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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 September 30, 2000
( ) 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
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(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
PO BOX 128, WOOD-RIDGE, NEW JERSEY 07075-0128
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (973) 470-7000
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
$0.01, as of November 10, 2000 was 10,912,855.
Transitional Small Business Disclosure Format: ( ) Yes (X) No
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ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
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PAGE
PART I - FINANCIAL INFORMATION
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Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
September 30, 2000 and December 31, 1999.................................. 3
Consolidated Statements of Operations for the Three Months
and Nine Months ended September 30, 2000 and 1999......................... 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2000 and 1999............................. 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 2. Changes in Securities and Use of Proceeds ................................ 8
Item 5. Other Information......................................................... 8
Item 6. Exhibits and Reports on Form 8-K.......................................... 10
Signatures................................................................ 11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 AND DECEMBER 31, 1999
ASSETS
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September 30, December 31,
2000 1999
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Current assets: (unaudited)
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Cash and cash equivalents $ 24,386 $ 53,295
Accounts receivable 701,488 695,988
Other receivables 30,000 30,000
Inventories 671,875 674,576
Other current assets 122 1,152
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Total Current Assets 1,427,871 1,455,011
Fixed assets 29,407 --
Patents 446,461 492,649
Other assets 202,760 266,467
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$ 2,106,499 $ 2,214,127
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LIABILITIES AND STOCKHOLDERS' DEFICIENCY
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Current liabilities:
Accounts payable $ 356,193 $ 140,543
Accrued liabilities 791,530 749,760
Other current liabilities 500,000 500,000
Deferred acquisition obligation - current 2,225,000 1,725,000
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Total Current Liabilities 3,872,723 3,115,303
Long-term liabilities:
Deferred acquisition obligation 1,879,369 2,179,309
Long-term debt 4,710,605 4,412,885
Note Payable 350,000 350,000
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Total Liabilities 10,812,697 10,057,497
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Commitments and contingencies
Stockholders' deficiency:
Preferred stock, 5,000,000 par value $.01 shares authorized;
50,000 for 2000 and 225,000 for 1999 shares issued and outstanding 500 2,250
Common stock, par value $.01; 100,000,000 shares authorized;
10,592,855 for 2000 and 6,212,855 for 1999 shares issued and outstanding 105,929 62,129
Subscriptions receivable (90,597) --
Paid-in capital 12,358,507 11,685,657
Accumulated deficit (21,080,537) (19,593,406)
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Total Stockholders' Deficiency (8,706,198) (7,843,370)
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$ 2,106,499 $ 2,214,127
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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Three Months Ended September 30th Nine Months Ended September 30th
2000 1999 2000 1999
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Revenues $ -- $ 15,871 $ 31,200 $ 39,161
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Costs and expenses:
Cost of revenues 33,536 126,927 77,343 382,333
General and 371,897 25,567 977,140 103,058
administrative
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Total Cost and Expenses 405,433 152,494 1,054,483 485,391
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Loss From Operations (405,433) (136,623) (1,023,283) (446,230)
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Other income (expense):
Interest expense (169,427) (165,927) (496,370) (505,280)
Other, net 6,611 (22,500) 32,522 (22,500)
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Total Other Expense (162,816) (188,427) (463,848) (527,780)
------------------- ------------------ ------------------- -----------------
Net Loss $ (568,249) $ (325,050) $ (1,487,131) $ (974,010)
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Net loss per common share -primary: $ (0.06) $ (0.05) $ (0.19) $ (0.16)
Weighted average common shares outstanding: 10,028,757 6,212,855 7,800,317 6,168,411
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
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2000 1999
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Cash flows from operating activities:
Net loss $(1,487,131) $(974,010)
Adjustments to reconcile to net cash used in operating activities:
Depreciation 16,751 320,373
Amortization 63,738 63,738
Interest, net 497,780 505,780
Other -- 10,058
Security and tax deposits -- (2,723)
Employee advances -- (1,000)
Loss on disposal of fixed assets -- 22,500
Common stock issued for professional services 143,903 --
Changes in assets and liabilities:
Accounts receivable (5,500) 1,000
Inventories 2,701 7,323
Other current assets 1,030 436
Accounts payable 215,649 (7,844)
Accrued liabilities 41,770 1
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Net Cash Used in Operating Activities (509,309) (54,368)
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Cash flows from investing activities:
Proceeds from the sale of fixed assets -- 3,400
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Net Cash Provided by Investing Activities -- 3,400
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Cash flows from financing activities:
Officer's loan -- 1,625
Issuance of common stock 480,400 --
Issuance of preferred stock -- 50,000
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Net Cash Provided by Financing Activities 480,400 51,625
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Net Increase (Decrease) in Cash (28,909) 657
Cash at beginning of year 53,295 485
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Cash at End of Year $ 24,386 $ 1,142
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Supplemental disclosures of cash flow information:
Interest paid during the year $ 1,410 $ --
Income taxes paid during the year 400 --
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ROTARY POWER INTERNATIONAL, INC.
