U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
X Quarterly report under section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2000 or
____ Transition report under section 13 or 15(d) of the Exchange Act for the
transition period from _______ to _______
Commission file number: 000-21811
Torque Engineering Corporation
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(Exact Name of Small Business Issuer as Specified In Its Charter)
Delaware 83-0317306
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(State of Incorporation) (I.R.S. Employer Identification No.)
2932 Thorne Drive, Elkhart, Indiana 46514
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(Address of Principal Executive Offices)
(219) 264-2628
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(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO ___
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As of November 10, 2000 the Issuer had 8,103,607 shares of Common Stock, par
value $0.00001, outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
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<PAGE>
Torque Engineering Corporation
(A Development Stage Company)
FORM 10-QSB
For the Quarterly Period Ended September 30, 2000
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at September 30, 2000
(unaudited) and December 31, 1999 (audited)................................1
Consolidated Statements of Operations for the three months ended
September 30, 2000 & 1999 (unaudited), the nine months ended
September 30, 2000 & 1999 (unaudited) and for the period from June
26, 1996 (inception) to September 30, 2000
(unaudited)...............................................................2
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 (unaudited), and for the period from
June 26, 1996 (inception) to September 30, 2000
(unaudited)..............................................................3
Notes to Consolidated Financial Statements (unaudited).......................4-5
Item 2. Management's Discussion and Analysis or Plan of Operations...........6-7
General
Results of Operations
Liquidity and Capital Resources
PART II..OTHER INFORMATION
Item 1. Legal Proceedings.....................................................8
Item 2. Change in Securities..................................................8
Item 3. Defaults upon Senior Securities.......................................8
Item 4. Submission of Matters to a Vote of Security Holders...................8
Item 5. Other Information.....................................................8
Item 6. Exhibits and Reports on Form 8-K......................................8
Signature......................................................................9
<PAGE>
Torque Engineering Corporation
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------- ----------
(Unaudited) (Audited)
<S> <C> <C>
CURRENT ASSETS
Cash ................................................................... $ 8,200 $ 798,019
Accounts Receivable, net ............................................... 5,941 2,289
Advances to suppliers .................................................. 82,314 -0-
Marketable securities .................................................. 9,461 32,145
Prepaid expenses ....................................................... 5,392 4,768
Inventory ......... .................................................... 1,427,510 1,165,010
------------ ------------
Total Current Assets ............................................... 1,538,818 2,002,231
------------ ------------
PROPERTY & EQUIPMENT, NET ................................................... 9,744,860 10,454,045
------------ ------------
TOTAL ASSETS ................................................................ $ 11,283,678 $ 12,456,276
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & other liabilities ................................... $ 353,786 $ 82,051
Obligation under Capital lease - current portion ....................... 123,945 32,837
Due related parties .................................................... 30,000 28,708
------------ ------------
Total Current Liabilities .......................................... 507,731 143,596
------------ ------------
LONG-TERM LIABILITIES
Obligation under Capital lease ......................................... 475,547 575,536
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TOTAL LIABILITIES ........................................................... 983,278 719,132
------------ ------------
STOCKHOLDERS EQUITY
Common Stock, $0.00001 par value, 50,000,000 shares authorized,
8,099,607 and 7,832,940 shares issued and outstanding, respectively. 81 78
Additional paid in capital .................................................. 13,730,712 13,330,715
Deficit accumulated during development stage ........................... (3,158,164) (1,336,328)
