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 March 31, 1997
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 May 1, 1997 was 5,818,516.
Transitional Small Business Disclosure Format: [ ] Yes [X] No<PAGE>
ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 2
Consolidated Statements of Operations for
the Three Months ended March 31, 1997 and
1996 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1997 and 1996 5
Notes to Unaudited Consolidated
Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
1<PAGE>
Part I - Financial Information
Item 1. Financial Statements
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
Mar 31, 1997 Dec 31, 1996
----------------------------------
ASSETS: (Unaudited)
Current assets:
Cash & cash equivalents $744 $634
Accounts receivable 360 452
Other receivable 15 9
Inventories 2,522 2,657
Prepaid expenses and
other current assets 4 10
--------- ----------
Total current assets 3,645 3,762
Fixed assets 2,035 2,280
Patents 662 677
Investment held by trustee 3,242 3,926
Other assets 656 664
--------- ----------
Total assets $10,240 $11,309
========= ==========
LIABILITIES and STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt $ 187 $184
Accounts payable 1,123 1,103
Accrued liabilities 932 1,097
Other current liabilities 706 565
Deferred acquisition obligation current 725 225
-------- ----------
Total current liabilities 3,673 3,174
-------- ----------
Long-term liabilities:
Deferred acquisition obligation 2,428 2,857
Long term debt 6,582 6,629
--------- ----------
Total liabilities 12,683 12,660
--------- ----------
Commitments and contingencies
2<PAGE>
Stockholders' equity
Preferred stock, 500,000 shares authorized:
Series 1 convertible preferred stock,
par value $ .01; issued and outstanding
0 and 0 at March 31, 1997 and
December 31, 1996 respectively 0 0
Common stock, par value $ .01; 10,000,000
shares authorized; issued and outstanding
5,818,516 and 6,641,432 at March 31, 1997
and December 31, 1996 respectively 58 66
Subscription Receivable 0 (3,150)
Paid in Capital 11,263 14,405
Accumulated deficit (13,764) (12,672)
--------- ----------
Total stockholders' equity (2,443) (1,351)
Total liabilities and stockholders'
equity $10,240 $11,309
========= ==========
See accompanying notes to unaudited consolidated financial statements.
3<PAGE>
Part I - Financial Information
Item 1. Financial Statements
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amount)
(Unaudited)
Three Months Ended March 31,
---------------------------
1997 1996
----------- ----------
Revenues $71 $1,747
----------- ----------
Cost of expenses:
Cost of revenues 597 1,497
General and administrative 324 592
Research and development 310 276
----------- ----------
1,231 2,365
----------- ----------
Income (Loss) from Operations (1,160) (618)
Other income (expense):
Interest expense (250) (251)
Interest income 73 81
Other, net 245 0
----------- ----------
Net income (loss) ($1,092) ($788)
=========== ==========
Net loss per common share
Primary ($0.17) ($0.20)
=========== ==========
Weighted average common and common
equivalent shares outstanding:
Primary 6,549,997 3,991,432
=========== ==========
See accompanying notes to unaudited consolidated financial statements.
4<PAGE>
Part I - Financial Information
Item 1. Financial Statements
ROTARY POWER INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31,
(Dollars in thousands)
1997 1996
---------- -----------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) ($1,092) ($788)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITES:
DEPRECIATION 240 231
AMORTIZATION 23 24
GAIN/LOSS ON SALE OF LONG-TERM INVESTMENT (245)
INTEREST (4)
CHANGE IN ASSETS & LIABILITIES:
ACCOUNTS RECEIVABLE 92 916
OTHER RECEIVABLES (6) 33
INVENTORY 135 (532)
PREPAID EXPENSES 6 (14)
OTHER ASSETS (40)
ACCOUNTS PAYABLE 20 (248)
ACCRUED LIABILITIES (165) 55
OTHER LIABILITIES 141 501
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (851) 134
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
SALE OF SECURITIES AVAIL. FOR SALE 630
PURCHASE OF LONG-TERM INVESTMENT (1,583)
SALE OF LONG-TERM INVESTMENT 2,583
PURCHASES OF FIXED ASSETS 5 (46)
---------- ----------
1,005 584
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
REPAYMENT OF DEBT (44) (41)
PAYMENT OF DEFERRED DEBT OBLIGATION (75)
ISSUANCE OF COMMON STOCK 3,987
STOCK SUBSCRIPTION RECEIVABLE (3,150)
---------- ----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (44) 721
---------- ----------
NET INCREASE /(DECREASE) IN CASH 110 1,439
5<PAGE>
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 634 328
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $744 $1,767
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
INTEREST PAID DURING THE PERIOD $180 $255
INCOME TAXES PAID DURING THE PERIOD - -
See accompanying notes to unaudited consolidated financial statements.
6<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.
