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 September 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
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 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 September 30 , 1998, was 5,968,516.
Transitional Small Business Disclosure Format: ( ) Yes (X) No
<PAGE>
ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 1997, and December 31, 1996 3
Consolidated Statements of Operations for
the Nine Months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 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 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 10
</TABLE>
2
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1997 1996
------------ ------------
<S> <C> <C>
Cash and cash equivalents $ 53,286 $ 633,597
Accounts receivable 177,077 452,015
Other receivables 15,000 9,083
Inventories 2,369,476 2,657,030
Other current assets 13,331 9,814
------------ ------------
Total current assets 2,628,170 3,761,539
Fixed assets 1,553,785 2,279,959
Patents 631,212 677,399
Investment held by trustee 3,316,418 3,925,761
Other assets, net 666,544 664,154
------------ ------------
Total assets $ 8,796,129 $ 11,308,812
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Current portion of long-term debt $ 196,666 $ 183,750
Accounts payable 905,871 1,103,167
Loan payable 216,768 --
Accrued liabilities 1,294,269 1,096,638
Other current liabilities 699,069 564,904
Deferred acquisition obligation - current 725,000 225,000
------------ ------------
Total current liabilities 4,037,643 3,173,459
Long-term liabilities
Deferred acquisition obligation 2,572,061 2,857,143
Long-term debt 6,543,333 6,629,167
Total liabilities 13,153,037.00 12,659,769.00
------------- -------------
Commitments and contingencies
Stockholders' deficiency
Preferred Stock, 500,000 shares authorized
Common stock, par value $.01
Authorized: 10,000,000 shares
Issued and outstanding:
September 30, 1997: 5,968,516 shares
December 31, 1996: 6,641,432 shares 59,685 66,414
Subscription receivable -- (3,150,000)
Paid-in capital 11,336,367 14,404,638
Accumulated deficit (15,752,960) (12,672,009)
------------ ------------
Total stockholders' deficiency (4,356,908) (1,350,957)
------------ ------------
Total liabilities and stockholders'
deficiency $8,796,129.00 $11,308,812.00
============= =============
</TABLE>
See accompanying notes to unaudited financial statements
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSUDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
1997 1996 1997 1996
----------------------------- -------------------------------
<S> <C> <C> <C> <C>
Revenues $ 3,303 $ 878,000 $ 141,057 $ 5,257,000
---------- ---------- ----------- ------------
Costs and expenses
Cost of revenue 345,168 752,000 1,524,459 4,504,000
Selling, general and administrative 164,660 614,000 912,636 1,806,000
Engineering costs - 243,000 434,413 727,000
---------- ---------- ----------- ------------
Total costs and expenses 509,828 1,609,000 2,871,508 7,037,000
---------- ---------- ----------- ------------
Loss from operations (506,525) (731,000) (2,730,451) (1,780,000)
---------- ---------- ----------- ------------
Other income (expense)
Interest income 18,812 83,000 152,948 295,000
Interest expense (247,736) (248,000) (748,509) (750,000)
Other - net - - 245,061 2,000
---------- ---------- ----------- ------------
Total other (expense) income (228,924) (165,000) (350,500) (453,000)
---------- ---------- ----------- ------------
Net loss $ (735,449) $ (896,000) $ (3,080,951) $ (2,233,000)
========== ========== ============ ============
</TABLE>
See accompanying notes to unaudited financial statements
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
<TABLE>
<CAPTION>
September 30 September 30
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows from operating activities:
Net loss $ (3,080,951) $ (2,233,000)
Adjustments to reconcile net cash ------------ ------------
used in operating activities:
Depreciation 721,343 706,000
Amortization 69,888 71,000
Interest, net 69,321 (10,000)
Gain/loss on sale of long-term investment (245,060)
Gain on disposal of fixed assets -- --
Changes in assets and liabilities:
Accounts receivable 274,938 1,029,000
Other receivables (5,917) 40,000
Inventory 287,554 (958,000)
Other assets (29,608) (850,000)
Accounts payable (197,296) 31,000
Accrued liabilities 197,631 (11,000)
Other liabilities 134,165 500,000
------------ ------------
Net cash (used in)
operating activities (1,803,992) (1,685,000)
------------ ------------
Cash flows from investing activities:
Purchase of long-term investment (1,583,000) (647,000)
Sale of securities available for sale 2,583,000 1,229,000
Purchase of fixed assets -- (84,000)
Proceeds from sale of fixed assets 4,831 --
------------ ------------
Net cash provided by
investing activities 1,004,831 498,000
------------ ------------
Cash flows from financing activities:
Repayment of long term debt (72,918) (127,000)
Loan payable 216,768
Officer's loan -- --
Payment of deferred debt obligation -- (75,000)
Issuance of common stock 75,000 1,463,000
------------ ------------
Net cash provided by in
financing activities 218,850 1,261,000
------------ ------------
Net (decrease) increase in cash (580,311) 74,000
Cash and cash equivalents at
beginning of period 633,597 328,000
------------ ------------
Cash and cash equivalents at
end of period $ 53,286 $ 402,000
============ ============
Supplementary disclosure of cash flows information:
Interest paid during the period 301,326 $ 534,000
Income taxes paid during the period -- --
</TABLE>
See accompanying notes to unaudited financial statements
<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 o normal
recurring adjustments) necessary to present fairly the results for the interim
periods presented.
