<PAGE>
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 March 31, 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 March 31, 1999 was 6,112,855.
Transitional Small Business Disclosure Format: / / Yes /X/ No
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ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998.............................................. 3
Consolidated Statements of Operations for the Three Months
ended March 31, 1999 and 1998...................................... 4
Consolidated Statements of Cash Flows for the Three Months
ended March 31, 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.......................................... 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 8
Signatures.................................................................. 9
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Information
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1999 1998
--------- -----------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 700 $ 485
Cash held by trustee -- --
Accounts receivable 46,066 43,566
Other receivables 30,000 30,000
Inventories 681,775 681,898
Other current assets -- 436
--------- ---------
Total Current Assets 758,541 756,385
Fixed assets 310,054 422,695
Patents 538,837 554,233
Other assets, net 287,069 284,849
------------ -----------
$ 1,894,501 $ 2,018,162
============ ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ -- $ --
Accounts payable 126,880 138,003
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 2,718,594 2,729,718
Long-term liabilities:
Deferred acquisition obligation 2,479,249 2,412,563
Long-term debt 4,115,165 4,015,925
Note Payable 400,000 400,000
------------ -----------
Total Liabilities 9,713,008 9,558,206
------------ -----------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, par value $.01; 300,000 shares authorized; 200,000
shares for 1999 and 175,000 shares for 1998 issued and outstanding 2,000 1,750
Common stock, par value $.01; 10,000,000 shares authorized;
6,112,855 for 1999 and 6,112,855 for 1998 shares issued
and outstanding 61,129 61,129
Paid-in capital 11,636,207 11,612,157
Accumulated deficit (19,517,843) (19,215,080)
------------ -----------
Total Stockholders' Deficiency (7,818,507) (7,540,044)
------------ -----------
$ 1,894,501 $ 2,018,162
============ ===========
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
3
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 March 31
1999 1998
----------- ----------
<S> <C> <C>
Revenues $ 2,500 $ 47,563
----------- ----------
Costs and expenses:
Cost of revenues 130,646 18,055
General and administrative 11,448 212,120
Engineering & Development -- 129,171
----------- ----------
Total Cost and Expenses 142,093 359,346
----------- ----------
Loss From Operations (139,593) (311,783)
Other income (expense):
Interest expense (165,927) (160,337)
Interest income -- 1,425
Other, net -- 394
Gain on disposal of fixed assets -- 157,650
----------- ----------
Total Other Expense (165,927) 159,469
----------- ----------
Net Loss $ (305,520) $ (152,314)
=========== ==========
Net loss per common share - primary: $ (0.05) $ (0.03)
Weighted average common shares outstanding: 6,112,855 5,968,516
</TABLE>
The accompanying notes are an integral part of the unaudited
financial statements.
4
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 March 31
1999 1998
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (305,520) $ (312,651)
Adjustments to reconcile to net cash used in operating activities:
Depreciation 106,791 111,039
Amortization 21,246 21,246
Interest, net 165,927 160,337
Other (29,681) --
Security and tax deposits (665) --
Employee Advances (1,000) --
(Gain) loss on disposals of fixed assets -- (198,730)
Common stock issued for professional services -- --
Inventory write down -- --
Changes in assets and liabilities:
Accounts receivable (2,500) (15,500)
Other receivables (0) (12,746)
Inventories 123 10,501
Other current assets 436 (2,030)
Other assets -- --
Accounts payable 11,123 (139,579)
Accrued liabilities 1 18,853
Other current liabilities -- --
------------ -----------
Net Cash Used in Operating Activities (33,720) (359,260)
------------ -----------
Cash flows from investing activities:
Purchase of fixed assets -- (10,970)
Proceeds from the sale of fixed assets -- 621,280
------------ -----------
Net Cash Provided by Investing Activities -- 610,310
------------ -----------
Cash flows from financing activities:
Loan Payable -- --
Repayment of long-term debt -- (274,275)
Officer's loan 8,935 (26,700)
Issuance of preferred stock 25,000 --
------------ -----------
Net Cash From (Used In) Financing Activities 33,935 (300,975)
------------ -----------
Net Increase (Decrease) in Cash 215 (49,925)
Cash and cash equivalents at beginning of period 485 371,007
------------ -----------
Cash and Cash Held in Escrow at End of Period $ 700 $ 321,082
============ ===========
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.
