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 June 30, 2000 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
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(Exact Name of Small Business Issuer as Specified In Its Charter)
Delaware 83-0317306
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(State of Incorporation) (I.R.S. Employer Identification No.)
2932 Thorne Drive, Elkhart, Indiana 46514
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(Address of Principal Executive Offices)
(219) 264-2628
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(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former fiscal Year,
if Changed Since Last Report)
Quintessence Oil Company
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 June 30, 2000 the Issuer had 8,099,607 shares of Common Stock, par value
$0.00001, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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Torque Engineering Corporation
(A Development Stage Company)
FORM 10-QSB
For the Quarterly Period Ended June 30, 2000
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet at June 30, 2000 (unaudited)
and December 31, 1999 (audited).......................................1
Consolidated Statements of Operations for the three months ended
June 30, 2000 & 1999 (unaudited), the six months ended
June 30, 2000 & 1999 (unaudited) and for the period from
June 26, 1996 (inception) to June 30, 2000............................2
Consolidated Statements of Cash Flows for the three months ended
June 30, 2000 and 1999 (unaudited) ), the six months ended
June 30, 2000 & 1999 (unaudited) and for the period
from June 26, 1996 (inception) to June 30, 2000.......................3
Notes to Consolidated Financial Statements (unaudited)...................4
Item 2. Management's Discussion and Analysis or Plan of Operations...........6
General
Results of Operations
Liquidity and Capital Resources
PART II..OTHER INFORMATION
Item 1. Legal Proceedings...................................................7
Item 2. Change in Securities................................................7
Item 3. Defaults upon Senior Securities.....................................7
Item 4. Submission of Matters to a Vote of Security Holders.................7
Item 5. Other Information...................................................7
Item 6. Exhibits and Reports on Form 8-K....................................7
Signature....................................................................8
Torque Engineering Corporation
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
June 30, December 31,
2000 1999
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(unaudited) (audited)
CURRENT ASSETS
Cash $ 237,521 $ 798,019
Accounts Receivable, net 6,906 2,289
Advances to suppliers 50,000 -0-
Marketable securities 18,953 32,145
Prepaid expenses 18,498 4,768
Inventory 1,339,042 1,165,010
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Total Current Assets 1,670,920 2,002,231
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PROPERTY & EQUIPMENT, NET 10,014,264 10,454,045
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TOTAL ASSETS $11,685,184 $12,456,276
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable & other liabilities $ 178,794 $ 82,051
Obligation under Capital lease - current portion 77,900 32,837
Due related parties -0- 28,708
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Total Current Liabilities 256,694 143,596
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LONG-TERM LIABILITIES
Obligation under Capital lease 541,611 575,536
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TOTAL LIABILITIES 798,305 719,132
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STOCKHOLDERS EQUITY
Common Stock, $0.00001 par value, 50,000,000 shares authorized,
8,099,607 and 7,832,940 shares issued and outstanding, respectively. 81 78
Additional paid in capital 13,730,712 13,330,715
Deficit accumulated during development stage (2,578,585) (1,336,328)
Accumulated other comprehensive loss (193,323) ( 180,131)
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10,958,885 11,814,334
Less Treasury Stock at cost (6,750 Shares) (56,970) (56,970)
Less Deferred compensation expense (15,036) (20,220)
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Total Stockholders' Equity 10,886,879 11,737,144
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,685,184 $12,456,276
========== ==========
See accompanying notes to financial statements
1
Torque Engineering Corporation
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Three Months Six Months Six Months For the period from
Ended Ended Ended Ended June 26, 1996
June 30 June 30 June 30 June 30 (inception) to
2000 1999 2000 1999 June 30, 2000
---- ---- ---- ---- -------------
SALES $ 3,749 $ 86,537 $ 8,934 $86,537 $ 100,234
COST OF SALES (82,268) -0- (264,066) -0- (336,796)
-------- --------- --------- ---------- ----------
GROSS LOSS (78,519) 86,537 (255,132) 86,537 (236,562)
-------- --------- --------- ---------- ----------
OPERATING EXPENSES
Payroll & other compensation 54,743 -0- 125,587 -0- 518,382
Amortization -0- -0- -0- -0- 3,375
