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Previous: SATELITES MEXICANOS SA DE CV, 6-K, 1999-11-10 |
Next: SILVER CINEMAS INTERNATIONAL INC, 10-Q, 1999-11-10 |
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 September 30, 1999
OR
[ ] 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
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)
11 Pond View Drive, Pittsford, New York
14534
(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 September 30, 1999, there were outstanding 20,960,806 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, |
|
|
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Torvec, Inc. Condensed Statements of Operations - |
|
|
|
Torvec, Inc. Condensed Statements of Cash Flows - |
|
|
|
Notes to Financial Statements |
6 |
|
|
Item 2. |
Plan of Operation |
10 |
|
PART II |
OTHER INFORMATION |
|
|
Item 1. |
Legal Proceedings |
11 |
|
Item 3. |
Defaults Upon Senior Securities |
12 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
12 |
|
Item 5. |
Other Information |
12 |
|
Item 6. |
Exhibits and Reports on Form 8-K |
12 |
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SIGNATURE PAGE |
15 |
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|
EXHIBIT INDEX |
16 |
|
2
TORVEC, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
|
September 30, 1999 |
December 31, 1998 |
||
|
ASSETS |
|
|
|
|
Total Current Assets |
15,000 |
111,000 |
|
|
PROPERTY AND EQUIPMENT |
|||
|
Office Equipment |
9,000 |
9,000 |
|
|
LESS: ACCUMULATED DEPRECIATION |
21,000 |
12,000 |
|
|
OTHER ASSETS |
0 |
164,000 |
|
|
Total Assets |
$56,000 |
$325,000 |
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|||
|
CURRENT LIABILITIES |
|
|
|
|
Total Current Liabilities |
416,000 |
568,000 |
|
|
LONG TERM LIABILITIES |
|
|
|
|
STOCKHOLDERS' EQUITY |
|||
|
Common stock, $.01 par value, 40,000,000 |
|
|
|
|
Total Stockholders' Equity |
(377,000) |
(264,000) |
|
|
Total Liabilities and Stockholders' Equity |
$56,000 |
$325,000 |
See Notes to Financial Statements
3
TORVEC, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months |
Three Months |
Nine Months |
Nine Months |
September 25, 1996 |
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
Net Loss |
($1,302,000) |
($609,000) |
($3,577,000) |
($1,412,000) |
($7,110,000) |
|
Basic and Diluted Loss Per Share |
(.06) |
(0.03) |
($0.17) |
($0.07) |
|
|
Weighted average number of shares |
|
|
|
|
See Notes to Financial Statements
4
|
TORVEC, INC. |
|
Nine Month |
Nine Months |
September 25, 1996 |
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||
|
Net loss |
($3,577,000) |
($1,412,000) |
($7,110,000) |
|
|
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
----------------- |
----------------- |
----------------- |
||
|
NET INCREASE (DECREASE) IN CASH |
(15,000) |
(80,000) |
15,000 |
|
|
CASH - BEGINNING OF PERIOD |
30,000 |
147,000 |
0 |
|
|
CASH - END OF PERIOD |
$15,000 |
$67,000 |
$15,000 |
See Notes to Financial Statements
5
|
TORVEC, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1999 |
Note 1 Financial Statement Presentation
The information contained herein with respect to the nine month periods ended September 30, 1999 and September 30, 1998 and the period from September 25, 1996 (inception) through September 30, 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 nine month periods ended September 30, 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 September 30, 1999 and September 30, 1998 is $337,500 and $337,500 respectively for consulting expenses.
6
|
TORVEC, INC. NOTES TO FINANCIAL STATEMENTS September 30, 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 was extended to November 30, 1999. Those offerings raised $979,000 during the nine months ended September 30, 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 canceled 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 approximately $2,800,000 which will be charged to operations over the term of the consulting agreement.
During the quarter ended March 31, 1999, 21,000 of these options were exercised raising $105,000.
Note 7 Long-Term Debt
Long-term debt at September 30, 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 had previously entered into an agreement with a stockholder to lease land and building for $53,000 per month upon completion of the Company's private placement. That agreement had provided for four one-year renewal periods at the Company's option.
The Company paid approximately $164,000 representing the first month's rent and rent deposits, which were reflected as non current assets in previous quarters.
7
|
TORVEC, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1999 |
Note 8 Lease continued
During the quarter ended September 30, 1999, the Company and the stockholder terminated that lease agreement. The termination noted that the first and last monthly payments previously paid by the Company constitute the total payments required to be made. As a result, during the three months ended September 30, 1999, $164,000 was charged to operations.
Note 9 Consultant Stock Plan
On June 2, 1999, the Company adopted the Business Consultant Stock Plan. The plan provides for up to 200,000 shares of common stock to be issued from time to time to consultants in exchange for services. During the nine months ended September 30, 1999 38,519 shares were issued to consultants in exchange for services and amounts owed to those consultants. The exchange was valued at the fair value of the shares at the date of the grant.
