FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1999
----------------------------------------
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission File No. 000-24455
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TORVEC, INC.
-------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
New York 16-150951-2
------------------------------- ---------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
3740 Route 104, Williamson, New York 14587
------------------------------------ ---------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (716) 248-8549
--------------
Securities registered under Sec. 12(g) of the Act:
$.01 Par Value Common Stock
------------------------------------------------------------------
(Title of Class)
The Registrant has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months and has been subject to such
filing requirements for the past 90 days.
YES [ X] NO [ ]
As of March 31, 1999, there were outstanding 20,833,916
shares of the Company's Common Stock, $.01 Par Value.
Options for 809,000 shares of the Company's Common Stock are
outstanding but have not yet been exercised. Shares to
cover the options will not be issued until they are
exercised.
1
TORVEC, INC.
(A Development Stage Company)
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Torvec, Inc. Condensed Balance Sheets - December 31,
1998 and March 31, 1999 (unaudited) 3
Torvec, Inc. Condensed Statements of Operations -
Three Months Ended March 31, 1999 (unaudited),
Three Months Ended March 31, 1998 (unaudited),
September 25, 1996 (Inception) through
March 31, 1999 (unaudited) 4
Torvec, Inc. Condensed Statement of Cash Flows -
Three Months Ended March 31, 1999 (unaudited),
Three Months Ended March 31, 1998 (unaudited),
September 25, 1996 (Inception) through
March 31, 1999 (unaudited) 5
Notes to Financial Statements 6
Item 2. Plan of Operation 8
PART II OTHER INFORMATION
-----------------
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE PAGE 13
EXHIBIT INDEX 14
2
<TABLE>
<CAPTION>TORVEC, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
</CAPTION>
<S> <C>March 31, <C>December 31,
1999 1998
(Unaudited)
------------ -----------
ASSETS
CURRENT ASSETS
Cash $57,000 $ 30,000
Subscriptions receivable 0 81,000
------------ -----------
Total Current Assets 57,000 111,000
------------ -----------
PROPERTY AND EQUIPMENT
Office equipment 9,000 9,000
Transportation equipment 53,000 53,000
------------ -----------
62,000 62,000
LESS: ACCUMULATED DEPRECIATION 15,000 12,000
------------ -----------
47,000 50,000
------------ -----------
OTHER ASSETS 164,000 164,000
------------ -----------
Total Assets $268,000 $325,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $5,000 $5,000
Accounts payable and accrued expenses 221,000 431,000
Consulting fees payable
to related parties 194,000 132,000
------------ -----------
Total Current Liabilities 420,000 568,000
LONG-TERM LIABILITIES
Long-term debt, net of current
maturities 19,000 21,000
------------ -----------
439,000 589,000
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
40,000,000 shares authorized,
20,888,916 and 20,811,616 issued
and outstanding at March 31,
1999 and December 31, 1998,
respectively 209,000 208,000
Additional paid in capital 7,213,000 3,766,000
Unearned compensatory stock options (2,940,000) (705,000)
Accumulated deficit (4,653,000) (3,533,000)
------------ -----------
Total Stockholders' Equity (171,000) (264,000)
------------ -----------
Total Liabilities and Stockholders'
Equity $268,000 $325,000
============ ===========
See Notes to Financial Statements
</TABLE>
3
<TABLE>
<CAPTION>
TORVEC, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
</CAPTION>
<S> <C>Three Months <C>Three Months <C>September 25, 1996
Ended March 31, Ended March (Inception)
1998 31, 1998 Through March 31, 1999
(Unaudited) (Unaudited) (Unaudited)
-------------------------------------------------------------
COSTS AND
EXPENSES:
Research and
development $428,000 $120,000 $1,706,000
General and
administrative 692,000 221,000 2,947,000
---------- ----------- -----------
Net Loss ($1,120,000) ($341,000) ($4,653,000)
========== =========== ===========
Basic and
Diluted Loss
Per Share ($0.05) ($0.02)
========== ===========
Weighted
average
number of
shares of
common stock -
basic and
diluted 20,846,000 20,321,000
========== ===========
</TABLE>
4
<TABLE>
<CAPTION>
TORVEC, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
</CAPTION>
<S> <C>Three Months <C>Three Months <C>September 25, 1996
Ended Ended (Inception) Through
March 31, 1999 March 31, 1998 March 31, 1999
(Unaudited) (Unaudited) (Unaudited)
_____________________________________________________
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss ($1,120,000) ($341,000) ($4,653,000)
Adjustment to reconcile
net income to net cash
provided by operating
activities
Depreciation 3,000 2,000 15,000
