UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended September 30, 2008
OR
|
|
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
to
Commission File No. 000-24455
TORVEC, INC.
(Exact name of registrant as specified in its charter)
|
|
|
New York
|
|
16-1509512
|
(State or other jurisdiction of
|
|
(I.R.S. Employer Identification No.)
|
incorporation or organization)
|
|
|
1999 Mt. Read Blvd. Building 3, Rochester, New York 14615
(Address of principal executive offices and Zip Code)
(585) 254-1100
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has 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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer
o
|
|
Accelerated filer
o
|
|
Non-accelerated filer
o
|
|
Smaller reporting company
þ
|
|
|
|
|
(Do not check if a smaller reporting company)
|
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest
practicable date:
|
|
|
Class
|
|
Number of Shares Outstanding at
November 14, 2008
|
|
|
|
Common Stock, $.01 par value
|
|
32,572,957
|
TORVEC, INC. AND SUBSIDIARIES
(a development stage company)
INDEX
2
PART I FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
TORVEC, INC. AND SUBSIDIARIES
(a development stage company)
Condensed Consolidated Balance Sheets
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
September 30, 2008
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
(Derived from
|
|
|
|
|
|
|
Audited Financial
|
|
|
|
(Unaudited)
|
|
|
Statements)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
43,000
|
|
|
$
|
192,000
|
|
Inventory
|
|
|
140,000
|
|
|
|
|
|
Prepaid expenses and other receivables
|
|
|
37,000
|
|
|
|
43,000
|
|
Income Tax Receivable
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
600,000
|
|
|
|
235,000
|
|
|
|
|
|
|
|
|
Property and Equipment:
|
|
|
|
|
|
|
|
|
Office equipment
|
|
|
68,000
|
|
|
|
67,000
|
|
Shop equipment
|
|
|
139,000
|
|
|
|
129,000
|
|
Leasehold improvements
|
|
|
213,000
|
|
|
|
149,000
|
|
Transportation equipment
|
|
|
106,000
|
|
|
|
106,000
|
|
|
|
|
|
|
|
|
|
|
|
526,000
|
|
|
|
451,000
|
|
Less accumulated depreciation and amortization
|
|
|
(222,000
|
)
|
|
|
(170,000
|
)
|
|
|
|
|
|
|
|
Net property and equipment
|
|
|
304,000
|
|
|
|
281,000
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
904,000
|
|
|
$
|
516,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Notes payable, current portion
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
Accounts payable and Accrued Liabilities
|
|
|
244,000
|
|
|
|
261,000
|
|
Deferred Compensation and Other
|
|
|
582,000
|
|
|
|
1,704,000
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
841,000
|
|
|
|
1,980,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income
|
|
|
898,000
|
|
|
|
500,000
|
|
Deferred rent
|
|
|
46,000
|
|
|
|
|
|
Notes payable, net of current portion
|
|
|
33,000
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,818,000
|
|
|
|
2,523,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS CAPITAL DEFICIT
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value, 100,000,000 shares authorized
|
|
|
|
|
|
|
|
|
3,300,000 designated as Class A, Non-voting, cumulative
dividend $.40 per share, per annum, convertible, September
30, 2008 and December 31, 2007 707,101 and 732,493 shares
issued and outstanding (liquidation preference $3,811,686 and
$3,701,162)
|
|
|
8,000
|
|
|
|
8,000
|
|
300,000 designated as Class B, Non-voting, cumulative
dividend $.50 per share, per annum, convertible, September
30, 2008 and December 31, 2007 97,500 shares issued and
outstanding (liquidation preference $348,201 and $311,787)
|
|
|
1,000
|
|
|
|
1,000
|
|
Common stock, $.01 par value, 400,000,000 shares authorized,
32,407,140 and 31,640,045 issued and outstanding, at
September 30, 2008 and December 31, 2007, respectively
|
|
|
324,000
|
|
|
|
316,000
|
|
Additional paid-in capital
|
|
|
47,950,000
|
|
|
|
45,926,000
|
|
Deficit accumulated during the development stage
|
|
|
(49,197,000
|
)
|
|
|
(48,258,000
|
)
|
|
|
|
|
|
|
|
Total Stockholders Capital Deficit
|
|
|
(914,000
|
)
|
|
|
(2,007,000
|
)
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders Capital Deficit
|
|
$
|
904,000
|
|
|
$
|
516,000
|
|
|
|
|
|
|
|
|
See
notes to condensed consolidated financial statements.
