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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from January 1, 2000 to March 31, 2000
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 March 31, 2000, there were outstanding 21,129,959 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
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PART I |
FINANCIAL INFORMATION |
PAGE |
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Item 1. |
Financial Statements |
|
|
Torvec, Inc. Condensed Balance Sheets - December 31, 1999 and March 31, 2000 (unaudited) |
|
|
|
Torvec, Inc. Condensed Statements of Operations - |
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|
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Torvec, Inc. Condensed Statements of Cash Flows - |
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|
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Notes to Financial Statements |
6 |
|
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Item 2. |
Plan of Operation |
9 |
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PART II |
OTHER INFORMATION |
|
|
Item 1. |
Legal Proceedings |
12 |
|
Item 3. |
Defaults Upon Senior Securities |
13 |
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
13 |
|
Item 5. |
Other Information |
13 |
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Item 6. |
Exhibits and Reports on Form 8-K |
13 |
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SIGNATURE PAGE |
16 |
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EXHIBIT INDEX |
17 |
|
2
TORVEC, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEETS
|
March 31, 2000 |
December 31, 1999 |
||
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ASSETS |
|
|
|
|
Total Current Assets |
184,000 |
183,000 |
|
|
PROPERTY AND EQUIPMENT |
|||
|
Office Equipment |
9,000 |
9,000 |
|
|
LESS: ACCUMULATED DEPRECIATION |
27,000 |
24,000 |
|
|
OTHER ASSETS |
35,000 |
38,000 |
|
|
Total Assets |
$219,000 |
$221,000 |
|
|
LIABILITIES AND STOCKHOLDERS ' EQUITY |
|||
|
CURRENT LIABILITIES |
|
|
|
|
Total Current Liabilities |
505,000 |
531,000 |
|
|
LONG TERM LIABILITIES |
|
|
|
|
STOCKHOLDERS ' EQUITY |
518,000 |
546,000 |
|
|
Common stock, $.01 par value, 40,000,000 |
|
|
|
|
Total Stockholders ' Equity |
(299,000) |
(325,000) |
|
|
Total Liabilities and Stockholders ' Equity |
$219,000 |
$221,000 |
See Notes to Financial Statements
3
TORVEC, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
|
Three Months |
Three Months |
September 25, 1996 |
|
|
COSTS AND EXPENSES |
|
|
|
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Net Loss |
(779,000) |
($1,120,000) |
($9,100,000) |
|
Basic and Diluted Loss Per Share |
(.04) |
(0.05) |
|
|
Weighted average number of shares |
|
|
See Notes to Financial Statements
4
|
TORVEC, INC. |
|
Three Months |
Three Months |
September 25, 1996 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
||||
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Net loss |
($779,000) |
($1,120,000) |
($9,100,000) |
|
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|
||||
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CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
NET INCREASE IN CASH |
1,000 |
27,000 |
184,000 |
|
|
CASH - BEGINNING OF PERIOD |
183,000 |
30,000 |
0 |
|
|
CASH - END OF PERIOD |
$184,000 |
$57,000 |
$184,000 |
See Notes to Financial Statements
5
|
TORVEC, INC. NOTES TO FINANCIAL STATEMENTS March 31, 2000 |
Note 1 Financial Statement Presentation
The information contained herein with respect to the three month periods ended March 31, 2000 and March 31, 1999 and the period from September 25, 1996 (inception) through March 31, 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 the adjustments, which in the opinion of management are necessary for a fair presentation of the financial information for the three month periods ended March 31, 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 March 31, 2000 and March 31, 1999 is $113,000 and $113,000 respectively for consulting expenses.
6
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
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 terminated on November 30, 1999. The Company raised $200,000 from private sources during the three months ended March 31, 2000.
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 $2,780,000 which will be charged to operations over the term of the consulting agreement.
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 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 three months ended March 31, 2000, 42,501 shares were issued to consultants in exchange for services and amounts owed to those consultants. The exchange was valued at the market value of the shares at the date of the grant.
7
TORVEC, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
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. 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.
