U.S. 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, 2001 or
____ Transition report
under section 13 or 15(d) of the Exchange Act for the transition period from
_______ to _______
Commission file number: 000-21811
Torque Engineering Corporation
(Exact Name of Small Business Issuer as Specified In Its Charter)
Delaware 83-0317306
(State of Incorporation) (I.R.S. Employer Identification No.)
2932 Thorne Drive, Elkhart, Indiana 46514
(Address of Principal Executive Offices)
(219) 264-2628
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 ___
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As of May 17, 2001 the Issuer had 8,536,299 shares of Common Stock, par value
$0.00001, outstanding.
Transitional Small Business Disclosure Format (check one): Yes ____ No X
----
Torque Engineering Corporation
FORM 10-QSB
For the Quarterly Period Ended March 31, 2001
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (Unaudited)
and December 31, 2000 (Audited)...........................................................................3
Consolidated Statements of Operations for the three months
Ended March 31, 2001 and 2000 (Unaudited).................................................................4
Consolidated Statements of Cash Flows for the three months
Ended March 31, 2001 and 2000 (Unaudited).................................................................5
Notes to Consolidated Financial Statements (Unaudited)....................................................6
Item 2. Management's Discussion and Analysis or Plan of Operations...............................................8
General...................................................................................................8
Results of Operations.....................................................................................8
Liquidity and Capital Resources...........................................................................9
PART II OTHER INFORMATION
Item 1. Legal Proceedings.........................................................................................11
Item 2. Change in Securities......................................................................................11
Item 3. Defaults upon Senior Securities...........................................................................11
Item 4. Submission of Matters to a Vote of Security Holders.......................................................11
Item 5. Other Information.........................................................................................11
Item 6. Exhibits and Reports on Form 8-K..........................................................................11
Torque Engineering Corporation
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2001 2000
----
(Unaudited) (Audited)
----------- ---------
CURRENT ASSETS
Cash $2,573 $160,113
Accounts Receivable, net 628,838 311,159
Marketable securities 3,791 1,213
Prepaid expenses 40,737 50,008
Advances to Suppliers 100,553 109,180
Inventory 728,968 789,135
------- ------- -------
Total Current Assets 1,505,460 1,420,808
--------- ---------
PROPERTY & EQUIPMENT, NET 9,178,711 9,451,698
--------- ---------
TOTAL ASSETS $10,684,171 $10,872,506
------------
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & accrued expenses $ 406,282 $ 341,069
Obligation under Capital lease - current portion 158,376 127,278
Due to related parties 101,656 71,656
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Total Current Liabilities 666,314 540,003
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LONG-TERM LIABILITIES
Obligation under Capital lease 423,265 454,363
------- -------
TOTAL LIABILITIES 1,089,579 994,366
--------- -------
STOCKHOLDERS EQUITY
Common Stock, $0.00001 par value, 50,000,000 shares authorized,
8,536,299 and 8,411,299 shares issued and outstanding 85 84
Additional paid in capital 14,493,707 14,243,709
Accumulated Deficit (4,626,260) (4,088,936)
Accumulated other comprehensive loss (208,485) (211,063)
----------- -----------
9,659,047 9,943,794
Less Treasury Stock at cost (6,750 Shares) (56,970) (56,970)
Less Deferred compensation expense (7,485) (8,684)
------- -------
Total Stockholders' Equity 9,594,592 9,878,140
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,684,171 $10,872,506
------------------------------------------
========= =========
See accompanying notes to consolidated financial statements
Torque Engineering Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Three Months
Ended Ended
March 31 March 31
2001 2000
---- ----
SALES $322,369 $5,185
COST OF SALES (350,729) (181,802)
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GROSS LOSS (28,360) (176,617)
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OPERATING EXPENSES
Payroll & other compensation 50,979 70,844
Depreciation 280,652 262,536
Rent 30,000 30,000
Other selling, general & administrative 134,199 97,445
------- ------
Total Operation Expenses 495,830 460,825
------- -------
NET (LOSS) FROM OPERATIONS $(524,190) $(637,442)
OTHER INCOME (EXPENSE)
Interest income 378 7058
Interest (expense) (13,512) -0-
Other -0- 428
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Total Other Income (Expense) (13,134) 7,486
----- -----
NET (LOSS) $(537,324) $(629,956)
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OTHER COMPREHENSIVE GAIN, NET OF TAX
Unrealized gain (loss) on marketable securities - net -0- 9,552
COMPREHENSIVE LOSS $(537,324) $(620,404)
------- ----------
Net loss per share - basic & diluted $(.06) $(0.08)
Weighted average number shares outstanding 8,482,132 7,832,940
========= =========
during the period - basic & diluted
See accompanying notes to consolidated
financial statements.