3
TORVEC, INC. AND SUBSIDIARIES
(a development stage company)
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
ended
|
|
|
Three Months
ended
|
|
|
Nine months
ended
|
|
|
Nine months
ended
|
|
|
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
September 30,
|
|
|
From Inception
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
thru 09/30/08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
98,000
|
|
|
|
30,000
|
|
|
|
126,000
|
|
|
|
156,000
|
|
Cost of Goods Sold
|
|
|
|
|
|
|
94,000
|
|
|
|
11,000
|
|
|
|
120,000
|
|
|
|
131,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
4,000
|
|
|
|
19,000
|
|
|
|
6,000
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
143,000
|
|
|
|
152,000
|
|
|
|
405,000
|
|
|
|
541,000
|
|
|
|
15,205,000
|
|
General and
administrative
|
|
|
694,000
|
|
|
|
434,000
|
|
|
|
2,475,000
|
|
|
|
1,935,000
|
|
|
|
36,286,000
|
|
Asset Impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,071,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(837,000
|
)
|
|
|
(582,000
|
)
|
|
|
(2,861,000
|
)
|
|
|
(2,470,000
|
)
|
|
|
(52,537,000
|
)
|
Other Income
|
|
|
|
|
|
|
13,000
|
|
|
|
1,000
|
|
|
|
143,000
|
|
|
|
147,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before Gain, tax benefit
and minority interest
|
|
|
(837,000
|
)
|
|
|
(569,000
|
)
|
|
|
(2,860,000
|
)
|
|
|
(2,327,000
|
)
|
|
|
(52,390,000
|
)
|
Gain on cancellation of debt
|
|
|
|
|
|
|
|
|
|
|
1,541,000
|
|
|
|
|
|
|
|
1,541,000
|
|
Minority interest in Loss
of consolidated
subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Before Income Tax
Provision
|
|
|
(837,000
|
)
|
|
|
(569,000
|
)
|
|
|
(1,319,000
|
)
|
|
|
(2,327,000
|
)
|
|
|
(49,577,000
|
)
|
Income Tax Benefit
|
|
|
380,000
|
|
|
|
|
|
|
|
380,000
|
|
|
|
|
|
|
|
380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
(457,000
|
)
|
|
|
(569,000
|
)
|
|
|
(939,000
|
)
|
|
|
(2,327,000
|
)
|
|
|
(49,197,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock beneficial conversion feature
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
763,000
|
|
Preferred stock dividend
|
|
|
79,000
|
|
|
|
85,000
|
|
|
|
246,000
|
|
|
|
255,000
|
|
|
|
1,115,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss attributable to
common stockholders
|
|
|
(536,000
|
)
|
|
|
(654,000
|
)
|
|
|
(1,185,000
|
)
|
|
|
(2,582,000
|
)
|
|
|
(51,075,000
|
)
|
|
Basic and Diluted net income
(loss) attributable
to common stockholders per
share
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
|
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of
shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock Basic and
Diluted
|
|
|
32,265,845
|
|
|
|
31,457,000
|
|
|
|
32,020,977
|
|
|
|
31,352,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
4
TORVEC, INC. AND SUBSIDIARIES
(a development stage company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 25,
|
|
|
|
|
|
|
|
|
|
|
|
1996
|
|
|
|
|
|
|
|
|
|
|
|
(Inception)
|
|
|
|
Nine months Ended
|
|
|
Through
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(939,000
|
)
|
|
$
|
(2,327,000
|
)
|
|
$
|
(49,197,000
|
)
|
Adjustments to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
52,000
|
|
|
|
32,000
|
|
|
|
2,435,000
|
|
Loss on impairment of license
|
|
|
|
|
|
|
|
|
|
|
1,071,000
|
|
Impairment of goodwill
|
|
|
|
|
|
|
19,000
|
|
|
|
19,000
|
|
Gain on sale of fixed assets
|
|
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
Minority interest in gain (loss) of consolidated subsidiary
|
|
|
|
|
|
|
|
|
|
|
(1,272,000
|
)
|
Compensation expense attributable to common stock in
Subsidiary
|
|
|
|
|
|
|
|
|
|
|
619,000
|
|
Common stock issued for services
|
|
|
1,528,000
|
|
|
|
668,000
|
|
|
|
13,182,000
|
|
Shares issued for future consulting services
|
|
|
|
|
|
|
|
|
|
|
103,000
|
|
Stockholder contribution of services
|
|
|
|
|
|
|
225,000
|
|
|
|
2,409,000
|
|
Gain on
cancellation of debt
|
|
|
(1,541,000
|
)
|
|
|
|
|
|
|
(1,541,000
|
)
|
Compensatory common stock, options and warrants
|
|
|
249,000
|
|
|
|
650,000
|
|
|
|
17,501,000
|
|
Changes in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
(98,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
(140,000
|
)
|
|
|
|
|
|
|
(140,000
|
)
|
Prepaid expenses
|
|
|
6,000
|
|
|
|
10,000
|
|
|
|
124,000
|
|
Deferred rent
|
|
|
46,000
|
|
|
|
|
|
|
|
46,000
|
|
Accounts payable and accrued expenses
|
|
|
(118,000
|
)
|
|
|
244,000
|
|
|
|
3,797,000
|
|
Deferred Compensation and Other
|
|
|
581,000
|
|
|
|
|
|
|
|
581,000
|
|
Income Tax Receivable
|
|
|
(380,000
|
)
|
|
|
|
|
|
|
(380,000
|
)
|
Deferred revenue
|
|
|
398,000
|
|
|
|
350,000
|
|
|
|
898,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(258,000
