exist; and
that any such violations will not result in forfeiture of title; and
(iii) Zoning ordinances and other governmental restrictions
affecting the demised premises, provided the same do not prohibit the use
of the demised premises for its intended use; no violations currently
exist; and that any such violations will not result in forfeiture of title;
(iv) Recorded utility easements, rights of way and other
nonmaterial encumbrances not adversely affecting the use of the demised
premises for the purposes contemplated by TENANT; and
14
<PAGE>
(v) Rights of tenants in possessions.
(c) INGRESS AND EGRESS. At the time of closing, LANDLORD represents
that there shall exist indefeasible access routes, rights of way, and/or
easements for ingress and egress from the demised premises to a public street or
thoroughfare.
(d) ENVIRONMENTAL ASSESSMENT. TENANT shall have obtained a current
Phase I Environmental Site Assessment, according to current American Society for
Testing & Materials (ASTM) standards, prepared by an environmental consulting
firm acceptable to LANDLORD, demonstrating that there does not exist upon or in
connection with the demised premises any environmental defect, as defined under
Indiana law, or any set of facts or circumstances which could result in material
environmental risks or liabilities to Lessee, including, without limitation,
risks or liabilities resulting from violation of any environmental law,
including, without limitation, any federal, state or local statute, rule or
regulation dealing with hazardous, toxic or infectious wastes or materials. Such
Phase I Environmental Site Assessment, according to current American Society for
Testing & Materials (ASTM) standards, shall be conducted at TENANT's expense,
and shall include a comprehensive environmental assessment report (which shall
include a visual survey and record review) assessing the presence of hazardous,
toxic or infectious wastes or substances, PCBs, asbestos containing materials,
lead-based paints, underground storage tanks and other matters with respect to
the demised premises and the possibility of liability or risk concerning
environmental matters. A copy of such environmental report shall be promptly
delivered to LANDLORD. In the event this transaction does not close, each party
agrees to keep confidential and not disclose to third parties the results of the
environmental assessment.
(e) PRIOR REPORTS. LANDLORD shall have delivered to TENANT the most
recent title policies and surveys, if any known to LANDLORD and in LANDLORD's
possession and control with respect to the demised premises.
(f) SURVEY. TENANT may order and obtain, at TENANT's expense, a
current staked survey of the demised premises and all improvements thereon
prepared by a registered land surveyor or engineer acceptable to TENANT,
licensed in the State of Indiana, and certified or recertified no earlier than
the date of the exercise of the Option. The recertification shall contain a
certification to TENANT by the surveyor or engineer, among other things, as to
the exact acreage of the demised premises, the locations of all improvements on
the demised premises and encroachments (if any), and whether or not the demised
premises lies within a flood plain area. In addition, the survey shall identify,
locate and describe geographically, by legal description, and by reference to
recording data all easements, restrictions, covenants, encroachments and similar
information concerning the demised premises. The survey shall satisfy all
Minimum Standard Detail Requirements for Land Title Surveys in the State of
Indiana.
(g) INSPECTIONS. TENANT shall have approved, in its sole discretion,
(i) the permits and licenses required for the occupancy and operation of the
demised premises; (ii) all
15
<PAGE>
zoning, building code and other governmental laws, ordinances, rules,
regulation, rulings and decisions applicable to the demised premises; and (iii)
engineering and physical inspection of the demised premises.
Within thirty (30) days (or as soon thereafter as available) after the
date TENANT exercises its Option herein granted, LANDLORD shall, at its sole
expense, deliver to TENANT a preliminary commitment for an owner's policy of
title insurance (the "Commitment") issued by a title insurance company licensed
to do business in the State of Indiana, in which the title insurance company
shall agree to insure merchantable title in the name of TENANT after delivery of
a general warranty deed to TENANT subject only to general standard exceptions in
the ALTA 1990 form of owners policy covering the demised premises in the amount
of the Purchase Price.