Torque Engineering Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
Three Months Three Months
Ended Ended
March 31, 2001 March 31, 2000
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (537,324) $ (629,956)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 280,652 262,536
Recognized Deferred Compensation 1,198 2,592
Provision for Inventory Obsolescence 6,000 -0-
Changes in operating assets & liabilities:
(Increase) Decrease in:
Accounts Receivable (317,679) (1,467)
Employee Advance -0- (1,500)
Inventory 54,167 (77,350)
Advances to Suppliers 8,627 -0-
Prepaid Expenses 9,271 4,767
Increase (Decrease) in:
Accounts Payable & Accrued Expenses 65,213 26,329
------ ------
Net cash used in operating activities (429,875) (414,049)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (7,665) (48,829)
Organizational costs -0- -0-
--- ---
Net cash used in Investment Activities (7,665) (48,829)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 250,000 -0-
Proceeds from Shareholder loans 30,000 -0-
------ ---
Net cash provided by financing activities 280,000 -0-
------- ---
NET DECREASE IN CASH (157,540) (462,878)
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 160,113 798,019
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CASH & CASH EQUIVALENTS AT END OF PERIOD $ 2,573 $ 335,141
---------------------------------------- ------------ ----------
See accompanying notes to consolidated financial statements
Torque Engineering Corporation
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America and have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission for interim financial
information. Accordingly, they do not include all the information and footnotes
necessary for a comprehensive presentation of financial position and results of
operations.
It is management's opinion, however, that all material adjustments (consisting
of normal recurring adjustments) have been made which are necessary for a fair
financial statement presentation. The results for the interim period are not
necessarily indicative of the results to be expected for the year.
Further information, refer to the consolidated financial statements and
footnotes, included in the Company's Form 10-KSB for the year ended December 31,
2000.
2. ACCOUNTS RECEIVABLE
During the three months ended March 31, 2001, the company has sold three engines
totaling $320,916 to two customers. The company has a concentration of its
accounts receivable with these two customers totaling 65% and 35% respectively.
As of March 31, 2001 accounts receivable are deemed fully collectible.
3. STOCKHOLDER LOANS
During the three months ended March 31, 2001, the company received $30,000 from
a shareholder as a non-interest-bearing loan to be used as operating funds. The
loan was converted to a note and is payable on demand on or before June 30,
2001.
4. STOCKHOLDERS' EQUITY
In February 2001, a total of 125,000 shares of common stock were issued to
Messrs. Richard D. Wedel, Raymond B. Wedel, Jr. and Michel Attias at a price of
$2.00 per share or a total amount of $250,000. These shares were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
5. INVENTORIES
Inventory at March 31, 2001 consisted of the following:
Purchased parts $453,679
Engines in Process 106,038
Completed Engines 169,251
-------
$728,968
6. GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company incurred a net loss of
$537,324 and negative cash flows from operating activities of $429,875 during
the three months ended March 31, 2001, and had an accumulated deficit of
$4,626,260 at March 31, 2001
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet its
working capital requirements, and the success of its future operations.
Management believes that action presently being taken to revise the Company's
operating and financial requirements provide the opportunity for the Company to
continue as a going concern.
7. SUBSEQUENT EVENTS
On April 4, 2001, the company received $16,500 from a shareholder as a
non-interest-bearing loan to be used as operating funds. The loan was converted
to a note and is payable on demand on or before June 30, 2000.
Torque Engineering Corporation
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Overview
The following discussion of the financial condition and results of
Torque Engineering should be read together with the interim financial statements
included in this report. This discussion contains forward-looking statements
that involve risks and uncertainties. Our actual results may differ materially
from those expressed or implied in those forward-looking statements.
Torque Engineering was a development stage company through September
30, 2000, which has devoted most of its efforts toward establishing its planned
transition from an inoperative oil and gas company to a manufacturer of a
lightweight, high-powered marine engine built on a production line basis for the
luxury performance pleasure boat industry. During the year ended December 31,
2000, we became an operating company. Torque Engineering had a net loss of
$537,324 and negative cash flows from operating activities of $429,875 for the
three months ended March 31, 2001, and an accumulated deficit of $4,626,260 as
of March 31, 2001. These conditions raise substantial doubt about Torque
Engineering's ability to continue as a going concern. Torque Engineering's
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Torque Engineering's ability to continue as a going concern is
dependent upon management's ability to increase sales of the Torque V-12 engines
and to obtain adequate levels of additional financing. Management believes that
its current efforts will provide for Torque Engineering to continue as a going
concern. We can not assure you, however, that we will be successful.
