UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
From the transition period from to
Commission file number 1-12756
ROTARY POWER INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 13-3632860
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
P.O. Box 128, Wood-Ridge, New Jersey 07075-0128
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 777-7373
Former name, former address and former fiscal year, if changed
since last report.
Check whether the issuer (1) 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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares outstanding of the Registrant's Common Stock
par value $.01, as of August 1, 1996 was 4,641,432.
Transitional Small Business Disclosure Format: [ ] Yes [X] No
<PAGE>
ROTARY POWER INTERNATIONAL, INC.
FORM 1O-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for
the Three Months and Six Months ended
June 30, 1996 and June 30, 1995 4
Consolidated Statements of Cash Flows for
the Six Months ended June 30, 1996 and
June 30, 1995 5
Notes to Unaudited Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 2. Changes in Securities 11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, 1996 December 31, 1995
(Unaudited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 1,108 $ 328
Securities available for sale 647 631
Accounts receivable 888 1,738
Other receivable 97 15
Inventory 1,478 1,042
Prepaid expenses & other current assets 38 9
----- -----
Total current assets 4,256 3,763
Fixed assets 2,709 3,118
Patents 708 739
Investment held by trustee 3,782 3,638
Other assets 848 659
------- -------
Total assets $12,303 $11,917
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 176 $ 171
Accounts payable 470 530
Accrued liabilities 293 297
Other current liabilities 563 42
Deferred acquisition obligation, current 225 150
----- -----
Total current liabilities 1,727 1,190
Long-term liabilities:
Deferred acquisition obligation 2,719 2,733
Long term debt 6,724 6,813
Other long term liabilities 13 25
------ ------
Total liabilities 11,183 10,761
Commitments and contingencies
Stockholders' equity:
Preferred stock, 500,000 shares authorized:
Series 1 convertible preferred stock,
par value $.01; issued and outstanding
0 at June 30, 1996 and December 31, 1995 0 0
Common stock, par value $.01; 10,000,000
shares authorized; issued and outstanding
4,641,432 and 3,391,432 at June 30, 1996
and December 31, 1995 respectively 46 34
Subscription receivable (3,312) 0
Paid in Capital 13,425 8,824
Accumulated deficit (9,038) (7,702)
Unrealized loss on securities (1) 0
------ ------
Total stockholders' equity 1,120 1,156
------- -------
Total liabilities and stockholders' equity $12,303 $11,917
======= =======
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 2,632 $ 2,742 $ 4,380 $ 5,440
Costs and expenses:
Cost of revenues 2,255 1,873 3,752 3,628
General and administrative 599 625 1,192 1,227
Research and development 208 480 484 847
----- ----- ----- -----
3,062 2,978 5,428 5,702
Loss from Operations (430) (236) (1,048) (262)
Other Income (expense):
Interest expense (251) (251) (502) (503)
Interest income 131 97 212 189
Other, net 2 0 2 1
----- ----- ----- -----
Net income (loss) $ (548) $ (390) $(1,336) $ (575)
====== ====== ====== =======
Net Income (loss) per common share
Primary $ (.12) $ (.12) $ (.32) $ (.18)
====== ====== ====== =======
Weighted average common and common
equivalent shares outstanding:
Primary 4,420,543 3,275,282 4,205,988 3,272,245
========= ========= ========= =========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
<TABLE>
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR EACH OF THE SIX MONTHS ENDED JUNE 30
(Dollars in thousands)
(unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,336) $ (575)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 465 414
Amortization 47 73
Interest (7) (1)
Change in assets and liabilities:
Accounts receivable 824 (504)
Other receivables (55) (60)
Inventory (436) (137)
Prepaid expenses (29) (61)
Other assets (206) (126)
Accounts payable (60) 102
Accrued liabilities (4) 506
Other liabilities 509 11
----- -----
Net cash provided by (used in)
operating activities (288) (358)
Cash flows from investing activities:
Purchase of securities available for sale (647) 0
Sale of securities available for sale 630 740
Purchases of fixed assets (57) (333)
----- -----
Net cash provided by (used in) (74) 407
investing
Cash flows from financing activities:
Repayment of long term debt (84) (76)
Payment of deferred debt obligation (75) (150)
Issuance of common stock 1,301 332
----- -----
Net cash provided by (used in) 1,142 106
financing activities
----- -----
Net increase (decrease) in cash 780 155
Cash and cash equivalents at beginning of year 328 675
----- ------
Cash and cash equivalents at end
of period $1,108 $ 830
====== ======
Supplemental disclosure of cash flow information:
Interest paid during the period $ 433 $ 366
Income taxes paid during the period - -
See note 2 for supplemental cash flow information.