|
)
|
|
|
(227,000
|
)
|
|
|
(9,755,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
(360,000
|
)
|
Cost of acquisition
|
|
|
|
|
|
|
|
|
|
|
(16,000
|
)
|
Proceeds from sale of fixed asset
|
|
|
|
|
|
|
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(11,000
|
)
|
|
|
|
|
|
|
(366,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sales of common stock and upon exercise of
options and warrants
|
|
|
130,000
|
|
|
|
|
|
|
|
6,631,000
|
|
Net proceeds from sales of preferred stock
|
|
|
|
|
|
|
|
|
|
|
3,537,000
|
|
Net proceeds from sale of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
234,000
|
|
Proceeds from long term borrowings
|
|
|
|
|
|
|
|
|
|
|
85,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long term debt
|
|
|
(10,000
|
)
|
|
|
(10,000
|
)
|
|
|
(61,000
|
)
|
Proceeds from stockholders loan and advances
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Repayment of stockholders loan and advances
|
|
|
|
|
|
|
|
|
|
|
(147,000
|
)
|
Distributions
|
|
|
|
|
|
|
|
|
|
|
(365,000
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
120,000
|
|
|
|
(10,000
|
)
|
|
|
10,164,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash
|
|
|
(149,000
|
)
|
|
|
(237,000
|
)
|
|
|
43,000
|
|
Cash at beginning of period
|
|
|
192,000
|
|
|
|
720,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
43,000
|
|
|
$
|
483,000
|
|
|
$
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
4,000
|
|
|
$
|
9,000
|
|
|
|
|
|
Income Tax Paid
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
Non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for acquisition leasehold improvements
|
|
|
64,000
|
|
|
|
|
|
|
|
|
|
Issuance of
common stock in settlement of payables
|
|
|
62,000
|
|
|
|
42,000
|
|
|
|
|
|
Preferred stock issued in payment of dividend
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
Shares issued for acquisition of Variable Gear
|
|
|
|
|
|
|
19,000
|
|
|
|
|
|
See notes to condensed consolidated financial statements.
5
TORVEC, INC. AND SUBSIDIARIES
(a development stage company)
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE A The Company and Basis of Presentation
The interim information contained herein with respect to the three and nine month periods ended
September 30, 2008 and 2007 and the period from September 25, 1996 (inception) through September
30, 2008 has not been audited but was prepared in conformity with generally accepted accounting
principles for interim financial information and instructions for Form 10-Q. Accordingly, the
condensed consolidated financial statements do not include all information and footnotes required
by generally accepted accounting principles for financial statements. Included are ordinary
adjustments which in the opinion of management are necessary for a fair presentation of the
financial information for the three and nine month periods ended September 30, 2008 and 2007 and
since inception. The results are not necessarily indicative of results to be expected for the
entire year.
Torvec, Inc. (the company) was incorporated as a New York State business corporation in
September 1996. The company, which is in the development stage, has developed technology for use in
automotive applications. In September, 1996, the company acquired numerous patents, inventions and
know-how contributed by Vernon E. Gleasman, James Y. Gleasman and Keith E. Gleasman (the
Gleasmans). The company has developed, designed and intends to commercialize its infinitely
variable transmissions, its pumps/motors, its IsoTorque differential, its constant velocity joint
and the substructure and components of its full terrain vehicle.
The companys financial statements have been prepared assuming that it will continue as a
going concern. For the period from September 1996 (inception) through September 30, 2008, the
company has accumulated a deficit of $49,197,000, and at September 30, 2008 has a working capital
deficit of $241,000 and stockholders capital deficit of $914,000. The company has been dependent upon
equity financing and advances from stockholders to meet its obligations and sustain operations. The
companys efforts have been principally devoted to the development of its technologies and
commercializing its products. Management believes that based upon its current cash position, its
budget for its business operations through September 30, 2009, collectability of its receivables in
the ordinary course of business, and an outstanding funding commitment from a director/officer to
fund deficiencies that may arise up to $400,000, the company will not be able to meet its
anticipated cash requirements through September 30, 2009.
