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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 June 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 August 8, 2000 was 9,830,000.
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
June 30, 2000 and December 31, 1999.............................. 3
Consolidated Statements of Operations for the Three Months
and Six Months ended June 30, 2000 and 1999...................... 4
Consolidated Statements of Cash Flows for the
Six Months ended June 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 5. Other Information................................................ 8
Item 6. Exhibits and Reports on Form 8-K................................. 8
Signatures....................................................... 9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND DECEMBER 31, 1999
ASSETS
<TABLE>
<CAPTION>
Unaudited Audited
2000 1999
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 78,486 $ 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
------------ ------------
Total Current Assets 1,481,971 1,455,011
Fixed assets 34,647 --
Patents 461,857 492,649
Other assets 208,610 266,467
------------ ------------
$ 2,187,085 $ 2,214,127
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 268,545 $ 140,543
Accrued liabilities 788,030 749,760
Other current liabilities 500,000 500,000
Deferred acquisition obligation - current 1,975,000 1,725,000
------------ ------------
Total Current Liabilities 3,531,575 3,115,303
Long-term liabilities:
Deferred acquisition obligation 2,062,682 2,179,309
Long-term debt 4,611,365 4,412,885
Note Payable 350,000 350,000
------------ ------------
Total Liabilities 10,555,622 10,057,497
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, 300,000 par value $.01 shares authorized;
75,000 for 2000 and 225,000 for 1999 shares issued and outstanding 750 2,250
Common stock, par value $.01; 10,000,000 shares authorized;
9,500,000 for 2000 and 6,212,855 for 1999 shares issued and outstanding 95,000 62,129
Subscriptions receivable (89,971) --
Paid-in capital 12,137,972 11,685,657
Accumulated deficit (20,512,288) (19,593,406)
------------ ------------
Total Stockholders' Deficiency (8,368,537) (7,843,370)
------------ ------------
$ 2,187,085 $ 2,214,127
============ ============
</TABLE>
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended June 30th Six Months Ended June 30th
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 6,200 $ 20,790 $ 31,200 $ 23,290
----------- ----------- ----------- -----------
Costs and expenses:
Cost of revenues 23,953 124,761 43,807 255,407
General and administrative 323,153 47,893 605,243 59,291
----------- ----------- ----------- -----------
Total Cost and Expenses 347,106 172,654 649,050 314,698
----------- ----------- ----------- -----------
Loss From Operations (340,906) (151,864) (617,850) (291,408)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (157,516) (165,927) (326,943) (331,853)
Interest income -- -- -- --
Other, net (6,959) -- 25,911 --
----------- ----------- ----------- -----------
Total Other Expense (164,475) (165,927) (301,032) (331,853)
----------- ----------- ----------- -----------
Net Loss $ (505,381) $ (317,791) $ (918,882) $ (623,261)
=========== =========== =========== ===========
Net loss per common share -primary: $ (0.07) $ (0.05) $ (0.14) $ (0.10)
Weighted average common shares outstanding: 7,134,849 6,179,522 6,673,853 6,146,188
</TABLE>
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ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(918,882) $(623,261)
Adjustments to reconcile to net cash used in operating activities:
Depreciation 11,510 213,582
Amortization 42,492 42,492
Interest, net 331,853 331,853
Other -- (35,720)
Security and tax deposits -- (2,723)
Employee advances -- (1,000)
Common stock issued for professional services 124,215 --
Changes in assets and liabilities:
Accounts receivable (5,500) 3,500
Inventories 2,701 7,323
Other current assets 1,030 436
Accounts payable 128,002 11,676
Accrued liabilities 38,270 1
--------- ---------
Net Cash Used in Operating Activities (244,309) (51,841)
--------- ---------
Cash flows from investing activities:
Proceeds from the sale of fixed assets -- 900
--------- ---------
Net Cash Provided by Investing Activities -- 900
--------- ---------
Cash flows from financing activities:
Officer's loan -- 1,625
Issuance of common stock 269,500 --
Issuance of preferred stock -- 50,000
--------- ---------
Net Cash Provided by Financing Activities 269,500 51,625
--------- ---------
Net Increase in Cash 25,191 684
Cash at beginning of year 53,295 485
--------- ---------
Cash at End of Year $ 78,486 $ 1,169
========= =========
Supplemental disclosures of cash flow information:
Interest paid during the year $ 90 $ --
Income taxes paid during the year 400 --
</TABLE>
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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.
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, 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
Although the Company's manufacturing operations have yet to resume,
management commenced planning and procurement activities to produce a limited
number of engines in the Company's New Jersey plant over the next several
months.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues for the six months ended June 30, 2000 were $31,200, which was
nominally greater than
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$23,290 for the comparable period of 1999, and reflected sales of discontinued
engine lines by E-Drive.
General and administrative costs for the six months ended June 30, 2000
increased by $545,952 to $605,243 compared to the same period last year of
$59,291. The increase was primarily due to legal, accounting, consulting and
financing costs associated with updating of the Company's regulatory filings and
the Company's overall increased corporate activity.
The loss from operations increased $326,442, or 112%, from a loss of
$291,408 in the six months ended June 30, 1999 to a loss of $617,850 for the
same period in 2000, reflecting largely the expenses associated with the SEC
filings and consulting and financing fees.
Net interest expense of $326,943 for the six months ended June 30, 2000
was marginally lower than that for the same period of 1999, which was $331,853.
As a result of the above, net loss increased to $918,882 in the six months
ended June 30, 2000 from $623,261, or 47%, from the same period of the previous
year.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company's cash position, together with the
gross proceeds from the subscription agreement between the Company and
Londonderry Capital Structuring Limited ("Londonderry") aggregating $265,000 at
June 30, 2000, and the anticipated gross proceeds of $625,532 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 may seek
additional financing from outside sources during the remainder of the fiscal
year to fund its operations.
"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.
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective May 2, 2000, the Board of Directors appointed Virgil Wenger to
the position of Chairman of the Board.
In accordance with the terms of the Certificate of Designation for the
Series 3 Preferred Stock, three of the Series 3 Preferred shareholders elected
to convert 150,000 shares of Series 3 Preferred Stock into 600,000 shares of
Common Stock in June, 2000. There remain 75,000 shares of Series 3 Preferred
Stock outstanding, and 300,000 shares of Common Stock have been reserved for
issuance upon its conversion.
In May, 2000, the Company consented to the assignment by Londonderry of
its right to purchase 2,310,000 of the 3,000,000 shares under the Subscription
Agreement between the Company and Londonderry to certain employees, agents and
consultants of the Company and other unrelated third parties and investors.
2,487,145 of the shares offered under the Subscription Agreement were purchased
by Londonderry and such parties as of June 30, 2000 and such shares were issued
by the Company beginning in June, 2000.
On June 1, 2000 the Compensation Committee of the Board of Directors
approved the grant of an option to each of the members of the Board of
Directors, including Messrs. Drew and Davis for 200,000 shares of common stock
each and Mr. Wenger for 225,000 shares of common stock. Each of these options is
immediately exercisable at $.50 per share for five years from the date of grant.
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, 2000 and 1999
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
Current Report on Form 8-K relating to the management succession
filed with the SEC on May 2, 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/ Conway Davis
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Conway Davis
President, Chief Executive Officer and
Director
/s/ Douglas Drew
-----------------------------------------
Douglas Drew
Vice President, Finance and Director
(Principal Financial Officer)
Dated: August 11, 2000
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