UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
( ) 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 of (I.R.S. Employer Identification No.)
incorporation or organization)
PO Box 128, Wood-Ridge, New Jersey 07075-0128
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 973/777-7373
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 fie such
reports), and (2) has been subject to such filing requirements for the past 90
days.
( ) Yes (X) No
The number of shares outstanding of the Registrant's Common Stock par value
$0.01, as of August 4, 1998, was 5,968,516.
Transitional Small Business Disclosure Format: ( ) Yes (X) No
ROTARY POWER INTERNATIONAL, INC.
<PAGE>
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations for the Three Months
& Six Months ended June 30, 1997 and June 30, 1996 4
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1997 and 1996 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 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 11
2
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30 December 31
1997 1996
------------ ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 44,122 $ 633,597
Accounts receivable 385,742 452,015
Other receivables 15,000 9,083
Inventories 2,373,886 2,657,030
Other current assets 31,398 9,814
------------ ------------
Total current assets 2,850,148 3,761,539
Fixed assets 1,794,233 2,279,959
Patents 646,608 677,399
Investment held by trustee 3,297,657 3,925,761
Other assets, net 674,016 664,154
------------ ------------
Total assets $ 9,262,662 $ 11,308,812
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Current portion of long-term debt $ 191,667 $ 183,750
Accounts payable 871,834 1,103,167
Loan payable 216,768 --
Accrued liabilities 1,121,679 1,096,638
Other current liabilities 708,767 564,904
Deferred acquisition obligation - current 725,000 225,000
------------ ------------
Total current liabilities 3,835,715 3,173,459
------------ ------------
Long-term liabilities
Deferred acquisition obligation 2,500,074 2,857,143
Long-term debt 6,548,333 6,629,167
Total liabilities 12,884,122 12,659,769
------------ ------------
Commitments and contingencies
Stockholders' deficiency
Preferred Stock, 500,000 shares authorized
Common stock, par value $.01
Authorized: 10,000,000 shares
Issued and outstanding:
June 30, 1997: 5,968,516
December 31, 1996: 6,641,432 59,685 66,414
Subscription receivable -- (3,150,000)
Paid-in capital 11,336,367 14,404,638
Accumulated deficit (15,017,512) (12,672,009)
------------ ------------
Total stockholders' deficiency (3,621,460) (1,350,957)
------------ ------------
Total liabilities and stockholders'
deficiency $ 9,262,662 $ 11,308,812
============ ============
</TABLE>
See accompanying notes to unaudited financial statements
3
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSUDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 66,754 $ 2,632,000 $ 137,754 $ 4,380,000
----------- ----------- ----------- -----------
Costs and expenses
Cost of revenue 582,291 2,255,000 1,179,291 3,752,000
Selling, general and administrative
expenses 423,976 599,000 747,976 1,192,000
Engineering costs 124,413 208,000 434,413 484,000
----------- ----------- ----------- -----------
Total costs and expenses 1,130,680 3,062,000 2,361,680 5,428,000
----------- ----------- ----------- -----------
Loss from operations (1,063,926) (430,000) (2,223,926) (1,048,000)
----------- ----------- ----------- -----------
Other income (expense)
Interest income 61,197 131,000 134,136 212,000
Interest expense (250,773) (251,000) (500,773) (502,000)
Other - net -- 2,000 245,061 2,000
Gain on disposal of fixed assets -- -- --
----------- ----------- ----------- -----------
Total other (expense) income (189,576) (118,000) (121,576) (288,000)
----------- ----------- ----------- -----------
Net loss $(1,253,502) $ (548,000) $(2,345,502) $(1,336,000)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited financial statements
4
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1997 1996
----------- -----------
<S> <C> <C>
Cash Flows from operating activities:
Net loss $(2,345,502) $(1,336,000)
----------- -----------
Adjustments to reconcile net cash
used in operating activities:
Depreciation 480,895 465,000
Amortization 46,592 47,000
Interest, net 16,097 (7,000)
Gain/loss on sale of long-term investment (245,061)
Changes in assets and liabilities:
Accounts receivable 66,273 824,000
Other receivables (5,917) (55,000)
Other current assets (21,584) (29,000)
