<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 June 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, at June 30, 1999 was 6,212,855.
Transitional Small Business Disclosure Format: ( ) Yes (X) No
<PAGE>
ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations for
the Three Months and Six Months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
Six Months ended June 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
</TABLE>
2
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30 December 31
1999 1998
---------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,169 $ 485
Cash held by trustee -- --
Accounts receivable 40,066 43,566
Other receivables 30,000 30,000
Inventories 674,575 681,898
Other current assets -- 436
---------------- ---------------
Total Current Assets 745,811 756,385
Fixed assets 196,513 422,695
Patents 523,441 554,233
Other assets, net -- 284,849
---------------- ---------------
$ 1,465,765 $ 2,018,162
================ ===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt $ -- $ --
Accounts payable 126,327 138,003
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 2,718,041 2,729,718
Long-term liabilities:
Deferred acquisition obligation 2,545,936 2,412,563
Long-term debt 4,214,405 4,015,925
Note Payable 400,000 400,000
---------------- ---------------
Total Liabilities 9,878,382 9,558,206
---------------- ---------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, par value $.01; 300,000 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 (19,849,884) (19,215,080)
---------------- ---------------
Total Stockholders' Deficiency (8,125,548) (7,540,044)
---------------- ---------------
$ 1,752,834 $ 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>
Three Months Ended Six Months Ended
June 30 June 30 June 30 June 30
1999 1998 1999 1998
---------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues $ 20,790 $ 47,563 $ 23,290 $ 72,283
---------------- --------------- --------------- ---------------
Costs and expenses:
Cost of revenues $ 124,761 $ 18,055 $ 255,407 $ 47,231
General and administrative 47,893 212,120 59,291 407,211
Engineering and development -- 129,171 -- 263,978
---------------- --------------- --------------- ---------------
Total Cost and Expenses 172,654 359,346 314,698 718,420
---------------- --------------- --------------- ---------------
Loss From Operations (151,864) (311,783) (291,408) (646,137)
---------------- --------------- --------------- ---------------
Other income (expense):
Interest expense (165,927) (160,337) (331,853) (321,320)
Interest income -- 1,425 -- 6,460
Other, net -- 394 -- 322
Gain on disposal of fixed assets -- 157,650 -- 157,650
---------------- --------------- --------------- ---------------
Total Other Expense (165,927) 159,469 (331,853) (156,888)
---------------- --------------- --------------- ---------------
Net Loss $ (317,791) $ (152,314) $ (623,261) $ (803,025)
================ =============== =============== ===============
Net loss per common share - primary: $ (0.05) $ (0.03) $ (0.10) $ (0.13)
Weighted average common shares outstanding: 6,179,522 5,968,516 6,146,188 5,968,516
</TABLE>
The accompanying notes are an integral part of the
unaudited financial statements.
4
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (623,261) $ (803,025)
Adjustments to reconcile to net cash used in operating activities:
Depreciation 213,582 222,077
Amortization 42,492 42,492
Interest, net 331,853 321,320
Other (35,720) --
Security and tax deposits (2,723) --
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 3,500 (13,566)
Other receivables -- (10,000)
Inventories 7,323 38,166
Other current assets 436 (3,870)
Other assets -- (28,775)
Accounts payable 11,676 (216,460)
Accrued liabilities 1 8,913
Other current liabilities -- --
------------------ ------------------
Net Cash Used in Operating Activities (51,841) (641,458)
------------------ ------------------
Cash flows from investing activities:
Purchase of fixed assets -- (10,970)
Proceeds from the sale of fixed assets 900 621,280
------------------ ------------------
Net Cash Provided by Investing Activities 900 610,310
------------------ ------------------
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 684 (329,686)
Cash and cash equivalents at beginning of period 485 371,008
------------------ ------------------
Cash and Cash Held in Escrow at End of Period $ 1,169 $ 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.
5
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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
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 June 30, 1999 for an aggregate subscription of 225,000
shares of Preferred Stock. All of the shares are restricted shares under federal
securities laws and may not be resold with a registration statement or an
exemption from registration under the federal and state securities laws.
