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Previous: SATELITES MEXICANOS SA DE CV, 6-K, 2000-11-14 |
Next: CGB&L FINANCIAL GROUP INC, 10QSB, 2000-11-14 |
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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, 2000, there were outstanding 21,335,587 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.
TORVEC, INC.
(A Development Stage Company)
INDEX
|
PART I |
FINANCIAL INFORMATION |
PAGE |
|
Item 1. |
Financial Statements |
|
|
Torvec, Inc. Condensed Balance Sheets - December 31, 1999 and September 30, 2000 (unaudited) |
|
|
|
Torvec, Inc. Condensed Statements of Operations - |
|
|
|
Torvec, Inc. Condensed Statements of Cash Flows - |
|
|
|
Notes to Financial Statements |
6 |
|
|
Item 2. |
Plan of Operation |
9 |
|
PART II |
OTHER INFORMATION |
|
|
Item 1. |
Legal Proceedings |
15 |
|
Item 3. |
Defaults Upon Senior Securities |
17 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
18 |
|
Item 5. |
Other Information |
18 |
|
Item 6. |
Exhibits and Reports on Form 8-K |
19 |
|
SIGNATURE PAGE |
23 |
|
|
EXHIBIT INDEX |
24 |
|
TORVEC, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
|
September 30, 2000 |
December 31, 1999 |
|||
|
ASSETS |
|
|
||
|
Total Current Assets |
238,000 |
183,000 |
||
|
PROPERTY AND EQUIPMENT |
||||
|
Office equipment |
9,000 |
9,000 |
||
|
LESS: ACCUMULATED DEPRECIATION |
33,000 |
24,000 |
||
|
29,000 |
38,000 |
|||
|
Total Assets |
$267,000 |
$221,000 |
||
|
LIABILITIES AND CAPITAL DEFICIT |
|
|
||
|
CURRENT LIABILITIES Accounts payable and accrued expenses |
$ 11,000 |
$104,000 |
||
|
Total Current Liabilities |
677,000 |
531,000 |
||
|
LONG TERM LIABILITIES |
|
|
||
|
811,000 |
546,000 |
|||
|
CAPITAL DEFICIT |
|
|
||
|
Total Capital Deficit |
(544,000) |
(325,000) |
||
|
Total Liabilities and Capital Deficit |
$ 267,000 |
$ 221,000 |
||
See Notes to Financial Statements
3
TORVEC, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
Three Months |
Three Months |
Nine MonthsEnded September 30, 2000 |
Nine Months |
September 25, 1996 |
|
|
REVENUE: |
|
|
|
|
|
|
COSTS AND EXPENSES |
|
|
|
|
|
|
Net Loss |
($657,000) |
($1,302,000) |
($1,849,000) |
($3,577,000) |
($10,170,000) |
|
Basic and Diluted Loss Per |
|
|
|
|
|
|
Weighted average number |
|
|
|
|
See Notes to Financial Statements
4
|
TORVEC, INC. |
|
Nine Months |
Nine Months |
September 25, 1996 |
||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||
|
Net loss |
($1,849,000) |
($3,577,000) |
($10,170,000) |
|
|
|
||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
NET (DECREASE) INCREASE IN CASH |
(95,000) |
(15,000) |
88,000 |
|
CASH - BEGINNING OF PERIOD |
183,000 |
30,000 |
0 |
|
|
CASH - END OF PERIOD |
$88,000 |
$15,000 |
$88,000 |
See Notes to Financial Statements
5
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Note 1 Financial Statement Presentation
The information contained herein with respect to the nine month periods ended September 30, 2000 and September 30, 1999 and the period from September 25, 1996 (inception) through September 30, 2000 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 ordinary adjustments, which in the opinion of management are necessary for a fair presentation of the financial information for the six month periods ended June 30, 2000 and 1999, 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, 2000 and September 30, 1999 is $337,500 and $337,500 respectively for consulting expenses.
6
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Note 5 Private Placement
During the three months ended March 31, 2000 the Company raised $200,000 at $4.50 per share. During three months ended June 30, 2000, the Company sold 100,000 shares to a stockholder at $5.00 per share. (See Note 6)
Note 6 Certain Transactions
On June 29, 2000 the Company announced that it had granted an exclusive world-wide license of all its technology to Variable Gear, LLC ("VARIABLE GEAR") for the aeronautical and marine markets. Variable Gear will pay the Company 4% royalties for 7 years after which the Company must repurchase the license. Variable Gear, LLC is owned 51% by Robert C. Horton a Company shareholder. The Company owns the remaining 49%. The Company does not share in any profit or losses in this entity. During the three mo
Note 7 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 $2,780,000 which will be charged to operations over the term of the consulting
Note 8 Deferred Revenue
During the current quarter the Company signed a seven-year licensing agreement in the amount of $150,000. (See Notes 5 and 6) The revenue is being recognized over seven years and the unrecognized portion is classified as deferred revenue.
