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, 1998
----------------------------------------
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 September 30, 1998, there were outstanding 20,781,818
shares of the Company's Common Stock, $.01 Par Value.
Options for 455,000 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,
1997 and September 30, 1998 (unaudited) 3
Torvec, Inc. Condensed Statements of Operations -
September 25, 1996 (Inception through September 30,
1998 (unaudited), Nine Months Ended September 30, 1997
(unaudited) and September 30, 1998 (unaudited), Three
Months Ended September 30, 1997 (unaudited) and
September 30, 1998 (unaudited) 4
Torvec, Inc. Condensed Statements of Cash Flows -
September 25, 1996 (Inception through September 30,
1998 (unaudited), Nine Months Ended September 30, 1997
(unaudited) and September 30, 1998 (unaudited), Three
Months Ended September 30, 1997 (unaudited) and
September 30, 1998 (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>September <C>December
30, 1998 31, 1997
(Unaudited)
------------ -----------
ASSETS
CURRENT ASSETS
Cash $67,000 $147,000
Other current asset 53,000 53,000
Subscriptions receivable 0 180,000
------------ -----------
Total Current Assets 120,000 380,000
------------ -----------
PROPERTY AND EQUIPMENT
Office equipment 9,000 5,000
Transportation equipment 53,000 24,000
------------ -----------
62,000 29,000
LESS: ACCUMULATED DEPRECIATION 9,000 3,000
------------ -----------
53,000 26,000
------------ -----------
OTHER ASSETS 111,000 171,000
------------ -----------
Total Assets $284,000 $577,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $5,000 $0
Accounts payable and accrued expenses 246,000 73,000
------------ -----------
Total Current Liabilities 251,000 73,000
LONG-TERM LIABILITIES
Long-term debt, net of current
maturities 22,000 0
------------ -----------
273,000 73,000
------------ -----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value,
40,000,000 shares authorized,
20,781,616 and 20,672,496 issued
and outstanding at September 30,
1998 and December 31, 1997,
respectively 208,000 207,000
Additional paid in capital 3,475,000 2,991,000
Unearned compensatory stock options (849,000) (1,283,000)
Accumulated deficit (2,823,000) (1,411,000)
------------ -----------
Total Stockholders' Equity 11,000 504,000
------------ -----------
Total Liabilities and Stockholders'
Equity $284,000 $577,000
============ ===========
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>Nine Months <C>Nine Months <C>September
Ended September Ended September Ended September Ended September 25, 1996
30, 1998 30, 1997 30, 1998 30, 1997 (Inception)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) Through
September 30,
1998 (Unaudited)
-------------------------------------------------------------------------------------
COSTS AND
EXPENSES:
Research and
development $318,000 $117,000 $589,000 $163,000 $812,000
General and
administrative 290,000 117,000 823,000 447,000 2,011,000
---------- ----------- ----------- ----------- -----------
Net Loss $608,000 $234,000 $1,412,000 $610,000 $2,823,000
========== =========== =========== ===========
Basic and
Diluted Loss
Per Share ($0.03) ($0.01) ($0.07) ($0.03)
========== =========== =========== ===========
Weighted
average
number of
shares of
common stock -
basic and 20,759,000 19,950,000 20,727,000 19,547,000
diluted
========== =========== =========== ===========
See Notes to Financial
Statements
</TABLE>
4
<TABLE>
<CAPTION>
TORVEC, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
</CAPTION>
<S> <C>Three Months <C>Three Months <C>Nine Months <C>Nine Months <C>September 25, 1996
Ended Ended Ended Ended (Inception) Through
September 30, September 30, September 30, September 30, September 30, 1998
1998 1997 1998 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
______________________________________________________________________________________________
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net loss ($608,000) ($234,000) ($1,412,000) ($610,000) ($2,823,000)
Adjustment to reconcile
net income to net cash
provided by operating
activities
Depreciation 5,000 6,000 9,000
Amortization of unearned
compensatory stock 144,000 124,000 434,000 319,000 884,000
Common stock issued for
services 406,000
Changes in other current 24,000 24,000
assets and current
liabilities:
Increase in other assets (164,000)
Increase in accounts payable
and accrued expenses 183,000 173,000 232,000
-------------- -------------- ------------ ------------- --------------
Net cash (used in)
operating activities (276,000) (110,000) (799,000) (267,000) (1,432,000)
CASH FLOWS FROM
INVESTNG ACTIVITIES:
Purchase of property
and equipment (4,000) (24,000) (33,000) (24,000) (62,000)
--------------- -------------- ------------- ------------ -------------
Net cash (used in)
investing activities (4,000) (24,000) (33,000) (24,000) (62,000)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from sale of
common stock 223,000 188,000 545,000 784,000 1,765,000
Proceeds from stock
subscription 180,000 180,000
Proceeds from
long-term borrowings 29,000 29,000
Repayment of
long-term borrowings (1,000) (2,000) (2,000)
Offering Cost Expenditures (46,000)
Distributions (338,000) (365,000)
-------------- -------------- ------------ ------------- -----------
Net cash provided
by financing activities 222,000 188,000 752,000 446,000 1,561,000
-------------- -------------- ------------ ------------- -----------
NET INCREASE (DECREASE)
IN CASH (58,000) 54,000 (80,000) 155,000 67,000
CASH - BEGINNING OF PERIOD 125,000 322,000 147,000 221,000 0
-------------- -------------- -------------- ------------- --------
CASH - END OF PERIOD $67,000 $376,000 $67,000 $376,000 $67,000
============== ============== ============== ============== ========
See Notes to Financial Statements
</TABLE>
5
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1 Interim Financial Statements
The information contained herein with respect to the three
month and nine month periods ended September 30, 1998 and
1997 and the period from September 25, 1996 (inception)
through September 30, 1998 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 and nine-month
periods ended September 30, 1998 and 1997 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
period ending September 30, 1998 is $225,000 and $112,500
respectively for consulting expenses.