Accumulated other comprehensive loss ................................... (202,815) (180,131)
------------ ------------
10,369,814 11,814,334
Less Treasury Stock at cost (6,750 Shares) ............................. (56,970) (56,970)
Less Deferred compensation expense ..................................... (12,444) (20,220)
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Total Stockholders' Equity ......................................... 10,300,400 11,737,144
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................................. $ 11,283,678 $ 12,456,276
============ ============
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Torque Engineering Corporation
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the period
from
Three Months Three Months Nine Months Nine Months June 26, 1996
Ended Ended Ended Ended (inception) to
September 30 September 30 September 30 September 30 September 30,
2000 1999 2000 1999 2000
----------- ------------ ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
SALES .............................................. $ 229,840 $ 119,880 $ 238,774 $ 206,417 $ 330,074
COST OF SALES ......... ............................ (295,828) -0- (559,894) -0- (632,624)
----------- ------------ ----------- ------------ -----------
GROSS LOSS ......................................... (65,988) 119,880 (321,120) 206,417 (302,550)
----------- ------------ ----------- ------------ -----------
OPERATING EXPENSES
Payroll & other compensation .................. 55,253 -0- 180,840 -0- 573,635
Amortization .................................. -0- -0- -0- -0- 3,375
Depreciation .................................. 279,588 201,581 818,960 268,599 1,462,663
Rent .......................................... 30,000 -0- 90,000 -0- 160,168
Other selling, general & administrative ....... 114,357 135,766 414,224 295,611 742,444
----------- ------------ ----------- ------------ -----------
Total Operation Expenses .................. 479,198 337,347 1,504,024 564,210 2,942,285
----------- ------------ ----------- ------------ -----------
NET (LOSS) FROM OPERATIONS ......................... ($ 545,186) ($ 217,467) ($1,825,144) ($ 357,793) ($3,244,835)
OTHER INCOME
Interest Income ............................... 1,210 -0- 9,774 -0- 24,280
Interest (Expense) ............................ (35,603) -0- (35,603) -0- (35,603)
Consulting Income ............................. -0- -0- -0- -0- 120,500
Other ......................................... -0- -0- 428 -0- 428
Loss on Marketable Securities ................. -0- -0- -0- -0- (51,642)
----------- ------------ ----------- ------------ -----------
NET (LOSS) BEFORE EXTRAORDINARY ITEMS .............. ($ 579,579) ($ 217,467) ($1,850,545) ($ 357,793) ($3,186,872)
EXTRAORDINARY ITEMS
Gain on Extinguishment of Debt ................ -0- -0- 28,708 -0- 28,708
----------- ------------ ----------- ------------ -----------
NET (LOSS) ......................................... ($ 579,579) ($ 217,467) ($1,821,837) ($ 357,793) ($3,158,164)
OTHER COMPREHENSIVE (LOSS), NET OF TAX
Unrealized (loss) on marketable
securities - net ......................... (9,492) -0- (22,684) -0- (202,815)
----------- ------------ ----------- ------------ -----------
COMPREHENSIVE LOSS ................................. ($ 589,071) ($ 217,467) ($1,844,521) ($ 357,793) ($3,360,979)
----------- ------------ ----------- ------------ -----------
Loss Before Extraordinary Gain ..................... (0.072) (0.029) (0.233) (0.087) (1.184)
Extraordinary gain ................................. 0.000 0.000 0.004 0.000 0.011
Net loss per share - basic & diluted ............... $ (0.072) $ (0.029) ($ 0.229) ($ 0.087) $ (1.173)
Weighted average number shares outstanding ......... 8,099,607 7,560,343 7,947,266 4,130,308 2,692,736
during the period - basic & diluted
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
Torque Engineering Corporation
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOW
-----------------------------------
(Unaudited)
<TABLE>
<CAPTION>
For the period from
Nine Months Nine Months June 26, 1996
Ended Ended (inception) to
September 30, 2000 September 30, 1999 September 30, 2000
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATIONS ACTIVITIES:
Net Loss ............................................... $(1,821,837) $ (357,793) $(3,158,164)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation ........................................... 818,960 -0- 1,466,038
Recognized Deferred Compensation ....................... 7,776 -0- 13,156
Gain on Extinguishment of Debt ......................... (28,708) -0- (28,708)
Changes in operating assets & liabilities:
(Increase) Decrease in:
Marketing Expense incurred exchange of Stock ...... -0- -0- 2,688