NOTES TO THE UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying consolidated financial statements for Rotary Power
International, Inc. ("RPI") and its wholly-owned subsidiaries, E-Drive Systems
Corporation ("E-Drive") and Pegasus Technologies Incorporated ("Pegasus, and
collectively with RPI and E-Drive, 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. As of
September 30, 2000, Pegasus had no material transactions.
Information as of December 31, 1999 included in the Consolidated
Balance Sheets 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 did not make payments of $225,000 on the deferred
acquisition obligation due to John Deere Technologies International ("JDTI")
which payment was due on or prior to January 31, 1997. The Company was also
unable to make the annual payment of $500,000 due under the JDTI deferred
acquisition obligation due on January 31, 1998, 1999 and 2000. The Company is
still 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 has commenced the production of engines in its New Jersey
plant. These engines will be pre-production units that will be delivered and
installed at customer locations and used for demonstrations and market
development.
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COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
Revenues for the nine months ended September 30, 2000 were $31,200
which was, $7,961, or 20.3% less than $39,161 for the comparable period of 1999,
and reflected sales of discontinued engine lines by E-Drive.
General and administrative costs for the nine months ended September
30, 2000 increased by $874,082 to $977,140 compared to the same period last year
of $103,058. The increase was primarily due to legal, accounting, consulting and
financing costs associated with the Company's overall increased corporate
activity.
The loss from operations increased $577,053, from a loss of $446,230 in
the nine months ended September 30, 1999 to a loss of $1,023,283 for the same
period in 2000, reflecting largely the expenses associated with the increased
activity of the Company.
Net interest expense of $496,370 for the nine months ended September
30, 2000 was marginally lower than that for the same period of 1999, which was
$505,280.
As a result of the above, net loss increased to $1,487,131 in the nine
months ended September 30, 2000 from $974,010, or 53%, from the same period of
the previous year.
LIQUIDITY AND CAPITAL RESOURCES
During the third quarter ended September 30, 2000, 330,000 shares were
purchased by assignees of Londonderry Capital Structuring Ltd. ("Londonderry")
pursuant to the subscription agreement between the Company and Londonderry (the
"Subscription Agreement"), resulting in proceeds to the Company of $59,400.
Additionally, a third-party assignee under the Subscription Agreement purchased
112,855 shares of Common Stock and paid cash in the aggregate amount of $1,129
for the shares that it purchased and executed a promissory note for the balance
of the purchase price. The note bears interest at 4% and matures on March 1,
2001.
The Company has also issued a warrant to Londonderry which permits
Londonderry to purchase up to 1,500,000 shares of Common Stock at a price of
$0.25 per share. Under the terms of the warrant, Londonderry is permitted to
assign its right to purchase the shares upon exercise. During the third quarter
ended September 30, 2000, 500,000 shares were purchased by certain third-party
assignees upon Londonderry's exercise of a portion of the warrant, resulting in
proceeds to the Company of $125,000. An additional 250,000 shares were sold
resulting in proceeds to the Company of $62,500 during the third quarter;
however, the 250,000 shares were issued to the purchasers subsequent to
September 30, 2000.