Amortization of unearned
compensatory stock 544,000 144,000 1,573,000
Common stock issued for
services 0 0 409,000
Contribution of services 0 0 39,000
Changes in other current
assets and current
liabilities:
(Increase)/decrease 0 0 (164,000)
in other assets
Increase/(decrease)
in accounts payable
and accrued expenses (148,000) (10,000) 415,000
-------------- ------------- ------------
Net cash (used in)
operating activities (721,000) (205,000) (2,366,000)
CASH FLOWS FROM
INVESTNG ACTIVITIES:
Purchase of property
and equipment 0 (29,000) (62,000)
-------------- ------------- -----------
Net cash (used in)
investing activities 0 (29,000) (62,000)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of
common stock 750,000 180,000 2,826,000
Proceeds from
long-term borrowings 0 29,000 29,000
Repayment of
long-term borrowings (2,000) 0 (5,000)
Distributions 0 0 (365,000)
-------------- ----------- -------------
Net cash provided
by financing activities 748,000 209,000 2,485,000
-------------- ----------- -------------
NET INCREASE (DECREASE)
IN CASH 27,000 (25,000) 57,000
CASH - BEGINNING OF PERIOD 30,000 147,000 0
-------------- ---------- -------------
CASH - END OF PERIOD $57,000 $122,000 $57,000
============== ========== =============
See Notes to Financial Statements
</TABLE>
5
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note 1 Financial Statement Presentation
The information contained herein with respect to the three
month periods ended March 31, 1999 and March 31, 1998 and
the period from September 25, 1996 (inception) through
March 31, 1999 has not been audited but was prepared
in conformity with generally accepted accounting
principles for interim financial information and
instructions for 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, the condensed financial statements do not
include information and footnotes required by generally
accepted accounting principles for financial statements.
Included are the adjustments, which in the opinion of
management are necessary for a fair presentation of the
financial information for the three-month periods
periods ended March 31, 1999 and 1998, and since
inception. The results are not necessarily indicative
of results to be expected for the year.
Note 2 The Company
Torvec, Inc. (the Company) was incorporated in New York on
September 25, 1996. The Company, which is in the
development stage, specializes in automotive technology.
Note 3 Summary of Significant Accounting Policies
Equipment
Equipment is stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over
the useful lives of the assets.
Research and development and patents
Research and development costs and patent expenses are
charged to operations as incurred.
Note 4 Related Party Transactions
The Company has entered into consulting agreements with
members of the Gleasman family. Included in research and
development and general and administrative expenses for the
periods ending March 31, 1999 and March 31, 1998 is $112,500
and $112,500 respectively for consulting expenses.
6
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1999
Note 5 Private Placement
The Company commenced a private placement in May 1998
to sell its common stock at a price of $5.00 per share.
On September 21, 1998 the offering price of the private
placement was increased to $10.00 per share. The private
placement has been extended to May 31, 1999. Those
offerings raised approximately $645,000 during the
quarter ended March 31, 1999.
Note 6 Stock Options
On February 10, 1999, the Company entered into a one-year
agreement with two consultants to provide financial and
public relation services. In connection therewith 375,000
of previously granted warrants were cancelled and the
Company granted 375,000 options at an exercise price of
$5.00 exercisable immediately through February 10, 2004.
The underlying shares will have registration rights. The
Company valued these options at $2,800,000 which will be
charged to operations over the term of the consulting
agreement.
During the current quarter, 21,000 of these options were
exercised raising $105,000.
Note 7 Long-Term Debt
Long-term debt at March 31, 1999 consisted of a note
payable in monthly installments of $610 including interest
at 10.13% through March, 2003. The note is secured by
transportation equipment.
Note 8 Lease
The Company has entered into an agreement with a shareholder
to lease land and building for $53,000 per month upon
completion of the Company's private placement. The
agreement provides for four one-year renewal periods at
the Company's option.
The agreement also provides for the purchase of land
adjacent to the leased premises for one year after the
effective date of the lease for $350,000.
The Company paid approximately $164,000 representing the
first month's rent and rent deposits which are reflected
on non current assets.