The company is actively seeking additional sources of capital. There can be no assurance that the
company can successfully implement its business plan or raise sufficient capital on acceptable
terms. Without sufficient additional capital or long term debt and ultimately profitable operating
results the company will not be able to continue as a going concern. The accompanying condensed
consolidated financial statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amounts and classification of liabilities that may
result from the outcome of this uncertainty.
NOTE B Summary of Significant Accounting Policies
[1]
|
|
Consolidation:
|
|
|
|
The financial statements include the accounts of the company, its majority-owned subsidiary, Ice
Surface Development, Inc. (56% owned at September 30, 2008 and 69% owned at September 30, 2007),
and its wholly-owned subsidiaries
Iso-Torque
Corporation, IVT Diesel Corp. and Variable Gear LLC.
All material intercompany transactions and account balances have been eliminated in consolidation.
|
6
[2]
|
|
Cash and Cash Equivalents:
|
|
|
|
Cash and cash equivalents include time deposits, certificates of deposit, and all highly liquid
debt instruments with original maturities of three months or less. The company maintains cash and
cash equivalents at financial institutions which periodically may exceed federally insured amounts.
|
|
[3]
|
|
Use of Estimates:
|
|
|
|
The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the reporting period.
Such estimates are used in valuing the useful lives of its fixed assets and the future realizable
value of such assets. These estimates are subject to a high degree of judgment and potential
change. Actual results could differ from those estimates.
|
|
[4]
|
|
Loss per Common Share:
|
|
|
|
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share, requires the
presentation of basic earnings per share, which is based on common stock outstanding, and dilutive
earnings per share, which gives effect to options, warrants and convertible securities in periods
when they are dilutive. For the nine months ended September 30, 2008 and 2007 the company excluded
3,098,899 and 4,690,088 potential common shares, respectively, relating to convertible preferred
stock outstanding, options and warrants from its diluted net loss per common share calculation
because they are anti-dilutive.
|
|
[5]
|
|
Income Taxes:
|
|
|
|
The company accounts for income taxes using the asset and liability method described in SFAS
No. 109, Accounting for Income Taxes, the objective of which is to establish deferred tax assets
and liabilities for the temporary differences between the financial reporting and the tax bases of
the companys assets and liabilities at enacted tax rates expected to be in effect when such
amounts are realized or settled. A valuation allowance related to deferred tax assets is recorded
when it is more likely than not that some portion or all of the deferred tax assets will not be
realized. We adopted the provisions of Financial Accounting Standards Board interpretation No. 48
Accounting for Uncertainty in Income Taxes (FIN 48) an interpretation of FASB Statement No. 109
(SFAS 109) on January 1, 2007As a result of the implementation of FIN 48, we recognized no
adjustment for uncertain tax provisions. At the adoption date of January 1, 2007, we had a deferred
tax asset which was fully reserved by a valuation allowance to reduce the deferred tax asset to the
amount that more likely than not to be realized. We recognize interest and penalties related to
uncertain tax positions in general and administrative expense. We recognize interest and penalties
related to uncertain tax positions in general and administrative expense. As of September 30, 2008,
we have not recorded any provisions for accrued interest and penalties related to uncertain tax
positions. The tax years 2005 2007 remain open to examination by the major tax jurisdictions to
which we are subject.
|
|
|
|
As of September 30, 2008, the company has filed New York State income tax returns that claim
applicable research and development refundable tax credits. The company filed amended returns for
the 2006 and 2007 tax years and has New York State refundable credits to be received of $86,000 and
$168,000, respectively. The company filed its 2007 New York State income tax return claiming a
research and development refundable tax credit of $126,000. As of September 30, 2008, the Company
has claimed an aggregate of $380,000 in research and development refundable tax credits.
|
|
[6]
|
|
Inventory
|
|
|
|
The Companys inventories consisted of the following at September 30, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Work-in Process
|
|
$
|
9,000
|
|
|
$
|
|
|
Finished Goods
|
|
|
131,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
140,000
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
All inventories are stated at the lower of cost or market with cost determined using the specific
identification method.
|
7
[7]
|
|
Fair Value of Financial Instruments:
|
|
|
|
The carrying amount of cash, prepaid expenses, accounts payable and accrued expenses approximates
their fair value due to the short maturity of those instruments.
|
|
[8]
|
|
Stock-based Compensation:
|
|
|
|
In December 1997, the Board of Directors of the company approved a Stock Option Plan (the Plan)
which provides for the granting of up to 2,000,000 shares of common stock, pursuant to which
officers, directors, key employees and key consultants/advisors are eligible to receive incentive,
nonstatutory or reload stock options. Options granted under the Plan are exercisable for a period
of up to 10 years from date of grant at an exercise price which is not less than the fair value on
date of grant, except that the exercise period of options granted to a stockholder owning more
than 10% of the outstanding capital stock may not exceed five years and their exercise price may
not be less than 110% of the fair value of the common stock at date of grant. Options may vest
over five years.
|
|
|
|
We follow Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment.