Note 9 Long-Term Debt
Long-term debt at September 30, 2000 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.
7
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
Note 10 Consultant Stock Plan
On June 2, 1999, the Company adopted the Business Consultant Stock Plan and reserved 200,000 shares of the Company's $.01 par value stock, which may be issued from time to time to business consultants and advisors who provide bona fide services to the Company, provided that such services are not in connection with the offer or sale of securities of the Company in a capital raising transaction and do not directly or indirectly promote or maintain a market for the Company's securities. For the nine months ended September 30, 2000, 148,109 shares were issued to consultants in exchange for services and amounts owed to these consultants. The exchange was valued at the market value of the shares at the date of issuance.
On September 12, 2000, the Board of Directors authorized a 200,000 share increase in the number of shares issuable under the Plan. The Company filed an S-8, Registration Statement with the Securities and Exchange Commission, which became effective October 5, 2000 to register the additional 200,000 shares.
Note 11 Arbitration
On August 29, 1997, McElroy Manufacturing, Inc. of Tulsa, Oklahoma, and two MMI employees (collectively "MMI"), initiated a lawsuit against Vernon and Keith Gleasman in the United States District Court for the Northern District of Oklahoma. The Company is not a party to this litigation. The plaintiffs seek money damages against the Gleasmans in the amount of $750,000 representing amounts MMI allegedly contributed to the development of hydraulic pump/motor prototypes and also allege that the two MMI employees should have been named as co-inventors on three patents.
In responding to the MMI complaints, the Gleasmans requested dismissal of the complaint on the grounds that the claims relate to an Agreement dated October 10, 1991, entered into by MMI and the Gleasmans under which the parties agreed to arbitrate "any controversy or claim arising out of or relating to this Agreement." The Gleasmans also requested dismissal of the complaint on the additional grounds that the two individuals were not co-inventors and, even if they were, that pursuant to the Agreement the individuals and MMI assigned any and all interest they may have had in such patents and prototypes to the Gleasmans.
On February 6, 1998, the Court stayed all aspects of the litigation pending arbitration in New York State. In the opinion of the Gleasmans, MMI's claims are without merit.
8
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
As indicated above, the Company is not a party to this MMI litigation. The litigation sets forth claims which do not effect the validity of the patents, but could impact the Company's exclusive ownership of three patents listed among the future products of the Company, namely the hydraulic pump and motor, constant velocity joint and spherical gearing thus, enabling MMI to commercialize such patents. The claims are based upon the allegations that (1) the products were not included within the Agreement between the parties and therefore not assigned to the Gleasmans which fact is disputed by the Gleasmans and is one of the subjects of the arbitration, and (2) the plaintiffs are co-inventors of the invention with the Gleasmans.
Hearings were conducted before the arbitrator in 1998. 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 the same letter, McElroy 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.
9
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 2000
On March 31, 2000, the Court remanded the case to the arbitrator to clarify certain ambiguities regarding the payment and terms of his April 22, 1999 decision. On July 10, 2000, the arbitrator issued an "Addendum and Clarification Memorandum" awarding $360,000 to McElroy in partial reimbursement of its expenses. This amount is to be paid by Vernon and Keith Gleasman, not the Company.
Vernon and Keith Gleasman made an application to the arbitrator to vacate so much of the Addendum which related to the payment of $360,000 to McElroy and if the application to vacate was not granted, to reopen the hearing before the arbitrator to allow Vernon and Keith Gleasman to introduce additional evidence regarding their expenses.
On September 25, 2000, the arbitrator found that Vernon and Keith Gleasman's contentions to reopen the hearing were without merit and therefore denied in all respects Vernon and Keith Gleasman's application to vacate so such of the Addendum as relates to the payment of $360,000 or, in the alternative, to reopen the hearing to allow them to introduce additional evidence regarding their expenses.
In rendering its decision, the arbitrator stated that the existence of Torvec, Inc. has nothing to do with the lawsuit or the arbitration and that the Gleasmans have an obligation to McElroy and McElroy to the Gleasmans.