</TABLE>
<PAGE>
Part I - Financial Information
Item 1 - Financial Statements
ROTARY POWER INTERNATIONAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying financial statements for Rotary Power
International, Inc. (the "Company") have been prepared by the
Company, without audit, in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-QSB. In the opinion of management, the
information contained herein reflects all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly
the results for the interim periods presented.
Information included in the Balance Sheet as of December 31,
1995 has been derived from audited financial statements, but does
not include all disclosures required by generally accepted
accounting principles.
The results of operations for the interim periods shown in
this report are not necessarily indicative of results to be
expected for the full year.
NOTE 2: SUPPLEMENTAL NON-CASH TRANSACTIONS
DIFFERENCE BETWEEN RENT EXPENSE AND RENT PAYMENTS
Rent expense is recognized on a straight-line basis over the
three year lease. For the six month period ending June 30, 1996,
rent payments were $12,500 lower than rent expense.
DEVIATION FROM PURCHASE AGREEMENT
Pursuant to a deviation from the purchase agreement between
John Deere Technologies International, Inc. ("JDTI") and the
Company, the Company postponed payment of $75,000 of the $150,000
deferred acquisition obligation due to JDTI on January 30, 1996 for
one year.
WARRANT EXERCISE
As of June 30, 1996, warrants to purchase 65,000 shares of
common stock at $2.50 per share were exercised in return for a
subscription receivable in the amount of $162,500.
<PAGE>
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Revenue for the three month period ended June 30, 1996
decreased approximately 4%, or $110,000 to $2,632,000 from
$2,742,000 for the same three month period in 1995. This decrease
comprised a reduction in U. S. Government contract revenue of
$456,000 offset by an increase in commercial revenue of $346,000.
The primary contributors to the U. S. Government revenue decrease
were lower revenue of $1,198,000 from the Joint Tactical - Unmanned
Aerial Vehicle (JT-UAV) contract which was terminated in August,
1995, which was offset by higher revenue of $753,000 for the five
rotor 580 Series engine under a United States Marine Corps (USMC)
contract. For the first half of 1996, revenue decreased
approximately 20%, or $1,060,000, from $5,440,000 in the 1995
period to $4,380,000 in the 1996 period. This decrease resulted
from lower U. S. Government contract revenue of $1,542,000 which
was offset by higher commercial revenue of $482,000. The lower
Government contract revenue was primarily due to the termination of
the JT-UAV contract and the reduction in planned activity of the
Company's original USMC 580 Series engine. Such reductions were
offset by higher revenue for the five rotor 580 Series engine for
the USMC and increases in other U. S. Government contracts. The
higher commercial revenue was for the Company's 65 Series natural
gas engines for the industrial markets and its 65 Series marine
engines for the recreational marine market.
Cost of revenue increased approximately 20%, or $382,000, in
the three months ended June 30,1996 as compared to the same period
in 1995 and increased approximately 3%, or $124,000, in the first
half of 1996 as compared to the first half of 1995. For the three
month period, the increase consisted of $354,000 for commercial
activity and $28,000 for Government activity. For the six month
period, the increase in cost of revenue consisted of a $648,000
increase for commercial activity which was offset by a $524,000
decrease for Government activity. The increase for the commercial
activity for both the three month and six month period was due to
the fact that there was no commercial activity in either of the
1995 periods. The change in cost of revenue for the Government
activity for both the three month and six month period was due to
higher overhead application resulting from the lower volume of
business offset by lower cost of revenue associated with the lower
volume.