Note 10 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. In February, 1998 the court stayed all aspects of the litigation and directed the parties to arbitrate such matters in dispute. On April 22, 1999, the arbitrator issued a nonappealable decision which determined that Vernon and Keith Gleasman exclusively owned all of the patents in question, thereby confirming that these patents, which were assigned by them to Torvec, are the exclusive patents of the Company. The arbitrator's decision also awarded certain sums of money to McElroy Manufacturing, Inc. ("McElroy") and a 20% interest in a certain royalties received by the Gleasmans, the payment of such amounts to be due only as, if and when, royalties are paid to the Gleasmans. The Company was not and is not a party to the arbitration.
8
|
TORVEC, INC. NOTES TO FINANCIAL STATEMENTS September 30, 1999 |
Note 10 Arbitration continued
On June 3, 1999, McElroy, by letter addressed to the Gleasman's personal counsel, demanded that the Gleasmans reimburse McElroy immediately for its expenses in the amount of $862,700, plus interest, to be paid from any monies received by the Gleasmans on account of the subject patents including, but not limited to, 20% of all royalties or monies received by the Gleasmans from the sale of shares of stock in the Company. Further, McElroy demanded that the Gleasmans correct inventorship of subject patents by requesting that the Commission of Patents & Trademarks to issue a Certificate of Correction adding A.H. "Chip" McElroy, II and Dave Porter as co-inventors on the subject patents. In addition, McElroy has demanded that Torvec pay, out of proceeds generated by sale of its stock, the same sums demanded o f the Gleasmans and notify any licensee, assignee or investor of McElroy's right to recover expenses and its 20% interest in monies received on account of the subject patents.
Management of the Company believes that the demands made by McElroy upon the Company constitute a complete misreading of the arbitrator's decision and are without merit procedurally as well as substantively, since among other reasons, the contract was between the Gleasmans and McElroy, the Company did not participate in the arbitration proceedings and that the arbitrator's decision did not direct payment of any sums from Torvec to McElroy.
Should Company's position not prevail, it would have a significant adverse effect on the Company's financial position and results of its operations. No provision for such contingency has been made in the accompanying financial statements.
9
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 it 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 was extended to November 30, 1999. Those offerings raised approximately $143,700 during the quarter ended September 30, 1999. Management believes that the funds from the private placement will be sufficient to sustain the Company's Plan of Operation for the next quarter.
The net loss as of September 30, 1999 has increased as compared to September 30, 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, amounted to $2,223,500 for the nine months ended September 30, 1999 compared to $433,500 for the nine months ended September 30, 1998. Also included in general and administrative for the nine months ended September 30, 1999 is $164,000 charged to operations for termination of the lease agreement with a former shareholder. Also, included are consulting fees for Research and Development and general and administrative expenses in the amounts of $337,500 and $337,500 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 it Plan of Operation.
10
|
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 certain patents relating to future Company products, namely the 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. The arbitrator's decision also awarded the sum of $862,699.61 to be paid to McElroy Manufacturing, Inc. ("McElroy") by the Gleasmans out of royalties which they may receive and awarded McElroy a 20% interest in all royalties and other sums received by the Gleasmans, the payment of such amounts to be due only as, if and when, royalties are paid to the Gleasmans. The Company was not and is not a party to the arbitration.
On June 3, 1999, McElroy, by letter addressed to the Gleasmans' personal counsel, demanded that the Gleasmans reimburse McElroy immediately for its expenses in the amount of $862,699.61, plus interest, to be paid from any monies received by the Gleasmans on account of the subject patents including, but not limited to, 20 % of all royalties or monies received by the Gleasmans from the sale of shares of stock in the Company. Further, McElroy demanded that the Gleasmans correct inventorship of the subject patents by requesting the Commission of Patents & Trademarks to issue a Certificate of Correction adding A.H. "Chip" McElroy, II and Dave Porter as co-inventors on the subject patents. While correction of inventorship was not addressed in the decision, such correction, if appropriate, is desirable and possible, and can be accomplished by application to the Commissioner of Patents and Trademarks. They do not contest the arbitrator's determination that the patents were assigned to the Gleasmans and are now owned by Torvec. In addition, McElroy has demanded that Torvec pay, out of proceeds generated by sale of its stock, the same sums demanded of the Gleasmans and notify any licensee, assignee or investor of McElroy's right to recover expenses and its 20% interest in monies received on account of the subject patents.
On June 15, 1999, McElroy filed its amended complaint in the United States District Court for the Northern District of Oklahoma. There were two causes of action. The first cause of action seeks correction of the inventorship of the subject patents. The second cause of action seeks an order confirming the arbitrator's award and, in addition, seeks an order directing that the Gleasmans reimburse McElroy immediately for its expenses in the amount of $862,699.61 plus interest accruing from the date of the arbitrator's award.
11
Management of the Company believes that the demands made by McElroy upon the Company constitute a complete misreading of the arbitrator's decision and are without merit procedurally as well as substantively, since among other reasons, the contract was between the Gleasmans and McElroy, the Company did not participate in the arbitration proceedings and that the arbitrator's decision did not direct payment of any sums from Torvec to McElroy.