SFAS 123R requires all share-based payments to employees, including grants of employee stock
options, to be recognized as compensation expense over the requisite service period (generally the
vesting period) in the financial statements based on their fair values. For options with graded
vesting, we value the stock option grants to vendors and other non employees, directors and
recognize compensation expense as if each vesting portion of the award was a separate award. The
impact of forfeitures that may occur prior to vesting is also estimated and considered in the
amount of expense recognized. In addition, the realization of tax benefits in excess of amounts
recognized for financial reporting purposes will be recognized in the cash flow statement as a
financing activity rather than as an operating activity.
|
|
|
|
No tax benefits were attributed to the stock-based compensation expense because a valuation
allowance was maintained for substantially all net deferred tax assets. We elected to adopt the
alternative method of calculating the historical pool of windfall tax benefits as permitted by
FASB Staff Position (FSP), Transition Election Related to Accounting for the Tax Effects of
Share-Based Payment Awards. This is a simplified method to determine the pool of windfall tax
benefits that is used in determining the tax effects of stock compensation in the results of
operations and cash flow reporting for awards that were outstanding as of the adoption of SFAS
123(R).
|
|
|
|
By its terms, the Plan terminated on May 28, 2008 as to the grant of new options thereunder.
Outstanding but unexercised options previously issued under the Plan remain exercisable in
accordance with their terms.
|
|
[9]
|
|
Revenue Recognition:
|
|
|
|
The companys terms provide that customers are obligated to pay for products sold to them within a
specified number of days from the date that title to the products is transferred to the customers.
The companys standard terms are typically net 30 days. The company recognizes revenue when
transfer of title occurs and risk of ownership passes to a customer at the time of shipment or
delivery depending on the terms of the agreement with a particular customer and collectibility is
reasonably assured. The sale price of the companys products is substantially fixed and
determinable at the date of the sale based upon purchase orders generated by a customer and
accepted by the company. The company will use the allowance method to record receivables that are
uncollectible. In the current period, there is no history of uncollectible revenue and no basis to
calculate a return and allowance. All product receivables and revenue are deemed collectible and
fully recoverable.
|
|
[10]
|
|
Recent Accounting Pronouncements:
|
|
|
|
Effective January 1, 2008, the company adopted SFAS No. 157, Fair Value Measurements (SFAS
157), which defines fair value, establishes a framework for measuring fair value and requires
additional disclosures about fair value measurements. In February 2008, the FASB delayed the
effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities,
except for those items that are recognized or disclosed at fair value in the financial statements
on a recurring basis. Management has determined that the adoption of SFAS 157 did not have a
material effect on the companys consolidated financial statements.
|
|
|
|
Effective January 1, 2008, the company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities including an amendment of FASB Statement 115 (SFAS 159).
This statement provides companies with an option to report selected financial assets and
liabilities at fair value. As of September 30, 2008, the company has not elected to use the fair
value option allowed by SFAS 159. Management has determined that the adoption of SFAS 159 did not
have a material effect on the companys consolidated financial position, results of operations,
cash flows or financial statement disclosures.
|
8
|
|
In December 2007, the FASB issued Statement No. 141 (revised), Business Combinations (SFAS 141
(R)). The standard changes the accounting for business combinations including the measurement of
acquirer shares issued in consideration for a
business combination, the recognition of contingent consideration, the accounting for
pre-acquisition gain and loss contingencies, the recognition of capitalized in-process research
and development, the accounting for acquisition-related restructuring cost accruals, the treatment
of acquisition related transaction costs and the recognition of changes in the acquirers income
tax valuation allowance. SFAS 141(R) is effective for fiscal years beginning after December 15,
2008, with early adoption prohibited. The company does not expect SFAS 141(R) to have a
significant impact on the companys financial position.
|
|
|
|
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). The standard changes the
accounting for noncontrolling (minority) interests in consolidated financial statements including
the requirements to classify noncontrolling interests as a component of consolidated stockholders
equity, and the elimination of minority interest accounting in results of operations with
earnings attributable to noncontrolling interests reported as part of consolidated earnings.