Within ten (10) days following TENANT's receipt of the Commitment,
TENANT shall designate in writing to LANDLORD such objections or defect in title
to the demised premises as TENANT shall deem unacceptable. LANDLORD shall cause
such objections and defect to be eliminated promptly and within a reasonable
time after the designation of the same to LANDLORD within thirty (30) days after
LANDLORD's receipt of TENANT's notification of objections and defects. In the
event that such objections or defects are not removed or eliminated by LANDLORD
within a reasonable time after designation thereof in writing, any such
objections or defects may, at TENANT's sole election, be waived or this Option
may be terminated.
TENANT's right to exercise the Option herein granted is conditioned
upon the faithful performance by TENANT of all of the covenants, conditions and
agreements under this Lease and the payment by TENANT of all Rent, Additional
Rent and other special payments as provided in the Lease to the date of the
completion of the purchase of the demised premises by TENANT.
The consummation of the sale by LANDLORD and the purchase by the
TENANT of the demised premises under this Option (the "Closing") shall be a date
mutually agreeable to LANDLORD and TENANT but shall not be later than one
hundred and eighty (180) days after TENANT's exercise of the Option, except as
set forth in Subsection (b) herein.
By accepting the demised premises at Closing, TENANT shall be thereby
deemed to have Acknowledged that TENANT has examined and inspected the demised
premises; is familiar with the condition thereof, and accepts the demised
premises "AS IS" and "WITH ALL FAULTS" as the same then exists. TENANT further
acknowledges that neither LANDLORD nor anyone acting on LANDLORD's behalf has
made any representation or warranty of any kind unto TENANT regarding the
condition of the demised premises, including, but not limited to,
representations regarding the environmental condition or the existence of
hazardous substances.
At the Closing, LANDLORD shall deliver to TENANT a good and sufficient
warranty deed conveying the demised premises to TENANT, subject, however, to (i)
the lien of
16
<PAGE>
taxes and assessments assumed by TENANT in accordance with the terms and
provisions of this Option; (ii) the matters set forth in the Title Commitment
which are not objected to by TENANT as set forth above; (iii) such liens and
encumbrances as may have been placed upon the demised premises by or through the
acts of TENANT; (iv) all building and use restrictions, if any, of record as of
the date of this Lease; (v) all ordinances and zoning regulations affecting
title to the demised premises; and (vi) such other matters as TENANT shall
consent to, in its sole discretion.
Except as otherwise set forth in this Lease, until the purchase an
sale of the demised premises is consummated at the closing, the risks of
ownership and loss of the demised premises shall be borne solely by LANDLORD. If
prior to the closing any casualty of the demised premises occurs by fire or any
other cause whatsoever, or the demised premises is taken, in whole or in part,
by condemnation or other exercise of the power of eminent domain, or any notice
thereof is given, LANDLORD shall promptly notify TENANT, who, if the casualty
loss is not due to the negligence of the TENANT, shall have ten (10) days after
receipt of LANDLORD's notice to terminate TENANT's obligation to purchase the
demised premises, or in the alternative, proceed to closing, but with full
right, power and authority to thereafter direct the course of the adjustment of
the casualty loss and/or the condemnation proceeding and receive the entire
proceeds of insurance and/or the condemnation award.
If TENANT has exercised its Option, LANDLORD and TENANT agree to
utilize their best efforts and negotiate in good faith a definitive written
purchase agreement to be executed by the parties. Such purchase agreement shall
contain those terms and conditions set forth herein and other standard terms and
conditions which are usual and customary in Elkhart, Indiana.
It is expressly acknowledged that TENANT may assign its rights under
this Section with approval of LANDLORD which shall not be unreasonably withheld.
31. ATTORNEY'S FEES. Each party hereto agrees to pay the reasonable
attorney's fees of the substantially prevailing party incurred in enforcing the
terms of this Lease in the event of a violation of the terms or covenants herein
contained.
32. APPLICABLE LAW. This Lease shall be construed in accordance with the
laws of the State of Indiana and shall be binding upon the parties hereto and
upon their respective successors.
33. MEMORANDUM OF LEASE. Upon the Request of TENANT, LANDLORD shall
execute a short form memorandum of lease for recording.