Should the Company's position not prevail it would have a significant adverse effect on the Company's financial position and results of operations. No provision for such contingency has been made in the accompanying financial statements.
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.
Item 6. Exhibits and Reports on Form 8-K
|
a. |
Exhibits |
||
|
The following Exhibits, as applicable, are attached to this Quarterly Report |
|||
|
(2) |
Plan of acquisition, reorganization, arrangement, liquidation, or succession |
||
|
Not applicable |
12
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(3) |
Articles of incorporation, By-laws |
|
|
3.1 |
Certificate of Incorporation incorporated by reference to Form 10SB/A, |
||
|
3.2 |
By-laws incorporated by reference to Form 10 SB/A, Registration Statement, |
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(4) |
Instruments defining the rights of security holders, including indentures Not applicable |
||
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(10) |
Material contracts |
||
|
10.1 |
Certain Employment Agreements, Consulting Agreements, the Company's |
||
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10.2 |
Termination of Neri Service and Space Agreement dated August 31, 1999. |
||
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(11) |
Statement re computation of per share earnings (loss) |
||
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Not applicable |
|||
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(15) |
Letter re unaudited interim financial information |
||
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Not applicable |
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(18) |
Letter re change in accounting principles |
||
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Not applicable |
|||
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(19) |
Report furnished to security holders |
||
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Not applicable |
|||
|
(22) |
Published report regarding matters submitted to vote of security holders |
||
|
Not applicable |
|||
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(23) |
Consents of experts and counsel |
||
|
Not applicable |
|||
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(24) |
Power of attorney |
||
|
Not applicable |
|||
|
(27) |
Financial data schedule |
||
|
(99) |
Additional exhibits |
||
|
Not applicable |
|
b. |
Reports Filed on Form 8-K None |
14
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. |
|||
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DATE: |
November 10, 1999 |
By: |
/S/ KEITH E. GLEASMAN |
|
DATE: |
November 10, 1999 |
By: |
/S/ SAMUEL M. BRONSKY |
15
|
|
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 |
N/A |
|
11. |
Statement re computation of per share earnings (loss) |
N/A |
|
15. |
Letter re unaudited interim financial information |
N/A |
|
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 |
19 |
|
99. |
Additional exhibits |
N/A |
16
EXHIBIT 10.2
TERMINATION OF SERVICE AND SPACE AGREEMENT
WHEREAS, on January 7, 1998, Joseph L. Neri Sr., 3740 Route 104, Williamson, New York 14589 (the "Owner"), Joseph Neri Chevrolet-Oldsmobile-Pontiac, a Delaware corporation with
offices at 3740 Route 104, Williamson, New York 14589 (the "Provider") and Torvec, Inc., a New York business corporation with offices at 11 Pond View Drive, Pittsford, New York 14534 ("Torvec"), entered into a Service and Space Agreement ("Agreement")
which provided that it would become effective on the date when the guaranteed proceeds of Torvec's initial public offering were distributed to Torvec; and
WHEREAS, on September 10, 1998, said Agreement was amended to state that it would become effective upon Torvec's completion of its private placement to raise up to $7.5 million and
as amended, such Agreement would continue in full force and effect; and
WHEREAS, the parties to the Agreement have concluded that it is in their mutual best interests to terminate said Agreement effective as of August 31, 1999.
NOW, THEREFORE, the parties to said Agreement hereby agree as follows:
1. The Agreement is hereby terminated in all respects as of this 31st day of August, 1999, except that, in accordance with the provisions of Paragraph 6, any
and all confidential information in the possession of the Owner and/or the Provider shall be returned to Torvec within a reasonable period of time from the date hereof to the extent requested by Torvec.
2. It is further agreed that the first and last monthly payments actually paid by Torvec as recited in Paragraph 8 of the Agreement, together with any and all other
payments which have been made by Torvec
17
to the Owner/Provider since January 7, 1998 from time to time for its services, personnel and facilities on an "ad hoc" basis, constitute the total of the payments required to be made pursuant to said Agreement, and there are no further payments owing by
Torvec as of this date for its "ad hoc use" of the premises, facilities and personnel of the Owner/Provider.
3. It may be that Torvec shall request the Owner/Provider to make the premises, facilities and personnel of the Owner/Provider available to Torvec from time to time
on an ad hoc basis until such time as Torvec shall have made other arrangements for the storage of its Fastrack vehicle as well as for Torvec's other similar needs and, therefore, it is agreed that the Owner/Provider and Torvec shall use their best
efforts to arrive at a fair price to be paid for the use and rental of the premises located at 3740 Route 104, Williamson, New York 14589 to the extent such premises is so utilized by Torvec.
IN WITNESS THEREOF, the parties hereto have entered into this termination agreement on this 31st day of August, 1999.
|
/S/JOSEPH L. NERI |
18
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 September 30, 1999 and is qualified in its entirety by reference to such
financial statements.
CIK NUMBER: 1063197
Name: TORVEC, INC.
TABLE
Period Type: Nine Months
Fiscal Year-End: December 31, 1999
Period Start: January 1, 1999
Period End: September 30, 1999
|
Cash |
$15,000 |
19
|
|