General and administrative expenses decreased approximately
4%, or $26,000, from $625,000 in the second quarter of 1995 to
$599,000 in the second quarter of 1996. For the first half,
general and administrative expenses decreased approximately 3%, or
$35,000 from $1,227,000 in the first half of 1995 to $1,192,000 in
the first half of 1996. These decreases were primarily due to
reduced expenses for professional fees, trade shows and the
elimination of royalty expense associated with the Wankel GmbH
License Agreement, which was terminated. The decreases were offset
by increases in expenses for salaries and rent to support the
Company's Rotary Power Marine, Inc. subsidiary.
Research and development expenses decreased approximately 57%,
or $272,000, from $480,000 in the second quarter of 1995 to
$208,000 in the second quarter of 1996 and approximately 43%, or
$363,000, from $847,000 in the first half of 1995 to $484,000 in
the first half of 1996. These decreases were due to reduced
efforts associated with independent research & development projects
for the development of 65 Series engines running on natural gas for
use in industrial markets and were offset by increases in research
and development expenses associated with the 65 Series marine
engine product.
Loss from operations increased approximately 82%, or $194,000,
from a $236,000 loss in the second quarter of 1995 to a $430,000
loss in the second quarter of 1996 and approximately 300%, or
$786,000, from a $262,000 loss in the first half of 1995 to a
$1,048,000 loss in the first half of 1996. The higher loss in both
periods was due to the impact of the lower revenues and the higher
cost of revenue, as explained above, offset by the lower research
and development expenses discussed above.
Interest expense was virtually unchanged in the three month
and six month periods of 1996 as compared to the same periods in
1995. Interest income increased in both the three month and the
six month periods of 1996 as compared to the same periods of 1995.
These increases were primarily associated with the interest paid by
Hydro Lance Maritime Transport, Inc. ("Hydro Lance") in connection
with the repayment of a loan more fully discussed below.
Due to the combination of the preceding factors, net loss
increased from $390,000 in the second quarter of 1995 to $548,000
in the second quarter of 1996 and from $575,000 for the first half
of 1995 to $1,336,000 for the first half of 1996.
Liquidity and Capital Resources
The aggregate of the Company's cash, cash equivalents and
securities available for sale increased approximately $796,000
during the first half of 1996.
In February 1996, the Company entered into agreements with
Abejon Rotary Power Corporation ("Abejon") under which Abejon
purchased 1,000,000 shares of the Company's common stock at $4.00
per share (the "Sale"). Simultaneously with the Sale, the Company
loaned $3,750,000 to Hydro Lance to be repaid to the Company
between March 31, 1996 and March 31, 1998 upon the terms and
conditions more fully set forth in the loan agreement between the
Company and Hydro Lance. During April 1996, Hydro Lance repaid
$600,000 of the loan plus interest. Further, coincident with the
Sale, Abejon issued a $2,350,000 purchase order to the Company for
two six rotor and nine two rotor 580 Series marine engines. As of
June 30, 1996, Abejon had paid $500,000 as a down payment on this
order.
On March 1, 1996, the Company entered into a termination
settlement agreement with Lockheed Martin ("LM") relating to the
Joint Tactical - Unmanned Aerial Vehicle contract between the
Company and LM. Pursuant to the settlement agreement, LM paid the
Company $833,000.
As a result of the agreements with Abejon discussed above and
the LM settlement agreement, the Company believes there are
adequate cash resources to fund its operations only until the 580
Series marine inventory buildup occurs later this year. The
Company is holding discussions with several financing institutions
to finance the inventory and receivables related to the 580 Series
marine engines, the 65 Series natural gas engines and the 65 Series
marine engines. If the Company is successful in arranging such
financing, the Company believes it will have adequate resources to
fund its operations during the 580 series marine engine nventory
buildup and until positive cash flow is achieved from the
commerical sales of the Company's engines. There can be no
assurance that the Company will enter into an agreement to finance
the inventory and receivables relating to such engines.
Capital expenditures were approximately $57,000 in the first
half of 1996. Capital expenditures for 1996 are expected to be
approximately $150,000. The source of funds for these expenditures
is expected to be provided solely by the recovery of depreciation
expense under cost-reimbursement contracts with the U. S.