Management believes that the Company's cash position, together with the
net proceeds of up to $250,000 from a private placement currently being
conducted by the Company and the anticipated net proceeds of $528,452 from the
sale of the Company's remaining New Jersey Net Operating Loss, which sale is
anticipated to occur before the end of fiscal year 2000, will be adequate to
meet the Company's operating requirements for the balance of fiscal year 2000.
However, if the Company incurs any additional unanticipated expenses it will
need to seek additional financing from outside sources.
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"SAFE HARBOR" STATEMENT
Forward-looking statements made herein are based upon 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 AND USE OF PROCEEDS
On August 11, 2000, the Company issued a warrant to purchase 300,000
shares of the Company's Common Stock at $.25 per share to a consultant to the
Company and/or his designees. The warrant was issued in consideration of
services rendered to the Company by the consultant, and is exercisable for a
term of one year from the date of issue.
ITEM 5. OTHER INFORMATION
Effective July 31, 2000, the Board of Directors approved the formation
of an Advisory Board for the Company. Members will be selected for specific
experience and talents which complement those of the Company's Officers and
Board of Directors and will be appointed for a term of one year. Members of the
Company's Advisory Board do not participate in decisions made by the Board of
Directors or any of the Company's officers, but render consulting advice to the
Board and the officers on strategic planning and other related matters based
upon their individual areas of expertise.
Each member of the Advisory Board will receive an option to purchase
10,000 shares of the Company's Common Stock upon their appointment and an option
to purchase an additional 10,000 shares of Common Stock for their services in
each subsequent year and will be reimbursed for any out-of-pocket expenses
incurred in connection with serving on the Advisory Board. The Advisory Board
Members are expected to devote not more than ten to fifteen days per year to the
affairs of the Company, and in the event that a member devotes additional time
to the affairs of the Company at the Company's request, the Company will
compensate such member at a per diem rate or by the grant of additional options
to purchase shares in such amount as is mutually agreed to by the Company and
such member.
The current members of the Advisory Board are William Partanen,
President of BG Technologies USA, Inc. and Albert Dowden, the recently retired
President of Volvo North America. They were both appointed in July, 2000.
In August 2000, the Company entered into a non-exclusive manufacturing
licensing agreement (the "Licensing Agreement") with Rotary Power Enterprise,
Inc. ("RPE"), whereby the Company agreed to license to RPE the technology,
know-how and technical information required for RPE to manufacture the
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Company's carbureted natural gas fueled Series 580 rotary engines ("Series 580
Engines"). In consideration of the license, the Company will receive a royalty
equal to five percent (5%) of the net sales price of each Series 580 engine sold
by RPE. The Licensing Agreement remains in effect unless and until an event of
default occurs thereunder and the Licensing Agreement is terminated by either
party in accordance with its terms. As a result of the execution of the
Licensing Agreement, the existing Engine Distributor Agreements between the
Company and RPE, which originally granted exclusive rights to RPE to distribute
the Series 580 Engines in certain specified markets, were amended to provide
that those rights are now non-exclusive.
In September 2000, the Company executed a letter of intent with
West-Con Drilling Supplies Ltd. ("WDS") pursuant to which WDS has indicated its
intent to purchase one production prototype 2 Rotor Series 580 Engine generator
set (the "Generator Set") from the Company for a purchase price of $75,000.
Under the terms of the letter of intent, the delivery of the prototype Generator
Set is anticipated to occur on or about August 1, 2001, and, after the delivery
and successful demonstration of the prototype Generator Set, WDS has indicated
its interest in purchasing twenty-five to fifty additional Generator Sets over
the subsequent twenty-four to thirty months at an estimated aggregate purchase
price of $2,750,000 to $5,500,000; subject to WDS successfully obtaining the
financing necessary to purchase the Generator Sets. The consummation of the
transactions contemplated by the terms of the letter of intent is subject to the
negotiation and execution of a definitive agreement between the Company and WDS
and there can be no assurance that such a definitive agreement will be entered
into.