6
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
Note 5 Private Placement
The Company has offered securities in a private placements
dated May 11, 1998 at $5.00 per share and September 21, 1998
at $10.00 per share. Those offerings raised approximately
$223,000 during the quarter ended September 30, 1998.
Note 6 Long-Term Debt
Long-term debt at September 30, 1998 consisted of a note
payable in monthly installments of $610 including interest
at 10% through March, 2003. The note is secured by an
asset.
Note 7 Lease
The Company has entered into an agreement with a shareholder
to lease land and building for $53,000 per month upon the
date that the proceeds from a proposed public offering are
received. 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 $53,000 representing the first month's
rent, which is reflected as a current asset, and $111,000
representing the last month's rent and two twelfths of the
purchase price of the land, which is reflected, as a non-
current asset.
Note 8 Contingency
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. The Company has not been named as a
defendant in this action. In the event the claimants
prevail, it could adversely affect the Company's rights to,
and exclusive ownership of, certain technology. The
Gleasmans believe that the claims are without merit.
Management's preliminary assessment of this situation has
resulted in a determination that the likelihood of an
unfavorable outcome is less than probable and that the
ultimate outcome of this matter will not have material
adverse effect on the results of operations or financial
position of 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 moved forward with its plan to have
three pre-production Fastrack vehicles assembled
during the fall of 1998, and this process is on
schedule. 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. Through
September 30, 1998, the Company raised an
aggregate of $223,000. 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 September 30, 1998 has
increased as compared to September 30, 1997 due to
the additional amounts spent in research and
development and increases in general and
administrative expenses. Included are consulting
fees for Research and Development and general and
administrative expenses in the amounts of $225,000
and $112,500 respectively, paid 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.
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 and
related matters. The court stayed all aspects of the
litigation and directed the parties to arbitrate such
matters in dispute. The Company has not been named as
a defendant in this action. In the event the claimants
prevail, it could adversely affect the Company's rights
to, and exclusive ownership of, certain technology.
The Gleasmans believe that the claims are without
merit. Management's preliminary assessment of this
situation has resulted in a determination that the
likelihood of an unfavorable outcome is less than
probable and that the ultimate outcome of this matter
will not have material adverse effect on the results of
operations or financial position 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 in the
first quarter of 1999. Management expects the costs
associated to be less than $2,500. Also, the Company
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: November 12, 1998 By: /S/ KEITH E. GLEASMAN
-------------------------
Keith E. Gleasman,
President
DATE: November 12, 1998 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 September 30, 1998 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, 1998
Period Start: January 1, 1998
Period End: September 30, 1998
Cash............................................$67,000
Securities ...........................................0
Receivables ..........................................0
Allowances ...........................................0
Inventory.............................................0
Current Assets .................................120,000
PP&E...... ......................................62,000
Depreciation .....................................9,000
Total Assets ...................................284,000
Current Liabilities ............................251,000
Bonds.................................................0
Preferred Mandatory ..................................0
Preferred.............................................0
Common..........................................208,000
Other SE......................................<197,000>
Total Liability and Equity .....................284,000
Sales.................................................0
Total Revenues .......................................0
CGS...................................................0
Total Costs...................................1,412,000
Other Expenses ...............................1,412,000
Loss Provision .......................................0
Interest Expense .....................................0
Income Pretax ..............................(1,412,000)
Income Tax ...........................................0
Income Continuing ..........................(1,412,000)
Discontinued .........................................0
Extraordinary ........................................0
Changes ...........................................0
Net Income .................................(1,412,000)
EPS Basic .......................................(.07)
EPS Diluted ......................................(.07)
16