Note 9 Arbitration
During 1997 certain members of the Gleasman family were
named in a lawsuit seeking monetary damages of $750,000
relating to the development of certain technology and
related matters. The court stayed all aspects of the
litigation and directed the parties to arbitrate such
matters in dispute. During the current quarter, the
arbitrator issued a nonappealable decision which determined
that certain members of the Gleasman family exclusively owned
all of the patents at issue prior to transferring such patents
to the Company.
7
Item 2. Plan of Operation
The following discussion should be read in
conjunction with, and is qualified in its entirety
by, the Financial Statements and the Notes thereto
included in this report. This discussion contains
certain forward-looking statements that involve
substantial risks and uncertainties. When used in
this report, the words "anticipate", "expect" and
similar expressions as they relate to the Company
or its management are intended to identify such
forward-looking statement. The Company's actual
results, performance or achievements could differ
materially from those expressed in, or implied by,
these forward-looking statements. Historical
operating results are not necessarily indicative
of the trends in operating results for any further
period.
Torvec, Inc. a New York State corporation (the
Company) was duly organized on September 25, 1996.
The Company is in the development stage, and its
efforts have been principally devoted to research
and development activities and organizational
efforts.
The Company is continuing to implement its Plan of
Operation and has initiated discussions with a
number of vehicle manufacturers with a view to
possible licensing of one or more of its products
and or the creation of one or more joint venture
relationships in order to further develop and to
initiate the manufacture and distributions if its
products, especially the Fastrack, the Torvec
transmission and the Company's CV Joint. The
Company has completed its plan to have one
pre-production Fastrack vehicles assembled.
The Company anticipates that the proceeds
generated by its current offering will enable
it to continue to implement its Plan of Operation.
The Company commenced a private placement in May
1998 to sell 1,500,000 shares of its common stock
at a price of $5.00 per share. On September 21,
1998 the offering price of the private placement
was increased to $10.00 per share. The private
placement has been extended to May 31, 1999. Those
offerings raised approximately $645,000 during the
quarter ended March 31, 1999. Management believes
that the funds from the private placement will be
sufficient to sustain the Company's Plan of
Operation for the next two quarters.
8
The net loss as of March 31, 1999 has increased
as compared to March 31, 1998 due to the additional
amounts spent in research and development, increases
in general and administrative expenses and the
increase in the amortization of unearned compensatory
stock. The amortization, which is a non cash item,
was $544,000 for the quarter ended March 31, 1999
compared to $144,000 for the quarter ended March 31, 1998.
Also, included are consulting fees for Research and
Development and general and administrative expenses in
the amounts of $112,500 and $112,500 respectively,
payable to the Gleasman family. Additionally, the Research
and Development expenses have increased as a result of
increased expenses associated with the Fastrak vehicle.
These increases have been projected by management,
and will continue to increase as the Company
continues on its Plan of Operation.
9
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
During 1997 certain members of the Gleasman family were
named in a lawsuit seeking monetary damages of $750,000
relating to the development of certain technology as
well as disputing their exclusive ownership of these
patents relating to future Company products, namely Torvec
hydraulic pump and motor, the Torvec constant velocity
joint and Torvec's spherical gearing. In February, 1998,
the court stayed all aspects of the litigation and directed
the parties to arbitrate the matters in dispute. On
April 22, 1999, the arbitrator issued a nonappealable
decision which determined that Vernon and Keith Gleasman
exclusively owned all three patents, thereby confirming
that these patents, which were assigned by them to Torvec,
are the exclusive patents of the Company.
Item 2. Changes in Securities
---------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
Year 2000
The Company currently uses a software which management
believes is in "Year 2000" (Y2K) compliance.
Management will continue to evaluate the current
software and implement any necessary changes during
the balance of 1999. Management expects the costs
associated not to be material. Also, the Company is
is devising a Y2K contingency plan to avoid any
interruption to its business.
10
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
The following Exhibits, as applicable, are attached to
this Quarterly Report (Form 10-QSB). The Exhibit Index
is found on the page immediately succeeding the
signature page and the Exhibits follow on the pages
immediately succeeding the Exhibit Index.