The balance due on the loan made by the Company to Hydro Lance Maritime
Transport, Inc. ("Hydro Lance"), was treated as a subscription receivable
through December 31, 1996 since the loan was collateralized entirely by shares
of the Company's Common Stock owned by Abejon Rotary Power Corporation
("Abejon"), an entity with common directors, officers and shareholders with
Hydro Lance. This loan was written off entirely in the quarter since the Abejon
agreements were canceled on March 21, 1997 due to the continuing default by
Hydro-Lance in its payment obligations to the Company. 822,916 shares of the
Company's common stock originally issued to Abejon, held by the Company as
collateral, were canceled, and the subscription receivable was offset against
paid in capital.
Information included in the Balance Sheet as of December 31, 1996
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 three month period ending March 31, 1997, rent payments were $6,250
higher than rent expense.
DEVIATION FROM PURCHASE AGREEMENT
The Company did not make a payment of $150,000 on the deferred acquisition
obligation due to John Deere Technologies International ("JDTI") on January 30,
1997 and is in negotiation with Deere & Company with regard to the fixed
minimum payments due to JDTI under the deferred acquisition obligation.
7<PAGE>
Part I - Financial Information
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Comparison three months ended March 31, 1997 and March 31, 1996
Revenues for the three months ended March 31, 1997 decreased approximately 96%
to $71,000 compared to $1,747,000 for the same period in 1996. This decrease
was caused almost entirely by a reduction in U.S. Government contract revenue
of $1,612,000 and lower commercial revenue for the Company's 65 Series marine
engines to the recreational market. The primary contributor to the decrease in
U.S. Government revenue was a reduction of $1,190,000 from a United States
Marine Corps (USMC) contract for the development of the five rotor 580 Series
engine which was completed in the last quarter of 1996, and a reduction of
$322,000 in the original USMC contract, which was completed in the third
quarter of 1996.
Cost of revenues decreased 60% in the first quarter of 1997 as compared to the
same period in 1996. This decrease was due to lower cost of sales due to the
lower revenues, offset by an increase of approximately $475,000 related to the
factory cost of the pre-production 580 Series commercial marine engines.
General and administrative expenses decreased 45% from $592,000 in
the first quarter of 1996 to $324,000 in the first quarter of 1997.
This decrease was due primarily to reduced payroll costs of $207,000, to
reduced expenses for professional fees and other public company expenses of
$41,000 and to a reduction in expenses for trade shows and travel expenses of
$20,000. The general and administrative expenses for salaries and rent to
support the Company's Rotary Power Marine subsidiary also decreased by $36,000
in the first quarter of 1997 as compared to the first quarter of 1996.
Research and development expenses increased 12% from $276,000 for
the first three months of 1996 to $309,000 for the 1997 period. This increase
was due to an increase of $196,000 in the development, marinization and value
improvement program on the 580 Series commercial marine engine offset by
decreased activity on projects related to the development of the Company's 65
Series engines running on natural gas for use in industrial markets.
The loss from operations increased $541,000 from a $618,000 loss in the first
three months of 1996 to a $1,159,000 loss in the same period in 1997. The
higher loss from operations in the first quarter of 1997 was due to the impact
of the lower U.S. Government contract revenues, the loss on both the Company's
Rotary Marine subsidiary and its Industrial Products Division of $126,000 and
$88,000 respectively, the development and value improvement engineering costs
of its 580 Series diesel marine engine program, which were offset by the
reduced research and development expenses discussed above.
Interest expense remained at $251,000 in the first quarter of 1997 as it was in
the 1996 period, and interest income decreased 10% to $73,000 in the first
quarter of 1997 from $81,000 in the first quarter of 1996. This decrease was
due to lower interest income earned from the FICO Strips. Other net income
increased $245,000 in the first quarter of 1997 due to a realized gain on sale
of the FICO Strips.
8<PAGE>
As a result of the above, net loss increased $304,000 to $1,092,000 in the
first quarter of 1997 from $788,000 in the first quarter of
1996.
Liquidity and Capital Resources
Net proceeds of approximately $5,000,000 were provided from the Company's
initial public offering of common stock in February 1994.
In December 1996, the Company concluded an agreement with International
Cryogenic Systems Corporation (the name of which has since been changed to
PowerCold Corporation "PowerCold") whereby PowerCold invested $1,000,000 in the
Company in exchange for 2,000,000 shares of the Company's Common Stock.
Simultaneously, the Company and PowerCold agreed in principle to merge the two
companies in a stock-for-stock acquisition, whereby the Company would become a
wholly-owned subsidiary of PowerCold. The Company and PowerCold signed a Plan
and Agreement of Merger on March 21, 1997 and, upon approval by the
stockholders of the Company, the transaction will be completed. Each
shareholder of RPI will receive .363 shares of PowerCold common stock for each
share of RPI Common Stock upon the closing of the merger. PowerCold, located in
Cibolo, Texas, manufactures and markets industrial refrigeration and freezing
systems for use worldwide.
In March, 1997, the Company received $1,000,000 from the Trustee for the
bondholders of the New Jersey Economic Development Authority Taxable Revenue
Bonds, Series 1992, from the proceeds of the sale of the FICO Strips held by
the Trustee as collateral for the bondholders. The remaining proceeds from the
sale were reinvested in FICO Strips with a different maturity and redeposited
with the Trustee to continue to serve as collateral for the bondholders.
