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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 Sepember 30, 1999
/ / 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 file 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, 1999 was 6,212,855.
Transitional Small Business Disclosure Format: / / Yes /X/ No
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ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for
the Three Months and Nine Months ended
September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1999 and 1998 5
Notes to Unaudited Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
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PART I
FINANCIAL STATEMENTS
Item 1. Financial Statements
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,142 $ 485
Cash held by trustee -- --
Accounts receivable 42,566 43,566
Other receivables 30,000 30,000
Inventories 674,575 681,898
Other current assets -- 436
------------ ------------
Total Current Assets 748,284 756,385
Fixed assets 58,872 422,695
Patents 508,045 554,233
Other assets, net 286,630 284,849
------------ ------------
$ 1,601,831 $ 2,018,162
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ -- $ --
Accounts payable 145,847 138,003
Loan Payable -- --
Accrued liabilities 866,714 866,715
Other current liabilities 500,000 500,000
Deferred acquistion obligation - current 1,225,000 1,225,000
------------ ------------
Total Current Liabilities 2,737,561 2,729,718
Long-term liabilities:
Deferred acquisition obligation 2,612,623 2,412,563
Long-term debt 4,313,645 4,015,925
Note Payable 400,000 400,000
------------ ------------
Total Liabilities 10,063,828 9,558,206
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, 300,000 par value $.01 shares authorized;
200,000 for 1999 and 175,000 for 1998 shares issued and outstanding 2,000 1,750
Common stock, par value $.01; 10,000,000 shares authorized ;
6,212,855 for 1999 and 6,112,855 for 1998 shares issued and outstanding 62,129 61,129
Paid-in capital 11,660,207 11,612,157
Accumulated deficit (20,186,333) (19,215,080)
------------ ------------
Total Stockholders' Deficiency (8,461,997) (7,540,044)
------------ ------------
$ 1,601,831 $ 2,018,162
============ ============
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues $ 15,871 $ -- $ 39,161 $ 72,848
------------- ------------- ------------- -------------
Costs and expenses:
Cost of revenues $ 126,927 $ -- $ 382,333 $ 39,731
General and administrative 25,567 145,641 103,058 532,780
Engineering and development -- 141,583 -- 449,684
------------- ------------- ------------- -------------
Total Cost and Expenses 152,493 287,224 485,391 1,022,195
------------- ------------- ------------- -------------
Loss From Operations (136,622) (287,224) (446,230) (949,348)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense (165,927) (165,927) (505,280) (487,247)
Interest income -- (60) -- 6,793
Other, net -- -- -- 1,006
Gain on disposal of fixed assets (22,500) 14,844 (22,500) 675,120
------------- ------------- ------------- -------------
Total Other Expense (188,427) (151,143) (527,780) 195,674
------------- ------------- ------------- -------------
Net Loss $ (325,049) $ (438,367) $ (974,010) $ (753,674)
============= ============= ============= =============
Net loss per common share - primary: $ (0.05) $ (0.07) $ (0.16) $ (0.13)
Weighted average common shares outstanding: 6,212,855 5,968,516 6,168,411 5,968,516
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
------------------ ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ -- $ (803,025)
------------------ ---------------
Adjustments to reconcile to net cash used in operating activities:
Depreciation 320,373 222,077
Amortization 63,738 42,492
Interest, net 505,780 321,320
Other 10,058 --
Security and tax deposits (2,723) --
Employee Advances (1,000) --
(Gain) loss on disposals of fixed assets 22,500 (198,730)
Common stock issued for professional services -- --
Inventory write down -- --
Changes in assets and liabilities:
Accounts receivable 1,000 (13,566)
Other receivables -- (10,000)
Inventories 7,323 38,166
Other current assets 436 (3,870)
Other assets -- (28,775)
Accounts payable (7,844) (216,460)
Accrued liabilities 1 8,913
Other current liabilities -- --
------------------ ---------------
Net Cash Used in Operating Activities 919,641 (641,458)
------------------ ---------------
Cash flows from investing activities:
Purchase of fixed assets -- (10,970)
Proceeds from the sale of fixed assets 3,400 621,280
------------------ ---------------
Net Cash Provided by Investing Activities 3,400 610,310
------------------ ---------------
Cash flows from financing activities:
Loan Payable -- --
Repayment of long-term debt -- (274,275)
Officer's loan 1,625 (24,263)
Issuance of preferred stock 50,000 --
------------------ ---------------
Net Cash From (Used In) Financing Activities 51,625 (298,538)
------------------ ---------------
Net Increase (Decrease) in Cash 974,666 (329,686)
Cash and cash equivalents at beginning of period 485 371,008
------------------ ---------------
Cash and Cash Held in Escrow at End of Period $ 975,151 $ 41,322
================== ===============
Supplemental disclosures of cash flow information:
Interest paid during the year $ -- $ --
Income taxes paid during the year -- --
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
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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") and its wholly-owned subsidiary, E-Drive systems
Corporation ("E-Drive"), 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 for the fiscal year ended
December 31, 1998 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
DEVIATION FROM PURCHASE AGREEMENT
The Company has not made payments of $225,000 on the deferred
acquisition obligation due to John Deere Technologies International ("JDTI")
which was due on or prior to January 31, 1997. The Company also did not make its
required annual payment of $500,000 on the deferred acquisition obligation due
to JDTI on January 31, 1998 and 1999. The Company is in negotiation with Deere &
Company with regard to the fixed minimum payments due to JDTI under the deferred
acquisition obligation.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's private offering to qualified investors of up to 250,000
shares of Series 3 Preferred Convertible Stock at $1.00 per share was fully
subscribed for by the end of the third quarter of 1999.