The arbitrator's statements made in its September 25, 2000 decision reinforce management's belief that the demands made by McElroy upon the Company (expressed only in a letter from McElroy's counsel) 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.
10
TORVEC, INC.
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 identity such forward-looking statements. 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.
The Company's present business strategy relating to its products is (1) to provide developing country FasTrack vehicle models for marketing to potential Asian, African, South and Central American joint venture partners; (2) to complete the installation of the Company's infinitely variable transmissions into diesel-powered trucks for appropriate testing by national and state environmental agencies in the U.S. and other countries to quantify exact fuel savings and emissions levels and to determine its potential effect on the worldwide problem of diesel engine pollutants; (3) to promote worldwide use of the infinitely variable transmissions for reducing diesel/gasoline engine pollution; (4) to enter into appropriate licensing/joint working arrangements for all of the Company's products (the FasTrack vehicle, infinitely variable transmission, hydraulic pump/motor, constant velocity joint, and spherical gearing); (5) to obtain patent protection on at least four new developments and improvements related to the Company's products described above.
The Company is continuing to implement its business plan. The Company is engaged in discussions with a number of vehicle manufacturers to license one or more of its products and/or to create one or more joint venture relationships. If successful, these licenses or relationships will lead to the further development, manufacture and distribution of the Company's products, especially the FasTrack, the infinitely variable transmission and the Company's constant velocity joint.
The Company has completed its first pre-production prototype of the FasTrack on an Isuzu truck frame and is now testing and demonstrating the FasTrack. The Company believes that its ability to showcase the Isuzu truck frame prototype will enhance its pursuit of joint venture or licensing agreements with one or more manufacturers of cars, trucks and related equipment, especially since the FasTrack can be assembled, without significant modification, on nine manufacturer's vehicle frames.
11
The Company plans to selectively incorporate its other patented technologies, including its infinitely variable transmission, its lightweight hydraulic pump and motor, its constant velocity joint (with its true infinite gearing based on the Company's proprietary spherical gearing assembly), into the FasTrack prototype as well as to separately commercialize each of the technologies through licensing and one or more joint venture partners.
The Company intends to begin emission and fuel economy testing of the infinitely variable transmission as installed into diesel-powered trucks. The Company also intends to install the infinitely variable transmission into a vehicle owned by the Company to document actual emission levels and fuel economy. The vehicle and test results should enhance joint venture/ licensing opportunities with major auto manufacturers throughout the world.
The Company also intends to install its constant velocity joint, including its spherical gearing assembly, into a vehicle for evaluation. Upon satisfactory results, the Company will present the constant velocity joint to the auto industry for possible licensing and/or joint venture arrangements.
The Company showcased its latest prototype FasTrack vehicle in early spring, 1999 and during the balance of fiscal 1999, has been actively engaged in ongoing discussions with a number of potential joint venture partners to manufacture and commercialize the vehicle, including the possibility of assembling the FasTrack vehicle utilizing outsourced components.
In August, 1999, the Company established a working relationship with an international export company to solicit expressions of interest for its FasTrack(tm) vehicle to form potential worldwide governmental and institutional customers.
The Company is also investigating the possibility of manufacturing the FasTrac(tm) vehicle itself. To this end, the Company has and is investigating potential sites in Rochester and has engaged in preliminary discussions with a number of financial institutions to formulate a financial package which, together with government based incentives, will enable the Company to pursue this approach with the actual production of the vehicle. The Company believes that it will need at least 12-15 million dollars in order to pursue this possibility and management is presently investigating ways in which to acquire such monies including the proceeds from this Registration as well as additional equity and/or debt financing.
On April 25, 2000, the Company inaugurated its website, www.torvec.com, for marketing, sales, education and information relating to the Company's products. Potential customers for the Fastrack(tm) may access the website to order the vehicle for delivery in 18 months by depositing 10% towards the purchase price.
12
On June 29, 2000, the Company announced that it had granted an exclusive, world-wide license of all its technology to Variable Gear, LLC for the aeronautical and marine markets. Variable Gear will pay the Company 4% royalties for 7 years after which the Company is obligated to repurchase the license. Variable Gear is owned 51% by Robert C. Horton, Chairman and CEO of Ultrafab, Inc. and a Company shareholder. The Company owns the remaining 49%. The Company does not share in any profit or losses in this entity.