Depreciation 276,836 66,643 539,372 67,018 1,183,075
Rent 30,000 -0- 60,000 -0- 130,168
Other selling, general & administrative 202,417 133,223 299,867 159,845 628,087
-------- --------- --------- ---------- ----------
Total Operation Expenses 563,996 199,866 1,024,826 226,863 2,463,087
-------- --------- --------- ---------- ----------
NET (LOSS) FROM OPERATIONS ($642,515) ($113,329) ($1,279,958) ($140,326) ($2,699,649)
OTHER INCOME
Interest 1,507 -0- 8,564 -0- 23,070
Consulting Income -0- -0- -0- -0- 120,500
Other -0- -0- 428 -0- 428
Loss on Marketable Securities -0- -0- -0- -0- (51,642)
-------- --------- --------- ---------- ----------
NET (LOSS) BEFORE EXTRAORDINARY ITEMS ($641,008) ($113,329) ($1,270,966) ($140,326) ($2,607,293)
-------- --------- --------- ---------- ----------
EXTRAORDINARY ITEMS
Gain on Extinguishment of Debt 28,708 -0- 28,708 -0- 28,708
NET (LOSS) ($612,300) ($113,329) ($1,242,258) ($140,326) ($2,578,585)
-------- --------- --------- ---------- ----------
OTHER COMPREHENSIVE (LOSS), NET OF TAX
Unrealized (loss) on marketable securities - net (22,744) -0- (13,192) -0- (193,323)
COMPREHENSIVE LOSS ($635,044) ($113,329) ($1,255,450) ($140,326) ($2,771,908)
-------- --------- --------- ---------- ----------
Loss Before Extraordinary Gain (0.081) (0.018) (0.161) (0.039) (1.263)
Extraordinary gain 0.004 0.000 0.004 0.000 0.014
Net loss per share - basic & diluted $(0.077) $(0.018) ($0.157) ($0.039) $(1.249)
Weighted average number shares outstanding 7,907,014 6,331,538 7,869,772 3,554,260 2,064,573
during the period - basic & diluted
See accompanying notes to financial statements.
2
Torque Engineering Corporation
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOW
(unaudited)
For the period from
Six Months Six Months June 26, 1996
Ended Ended (inception) to
June 30, 2000 June 30, 1999 June 30, 2000
------------- ------------- ------------
CASH FLOWS FROM OPERATIONS ACTIVITIES:
Net Loss $ (1,242,258) $ (26,997) (2,578,585)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 539,372 375 1,186,450
Recognized Deferred Compensation 5,184 -0- 10,564
Gain on Extinguishment of Debt (28,708) -0- (28,708)
Changes in operating assets & liabilities:
(Increase) Decrease in:
Marketing Expense incurred exchange of Stock -0- -0- 2,688
Write-off of investment -0- -0- 2,000
Write-off of organizational Expenses -0- -0- 4,125
Loss on marketable securities -0- -0- 51,642
Accounts Receivable (4,615) -0- (6,906)
Advances to suppliers (50,000) -0- (50,000)
Inventory (174,032) -0- (320,234)
Prepaid Expenses (13,730) -0- (18,498)
Increase (Decrease) in:
Accounts Payable & Other Liabilities 96,743 831 178,794
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Net cash provided (used) in operating activities (872,044) (25,791) (1,566,668)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (87,466) -0- (138,147)
Proceeds from sale of available-for-sale-securities -0- -0- 316,158
Investment in Oil & Gas lease -0- -0- (2,000)
Organizational costs -0- -0- (7,500)
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Net cash provided (used) in investing activities (87,466) -0- 168,511
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CASH FLOWS FROM FINANCING ACTIVITES
Issuance of common stock 400,000 -0- 1,942,505
Payments on capital lease obligations (988) -0- (26,797)
Repayment of loans -0- -0- (280,030)
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Net cash provided (used) in financing activities 399,012 -0- 1,635,678
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NET INCREASE (DECREASE) IN CASH (560,498) (25,791) 237,521
CASH & CASH EQUIVALENTS AT
BEGINNING OF PERIOD 798,019 25,791 -0-
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CASH & CASH EQUIVALENTS AT END OF PERIOD $237,521 $ -0- $ 237,521
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SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended June 30, 2000 the company acquired equipment
totaling $12,125 under capital lease obligations.
During May 1999, the company acquired IPSL, Inc in exchange for 1,500,000 shares
of common stock having a fair value of 11,760,000.
See accompanying notes to financial statements
3
Torque Engineering Corporation
(A Development Stage Company)
Notes to Consolidated Financial Statements
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles and have been
condensed 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,
1999.
2. DEVELOPMENT STAGE COMPANY
The Company is considered to be in the development stage, as defined in
Statement of Financial Accounting Standards No. 7. There have been no
significant operations since incorporation. On May 28th, 1999 the company
entered the transportation technology industry where its core business is the
manufacturing and marketing of marine pleasure boat engines, and its activities
to date include primarily fund raising, product design and development, and
establishment of markets.
3. STOCKHOLDERS' EQUITY
On June 5, 2000 a total of 266,667 shares of common stock were issued at a price
of $1.50 per share or a total amount of $400,000. These shares were issued in
reliance on the exemption from registration provided by Section 4(2) of the
Securities Act of 1933.