Additionally, SFAS 160 revises the accounting for both increases and decreases in a parents
controlling ownership interest. SFAS 160 is effective for fiscal years beginning after
December 15, 2008, with early adoption prohibited. The company is currently evaluating the effect,
if any, the adoption will have on the companys financial position and results of operations, but
does not expect the adoption of SFAS 160 to have a significant impact on the companys financial
position.
|
|
|
|
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133.
SFAS 161 requires enhanced disclosures about
an entitys derivative and hedging activities. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008 with early
application encouraged. As such, the Company is required to adopt these provisions at the
beginning of the fiscal year ended December 31, 2009. In review of SFAS 161, the Company has
determined that it is not applicable and will have no effect to its consolidated financial
statements.
|
|
|
|
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 (SFAS 162), The
Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used in the preparation
of financial statements of nongovernmental entities that are presented in conformity with U.S.
GAAP. SFAS 162 will become effective 60 days following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. This statement is not expected as a
result in a change in our current practice.
|
NOTE C RELATED PARTY TRANSACTIONS
[1]
|
|
Commencing January 1, 2004, James Y. Gleasman and Keith E. Gleasman (the Gleasmans) agreed
to provide consulting services and assign new patents, existing patent improvements and all
know-how in connection with all of their inventions to the company on a noncompensated basis. In
addition, Keith Gleasman agreed to continue as president and James Gleasman agreed to serve as the
companys chief executive officer and interim chief financial officer. During the nine month
period ended September 30, 2007 the company did not pay the Gleasmans any consulting fees for
their services in accordance with this policy. The company recorded approximately $225,000 for the
estimated value of these services for the nine month period ended September 30, 2007 as a
contribution to capital based upon approved time and hours spent. For such period, the company
recorded $100,000 to research and development and $125,000 to general and administrative based
upon managements estimate.
|
|
|
|
On March 28, 2008 the board of directors approved the governance and compensation committees
recommendation that, effective January 1, 2008, each of the Gleasmans be compensated at the rate
of $300,000 per year. Such amount is payable in cash. No payment of all or any portion of the
Gleasmans consulting fees shall be paid unless and until the company shall have the requisite
cash available. The determination of the availability of the requisite amount of cash shall be
made by the board of directors in the light of approved-budgets, existing and anticipated capital
requirements and existing and estimated cash flows.
|
|
|
|
Since the company did not have the requisite cash available to pay the Gleasmans compensation
under their new arrangement with the company with respect to the nine month period ended September
30, 2008, the company accrued an aggregate $471,000 of compensation
expense including $21,000 of payroll taxes for such period and
recorded the compensation expense of $150,000 to research and development and $300,000 to general
and administrative expense based upon managements estimate.
|
9
[2]
|
|
During the three and nine month periods ended September 30, 2008, the company paid $23,400
and $74,100 respectively, to a member of the Gleasman family for administrative, technological and
engineering consulting services. During the three and nine month periods ended September 30, 2007,
the company paid $23,400 and 65,300 to the same person for similar services. Management believes
this compensation is reasonable.
|
|
[3]
|
|
During the three and nine month periods ended September 30, 2008, the company paid $21,480
and $68,080, respectively, to a family member of its general counsel for engineering services
rendered to the company. Management believes this compensation is reasonable.
|
[4]
|
|
On September 14, 2007, the company moved its executive offices from Pittsford, New York to
Rochester, New York, which includes both a manufacturing and executive office facility. The
Rochester facility is owned by a partnership, in which David M. Flaum, a company director until
his resignation effective October 10, 2008, is a partner. (See Note J 3) On April 28, 2008, the
companys board of directors approved the terms of a lease and such lease was executed on
April 29, 2008. (See Note E 2).
|
NOTE D Stockholders Equity (Capital Deficit)
[1]
|
|
Class A Preferred stock:
|
|
|
|
In January 2002, the company authorized the sale of up to 2,000,000
shares of its Class A Non-Voting Cumulative Convertible Preferred Stock
(Class A Preferred) at $4.00 per share. Each share of Class A
Preferred is convertible into one share of voting common stock and
entitles the holder to dividends, at $.40 per share per annum. The
holder has the right to convert after one year subject to Board
approval.
|
|
|
|
The company has sold an aggregate 780,456 Class A Preferred for
aggregate proceeds of $3,062,046. The company has issued an aggregate
198,349 common stock warrants in connection with the sale of Class A
Preferred to the holders of the Class A Preferred, all exercisable over
a 10 year period at $.01 per common share. 182,099 of these warrants
have been exercised through September 30, 2008.