In February 1996, the Company sold 1,000,000 shares of Common Stock at $4.00
per share to Abejon and received a purchase order from Abejon for the sale of
580 Series marine engines. Simultaneously with the sale of the common Stock,
the Company loaned $3,750,000 to Hydro Lance, an affiliate of Abejon. It was
intended that the net amount received from the sale of the Common Stock to
Abejon less the loan to Hydro Lance plus the scheduled principal and interest
payments from Hydro Lance would fund the Company's development, marinization
and Value Improvement Program on the 580 Series commercial marine engines.
However, after making the first scheduled payment of $600,000 plus accrued
interest in April 1996, Hydro Lance defaulted on the $1,000,000 principal
payment plus accrued interest due on September 30, 1996. When Hydro Lance
failed to make the next repayment installment on its loan on December 30, 1996
of $250,000, the Company notified Hydro Lance, on January 29, 1997, that they
were in default of the loan agreement. Hydro Lance did not cure the second
default; and, the company, on March 21, 1997, sent Hydro Lance and Abejon a
notice declaring an event of default under the loan agreement and declaring the
amounts due by Hydro Lance under the loan agreement to be immediately due and
payable. The Company furthermore elected to take possession of and execute on
the shares of the company's common stock owned by Abejon that were pledged as
collateral for the loan agreement.
The Company's cash investment in its wholly owned subsidiary, Rotary Power
Marine, since its inception in July 1995 has been approximately $2,100,000.
This use of cash consists of net inventory increases of $670,000, the purchase
9<PAGE>
price of the assets acquired from Rotary Marine Industries of $165,000,
$688,000 expended on the development of the 65 Series gasoline marine engine,
fixed asset acquisitions of $17,000 and a loss of $560,000.
The Company's cash investment in its Industrial Products Division has been
$3,409,000 through March 31, 1997. This use of cash consists of $1,315,000
expended on the development of the 65 Series Natural Gas engine, $407,000 in
net inventory, $70,000 in fixed asset acquisitions and a loss of $1,617,000, in
addition to the development expenditures.
The Company's United States Government contracts were substantially completed
by the end of the year 1996. Future U.S. Government contract revenues are
expected to be minimal.
Capital expenditures were approximately $5,000 in the first quarter of 1997
compared to $46,000 in the first quarter of 1996.
Working capital at March 31, 1997 was negative ($27,674) compared to $588,080
at December 31, 1996. This decrease is due to a decrease in inventory and
accounts receivables and an increase in the current deferred acquisition
obligations to Deere, offset by a small increase in cash.
The Company's current and anticipated cash resources, including the $1,000,000
equity investment by PowerCold and the $1,000,000 proceeds from the sale of the
FICO Strips, are expected to be sufficient to enable the Company to continue
its operations in an orderly manner through June 30, 1997. Accordingly, the
Company requires additional financing by June 30, 1997 and thereafter in order
to fund its operations until it achieves positive cash flow from the sale of
its 580 and 65 Series engines. Therefore, the long-term future of the Company
depends on its ability to obtain additional sources of financing and there can
be no assurance that such financing can be obtained on acceptable terms or at
all.
"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
interruption 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, product development and
commercialization risks and an inability to arrange additional debt or equity
financing.
10<PAGE>
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
(a) EXHIBITS TO 10-QSB
11 Computations of Earnings (Loss) Per Common
Share for the Three Months Ended March 31, 1997
and 1996.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On March 6, 1997, the Company filed a Form 8-K with the Securities
and Exchange Commission. Such Form 8-K discussed the change in the
Company's Certified Accountant. On January 6, 1997, the Company filed
a Form 8-K with the SEC. Such form 8-K announced the equity
investment in the Company by and the proposed merger with
International Cryogenic Systems Corporation (now called "PowerCold
Corporation").
11<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)
/s/Richard M.H. Thompson
-----------------------------------------
Richard M.H. Thompson
President and Principal Financial Officer
May 14, 1997
12
EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
Three Months
Ended March 31,
1997 1996
PRIMARY
Shares outstanding, beginning of
period 6,641,432 3,391,432
Weighted average number of shares
issued, retired and issuable
share equivalents (91,435) 600,000
----------- ------------
Weighted average number of common
and common equivalent shares
outstanding 6,549,997 3,991,432
Net loss $1,091,978 $(788,096)
============ ============
Net loss per $ (0.17) $ (.20)
common share ============ ============
FULLY DILUTED
Weighted average number of common
and common equivalent shares
outstanding as adjusted for
full dilution 6,549,997 3,475,698
Net loss $1,091,978 $(788,096)
============ ============
Net loss per $ (0.17) $ (.23)
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.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
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<ALLOWANCES> 0
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<CURRENT-ASSETS> 3645
<PP&E> 6846
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<TOTAL-ASSETS> 10240
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<BONDS> 9010
0
0
<COMMON> 58
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<TOTAL-LIABILITY-AND-EQUITY> 10240
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<CGS> 597
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