4. 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
$1,242,258 and negative cash flows from operating activities of $872,044 during
the six months ended June 30, 2000, and had an accumulated deficit of $2,578,585
at June 30, 2000.
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.
5. EXTRAORDINARY ITEM
In June 2000, Torque Engineering's subsidiary IPSL, Inc. confirmed the
extinguishment of debts from certain affiliates and a principal shareholder of
IPSL. Inc totaling $28,708. As a result, an extraordinary gain was realized for
the three months ended June 30, 2000.
4
6. NET LOSS PER SHARE
As a result of an extraordinary item for the three months ended June 30, 2000,
the statements of operations reflects a per share loss for both before and after
extraordinary items.
7. INVENTORIES
Inventory at June 30, 2000 consisted of the following:
Raw materials 1,222,467
Work in Process 116,575
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1,339,042
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8. COST OF SALES
For the six months ended June 30, 2000 the company charged to cost of good sold
$264,066. The company believes certain items are not capitalizeable for
inventory and has taken a conservative approach in expensing these items.
9. STOCK OPTIONS
An employee was granted 10,000 stock options at an exercise price of $1.80625
per option.
5
Torque Engineering Corporation
(A Development Stage Company)
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 is a development stage company which continues to
devote its efforts toward establishing itself as a manufacturer of a
lightweight, high-powered marine engine built on a production line basis for the
luxury performance pleasure craft industry. For the three and six months ended
June 30, 2000 Torque Engineering had a net loss of $612,300 and $1,242,258
respectively, negative cash flows from operating activities of $872,044 for the
six months ended June 30, 2000, an accumulated deficit for the six months ended
June 30, 2000 of $2,578,585.
Revenues
For the three and six months ended June 30, 2000, Torque Engineering
had revenues of $3,749 and $8,934 respectively, attributable to the sale of
various marine engine parts. Cost of sales for the three an six months ended
June 30, 2000 was $82,268 and $264,066 respectively. Costs of sales were
primarily attributable to Torque Engineering's continued manufacture of the
Torque V-12 engines.
Net Loss
Net loss for the three and six months ended June 30, 2000 increased to
$612,300 and $1,242,258 from $113,329 and $140,326 respectively for the three
and six months ended June 30, 1999. This is primarily attributable to increases
in general and administrative expenses and payroll expense incurred in
connection with the implementation of Torque Engineering's business plan. In
addition, Torque Engineering, for the three and six months ended June 30, 2000
had depreciation of $276,836 and $539,372 respectively, for 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 loss on marketable securities for the three and six
months ended June 30, 2000 was $22,744 and $13,192 respectively.
Liquidity and Capital Resources
Management anticipates that it will require additional capital and
plans to obtain such capital through the sale of securities, obtaining financing
from third parties, and from funds generated by the sale of the Torque V-12
engine. If we are unable to obtain financing from any of these potential
sources, or if our funds from our ongoing operations do not increase, it is
unlikely we will continue as a going concern.
Cash Flows
A total of $872,044 was used for operating activities for the six
months ended June 30, 2000. The cash used in operating activities was primarily
expended on depreciation, general and administrative expenses related to the
production-line manufacture of the Torque V-12 engines.
6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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None.
Item 2. Changes in Securities.
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During the six months ended June 30, 2000, Torque Engineering
sold securities in the transaction described below without registering
the securities under the Securities Act of 1933. Unless otherwise
indicated, no underwriter, sales or placement agent was utilized in the
transaction.
1. On June 5, 2000, a total of 266,667 shares of common stock
were issued to a director in exchange for $400,000. These shares
were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933.
2. In February, 2000, an option to purchase 10,000 shares of
common stock at an exercise price of $1.80625 per share, was
issued to an employee of Torque Engineering. The option was
immediately vested 20% and vests an additional 20% in November of
each year commencing November 2000. The option was granted
pursuant to an exemption from registration pursuant to Section
4(2) of the Securities Act of 1933
The facts relied on to meet the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 available for
the sale of such securities were:
-- the limited number of purchasers,
-- the sophistication or accreditation of the purchaser,
-- the purchaser's access to material information about
Torque Engineering,
-- the absence of any general solicitation or advertising, and
-- restrictions on transfer of the securities issued to the
purchaser as indicated by a legend on the certificates
representing such securities.
Item 3. Defaults Upon Senior Securities.
--------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
None
Item 5. Other Information.
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None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
7
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
Date: August 9, 2000 /s/ Raymond B. Wedel, Jr
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Raymond B. Wedel, Jr.
President
Date: August 9, 2000 /s/I. Paul Arcuri .
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I. Paul Arcuri
Chief Financial Officer
8