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 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.
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.
8
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 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'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 complete the installation of the infinitely variable transmission into the best selling automobile of a major U.S automaker that has an agreement with the Company for an exclusive "first look" at the transmission for gasoline engine passenger cars, providing data on gasoline engine fuel mileage and emission levels; (4) to promote worldwide use of the infinitely variable transmissions for reducing diesel/gasoline engine pollution; (5) 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); (6) 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.
9
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, perhaps at Alfred State College, Alfred, New York. 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.
In August, 1999, the Company established a working relationship with an international export company to solicit expressions of interest for its FasTrackä vehicle to form potential worldwide governmental and institutional customers.
The Company is also investigating the possibility of manufacturing the FasTrackä vehicle itself. The Company is actively engaged in discussions with officials representing the City of Rochester, New York on the feasibility of locating a manufacturing facility for the Fastrack vehicle in Rochester, New York. To this end, the Company has and is investigating potential manufacturing sites in Rochester and has engaged in preliminary discussions with the City and a number of financial institutions to formulate a financial package which, together with government-based incentives, will enable the Company to pursue this approach to the actual production of the vehicle. The Company believes that it will need at least 12 to 15 million dollars in order to pursue this possibility and management is presently investigating ways in which to acquire such monies including 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 ™ may access the website to order the vehicle by depositing 10% towards the purchase price.
10
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. On November 30, 1999, the private placement was terminated. The Company raised $200,000 from private sources during the quarter ended March 31, 2000. Management believes that such funds, plus additional private funds, will be sufficient to sustain the Company's Plan of Operation for the next quarter.
The net loss as of March 31, 2000 as compared to March 31, 1999 includes the amortization of unearned compensatory stock. The amortization, which is a non cash item, amounted to $383,000 for the three months ended March 31, 2000, compared to $544,000 for the three months ended March 31, 1999. Also, included are consulting fees for Research and Development and general and administrative expenses in the amounts of $113,000 and $113,000 respectively, payable to the Gleasman family. These expenses have been projected by management, and will continue to increase as the Company continues on its Plan of Operation.
Research and development expenses were $100,000 for the three months ended 2000 compared to $428,000 for the same period in 1999, a decrease of $328,000 primarily due to the production of a prototype Fastrack vehicle in 1999.
OTHER INFORMATION
Year 2000
The Company currently uses a software which management believes is in "Year 2000" (Y2K) compliance.
11
|
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.
On March 31, 2000, the Court remanded the case to the arbitrator to clarify certain ambiguities regarding the payment and terms of the original award.
12
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 |
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The following Exhibits, as applicable, are attached to this Quarterly Report |
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(2) |
Plan of acquisition, reorganization, arrangement, liquidation, or succession |
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Not applicable |
13
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(3) |
Articles of incorporation, By-laws |
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3.1 |
Certificate of Incorporation incorporated by reference to Form 10SB/A, |
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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 |
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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 |
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(22) |
Published report regarding matters submitted to vote of security holders |
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Not applicable |
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(23) |
Consents of experts and counsel |
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Not applicable |
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(24) |
Power of attorney |
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Not applicable |
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(27) |
Financial data schedule |
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(99) |
Additional exhibits |
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Not applicable |
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b. |
Reports Filed on Form 8-K None |
15
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.
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TORVEC, INC. |
|||
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DATE: |
May 15, 2000 |
By: |
/S/ KEITH E. GLEASMAN |
|
DATE: |
May 15, 2000 |
By: |
/S/ SAMUEL M. BRONSKY |
16
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EXHIBIT INDEX |
|
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2. |
Plan of acquisition, reorganization, arrangement, liquidation, or succession |
N/A |
|
3. |
Articles of incorporation, By-Laws |
|
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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 |
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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 |
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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 |
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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 |
18 |
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99. |
Additional exhibits |
N/A |
EXHIBIT 27
TORVEC, INC.
FINANCIAL DATA SCHEDULE
3/31/2000
|
PERIOD-TYPE |
YEAR |
18
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