Government.
Working capital at June 30, 1996 was $2,529,000 compared to
$2,573,000 at December 31, 1995. This change is primarily due to
an increase in inventory offset by a reduction in accounts
receivable and an increase in current liabilities associated with
the Abejon agreements.
"Safe Harbor" Statement
Forward looking statements made herein are based on current
expectations of the Company that involve a number of risks and
uncertainties and should not be considered as guarantees of future
performance. These statements are made under the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995.
The factors that could cause actual results to differ materially
include interruptions or cancellation of existing contracts, the
impact of competitive products and pricing, product demand and
market acceptance risks, the presence of competitors with greater
financial resources than the Company, product development and
commercialization risks and an inability to arrange additional debt
or equity financing.
<PAGE>
Part II - Other Information
Item 2 - Changes in Securities
In June 1996, warrants to purchase 250,000 shares of the
common Stock of the Company at $2.50 per share were exercised. As
of June 30, 1996, the Company had received $462,500 for 185,000
shares and had a subscription receivable for 65,000 shares.
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on June
10, 1996, the following members were elected to the Board of
Directors:
Warren D. Bagatelle Robert L. Osborn
James M. Beggs Michael C. Stewart
Ken Brody Richard M. H. Thompson
William T. Figart Dr. James P. Wade
The vote for each director was 4,090,032 votes For, 29,002
votes Against and zero votes Abstained.
At the Annual Meeting of Shareholders, Coopers & Lybrand
L.L.P. was ratified as the Company's auditors for the fiscal year
ending December 31, 1996. The vote was 4,089,284 votes For, 23,200
votes Against and 6,550 votes Abstained.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) EXHIBITS TO 10-QSB
11 Computations of Earnings (Loss) Per Share for the 13
Three Months and Six Months Ended June 30, 1996
and June 30, 1995.
(b) REPORTS ON FORM 8-K
None
<PAGE>
SIGNATURES
In accordance with 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.
ROTARY POWER INTERNATIONAL, INC.
(Registrant)
Dated: August 14, 1996 /s/Gerald Horowitz
Gerald Horowitz
Vice President &
Corporate Controller
(Duly Authorized Officer and
Principal Financial Officer)
<PAGE>
<TABLE>
EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PRIMARY
Shares outstanding,
beginning of period 4,391,432 3,269,208 3,391,432 3,269,208
Weighted average number of shares
issued, retired and issuable
share equivalents 29,111 6,074 814,556 3,037
--------- --------- --------- ----------
Weighted average number of common
and common equivalent shares
outstanding 4,420,543 3,275,282 4,205,988 3,272,245
Net income (loss) $ (548,275) $ (389,814)$(1,336,369) $( 574,561)
========= ========= ========== =========
Net income (loss) $ (.12) $ (.12) $ (.32) $ (.18)
per common share ========= ========= ========== =========
FULLY DILUTED
Weighted average number of common
and common equivalent shares
outstanding as adjusted for
full dilution 3,888,696 3,373,733 3,674,141 3,397,619
Net income (loss) $ (548,275) $ (389,814)$(1,336,369) $ (574,561)
========= ========= ========== =========
Net income (loss) $ (.14) $ (.12) $ (.36) $ (.17)*
per common share ========= ========= ========== =========
*These calculations are submitted in accordance with SEC requirements, although
they are not in accordance with APB Opinion No. 15 because they are anti-
dilutive.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1108
<SECURITIES> 647
<RECEIVABLES> 985
<ALLOWANCES> 0
<INVENTORY> 1478
<CURRENT-ASSETS> 4256
<PP&E> 6801
<DEPRECIATION> 4096
<TOTAL-ASSETS> 12303
<CURRENT-LIABILITIES> 1727
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 1074
<TOTAL-LIABILITY-AND-EQUITY> 12303
<SALES> 4380
<TOTAL-REVENUES> 4380
<CGS> 3752
<TOTAL-COSTS> 5428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> (1336)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1336)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.36)
</TABLE>