17
<PAGE>
IN WITNESS WHEREOF, LANDLORD and TENANT have executed this Real Estate
Lease in multiple counterparts this day and year first above written.
RICHARD W. STREFLING INDUSTRIES, INC. QUINTESSENCE OIL CO., INC.
BY: /s/ Richard W. Sterfling BY: /s/ Raymond B. Wedel
------------------------------ -------------------------
Richard W. Strefling Name: Raymond B. Wedel
President Title: President
LANDLORD TENANT
18
<PAGE>
EXHIBIT A (i)
Lots Number Twenty-one (21) and Twenty-two (22) as the said Lots are known and
designated on the recorded Plat of ELK-AIR INDUSTRIAL PARK SECOND SUB DIVISION,
in Osolo Township; said Plat being recorded in Plat Book 11, page 47 in the
Office of the Recorder of Elkhart County, Indiana.
19
<PAGE>
EXHIBIT A(ii)
Diagram of Floor Plan Omitted.
20
<PAGE>
REAL ESTATE LEASE
ADDENDUM
EXHIBIT B
Addendum to paragraph 4(a) Additional Rent
Upon written notice of termination of this lease agreement the TENANT will pay
with said notice the subsequent May 10 real estate property taxes payable.
LANDLORD
RICHARD W. STREFLING INDUSTRIES, INC.
/s/ Richard W. Sterfling
-------------------------------------
Richard W. Strefling, President
TENANT
QUINTESSENCE OIL CO., INC.
/s/ Raymond B. Wedel
-------------------------------------
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 798,019
<SECURITIES> 32,145
<RECEIVABLES> 2,289
<ALLOWANCES> 0
<INVENTORY> 1,165,010
<CURRENT-ASSETS> 2,002,231
<PP&E> 11,097,748
<DEPRECIATION> 643,703
<TOTAL-ASSETS> 12,456,276
<CURRENT-LIABILITIES> 143,596
<BONDS> 0
0
0
<COMMON> 78
<OTHER-SE> 11,737,066
<TOTAL-LIABILITY-AND-EQUITY> 12,456,276
<SALES> 91,300
<TOTAL-REVENUES> 226,306
<CGS> 72,726
<TOTAL-COSTS> 1,427,682
<OTHER-EXPENSES> 51,642
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,325,744)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,325,744)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,325,744)
<EPS-BASIC> (0.232)
<EPS-DILUTED> (0.232)
</TABLE>
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
AS OF MAY 28, 1999
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
<TABLE>
<S> <C> <C>
PAGE 1 INDEPENDENT AUDITORS' REPORT
PAGE 2 BALANCE SHEET AS OF MAY 28, 1999
PAGE 3 STATEMENTS OF OPERATIONS FOR THE PERIOD FROM JANUARY 1,
1999 TO MAY 28, 1999, FOR THE PERIOD FROM APRIL 27,
1998 (INCEPTION) TO DECEMBER 31, 1998 AND FOR THE
PERIOD FROM APRIL 27, 1998 (INCEPTION) TO MAY 28, 1999
PAGE 4 STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE
PERIOD FROM APRIL 27, 1998 (INCEPTION) TO MAY 28, 1999
PAGE 5 STATEMENTS OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1,
1999 T0 MAY 28, 1999, FOR THE PERIOD APRIL 27
(INCEPTION) TO DECEMBER 31, 1998, AND FOR THE PERIOD
FROM APRIL 27, 1998 (INCEPTION) TO MAY 28, 1999
PAGES 6 - 11 NOTES TO FINANCIAL STATEMENTS
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
IPSL, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of IPSL, Inc. (a development
stage company) as of May 28, 1999 and the related statements of operations,
changes in stockholder's equity and cash flows for the period from January 1,
1999 to May 28, 1999, for the period from April 27, 1998 (inception) to
December 31, 1998, and for the period from April 27, 1998 (inception) to May
28, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in
all material respects, the financial position of IPSL, Inc. (a development
stage company) as of May 28, 1999, and the results of its operations and its
cash flows for the period from January 1, 1999 to May 28, 1999, for the
period from April 27, 1998 (inception) to December 31, 1998, and for the
period from April 27, 1998 (inception) to May 28, 1999 in conformity with
generally accepted accounting principles.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
May 17, 2000
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF MAY 28, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Marketable securities $ 637,045
Inventory 1,018,808
-----------
Total Current Assets 1,655,853
PROPERTY & EQUIPMENT - NET 1,981,192
-----------
TOTAL ASSETS $ 3,637,045
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Due to related party $ 308,739
-----------
TOTAL LIABILITIES 308,739
-----------
STOCKHOLDER'S EQUITY