|
|
|
|
The company did not sell any Class A Preferred or issue any warrants
during the three and nine month periods ended September 30, 2008 and
2007.
|
|
|
|
From April 19, 2004 through September 30, 2008, six Class A Preferred
holders have converted an aggregate 73,355 Class A Preferred (including
14,944 Class A issued as dividends) into an equal number of common
shares. For the three and nine month periods ended September 30, 2008,
7,305 Class A Preferred and 32,305 Class A Preferred (including 1,055
Class A Preferred issued as dividends) were converted.
|
|
|
|
From September 2004 through September 30, 2008, an aggregate 14,944
Class A Preferred shares have been issued as dividends, with 1,055
issued during the three month period ended September 30, 2008 and 6,913
Class A Preferred issued as dividends for the nine month period ended
September 30, 2008.
|
|
|
|
At September 30, 2008 and 2007, Class A Preferred dividends in arrears
amounted to approximately $958,000 and $698,000, respectively.
|
10
[2]
|
|
Class B Preferred stock:
|
|
|
|
On October 21, 2004, the company authorized the sale of up to 300,000 shares of its Class B
Non-Voting Cumulative Convertible Preferred Stock (Class B Preferred) at $5.00 per share. Each
share of Class B Preferred pays cumulative dividends at $.50 per share per annum and is
convertible into either one share of voting common stock of the company or one share of common
stock of Iso-Torque Corporation under certain circumstances. The holder has the right to convert
after one year subject to Board approval.
|
|
|
|
The company has sold an aggregate 97,500 Class B Preferred for aggregate proceeds of $487,500.
|
|
|
|
During the three and nine month periods ended September 30, 2008 and 2007, the company did not
sell any Class B Preferred. No Class B Preferred have been converted into common stock through
September 30, 2008.
|
|
|
|
At September 30, 2008 and 2007, Class B Preferred dividends in arrears amounted to approximately
$135,000 and $86,000, respectively.
|
|
[3]
|
|
Common Stock:
|
|
|
|
On September 28, 2008 the company sold 20,000 common shares to an accredited investor for proceeds
of $30,000. On June 23, 2008 the company sold 36,364 common shares to an accredited investor for
proceeds of $100,000.
|
|
|
|
For the three and nine months ended September 30, 2008,
the Company issued 8,334 and 11,905 of restricted common stock for consulting services fair valued at $18,000 and $27,000, respectively.
|
|
[4]
|
|
Stock-Option Plan:
|
|
|
|
In December, 1997, the board of directors adopted and on May 28, 1998, the companys shareholders
ratified the creation of a Stock Option Plan (the Option Plan) which provides for the grant of
up to 2,000,000 common stock options to officers, directors and consultants who are eligible to
receive incentive, nonqualified or reload stock options. Options granted under the Option Plan are
exercisable for a period of up to ten years from the date of grant at an exercise price which is
not less than the per share trading price of the underlying common stock on the date of grant,
except that the exercise period for options granted to a greater than 10% shareholder may not
exceed five years and the exercise price may not be less than 110% of such trading price per share
on the date of grant.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Month Period Ended
September 30, 2008
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
Outstanding at beginning of period
|
|
|
1,021,848
|
|
|
$
|
4.77
|
|
|
$
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(380,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
641,848
|
|
|
|
4.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
641,848
|
|
|
|
4.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Vested and Expected to Vest
|
|
|
641,848
|
|
|
|
4.70
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By its terms, the companys Option Plan terminated as to the
grant of future options on May 28, 2008. Consequently, no additional
stock options will be granted under the Option Plan, although
outstanding options remain available for exercise in accordance with
their terms.
|
|
|
|
The following table represents information relating to stock options outstanding at September 30,
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
Options
|
|
|
Average
|
|
|
Average
|
|
|
Option
|
|
|
Average
|
|
Outstanding
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Exercisable
|
|
|
Exercise
|
|
Shares
|
|
|
Price
|
|
|
Life in Years
|
|
|
Shares
|
|
|
Price
|
|
|
591,848
|
|
|
$
|
5.00
|
|
|
|
5.11
|
|
|
|
591,848
|
|
|
$
|
5.00
|
|
|
50,000
|
|
|
|
2.26
|
|
|
|
4.67
|
|
|
|
50,000
|
|
|
|
2.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
641,848
|
|
|
$
|
4.70
|
|
|
|
5.06
|
|
|
|
641,848
|
|
|
$
|
4.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2008, the company did not have any unrecognized stock compensation related to unvested awards.
|
11
[5]
|
|
Business Consultants Stock Plan:
|
|
|
|
For the three month periods ended September 30, 2008 and 2007, the company issued 231,046 and
94,180 common shares to business consultants under the Business Consultants Stock Plan and charged
$445,890 and $292,000 to operations in connection with these share issuances. For the nine month
period ended September 30, 2008 and 2007, the company issued 664,021 and 174,803 common shares to
business consultants under
the Plan and charged operations $1,627,000 and $702,000 in connection with these services.