Write-off of investment ........................... -0- -0- 2,000
Write-off of organizational Expenses .............. -0- -0- 4,125
Loss on marketable securities ..................... -0- -0- 51,642
Accounts Receivable ............................... (3,652) -0- (5,942)
Advances to suppliers ............................. (82,314) -0- (82,314)
Inventory ......................................... (262,500) -0- (408,702)
Prepaid Expenses .................................. (624) -0- (5,392)
Increase (Decrease) in:
Accounts Payable & Other Liabilities .............. 271,736 136,091 353,786
----------- ----------- -----------
Net cash (used) in operating activities ....... (1,101,163) (221,702) (1,795,787)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment .................. (97,649) -0- (148,330)
Proceeds from sale of available-for-sale-securities -0- -0- 316,158
Investment in Oil & Gas lease ..................... -0- -0- (2,000)
Organizational costs .............................. -0- -0- (7,500)
----------- ----------- -----------
Net cash (used) in investing activities ....... (97,649) -0- 158,328
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITES
Issuance of common stock .......................... 400,000 1,500,005 1,942,505
Payments on capital lease obligations ............. (21,007) -0- (46,815)
Repayment of loans ................................ -0- -0- (280,031)
Proceeds from shareholder loans ................... 30,000 -0- 30,000
----------- ----------- -----------
Net cash provided by financing activities ..... 408,993 1,500,005 1,645,659
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH ........................ (789,819) 1,278,303 8,200
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............................... 798,019 25,791 -0-
----------- ----------- -----------
CASH & CASH EQUIVALENTS AT END OF PERIOD ............... $ 8,200 $ 1,304,094 $ 8,200
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
Torque Engineering Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
As of September 30, 2000
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and have been
condensed pursuant to the rules and regulations of the Securities and Exchange
Commission for interim financial information. Accordingly, they do not include
all the information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for a fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
Further information; refer to the consolidated financial statements and
footnotes, included in the Company's Form 10-KSB for the year ended December 31,
1999.
2. DEVELOPMENT STAGE COMPANY
The Company is considered to be in the development stage, as defined in
Statement of Financial Accounting Standards No. 7. There have been no
significant operations since incorporation. On May 28th, 1999 the Company
entered the transportation technology industry where its core business is the
manufacturing and marketing of marine pleasure boat engines, and its activities
to date include primarily fund raising, product design and development, and
establishment of markets.
3. SHAREHOLDER LOANS
During the three months ended September 30, 2000 shareholders of the Company
made advances of $30,000 for operating funds.
4. STOCKHOLDERS' EQUITY
On June 5, 2000 a total of 266,667 shares of common stock were issued at a price
of $1.50 per share or a total amount of $400,000. These shares were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
Subsequent to September 30, 2000, the Company issued 4,000 shares of its common
stock in exchange for $13,000.
5. EXTRAORDINARY ITEM
In June 2000, Torque Engineering's subsidiary IPSL, Inc. confirmed the
extinguishment of debts from certain affiliates and a principal shareholder of
IPSL. Inc, totaling $28,708. As a result, an extraordinary gain was realized for
the three months ended June 30, 2000.
6. 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
$1,821,837 and negative cash flows from operating activities of $1,101,163
during the nine months ended September 30, 2000, and had an accumulated deficit
of $3,158,164 at September 30, 2000.
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<PAGE>
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.
7. NET LOSS PER SHARE
As a result of an extraordinary item for the three months ended June 30, 2000,
the statements of operations reflects a per share loss for both before and after
extraordinary items.
8. INVENTORIES
Inventory at September 30, 2000 consisted of the following:
Raw materials 1,272,918
Work in Process 81,706
Finished Goods 72,886
-----------
1,427,510
===========
9. COST OF SALES
For the nine months ended September 30, 2000 the Company charged to cost of good
sold $559,894. The Company believes certain items are not capitalizeable for
inventory and has taken a conservative approach in expensing these items.