The net loss as of September 30, 2000 as compared to September 30, 1999 includes the amortization of unearned compensatory stock. The amortization, which is a non-cash item, amounted to $422,000 for the nine months ended September 30, 2000, compared to $2,223,000 for the nine months ended September 30, 1999. Also, included are consulting fees for Research and Development and general and administrative expenses for the periods ended September 30, 2000 and September 30, 1999 is $337,500 and $337,500 resp
Research and development expenses were $505,000 for the nine months ended September 30, 2000 compared to $793,000 for the same period in 1999, a decrease of $288,000 primarily due to the production of a prototype Fastrack vehicle in 1999.
On September 5, 2000 the Company entered into an Agreement with Swartz Private Equity, LLC ("Swartz") pursuant to which Swartz Private Equity, LLC granted to the Company a $50,000,000.00 equity funding Commitment which continues for a period of thirty-six months. This flexible funding Agreement provides that from time to time at the Company's request Swartz will purchase from the Company that number of the Company's common shares equal to 15% of the number of shares traded on the market in the
As a Commitment fee the Company granted to Swartz Commitment Warrants to purchase 945,000 shares of the Company's common stock which Warrants can be exercised at $4.875, the market price of the common stock on the date of the Commitment by Swartz. The
total number of Commitment Warrants will be adjusted upwards to represent 4.5% of the total outstanding common shares of Torvec under certain circumstances during the three years that the Commitment remains in effect. The exercise price on the Warrants
may
13
In addition to the Commitment Warrants referred to above, Swartz will be issued a warrant to purchase one share of common stock of the Company for every ten shares that it purchases pursuant to the Agreement. These Purchase Warrants will initially be exercisable at 110% of the market price of the shares simultaneously purchased by Swartz, but may be adjusted downwards if after grant of the warrant the market price of the common stock drops below the initial exercise price.
Swartz has been granted a right of first refusal to handle future financings for the Company. However, that right continues only during the period of the Commitment and the Commitment can be terminated at any time upon paying a termination fee to Swartz. The termination fee is a maximum of $200,000.00 and may be less, dependent upon the amount of financing which has been provided by Swartz prior to the termination.
The Company agreed to reserve 5,000,000 common shares for sale pursuant to this Agreement. Because the Company may become listed on NASDAQ and NASDAQ rules require shareholder approval of a sale of more than 20% of a
company's common stock, the officer's and directors have agreed to request approval of such sale by shareholders of the Company at the next meeting of shareholders.
On October 2, 2000, the Company filed a Current Report (Form 8-K) to disclose the Swartz transaction as well as to file all documents in connection therewith.
In the Agreement with Swartz, the Company agreed to file a Registration Statement pursuant to the Securities Act of 1933 for sale by Swartz of the shares and warrants acquired through this transaction. The Company filed a Form SB-2 Registration Statement covering the 5,000,000 shares reserved for sale under the Agreement on October 19, 2000. Such Registration Statement was declared effective by the Securities and Exchange Commission on October 23, 2000.
Also registered were 354,000 common shares on behalf of certain consultants under a piggyback registration, which will allow these consultants to exercise options for common stock at $5.00 per share. If all these options are exercised, then $1,770,000 will be provided to the Company.
14
|
PART II OTHER INFORMATION |
|
|
Item 1. |
Legal Proceedings |
|
The Company is not a party to any pending, material litigation. To the knowledge of management, no federal, state or local governmental agency is presently contemplating any proceeding against the Company. |
|
|
On August 29, 1997, McElroy Manufacturing, Inc. of Tulsa, Oklahoma, and two MMI employees (collectively "MMI"), initiated a lawsuit against Vernon and Keith Gleasman in the United States District Court for the Northern District of Oklahoma. The Company is not a party to this litigation. The plaintiffs seek money damages against the Gleasmans in the amount of $750,000 representing amounts MMI allegedly contributed to the development of hydraulic pump/motor prototypes and also allege that the two MMI employees should have been named as co-inventors on three patents. |