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
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
6
<PAGE>
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 nine months ended September 30, 1997 and September 30, 1996
Revenues for the nine months ended September 30, 1997, decreased 97% to $141,057
due to the cessation of operations on May 23, 1997, and a reduction in U.S
Government contract revenues. The United States Marine Corp. Contract for the
Engineering 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. Commercial sales for the nine months ended September 30, 1997,
accounted for virtually all sales in 1997.
The 66% reduction in cost of revenue for three quarters of 1997 to $1,549,459
from $4,504,000 includes a charge made in the first quarter of 1997 for $475,000
related to the preproduction factory costs of the Series 580 marine engines and
the reduction in sales volume. Cost of revenue includes fixed period charges,
such as rent on production facilities and depreciation on production machinery
and equipment, that are not related to sales volume.
While payroll, benefits and rent for the quarter ended September 30, 1997, were
significantly reduced from the similar period in 1996 (49% reduction from
approximately $1,806,000 to $912,600), the bulk of General and Administrative
costs is fixed expense related to depreciation, legal and auditing expenses,
period charges and corporate expenses, the sum of which did not change
appreciably.
Engineering costs, likewise, were reduced by approximately 40% or $292,587 due
to a reduction in engineering staff and the cessation of Engineering activities
in the military market.
The loss from operations increased approximately 53% or $950,000 from a
$1,780,000 loss in the first nine months of 1996 to a loss of $2,730,451 for the
same period in 1997.
Net interest expense for the first nine months of 1997 increased 31%, or
$140,561 over the same quarter of 1996, reflecting reduced interest income on
the Company's FICO strips held for collateral on the NJEDA bonds.
Other net income of $245,000 in the first quarter of 1997 was due to a realized
gain on the sale of FICO strips. Proceeds from this sale were used to purchase
FICO strips of a different maturity.
As a result of the above, net loss increased 28% or $705,899 to $3,233,899 in
the first nine months of 1997 from $2,528,000 in the first nine months of 1996.
7
<PAGE>
Liquidity and Capital Resources
It was anticipated that cash resources were 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. As of September 30, 1997, there was
insufficient cash to maintain the operations of the Company and the Company was
no longer current in its accounts. In addition, the trustee for the NJEDA
bondholders had declared an instance of default for the non-payment of interest
due on the Company's NJEDA bonds in September, 1997.
Capital expenditures were essentially nil in the first nine months of 1997,
compared to approximately $84,000 for the first nine months of 1996.
"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.
PART II - Other Information
Item 2 - Changes in Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
In prior years the Company held an Annual Meeting of Shareholders. No such
meeting was held in 1997.
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
8
EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Nine Months Ended September 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 (471,329) 681,926
============ ============
Weighted average number of common and
common equivalent shares outstanding 6,170,103 4,073,358
============ ============
Net Loss $(3,080,951) $(2,233,495)
============ ============
Net Loss per Common Share $ (0.50) $ (0.55)
============ ============
DILUTED
Weighted average number of common and common
equivalent shares outstanding as adjusted
for full dilution 6,170,103 550,370
============ ============
Net Loss $(3,080,951) $(2,233,495)
============ ============
Net Loss per Common Share $ (0.50) $ (4.06)
============ ============
</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.
9
<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
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(QUARTERLY SEC REPORT FINANCIAL SUMMARY)
</LEGEND>
<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> JUL-1-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 53,286
<SECURITIES> 3,316,418
<RECEIVABLES> 192,077
<ALLOWANCES> 0
<INVENTORY> 2,369,476
<CURRENT-ASSETS> 2,628,170
<PP&E> 1,553,785
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,796,128
<CURRENT-LIABILITIES> 4,037,643
<BONDS> 6,543,333
0
0
<COMMON> 59,685
<OTHER-SE> (4,416,593)
<TOTAL-LIABILITY-AND-EQUITY> 8,796,129
<SALES> 3,303
<TOTAL-REVENUES> 3,303
<CGS> 345,168
<TOTAL-COSTS> 509,828
<OTHER-EXPENSES> 228,924
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 228,924
<INCOME-PRETAX> (735,449)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (735,449)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