Results of Operations
Revenues and Cost of Sales
For the three months ended March 31, 2001, Torque Engineering had
revenues of $322,369 attributable to the sale of three engines and various
engine parts. Cost of sales for the three months ended March 31, 2001 was
$350,729. Costs of sales were primarily attributable to Torque Engineering's
continued manufacture of the Torque V-12 engines. For the three months ended
March 31, 2000, Torque Engineering had revenues of $5,185 attributable to the
sale of various engine parts. Cost of sales for the three months ended March 31,
2000 was $181,802. Costs of sales were primarily attributable to Torque
Engineering's continued manufacture of the Torque V-12 engines.
During the three months ended March 31, 2000, Torque Engineering was in
the development stage and had limited operations. During the current period we
were in the process of implementing our business plan including accelerated
sales and marketing efforts.
Operating Expenses
Payroll and other compensation decreased to $50,979 for the three
months ended March 31, 2001 from $70,844 for the three months ended March 31,
2000. This decrease is primarily attributable to the reclassification of certain
salary expense of employees directly involved in the production of Torque V-12
engines to cost of goods sold. General and administrative expenses increased to
$134,199 for the three months ended March 31, 2001 from $97,445 for the three
months ended March 31, 2000. The increase was primarily attributable to
marketing and related travel expenses in connection with the establishment and
execution of Torque Engineering's business plan.
Net Loss
Net loss for the three months ended March 31, 2001 decreased to
$537,324 from $629,956 for the three months ended March 31, 2000. This is
primarily attributable to decreases in general and administrative expenses and
payroll expense incurred in connection with the implementation of Torque
Engineering's business plan. In addition, Torque Engineering had $280,652 of
depreciation of property acquired as part of Torque Engineering's acquisition of
IPSL and being used in connection with Torque Engineering's production-line
manufacture of the Torque V-12 engines. Net unrealized gain on marketable
securities for the three months ended March 31, 2001 and 2000 was $ 0 and
$9,552, respectively.
Liquidity and Capital Resources
Future Capital Requirements
Management anticipates that the capital requirements to conduct Torque
Engineering's business plan may be significant and we cannot assure you that we
will be able to obtain those funds or obtain the required capital on terms
favorable to us. We plan to satisfy our capital requirements for the next twelve
months by selling our securities, obtaining financing from third parties and
from funds from the ongoing manufacture and sale of Torque V-12 engines.
Management further anticipates that any funds obtained will be used for working
capital, administrative expenses, and towards the research and development of
the Torque V-12 for other potential uses in the marine and other industries. If
we are unable to obtain financing from third parties, the sale of our securities
or some other source, or if our funds from ongoing operations are insufficient,
it is unlikely that we will continue as a going concern.
Cash Flows
A total of $429,875 was used for operating activities for the three
months ended March 31, 2001. The cash used in operating activities was primarily
expended on general and administrative expenses related to the production-line
manufacture of the Torque V-12 engines.
In February 2001, a total of 125,000 shares of common stock were issued
to Messrs. Richard D. Wedel, Raymond B. Wedel, Jr. and Michel Attias at a price
of $2.00 per share or a total amount of $250,000. These shares were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933. During the three months ended March 31, 2001
shareholders of the company made advances of $30,000 for operating funds.
Torque Engineering believes it does not have sufficient cash to
continue operations and to manufacture the Torque V-12 on a production-line
basis to generate revenues for the next twelve months. However, Torque
Engineering intends to identify other sources of capital and to aggressively
seek out additional capital if available on favorable terms and as necessary to
continue operations and to increase sales and revenues. Management is continuing
to evaluate the company's projected capital needs for the future development and
manufacture of Torque V-12 engines. Although management believes the current
cash, revenues to be generated from sales and any future financings will be
sufficient for the next twelve months, we cannot assure you that Torque
Engineering will not need additional funds to implement management's business
plan.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
None.
Item 2. Changes in Securities.
---------------------
None.
Item 3. Defaults Upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None
Item 5. Other Information.
-----------------
As reported in our annual report on Form 10-KSB, management began
negotiation for the terms of Michael Bennett's employment agreement these
negotiations were concluded during the month of April. The employment agreement
included a 6-month period whereby Mr. Bennett could resign with impunity in
order for Mr. Bennett to determine whether he and his family would relocate to
Indiana. At the end said 6-months Mr. Bennett reported to us that he would not
relocate. Mr. Bennett has resigned his position as Chief Executive Officer.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
10.1 Employment Agreement dated as of
January 1, 2001, and executed April 2001,
between Registrant and Michael Bennett
(filed as exhibit 4.4 to the Form S-8 filed
with the Securities and Exchange Commission
on April 27, 2001(file no. 33-59640) and
incorporated herein by reference)
(b) Reports on Form 8-K.
None
SIGNATURES
Pursuant to 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.
Torque Engineering Corporation
/s/ Raymond B. Wedel, Jr.
--------------------------
Raymond B. Wedel, Jr.
President
/s/ I Paul Arcuri
----------------------------------
I. Paul Arcuri
Chief Financial Officer
Date: May 18, 2001