|
|
In responding to the MMI complaints, the Gleasmans requested dismissal of the complaint on the grounds that the claims relate to an Agreement dated October 10, 1991, entered into by MMI and the Gleasmans under which the parties agreed to arbitrate "any controversy or claim arising out of or relating to this Agreement." The Gleasmans also requested dismissal of the complaint on the additional grounds that the two individuals were not co-inventors and, even if they were, that pursuant to the Agreement the individuals and MMI assigned any and all interest they may have had in such patents and prototypes to the Gleasmans. |
|
|
On February 6, 1998, the Court stayed all aspects of the litigation pending arbitration in New York State. In the opinion of the Gleasmans, MMI's claims are without merit. |
|
|
As indicated above, the Company is not a party to this MMI litigation. The litigation sets forth claims which do not effect the validity of the patents, but could impact the Company's exclusive ownership of three patents listed among the future products of the Company, namely the hydraulic pump and motor, constant velocity joint, and spherical gearing thus, enabling MMI to commercialize such patents. The claims are based upon the allegations that (1) the products were not included within the Agreement between the parties and therefore not assigned to the Gleasmans which fact is disputed by the Gleasmans and is one of the subjects of the arbitration, and (2) the plaintiffs are co-inventors of the invention with the Gleasmans. |
|
15
|
Hearings were conducted before the arbitrator in 1998. 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 the same letter, McElroy 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. |
|
|
On March 31, 2000, the Court remanded the case to the arbitrator to clarify certain ambiguities regarding the payment and terms of his April 22, 1999 decision. On July 10, 2000, the arbitrator issued an "Addendum and Clarification Memorandum" awarding $360,000 to McElroy in partial reimbursement of its expenses. This amount is to be paid by Vernon and Keith Gleasman, not the Company. |
|
16
|
Vernon and Keith Gleasman made an application to the arbitrator to vacate so much of the Addendum which related to the payment of $360,000 to McElroy and if the application to vacate was not granted, to reopen the hearing before the arbitrator to allow Vernon and Keith Gleasman to introduce additional evidence regarding their expenses. |
|
|
On September 25, 2000, the arbitrator found that Vernon and Keith Gleasman's contentions to reopen the hearing were without merit and therefore denied in all respects Vernon and Keith Gleasman's application to vacate so such of the Addendum as relates to the payment of $360,000 or, in the alternative, to reopen the hearing to allow them to introduce additional evidence regarding their expenses. |
|
|
In rendering its decision, the arbitrator stated that the existence of Torvec, Inc. has nothing to do with the lawsuit or the arbitration and that the Gleasmans have an obligation to McElroy and McElroy to the Gleasmans. |
|
|
The arbitrator's statements made in its September 25, 2000 decision reinforce management's belief that the demands made by McElroy upon the Company (expressed only in a letter from McElroy's counsel) 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. |
|
|
Item 2. |
Changes in Securities |
|
On August 30, 2000, the Company filed an Amendment to its Certificate of Incorporation to increase its authorized shares to 140,000,000 and to divide such authorized shares into 100,000,000 shares of $.01 par value preferred stock and 40,000,000 shares of $.01 par value common stock. |
|
|
Item 3. |
Defaults Upon Senior Securities |
|
None |
|
|
17 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
|||||
|
On July 27, 2000, the Company submitted three items to the annual meeting of shareholders. |
||||||
|
1. |
Election of Directors |
For |
Withheld |
|||
|
Herbert H. Dobbs |
19,219,733 |
5,707 |
||||
|
Keith E. Gleasman |
19,219,733 |
5,707 |
||||
|
Lee E. Sawyer |
19,219,733 |
5,707 |
||||
|
Morton A. Polster |
19,219,733 |
5,707 |
||||
|
James A. Gleasman |
19,218,233 |
7,207 |
||||
|
2. |
Ratification of the appointment of Richard A. Eisner & Company, LLP by the Board of Directors as independent auditors for the fiscal year ended December 31, 2000. |
|||||
|
For |
Against |
Abstain |
||||
|
19,219,180 |
4,100 |
2,200 |
||||
|
3. |
Amendment to the Certificate of Incorporation to create a new class of stock, consisting of 100,000,000 authorized shares of preferred stock to be issued by the Board of Directors from time to time in series. |
|||||
|
For |
Against |
Abstain |
||||
|
18,138,895 |
67,732 |
15,600 |
||||
|
Item 5. |