Common stock, no par value, 10,000 shares authorized, 1,000 issued and
outstanding 3,000,000
Retained earnings accumulated during development stage 602,543
Accumulated other comprehensive loss (274,237)
-----------
Total Stockholder's Equity 3,328,306
-----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,637,045
===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the period from For the period
For the period from April 27, 1998 April 27, 1998
January 1, 1999 to (inception) (inception) to
May 28, 1999 December 31, 1998 May 28, 1999
-------------------- -------------------- --------------
<S> <C> <C> <C>
SALES $ -- $ -- $ --
COST OF SALES -- -- --
--------- --------- --------
GROSS LOSS -- -- --
--------- --------- --------
OPERATING EXPENSES
License fees and expenses 82 -- 82
--------- --------- --------
Total Operating Expenses 82 -- 82
--------- --------- --------
LOSS FROM OPERATIONS (82) -- (82)
--------- --------- --------
OTHER INCOME (EXPENSE)
Net realized gain on marketable securities 803,500 -- 803,500
Loan fee expense (200,875) -- (200,875)
--------- --------- --------
Total Other Income (Expense) 602,625 -- 602,625
--------- --------- --------
NET INCOME 602,543 -- 602,543
--------- --------- --------
OTHER COMPREHENSIVE LOSS
Net unrealized loss on marketable securities
- net (274,237) -- (274,237)
--------- --------- --------
COMPREHENSIVE INCOME $ 328,306 $ -- $328,306
========= ========= ========
Net income per share - basic and diluted $ 603 $ -- $ 603
========= ========= ========
Weighted average number of shares outstanding
during the period
- basic and diluted 1,000 -- 1,000
========= ========= ========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE PERIOD FROM APRIL 27, 1998 (INCEPTION)
TO MAY 28, 1999
<TABLE>
<CAPTION>
Retained
Earnings
Accumulated Accumulated
During Other
Common Stock Development Comprehensive
Shares Amount Stage Loss Total
----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Initial stock issuance 1,000 $ -- $ -- $ -- $ --
----------- ----------- ----------- ------------- -----------
Balance, December 31, 1998 1,000 -- -- -- --
Capital contribution -- 3,000,000 -- -- 3,000,000
Net income from January 1, 1999 to May 28, 1999 -- -- 602,543 -- 602,543
Other comprehensive loss from January 1, 1999
to May 28, 1999 -- -- -- (274,237) (274,237)
----------- ----------- ----------- ------------- -----------
BALANCE, MAY 28, 1999 1,000 $ 3,000,000 $ 602,543 $ (274,237) $ 3,328,306
=========== =========== =========== ============= ===========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period from For the Period from
For the Period from April 27, 1998 April 27, 1998
January 1, 1999 to (Inception) to (Inception) to
May 28, 1999 December 31, 1998 May 28, 1999
------------------- ------------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 602,543 $ -- $ 602,543
Adjustments to reconcile net income to net cash
used in operating activities:
Gain on marketable securities (803,500) -- (803,500)
Changes in operating assets and liabilities:
Increase in:
Loan fee payable 200,875 -- 200,875
-------------- ------------ -------------
Net cash used in operating activities (82) -- (82)
-------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of securities 3,319,628 -- 3,319,628
Purchase of marketable securities (1,807,410) (1,807,410)
-------------- ------------ -------------
Net cash provided by investing activities 1,512,218 -- 1,512,218
-------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of loans from related parties (1,512,136) -- (1,512,136)
-------------- ------------ -------------
Net cash used in financing activities (1,512,136) -- (1,512,136)
-------------- ------------ -------------
NET INCREASE (DECREASE) IN CASH -- -- --
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD -- -- --
-------------- ------------ -------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ -- $ -- $ --
============== ============ =============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCIAL ACTIVITIES
During April 1999, certain assets valued at $3,000,000 were acquired by the
Company and paid for by the stockholder, whose payment was accounted for as
contributed capital.