Inventory 283,144 (436,000)
Other assets (25,663) (206,000)
Accounts payable (231,333) (60,000)
Accrued liabilities 25,041 (4,000)
Other liabilities 143,862 509,000
----------- -----------
Net cash (used in)
operating activities (1,813,156) (288,000)
----------- -----------
Cash flows from investing activities:
Purchase of long-term investment (1,583,000) (647,000)
Sale of securities available for sale 2,583,000 630,000
Purchase of fixed assets -- (57,000)
Proceeds from sale of fixed assets 4,831 --
----------- -----------
Net cash provided by (used in)
investing activities 1,004,831 (74,000)
----------- -----------
Cash flows from financing activities:
Repayment of long term debt (72,917) (84,000)
Loan payable 216,767
Payment of deferred debt obligation -- (75,000)
Issuance of common stock 75,000 1,301,000
----------- -----------
Net cash provided by (used in)
financing activities 218,850 1,142,000
----------- -----------
Net (decrease) increase in cash (589,475) 780,000
Cash and cash equivalents at
beginning of period 633,597 328,000
----------- -----------
Cash and cash equivalents at
end of period $ 44,122 $ 1,108,000
=========== ===========
Supplementary disclosure of cash flows information:
Interest paid during the period 301,326 $ 433,000
Income taxes paid during the period -- --
</TABLE>
See accompanying notes to unaudited financial statements
5
<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 unaudited financial
statements of the Company should be read in conjunction with the financial
statements and footnotes thereto contained in the Annual Report on Form 10-KSB
for the year ended December 31, 1996, as filed with the SEC.
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
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.
Part I - Financial Information
6
<PAGE>
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
On May 23, 1997, operations were ceased and all employees were laid off. The
Company anticipated operating funds in association with the impending merger
with PowerCold, which did not materialize. Richard M. H. Thompson, former
Director, President and CEO, continued on a consulting basis in an effort to
consummate the merger. Also several employees remained on a consulting basis at
the request of Mr. Frank Simola, Chairman of PowerCold, to support ongoing
production and field operations for the 65 Series Natural Gas and 65 Series
Marine Engine programs.
The Company's United States Government contracts were substantially completed by
the end of the year 1996. The exception being a SBIR contract for a 8.5kW APU
for a United States Marine Corps vehicle, which was in progress at the time of
shut-down. Future U.S. Government contract revenues are expected to be minimal.
Comparison of Six Months Ended June 30, 1997 and June 30, 1996
Revenue for the three month period ended June 30, 1997 decreased approximately
97%, or $2,565,246 to $66,754 from $2,632,000 for the same three month period in
1996. This decrease comprised a reduction in virtually all U.S. Government
contract revenue, offset by an increase in commercial revenue. The primary
contributor to the reduction was the effective stoppage of operations on May 23,
1997. The United States Marine Corp. Contract for the development of the
5-rotor, 2950 HP Series 580 engine accounted for $3,023,664 of last year's
revenues in this period, and was completed in the third quarter of 1996.
Cost of revenues decreased 69% for the six months ended June 30, 1997, in
comparison with the same period in 1996. The lowered costs of reduced production
were partially offset by the increase of approximately $475,000 related to the
factory cost of the pre-production Series 580 commercial marine engines and by
increased costs of roughly $14,000 for the natural gas Series 65 industrial
engines. General and administrative expenses decreased 37% due primarily to the
cessation of operations, offset somewhat by expenses associated with the
continuation of several employees on a consulting basis to support the ongoing
production operations and field support of the 65 Series Natural Gas and Marine
engine programs.
Engineering and product development expenses dropped 10% (approximately $49,600)
due to the termination of all projects midway through the period. Operating
losses of $2,223,926 were sustained as expenditures were made on projects for
which funding and near-term revenues were anticipated, as well as fixed expenses
unrelated to sales volume.