In September 2000, the Company also signed a letter of intent with Safe
Boats International, LLC ("SBI"), pursuant to which SBI has indicated its intent
to purchase three production prototype 2 Rotor Series 70 diesel fueled rotary
engines (the "Diesel Engines"), from the Company for the purpose of installing
the Diesel Engines into SBI's boats. Under the terms of the letter of intent,
the Company will supply the first Diesel Engine at no cost to SBI and the
aggregate purchase price for the two subsequent engines will be $30,000. The
anticipated delivery date for the first Diesel Engine is on or about May 1,
2001, and the two subsequent Diesel Engines are anticipated to be delivered in
June and July, 2001. Subject to the successful delivery by the Company of the
three Diesel Engines and SBI's satisfaction with their performance, SBI intends
to purchase 75 to 150 additional Diesel Engines from the Company over the
subsequent twelve to twenty-four months at an estimated aggregate purchase price
of $1,500,000 to $3,000,000. The consummation of the transactions contemplated
by the terms of the letter of intent is subject to the negotiation and execution
of a definitive agreement between the Company and SBI and there can be no
assurance that such a definitive agreement will be entered into.
On October 6, 2000, the Company authorized its legal counsel to prepare
the necessary legal documentation which will permit the Company to make an offer
to the holders of its outstanding 10.412% Bonds due December 15, 2007 (the
"Bonds") to exchange each $2.00 of principal of and accrued interest on the
Bonds for one share of the Company's Common Stock. Under the terms of the
exchange offer, the Bondholders will not be permitted to sell or transfer the
shares of Common Stock received in the exchange offer for a period of two years
after the closing of the exchange offer without the prior written consent of the
Company.
In connection with the exchange offer, the Company will also be
soliciting consents from the holders of a majority of the outstanding principal
amount of the Bonds to amendments to the Bond indenture which will eliminate the
security interest of the Bondholders in any inventory and equipment acquired by
the Company after the closing date of the exchange offer and also eliminate the
Company's requirement to
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deposit an amount equal to 50% of the principal of and accrued interest on the
Bonds with the Bond trustee by no later than December 31, 2000. The exchange
offer is subject to completion of appropriate offering documentation complying
with applicable securities laws. The Company anticipates that the offering
documents will be sent to Bondholders by mid-November, 2000 and that the offer
will remain open until at least December 14, 2000.
In October, 2000, the Company executed a letter of intent with Road
Runner Equipment Repair ("RRE") pursuant to which RRE has indicated its intent
to purchase one production prototype 1007R rotary engine drive system (the
"Engine Drive System") from the Company at a purchase price of $12,000. Under
the terms of the letter of intent, the Company will assemble and test the
prototype Engine Drive System prior to delivering the prototype to RRE on or
about June 1, 2001. The Engine Drive System will be used by RRE for the purpose
of supplying power to RRE's hydraulic pumps. Subject to the successful delivery
and demonstration of the prototype Engine Drive System, RRE intends to purchase
twenty-five to fifty additional Engine Drive Systems from the Company over the
subsequent eighteen to twenty-four months at an estimated aggregate purchase
price of $300,000 to $600,000. The consummation of the transactions contemplated
by the terms of the letter of intent is subject to the negotiation and execution
of a definitive agreement between the Company and RRE and there can be no
assurance that such a definitive agreement will be entered into.
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, 2000 and 1999
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K relating to the results of the
annual shareholders' meeting filed with the Securities and
Exchange Commission on July 13, 2000.
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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/ DOUGLAS DREW
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Douglas Drew
Vice President, Finance and Director
(Principal Financial Officer and
Duly Authorized Executive Officer)
Dated: November 14, 2000
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