(2) Plan of acquisition, reorganization, arrangement,
liquidation, or succession
Not applicable
(3) Articles of incorporation, By-laws
3.1 Certificate of Incorporation incorporated by
reference to Form 10SB/A, Registration Statement,
registering Company's $.01 par value common stock
under section 12(g) of the Securities Exchange Act
of 1934;
3.2 By-laws incorporated by reference to Form 10
SB/A, Registration Statement, registering
Company's $.01 par value common stock under
section 12(g) of the Securities Exchange Act
of 1934;
(4) Instruments defining the rights of security
holders, including indentures
Not applicable
(10) Material contracts
Certain Employment Agreements, Consulting
Agreements, the Company's Stock Option Plan and
related agreements, certain assignments of
patents, patent properties, technology and know-
how to the Company, Neri Service and Space
Agreement and Ford Motor Company Agreement and
Extension of Term, all incorporated by reference
to Form 10 SB/A, Registration Statement,
registering Company's $.01 par value common stock
under section 12(g) of the Securities Exchange Act
of 1934;
(11) Statement re computation of per share earnings (loss)
Not applicable
(15) Letter re unaudited interim financial information
Not applicable
11
(18) Letter re change in accounting principles
Not applicable
(19) Report furnished to security holders
Not applicable
(22) Published report regarding matters submitted to
vote of security holders
Not applicable
(23) Consents of experts and counsel
Not applicable
(24) Power of attorney
Not applicable
(27) Financial data schedule
(99) Additional exhibits
Not applicable
b. Reports Filed on 8-K
None
12
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.
TORVEC, INC.
DATE: May 14, 1999 By: /S/ KEITH E. GLEASMAN
-------------------------
Keith E. Gleasman,
President
DATE: May 14, 1999 By: /S/ SAMUEL M. BRONSKY
------------------------
Samuel M. Bronsky
Chief Financial Officer
13
EXHIBIT INDEX
Exhibit Page
2. Plan of acquisition, reorganization, arrangement,
liquidation, or succession N/A
3. Articles of incorporation, By-Laws
3.1 Certificate of Incorporation incorporated by
reference to Form 10SB/A, Registration Statement,
registering Company's $.01 par value common
stock under section 12(g) of the Securities
Exchange Act of 1934; N/A
3.2 By-laws incorporated by reference to Form 10 SB/A,
Registration Statement, registering Company's $.01
par value common stock under section 12(g) of the
Securities Exchange Act of 1934; N/A
4. Instruments defining the rights of security
holders, including indentures N/A
10.Material contracts
Certain Employment Agreements, Consulting Agreements,
the Company's Stock Option Plan and related agreements,
certain assignments of patents, patent properties,
technology and know-how to the Company, Neri Service
and Space Agreement and Ford Motor Company Agreement
and Extension of Term, all incorporated by reference
to Form 10 SB/A, Registration Statement, registering
Company's $.01 par value common stock under
section 12(g) of the Securities Exchange Act of 1934; N/A
11.Statement re computation of per share earnings (loss) N/A
15.Letter re unaudited interim financial information N/A
14
18.Letter re change in accounting principles N/A
19.Report furnished to security holders N/A
22.Published report regarding matters submitted to
vote of security holders N/A
23.Consents of experts and counsel N/A
24.Power of attorney N/A
27.Financial data schedule 16
99.Additional exhibits N/A
15
EXHIBIT 27
TORVEC, INC.
FINANCIAL DATA SCHEDULE
Article 5:
Legend: This schedule contains summary financial information
extracted from the financial statements of TORVEC,
Inc. for the period ending March 31, 1999 and is
qualified in its entirety by reference to such
financial statements.
CIK NUMBER: 1063197
Name: TORVEC, INC.
TABLE
Period Type: Three Months
Fiscal Year-End: December 31, 1998
Period Start: January 1, 1998
Period End: March 31, 1999
Cash............................................$57,000
Securities ...........................................0
Receivables ..........................................0
Allowances ...........................................0
Inventory.............................................0
Current Assets ..................................57,000
PP&E...... ......................................62,000
Depreciation ..................................<15,000>
Other Assets....................................164,000
Total Assets ...................................268,000
Current Liabilities ............................194,000
Bonds.................................................0
Preferred Mandatory ..................................0
Preferred.............................................0
Common..........................................209,000
Other SE......................................<135,000>
Total Liability and Equity .....................268,000
Sales.................................................0
Total Revenues .......................................0
CGS...................................................0
Total Costs...........................................0
Other Expenses .............................<1,120,000>
Loss Provision .......................................0
Interest Expense .....................................0
Income Pretax ..............................<1,120,000>
Income Tax ...........................................0
Income Continuing ..........................<1,120,000>
Discontinued .........................................0
Extraordinary ........................................0
Changes ...........................................0
Net Income .................................<1,120,000>
EPS Basic .......................................<.05>
EPS Diluted ......................................<.05>
16