During 1999, two related parties loaned the Company marketable securities
having a fair value of $1,620,000. These securities were subsequently sold
and the proceeds were used to repay the loan and acquire additional
marketable securities.
See accompanying notes to financial statement.
5
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF MAY 28, 1999
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BUSINESS OPERATIONS
IPSL, Inc. (a development stage company) ("the Company") was
incorporated in Nevada on April 27, 1998 to serve as a vehicle to
effect a merger, exchange of capital stock, asset acquisition or other
business combination with a domestic or foreign private business.
At May 28, 1999, the Company had not yet commenced any formal business
operations, and all activity to date relates to the Company's
formation, acquisition of certain assets to commence an engine
production business (see Note 9), and marketable securities trading
activity based on loans of securities made by affiliates of the
stockholder.
The Company's fiscal year end is December 31.
(B) USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
(C) CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents.
(D) MARKETABLE SECURITIES
The Company invests in various marketable equity instruments. The
Company accounts for such investments in accordance with Statement of
Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities. ("SFAS 115")
6
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF MAY 28, 1999
Management determines the appropriate classification of its investments
at the time of acquisition and reevaluates such determination at each
balance sheet date. Available-for-sale securities are carried at fair
value, with unrealized gains and losses, net of tax, reported in a
separate component of stockholders' equity. Investments classified as
held-to-maturity are carried at amortized cost. In determining realized
gains and losses, the cost of the securities sold is based on the
specific identification method. The Company recognizes revenue from
sales of marketable securities at the sale date.
(E) INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or net
realizable value, and consists of purchased parts and work-in-process.
(F) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated using the
straight-line method over the estimated economic useful lives of 3 to
10 years. Expenditures for maintenance and repairs are charged to
expense as incurred. Major improvements are capitalized.
(G) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes" ("Statement 109"). Under Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered
or settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(H) COMPREHENSIVE INCOME (LOSS)
The Company accounts for Comprehensive Income (Loss) under the
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("Statement No. 130"). Statement No. 130
establishes standards for reporting and display of comprehensive
income and its components, and is effective for fiscal years
beginning after December 15, 1997.
7
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF MAY 28, 1999
The unrealized gains and losses, net of tax, resulting from the
valuation of available-for-sale securities at their fair market value
at year end are reported as Other Comprehensive Income (Loss) in the
Statement of Operations and as Accumulated Other Comprehensive Income
(Loss) in Stockholder's Equity and in the Statement of Stockholder's
Equity.
(I) EARNINGS PER SHARE
Basic and diluted earnings per common share is computed based upon the
weighted average common shares outstanding as defined by Financial
Accounting Standards No. 128, "Earnings Per Share". There were no
common stock equivalents outstanding at May 28, 1999.
(J) BUSINESS SEGMENTS
The Company applies Statement of Financial Accounting Standards No. 131
"Disclosures about Segments of an Enterprise and Related Information".
The Company operates in one segment and therefore segment information
is not presented.
NOTE 2 MARKETABLE SECURITIES
The Company's marketable securities are comprised of equity securities,
all classified as available-for-sale securities, which are reported at
their fair value based upon the quoted market prices of those
investments at May 28, 1999, with unrealized losses reported in a
separate component of stockholder's equity until they are sold. Any
realized gains or losses are included in net earnings at the time of
sale.