In September, the Company was informed that it was selected as one of
the few successful applicants under the NJNOL Program with approved tax credits
for net operating losses of $1,211,686 for sale, subject to allocation by the
state tax department. The Company
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then entered into an agreement with Curtiss-Wright Corporation to purchase all
the tax credits upon allocation. However, the allocation was not made until
December, 1999.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 1998
Having consolidated its operations, and in accordance with the
restructuring plan, the Company pursued both customers and new financing in the
third quarter of 1999.
Revenues for the nine months ended September 30, 1999, decreased
approximately $33,687 to $39,161 due to a decrease in commercial sales for that
amount. Commercial sales for the nine months ended September 30, 1999 consisted
of the sale of excess inventory of its wholly owned subsidiary, E-Drive, as well
as sales relating to the delivery of the Company's prototype Series 580 NGRE
gaseous fueled engine to a commercial customer, whereas the commercial sales
volume for the same period in 1998 was attributed primarily to sales of the
Company's Series 65 engines.
The 52% reduction in costs and expenses for the nine months of 1999 to
$485,391 from $1,022,195 for the same period of 1998 reflects the effects of
cost reductions in rent and contract employees. Cost of revenues and general and
administrative expenses were restated during 1999 by reclassifying period
charges, such as depreciation and amortization, related to overhead from General
and Administrative, to Cost of Revenues. This treatment is consistent with the
Company's year end audited financial statements and did not affect the Loss from
Operations.
Engineering costs in the third quarter of 1998 reflected the completion
of the Company's engineering projects. Engineering costs incurred during the
same quarter of 1999 were minimal and therefore included in General and
Administrative costs.
The loss from operations decreased $503,118, or 53%, from a $949,348
loss in the first nine months of 1998 to a loss of $446,230 for the same period
in 1999.
Net interest expense for the nine months of 1999 decreased $24,826 from
the 1998 level. A loss on the disposal of obsolete tooling of $22,500 was
charged to the first nine months of 1999, while a gain on the disposal of fixed
assets of $675,120 in the first nine months of 1998 offset that period's
expenses.
As a result of the above, net loss for the nine months was increased by
$220,336, or 29%, to $ 974,010 from $753,674 in the first three quarters of
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash run rate of roughly $20,000 per month was adequately
met by sales and proceeds from the sale of the Company's Series 3 Preferred
Stock, although it is considered inadequate to fund normal operations.
However, the Company's application to the State of New Jersey to sell
its New Jersey tax credits of $6.5 million of its New Jersey qualified losses
through calendar 1996 was approved,
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and is expected to yield cash of roughly $1.1 million to the Company, subject to
approval and subsequent allocation by the state tax authorities.
"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 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS TO 10-QSB
11 Computations of Earnings (Loss) Per Common Share for the Nine
months Ended September 30, 1999 and 1998
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
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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.
/s/ KENNETH LEIGHTON BRODY
--------------------------
Kenneth Leighton Brody
President and Principal
Financial Officer
Dated: March 20, 2000
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EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
Nine Months
Ended September 30,
1999 1998
---- ----
BASIC
Shares outstanding,
beginning of period 6,112,855 5,968,516
Weighted average number
of shares issued,
retired and issuable
share equivalents 55,556 --
---------- ----------
Weighted average number
of common and common
equivalent shares
outstanding 6,168,411 5,968,516
========== ==========
Net loss $ (974,010) $ (803,025)
========== ==========
Net loss per
common share $ (0.16) $ (0.13)
========== ==========
DILUTED
Weighted average number
of common and common
equivalent shares
outstanding as
adjusted to full
dilution 6,968,411 5,968,516
========== ==========
Net loss $ (974,010) $ (803,025)
========== ==========
Net loss per
common share $ (0.14)* $ (0.13)*
========== ==========
* 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> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
QUARTERLY SEC REPORT FINANCIAL SUMMARY.
</LEGEND>
<CIK> 0000914539
<NAME> ROTARY POWER INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,142
<SECURITIES> 0
<RECEIVABLES> 72,566
<ALLOWANCES> 0
<INVENTORY> 674,575
<CURRENT-ASSETS> 748,284
<PP&E> 58,872
<DEPRECIATION> 320,373
<TOTAL-ASSETS> 1,601,831
<CURRENT-LIABILITIES> 2,737,561
<BONDS> 4,313,645
0
2000
<COMMON> 62,129
<OTHER-SE> (8,526,126)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 39,161
<TOTAL-REVENUES> 39,161
<CGS> 382,333
<TOTAL-COSTS> 485,391
<OTHER-EXPENSES> (22,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 505,280
<INCOME-PRETAX> (974,010)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (974,010)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.14)
</TABLE>
