<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, 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
(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.
(X) Yes ( ) No
The number of shares outstanding of the Registrant's Common Stock par value
$0.01, as of May 10, 2000 was 6,212,855.
Transitional Small Business Disclosure Format: ( ) Yes (X) No
<PAGE>
ROTARY POWER INTERNATIONAL, INC.
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Operations for
the Three Months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 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 9
Signatures 10
2
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,261 $ 53,295
Accounts receivable 709,488 695,988
Other receivables 30,000 30,000
Inventories 671,876 674,576
Other current assets -- 1,152
------------ ------------
Total Current Assets 1,414,626 1,455,011
Fixed assets (6,492) --
Patents 477,253 492,649
Other assets, net 241,321 266,467
------------ ------------
$ 2,126,708 $ 2,214,127
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable $ 250,497 $ 140,543
Accrued liabilities 796,761 749,760
Other current liabilities 503,000 500,000
Deferred acquistion obligation - current 1,850,000 1,725,000
------------ ------------
Total Current Liabilities 3,400,258 3,115,303
Long-term liabilities:
Deferred acquisition obligation 2,120,996 2,179,309
Long-term debt 4,512,125 4,412,885
Note Payable 350,000 350,000
------------ ------------
Total Liabilities 10,383,379 10,057,497
------------ ------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, 300,000 par value $.01 shares authorized;
225,000 shares for 2000 and 225,000 for 1999 issued and outstanding 2,250 2,250
Common stock, par value $.01; 10,000,000 shares authorized ;
6,212,855 for 2000 and 6,212,855 for 1999 shares issued and outstanding 62,129 62,129
Paid-in capital 11,685,657 11,685,657
Accumulated deficit (20,006,707) (19,593,406)
------------ ------------
Total Stockholders' Deficiency (8,256,671) (7,843,370)
------------ ------------
$ 2,126,708 $ 2,214,127
============ ============
</TABLE>
The accompanying notes are an integral part of the statements.
3
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 March 31
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 25,200 $ 2,500
----------- -----------
Costs and expenses:
Cost of revenues 19,854 13,085
General and administrative 282,090 129,009
Total Cost and Expenses 301,945 142,094
----------- -----------
Loss From Operations (276,745) (139,594)
Other income (expense):
Interest expense (169,427) (165,927)
Other, net 32,870 --
Total Other Expense (136,557) (165,927)
----------- -----------
Net Loss $ (413,301) $ (305,521)
=========== ===========
Net loss per common share - primary: $ (0.07) $ (0.05)
Weighted average common shares outstanding: 6,212,855 6,112,855
</TABLE>
The accompanying notes are an integral part of the statements.
4
<PAGE>
ROTARY POWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
March 31 March 31
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(413,301) $(305,520)
Adjustments to reconcile to net cash used in operating activities:
Depreciation -- 106,791
Amortization 21,246 21,246
Interest, net 169,427 165,927
Other (2,858) (29,681)
Security and tax deposits -- (665)
Employee Advances -- (1,000)
Changes in assets and liabilities:
Accounts receivable (13,500) (2,500)
Inventories 2,700 123
Other current assets 1,152 436
Other assets 25,146 --
Accounts payable 109,954 11,123
Accrued liabilities 47,001 1
Other current liabilities 3,000 --
--------- ---------
Net Cash Used in Operating Activities (50,034) (33,720)
--------- ---------
Cash flows from financing activities:
Repayment of officer's loan -- 8,935
Issuance of preferred stock -- 25,000
--------- ---------
Net Cash From (Used In) Financing Activities -- 33,935
--------- ---------
Net Increase (Decrease) in Cash (50,034) 215
Cash and cash equivalents at beginning of period 53,295 485
--------- ---------
Cash and Cash Held in Escrow at End of Period $ 3,261 $ 700
========= =========
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 statements.
5
<PAGE>
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 included in the Consolidated Balance Sheets as of December 31, 1999
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
All engineering activity ceased in 1999. There were no manufacturing operations
and management efforts were instead devoted to planning for the proposed
manufacturing facility in Canada, pursuing product and procurement activities
involved with future engine production, satisfying the due diligence
requirements under the Subscription Agreement between the Company and
Londonderry Capital Structuring Ltd. ("Londonderry") and becoming current in all
of the Company's reporting obligations with the Securities and Exchange
Commission (the "SEC").
6
<PAGE>
COMPARISON OF SIX MONTHS ENDED MARCH 31, 2000 AND 1999
Revenues for the three months ended March 31, 2000 increased to $25,200
reflecting sales of discontinued engine lines by E-Drive.
General and Administrative costs for the first quarter of 2000 rose to $282,090
from $129,009 in the same quarter of the prior year, primarily due to the legal
and accounting costs of the audits required to complete the Company's SEC
filings, as well as payment for Londonderry's investor relations and consulting
services. Cost of revenues are restated in fiscal year 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 statements and did not affect the Loss from
Operations.
The loss from operations increased $137,151, or 98%, from a $139,594 loss in the
first quarter of 1999 to a loss of $276,745 for the same period in 2000,
reflecting the expenses associated with the SEC filings and consulting fees.