5
<PAGE>
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.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's management focused on reorganizing the Company's
outstanding debts and resolving a long-standing position of insolvency. The
total staff as of March 31, 1999 consisted of two employees and four contract
employees contracted through Employee Solutions, Inc. ("ESI") and paid by ESI.
After several attempts to raise funds for working capital, the Company
made a private offering to qualified investors for up to 250,000 shares of
Series 3 Preferred Convertible Stock at $1.00 per share commencing on November
2, 1998. Each share of Preferred Stock is convertible into four shares of common
stock upon the request of the shareholder. The Company had sold 25,000 shares
during the quarter ended March 31, 1999 for an aggregate subscription amount of
200,000 shares of Preferred Stock at March 31, 1999. All of these shares are
restricted shares under the federal securities laws and cannot be resold without
a registration statement or an exemption from registration under the federal and
state securities laws.
COMPARISON OF THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Revenues for the three months ended March 31, 1999 decreased
approximately $45,063 compared to the same quarter of 1998 due to a decrease in
commercial sales for that amount. Commercial sales for the three months ended
March 31, 1999 entirely consisted of excess inventory of its wholly owned
subsidiary, E-Drive, whereas the commercial sales volume in the same period in
1998 was attributable primarily to sales of the Company's Series 65 engines.
The reduction in costs and expenses for the first quarter of 1999 to
$142,093 from $359,346 of the same quarter of 1998 reflects the effects of cost
reductions in rent and employees. Cost of Revenues was restated in the first
quarter of 1999 by reclassifying period charges related to overhead, such as
depreciation and amortization, from General and Administrative to Cost of
Revenues. This treatment is consistent with the Company's audited financial
statements for the fiscal year ended December 31, 1998 and does not affect the
Loss from Operations.
Engineering costs for the first quarter of 1998 reflected the completion
of the Company's engineering projects. All engineering activity ceased during
the quarter ended March 31, 1999.
The loss from operations decreased approximately $172,190, or 55%, from
a $311,783 loss in the first quarter of 1998 to a loss of $139,593 for the same
period in 1999.
Net interest expense of $165,927 for the first quarter of 1999 increased
slightly from the net interest expense of the same quarter of 1998. Gain on the
disposal of fixed assets of $157,650 in the first quarter of 1998 offset that
period's expenses.
7
<PAGE>
As a result of the above, net loss was reduced slightly to $305,520 from
$312,651 in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Although cash and equivalents were inadequate to meet historical
operating requirements at March 31, 1999, proceeds from the sale of the
Company's Series 3 Preferred Stock continued to supplement for the greatly
reduced operations.
"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 Three Months Ended March 31, 1999 and 1998
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
8
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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.
By: /s/KENNETH LEIGHTON BRODY
-------------------------
Kenneth Leighton Brody
President and Principal
Financial Officer
Date: March 20, 2000
9
<PAGE>
EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
Three Months
Ended March 31,
1999 1998
---- ----
BASIC
- -----
Shares outstanding,
beginning of period 6,112,855 5,968,516
Weighted average number
of shares issued, retired and
and issuable share equivalents -- --
--------- ----------
Weighted average number
of common and common
equivalent shares
outstanding 6,112,855 5,968,516
========= ==========
Net loss $ (305,520) $ (312,651)
========= ==========
Net loss per
common share $ (0.05) $ (0.05)
========= ==========
DILUTED
- -------
Weighted average number
of common and common
equivalent shares
outstanding as
adjusted to full
dilution 6,912,855 5,968,516
========= ==========
Net loss $ (305,520) $ (312,651)
========= ==========
Net loss per
common share $ (0.04)* $ (0.05)*
========= ============
- ------------------------
* 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 700
<SECURITIES> 0
<RECEIVABLES> 76,066
<ALLOWANCES> 0
<INVENTORY> 681,775
<CURRENT-ASSETS> 758,541
<PP&E> 597,123
<DEPRECIATION> 106,791
<TOTAL-ASSETS> 1,894,501
<CURRENT-LIABILITIES> 2,718,595
<BONDS> 4,115,165
0
2000
<COMMON> 61,129
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,894,501
<SALES> 2,500
<TOTAL-REVENUES> 2,500
<CGS> 130,646
<TOTAL-COSTS> 142,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 165,927
<INCOME-PRETAX> (305,520)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (305,520)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.04)
</TABLE>