Interest expense remained at $251,000 in the second quarter of 1997, as it was
in the 1996 period, and interest income decreased 53% to $61,197 in the second
quarter of 1997 from $131,000 in the second quarter of 1996. This decrease was
due to lower interest income earned from the FICO strips.
As a result of the above, net loss increased $705,502 to $1,253,502 in the
second quarter of 1997 from
7
<PAGE>
$548,000 in the second quarter of 1996.
Liquidity and Capital Resources
In December 1996, the Company concluded an agreement with International
Cryogenic Systems Corporation (the name of which has since been changed to
PowerCold Corporation) 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.
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.
It was anticipated that these and other cash resources would be sufficient to
enable the Company to continue its operations through June 30, 1997. Higher than
anticipated operating costs, as well as costs associated with the pending merger
caused the funds to be used at a higher than planned rate. The Company
anticipated operating funds in association with the impending merger with
PowerCold, which did not materialize, as the merger was not consummated.
On May 23, 1997, operations were ceased and all employees were laid off. Mr.
Thompson continued on a consulting basis in an effort to consummate the merger.
Also several employees remained on a consulting basis at the request of Mr.
Frank Simola, Chairman of PowerCold, to support ongoing production and field
operations for the 65 Series Natural Gas and 65 Series Marine Engine programs.
The Company's United States Government contracts were substantially completed by
the end of the year 1996. The exception being a SBIR contract for a 8.5kW APU
for a United States Marine Corps vehicle, which was in progress at the time of
shut-down. Future U.S. Government contract revenues are expected to be minimal.
Capital expenditures were essentially non-existent in the first half of 1997,
compared to approximately $57,000 for the first half of 1996.
Working capital on June 30, 1997 was ($985,567) compared to ($27,674) on March
31, 1997. The Company remained at a stand-still pending additional operating
funds. 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 if 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
8
<PAGE>
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.
PART II - Other Information
Item 2 - Changes in Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) EXHIBITS TO 10-QSB
11 Computations of Earnings (Loss) Per Common Share for the Six months
Ended June 30, 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").
9
EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Six Months Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
BASIC
Shares outstanding, beginning of period 6,641,432 3,391,432
Weighted average number of shares issued,
retired and issuable share equivalents (368,865) 814,556
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 6,272,567 4,205,988
=========== ===========
Net Loss $(2,345,502) $(1,336,369)
=========== ===========
Net Loss per Common Share $(0.37) $(0.32)
=========== ===========
DILUTED
Weighted average number of common and common
equivalent shares outstanding as adjusted
for full dilution 6,272,567 3,674,141
=========== ===========
Net Loss $(2,345,502) $(1,336,369)
=========== ===========
Net Loss per Common Share $(0.37) $(0.36)
=========== ===========
</TABLE>
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.
10
<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/Kenneth Leighton Brody
Kenneth Leighton Brody
President and Principal Financial Officer
August 24, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000914539
<NAME> ROTARY POWER INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 44,122
<SECURITIES> 3,297,657
<RECEIVABLES> 400,742
<ALLOWANCES> 0
<INVENTORY> 2,373,886
<CURRENT-ASSETS> 2,850,148
<PP&E> 1,794,233
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,262,662
<CURRENT-LIABILITIES> 3,835,715
<BONDS> 6,548,333
0
0
<COMMON> 59,685
<OTHER-SE> (3,681,145)
<TOTAL-LIABILITY-AND-EQUITY> 9,262,662
<SALES> 66,754
<TOTAL-REVENUES> 66,754
<CGS> 585,291
<TOTAL-COSTS> 1,130,680
<OTHER-EXPENSES> 189,576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 189,576
<INCOME-PRETAX> 1,253,502
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,253,502
<EPS-PRIMARY> (0.37)
<EPS-DILUTED> (0.36)
</TABLE>