Net interest expense for the first quarter of 2000 of $169,427 remained nearly
at the 1999 level.
As a result of the above, net loss increased to $413,301 in the first quarter of
2000 from $305,521, or 35%, from the same period of the previous year.
LIQUIDITY AND CAPITAL RESOURCES
The remainder of the proceeds from the sale of last year's allocated New Jersey
Net Operating Loss ("NJNOL") Credit were applied to the payment of current
expenses through March 31, 2000. Management believes that the proceeds from the
sale of the Company's remaining NJNOL Credit together with the expected proceeds
from the stock subscription by Londonderry and its assignees will be adequate to
meet operating requirements for the balance of fiscal year 2000. However, if the
Company incurs any unanticipated expenses, it may have to seek additional
financing 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.
7
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
In October and November, 1999, the Company entered into several
agreements with Londonderry, including a subscription agreement to purchase up
to 3,000,000 of the Company's shares of common stock at $.18 per share (the
"Subscription Agreement"), subject to certain conditions, including among
others, the completion of due diligence satisfactory to Londonderry, the
execution of lock-up agreements of certain shareholders and the Company becoming
current in its reporting requirements under the Securities and Exchange Act of
1934. The Subscription Agreement, terminable on February 15, 2000, was extended
prior to termination upon the mutual agreement by the parties until May 15,
2000.
On February 11, 2000, the Company signed a letter of intent with BG
Technologies USA Inc. of Columbia, Maryland ("BGT"), to form a joint venture to
create a pilot plant to demonstrate the technology and economics of a BGT
gasification system producing low BTU gases to fuel one of the Company's rotary
engines in electricity generation. BGT develops integrated biomass
gasifier-based energy systems for industrial and domestic applications as an
environmentally sound method of disposing of various biomass waste materials
that now threaten water and air resources.
In April, 2000, Londonderry informed the Company that it intended to
waive certain conditions that were not met by the Company under the Subscription
Agreement and to fund the Company under the Subscription Agreement provided that
the Company consented to Londonderry's assignment of its right to purchase
2,310,000 of the 3,000,000 shares under the Subscription Agreement to certain
employees, agents, consultants and other unrelated third parties and investors.
The Company agreed to the terms of the assignment.
On April 27, 2000, Mr. Conway Davis of Saint John, New Brunswick,
Canada, assumed the positions of Chief Executive Officer, President and Director
of the Company and its wholly-owned subsidiaries upon the resignation of Mr.
Kenneth Brody from those positions which he held since November, 1997. The
succession in management was reported in a Current Report on Form 8-K filed with
the SEC on May 2, 2000 (the "Form 8-K"), which Form 8-K is hereby incorporated
by reference.
On April 28, 2000, the Company's Board of Directors authorized the
grant to Londonderry of a warrant to purchase 1,500,000 shares of the Company's
common stock exercisable at $.25 per share, subject to the approval by the
shareholders of an increase in the authorized shares of capital stock of the
Company at a shareholders' meeting to be held in July, 2000. The warrant is
exercisable for two years from the date of issuance and is granted to
Londonderry for the successful renegotiation of the exclusive distribution
agreement between the Company and Rotary Power Enterprise, Inc., and for the
work Londonderry has performed in renegotiating the Deferred Payment Obligation
between the Company and JDTI, which obligation is currently in default.
8
<PAGE>
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, 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.
9
<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/ CONWAY DAVIS
---------------------------------------
Conway Davis
President, Chief Executive Officer and
Director
/s/ DOUGLAS DREW
---------------------------------------
Douglas Drew
Vice President, Finance and Director
(Principal Financial Officer)
Dated: May 11, 2000
10
<PAGE>
Exhibit 11
ROTARY POWER INTERNATIONAL, INC.
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months
Ended March 31,
2000 1999
---------- -----------
<S> <C> <C>
BASIC
Shares outstanding,
beginning of period 6,212,855 6,112,855
Weighted average number
of shares issued,
retired and issuable
share equivalents -- --
---------- -----------
Weighted average number
of common and common
equivalent shares
outstanding 6,212,855 6,112,855
========== ===========
Net loss $ (413,301) $ (305,520)
========== ===========
Net loss per
common share $ (0.07) $ (0.05)
========== ===========
DILUTED
Weighted average number of common
and common equivalent shares
outstanding as adjusted to full dilution 7,112,855 6,879,522
========== ===========
Net loss $ (413,301) $ (305,520)
========== ===========
Net loss per
common share $ (0.06)* $ (0.04)*
========== ===========
</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
<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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 3,261
<SECURITIES> 0
<RECEIVABLES> 739,488
<ALLOWANCES> 0
<INVENTORY> 671,876
<CURRENT-ASSETS> 1,414,626
<PP&E> 234,829
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,126,708
<CURRENT-LIABILITIES> 3,400,258
<BONDS> 4,512,125
0
2,250
<COMMON> 62,129
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,126,708
<SALES> 25,200
<TOTAL-REVENUES> 25,200
<CGS> 19,854
<TOTAL-COSTS> 301,945
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,427
<INCOME-PRETAX> (413,301)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (413,301)
<EPS-BASIC> (0.07)
<EPS-DILUTED> (0.06)
</TABLE>