Other Information |
|||||
|
None |
||||||
|
|
||||||
|
18 |
||||||
|
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 immediate succeeding the Signature Page and the Exhibits follow on the pages immediately succeeding the Exhibit Index. |
|||||
|
(1) |
Investment Agreement |
||||
|
1.1 |
Investment Agreement between Swartz Private Equity, LLC and Torvec, Inc. dated September 5, 2000, including all exhibits, incorporated by reference to Form 8-K filed October 2, 2000; |
||||
|
(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 10-SB/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; |
||||
|
3.3 |
Certificate of Amendment to the Certificate of Incorporation dated August 30, 2000, incorporated by reference to Form SB-2 filed October 19, 2000. |
||||
|
(4) |
Instruments defining the rights of holders including indentures |
||||
|
None |
|||||
|
(5) |
Opinion re: Legality |
||||
|
None |
|||||
|
19 |
|||||
|
(8) |
Opinion re: Tax Matters |
|||
|
None |
||||
|
(9) |
Voting Trust Agreement Voting Trust Agreement |
|||
|
None |
||||
|
(10) |
Material Contracts |
|||
|
10.1 |
Certain Employment Agreements, Consulting 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; |
|||
|
10.2 |
The Company's 1998 Stock Option Plan and related Stock Options Agreements, incorporated by reference to Form S-8, Registration Statement, registering 2,000,000 shares of the Company's $.01 par value common stock reserved for issuance thereunder, effective December 17, 1998; |
|||
|
10.3 |
The Company's Business Consultants Stock Plan, incorporated by reference to Form S-8, Registration Statement, registering 200,000 shares of the Company's $.01 par value common stock reserved for issuance thereunder, effective June 11, 1999 as amended by reference to Form S-8 Registration Statement registering an additional 200,000 shares of the Company's $.01 par value common stock reserved for issuance thereunder, effective October 5, 2000; |
|||
|
10.4 |
Termination of Neri Service and Space Agreement dated August 31, 1999, incorporated by reference to Form 10-QSB filed for the quarter ended September 30, 1999; |
|||
20
|
10.5 |
Operating Agreement of Variable Gear, LLC dated June 28, 2000, incorporated by reference to Form 10-QSB filed for the quarter ended June 30, 2000; |
|||
|
10.6 |
License Agreement between Torvec, Inc. and Variable Gear, LLC dated June 28, 2000, incorporated by reference to Form SB-2 filed October 19, 2000. |
|||
|
(11) |
Statement re computation of per share earnings (loss) |
|||
|
Not applicable |
||||
|
(15) |
Letter re unaudited interim financial information |
|||
|
Not applicable |
||||
|
(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 |
||||
|
|
||||
|
21 |
||||
|
(27) |
Financial data schedule |
||
|
(99) |
Additional exhibits |
||
|
Not applicable |
|||
|
b. |
Reports Filed on Form 8-K |
||
|
A Current Report on Form 8-K was filed by the Company on October 2, 2000 to disclose the Agreement with Swartz Private Equity, LLC and to file all documents in connection therewith as exhibits.
|
|||
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 13, 2000 |
By: |
/S/ KEITH E. GLEASMAN |
|
DATE: |
November 13, 2000 |
By: |
/S/ SAMUEL M. BRONSKY |
23
EXHIBIT INDEX
|
|
Page |
||
|
(1) |
Investment Agreement |
||
|
1.1 |
Investment Agreement between Swartz Private Equity, LLC and |
|
|
|
(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 10- |
|
|
|
3.2 |
By-laws incorporated by reference to Form 10-SB/A, Registration |
|
|
|
3.3 |
Certificate of Amendment to the Certificate of Incorporation dated |
|
|
|
(4) |
Instruments defining the rights of holders including indentures |
||
|
None |
|||
|
(5) |
Opinion re: Legality |
||
|
None |
|||
|
(8) |
Opinion re: Tax Matters |
||
|
None |
|||
|
(9) |
Voting Trust Agreement Voting Trust Agreement |
||
|
None 24 |
|||
|
Exhibit |
Page |
||
|
(10) |
Material Contracts |
||
|
10.1 |
Certain Employment Agreements, Consulting Agreements, certain |
|
|
|
10.2 |
The Company's 1998 Stock Option Plan and related Stock Options |
|
|
|
10.3 |
The Company's Business Consultants Stock Plan, incorporated by| |
|
|
|
10.4 |
Termination of Neri Service and Space Agreement dated August 31, |
|
|
|
10.5 |
Operating Agreement of Variable Gear, LLC dated June 28, 2000, |
|
|
|
10.6 |
License Agreement between Torvec, Inc. and Variable Gear, LLC |
|
|
|
(11) |
Statement re computation of per share earnings (loss) |
||
|
Not applicable |
|||
|
(15) |
Letter re unaudited interim financial information |
||
|
Not applicable 25 |
|||
|
Exhibit |
Page |
||
|
(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 |
27 |
|
|
(99) |
Additional exhibits |
||
|
Not applicable
26 |
|||
EXHIBIT 27
TORVEC, INC.
FINANCIAL DATA SCHEDULE
9/30/2000
|
PERIOD-TYPE |
YEAR |
27
|
|