6
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In May, 1999, according to the terms of the Certificate of Designations
for the Series 3 Preferred Stock filed with the Secretary of the State of
Delaware, certain Preferred Stock shareholders elected to convert 25,000 shares
of Series 3 Preferred Stock into 100,000 shares of the Company's common stock.
In 1999, the State of New Jersey instituted a program allowing certain
high-tech companies with expanding employment to sell their tax credits for net
operating losses to other New Jersey companies at a discount mandated at no more
than 25%. The Company, qualifying as a high-tech company with renewed prospects
for growth and a substantial net operating loss carryforward, submitted an
application under this program in June, 1999.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
Having consolidated its operations, and in accordance with the
restructuring plan, the Company pursued both customers and new financing in the
second quarter of 1999.
Revenues for the six months ended June 30, 1999 decreased approximately
$48,993 due to a decrease in commercial sales for that amount. Commercial sales
for the six months ended June 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 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 half of 1999 to
$314,698 from $718,420 reflects the effects of cost reductions in rent and
contract employees. Cost of revenues was restated in the period 1999 by
reclassifying period charges, such as depreciation and amortization, related to
overhead from General and Administrative to Cost of Revenue. This treatment is
consistent with the Company's year end audited financial statements and did not
affect the Loss from Operations.
Engineering costs, in 1998 reflected the completion of the Company's
engineering projects. Engineering was inactive in the first half of 1999.
The loss from operations decreased $354,729, or 55%, from a $646,137
loss in the first half of 1998 to a loss of $139,593 for the same period in
1999.
Net interest expense for the first half of 1999 of $331,853 increased
slightly from the same quarter of 1998. Gain on the disposal of fixed assets of
$156,650 in the first quarter of 1998 offset that period's expenses.
As a result of the above, net loss was reduced by $179,764, or 22%, to
$ 623,261 from $803,025 in the first half of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Although cash and equivalents were inadequate to meet historical
operating requirements
7
<PAGE>
at June 30, 1999, proceeds from the sale of the Company's Series 3 Preferred
Stock continued to substitute for the greatly reduced operations.
Also, in June, 1999, the Company submitted its application to the State
of New Jersey to sell its New Jersey tax credits. New Jersey qualified losses of
$6.5 million through calendar 1996 were expected to yield cash of roughly $1.2
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 Six
Months Ended June 30, 1999 and 1998
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None.
8
<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.
/s/ KENNETH LEIGHTON BRODY
---------------------------------------
Kenneth Leighton Brody
President and Principal Financial Officer
Dated: March 20, 2000
9
<PAGE>
EXHIBIT NO. 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1999 1998
---- ----
<S> <C> <C>
BASIC
Shares outstanding,
beginning of period 6,112,855 5,968,516
Weighted average number
of shares issued,
retired and issuable
share equivalents 33,333 --
----------- -----------
Weighted average number
of common and common
equivalent shares
outstanding 6,146,188 5,968,516
=========== ===========
Net loss $ (623,261) $ (803,025)
=========== ===========
Net loss per
common share $ (0.10) $ (0.13)
=========== ===========
DILUTED
Weighted average number
of common and common
equivalent shares outstanding as
adjusted to full dilution 6,946,188 5,968,516
=========== ===========
Net loss $ (623,261) $ (803,025)
=========== ===========
Net loss per
common share $ (0.09)* $ (0.13)*
=========== ===========
</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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000914539
<NAME> ROTARY POWER INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,169
<SECURITIES> 0
<RECEIVABLES> 70,066
<ALLOWANCES> 0
<INVENTORY> 674,575
<CURRENT-ASSETS> 745,811
<PP&E> 719,954
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,752,834
<CURRENT-LIABILITIES> 2,718,042
<BONDS> 4,214,405
0
2,000
<COMMON> 62,129
<OTHER-SE> (8,195,677)
<TOTAL-LIABILITY-AND-EQUITY> 1,752,834
<SALES> 23,290
<TOTAL-REVENUES> 23,290
<CGS> 255,407
<TOTAL-COSTS> 314,698
<OTHER-EXPENSES> 331,853
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 331,853
<INCOME-PRETAX> (623,261)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (623,261)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.09)
</TABLE>