10. STOCK OPTIONS
In February 2000 an employee was granted 10,000 stock options at an exercise
price of $1.80625 per option as previously disclosed in the 10-QSB for the three
months ended June 30, 2000 which vest over 5 years and expire after 10 years.
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<PAGE>
Torque Engineering Corporation
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The following discussion of the financial condition and results of
Torque Engineering should be read together with the interim 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.
Torque Engineering is a development stage company which continues to
devote its efforts toward establishing itself as a manufacturer of a
lightweight, high-powered marine engine built on a production line basis for the
luxury performance pleasure craft industry. For the three and nine months ended
September 30, 2000 Torque Engineering had a net loss of $579,579 and $1,821,837
respectively, negative cash flows from operating activities of $1,101,163 for
the nine months ended September 30, 2000, an accumulated deficit for the nine
months ended September 30, 2000 of $3,158,164.
Revenues
For the three and nine months ended September 30, 2000, Torque
Engineering had revenues of $229,840 and $238,774 respectively, attributable to
the sale of new engines and various marine engine parts. Cost of sales for the
three and nine months ended September 30, 2000 was $295,828 and $559,894
respectively. Costs of sales were primarily attributable to Torque Engineering's
continued manufacture of the Torque V-12 engines.
Net Loss
Net loss for the three and nine months ended September 30, 2000
increased to $579,579 and $1,821,837 from $217,467 and $357,793 respectively for
the three and nine months ended September 30, 1999. This is primarily
attributable to increases in general and administrative expenses and payroll
expense incurred in connection with the implementation of Torque Engineering's
business plan. In addition, Torque Engineering, for the three and nine months
ended September 30, 2000 had depreciation of $279,588 and $818,960 respectively
which represented an increase of $78,007 and $550,361 over the three and nine
months ended September 30, 1999, for property acquired as part of Torque
Engineering's acquisition of IPSL and being used in connection with Torque
Engineering's production-line manufacture of the Torque V-12 engines. Net
unrealized loss on marketable securities for the three and nine months ended
September 30, 2000 was $9,492 and $22,684 respectively.
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<PAGE>
Liquidity and Capital Resources
Management anticipates that it will require additional capital and
plans to obtain such capital through the sale of securities, obtaining financing
from third parties, and from funds generated by the sale of the Torque V-12
engine. If we are unable to obtain financing from any of these potential
sources, or if our funds from our ongoing operations do not increase, it is
unlikely we will continue as a going concern.
Cash Flows
A total of $1,101,163 was used for operating activities for the nine
months ended September 30, 2000. The cash used in operating activities was
primarily expended on purchases, payroll and, general and administrative
expenses related to the production-line manufacture of the Torque V-12 engines.
Depreciation was a significant non-cash charge to operation activities totaling
$818,960.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities.
----------------------
During the three months ended September 30, 2000, Torque
Engineering sold securities in the transaction described below without
registering the securities under the Securities Act of 1933. Unless
otherwise indicated, no underwriter, sales or placement agent was
utilized in the transaction.
1. On October 9, 2000, a total of 4,000 shares of common stock
were issued in exchange for $13,000. These shares were issued in
reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933.
The facts relied on to meet the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 available for
the sale of such securities were:
-- the limited number of purchasers,
-- the sophistication or accreditation of the purchaser,
-- the purchaser's access to material information about Torque
Engineering,
-- the absence of any general solicitation or advertising, and
-- restrictions on transfer of the securities issued to the
purchaser as indicated by a legend on the certificates representing
such securities.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None
Item 5. Other Information.
------------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Torque Engineering Corporation
Date: November 10, 2000 /s/ Raymond B. Wedel, Jr
------------------------
Raymond B. Wedel, Jr.
President
Date: November 10, 2000 /s/I. Paul Arcuri
-----------------
I. Paul Arcuri
Chief Financial Officer
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