The composition of marketable securities at May 28, 1999 is as follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
<S> <C> <C>
Common stock $ 911,282 $ 637,045
========== ==========
</TABLE>
8
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF MAY 28, 1999
Investment income from January 1, 1999 to May 28, 1999, consists of
the following:
<TABLE>
<S> <C>
Net realized gain on marketable securities $ 803,500
===========
Unrealized losses included in other comprehensive
loss from January 1, 1999 to May 28, 1999
consists of the following:
Net unrealized losses on marketable securities $ (274,237)
===========
</TABLE>
NOTE 3 INVENTORIES
Inventory at May 28, 1999 consists of the following (see Note 9):
<TABLE>
<S> <C>
Raw materials $ 268,532
Work in process 750,276
------------
$ 1,018,808
============
</TABLE>
NOTE 4 PROPERTY AND EQUIPMENT
Property and equipment at May 28, 1999 consists of the following (see
Note 9):
<TABLE>
<S> <C>
Special tooling $ 1,761,142
Machinery and equipment 213,546
Furniture, fixtures and other 6,504
------------
$ 1,981,192
============
</TABLE>
There was no depreciation taken, since the assets were not yet placed
in service as of May 28, 1999. (See Note 9)
NOTE 5 DUE TO RELATED PARTIES
In March 1999, under equity loan agreements, the sole stockholder's two
affiliates loaned the Company marketable securities, valued at
$1,620,000. At May 28, 1999, the loan balance was $107,864, which is
included in due to related parties. Pursuant to the agreements, the
Company pays a fee to the affiliates equal to 25% of the net related
trading profits. As of May 28, 1999, the Company incurred fees of
$200,875, which are included in due to related parties.
9
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF MAY 28, 1999
NOTE 6 CONTINGENCIES
(A) YEAR 2000 ISSUES
The Company is aware of the issues associated with the programming code
in existing computer systems caused by the arrival of the millennium
(Year 2000). The "Year 2000" problem is pervasive and complex as
virtually every computer operation will be affected in some way by the
rollover of the two-digit year to 00. The issue is whether computer
systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail.
The Company uses a standard off the shelf accounting software package
for all of its accounting requirements. Management has contacted the
software vendor and confirmed that the accounting software is Year 2000
compliant. Management has contacted its critical vendors and suppliers,
to determine their own Year 2000 efforts and has not identified any
Year 2000 compliance issues with those parties. Costs of investigating
Year 2000 compliance issues have not been material to date. As a
result, management believes that the effect of investigating and
resolving Year 2000 compliance issues will not have a material effect
on the Company's future financial position or results of operations. As
of the date of this report, the Company has not been significantly
affected by Year 2000 issues.
NOTE 7 STOCKHOLDER'S EQUITY
(A) COMMON STOCK
The Company is authorized to issue 10,000 shares of common stock with
no par value. The Company issued 1,000 shares of its common stock to
its sole stockholder and received no consideration. (See Note 9)
NOTE 8 INCOME TAXES
The Company provides for income taxes in its interim financial
statements under APB No. 28, which requires that income taxes in
interim financial statements be recorded using an estimated annual
effective rate based on estimated annual results.
10
<PAGE>
IPSL, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
AS OF MAY 28, 1999
No provisions for income taxes on the Company's net income for the
period ended May 28, 1999 has been recorded in the financial statements
because the Company has a net loss for the year ended December 31, 1999
of approximately $58,000.
NOTE 9 ASSET PURCHASE
In April 1999, the Company purchased certain assets, from an unrelated
party, for $3,000,000. The purchase was paid for by the stockholder and
accounted for as a capital contribution. The purchase-price was
allocated, based upon an independent appraisal obtained for allocation
purposes, as follows:
<TABLE>
<S> <C>
Inventory $ 1,018,808
Tooling 1,761,142
Machinery and equipment 213,546
Furniture, fixtures, and other 6,504
-------------
$ 3,000,000
=============
</TABLE>
NOTE 10 SUBSEQUENT EVENT
Effective May 28, 1999, Torque Engineering Corporation acquired all of
the Company's common stock making the company a 100% subsidiary of
Torque.
11