Share issuances are valued generally on the date immediately prior to the date of issuance,
except for shares issued to pay invoices which are valued as of the invoice date and except for
shares issued under the Nonmanagement Directors Plan which are valued as of the end of each quarter
effective October 13, 2006. As of September 30, 2008, 3,989,605 shares are available for future
issuances under the Business Consultants Stock Plan
|
[6]
|
|
Nonmanagement Directors Plan:
|
|
|
|
On October 1, 2004, the board of directors approved a Nonmanagement Directors Plan
pursuant to which each nonmanagement director is entitled to receive, if certain conditions are
met, on an annual basis for services rendered as a director, warrants to purchase 12,000 shares of
the companys common stock at $.01 per share. In addition, the chairman of the audit committee is
entitled to receive, on an annual basis for services rendered as chairman, additional warrants for
5,000 shares of the companys common stock at $.01 per share.
|
|
|
|
Due to changes made to the Nonmanagement Directors Plan described below, the company did
not issue any warrants under the plan for the three and nine month periods ended September 30, 2008
and 2007. No previously issued warrants were exercised during the three and nine month periods
ended September 30, 2008. No warrants were exercised under the plan during the three month period
ended September 30, 2007 and 6,000 warrants were exercised during the first quarter of 2007.
|
|
|
|
On October 10, 2007, the Nonmanagement Directors Plan was modified to increase the fees
payable to the companys nonmanagement directors. As adjusted, each nonmanagment director (a total
of 4 persons) would receive $26,460 for board and committee service per annum. The chairman of the
audit committee would receive an additional $12,600 per annum and the chairman of the nominating
committee would receive an additional $5,355 per annum.
|
|
|
|
The Nonmanagement Directors Plan was also modified to provide that the chairman of the
board, chairman of the executive committee and chairman of the governance and compensation
committee, one person, will be paid an aggregate $110,000 per annum for all services rendered by
him as a director and in such capacities. This proposal was made in the light of the risks
associated with the positions he has undertaken as well as the fact that he is and has been since
the summer of 2005, serving the company in these positions on a full-time basis. The proposal was
also made in recognition of the fact that the services required to be performed by the chairman of
the boards executive committee and of its governance and compensation committee have expanded both
in responsibilities covered and time expended
.
The effective date for these adjustments to the plan
was July 1, 2007.
|
|
|
|
On April 28, 2008, the plan was again modified to increase the compensation of the person
serving as chairman of the board, chairman of the executive committee, chairman of the governance
and compensation committee (one person) to $125,000 per annum.
|
|
|
|
During the three month periods ended September 30, 2008 and 2007, the company issued
29,903 and 11,978 common shares under the plan to satisfy the June 30, 2008 and 2007 payables in
the amount of $62,199 and $41,925 and recorded charges of $62,199 and $41,925, respectively, for
such periods.
|
|
|
|
During the nine month periods ended September 30, 2008 and 2007, the company issued 74,146 and
21,960 common shares under the plan to satisfy payables in the amount of $182,847 and $83,850
recorded a charge of $182,847 and $83,850 for such periods.
|
|
|
|
On April 28, 2008, the board of directors approved a one-time payment to its chairman of the
governance and compensation committee of $46,000 for special services rendered in connection with
required compliance under the Sarbanes-Oxley Act. This amount was paid by the issuance of 19,167
common shares valued as of the closing price on April 28, 2008. The company charged $46,000 to
operations in connection with such services.
|
|
[7]
|
|
Business, Financial and Engineering Consultants:
|
|
|
|
The company has issued 1,376,583 common stock warrants to various business, financial and
engineering consultants, of which, 91,583 have been exercised for proceeds of $915 and 445,000
cancelled in exchange for the participation of certain engineers in the companys 2007
Commercializing Event Plan. (Note D [10]).
|
|
|
|
On March 28, 2008, the board approved the issuance of an aggregate 195,000 warrants,
immediately exercisable at $5.00 per common share until 2016, to two engineering consultants who
elected not to participate in the companys 2007 Commercializing Event Plan. The company recorded a
charge in the amount of $249,000 to general and administrative expense.
|
12
|
|
|
[8]
|
|
Warrants:
|
|
|
|
As of September 30, 2008, outstanding warrants to acquire shares of the companys common stock are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Price
|
|
|
|
|
Expiration
|
|
|
Exercisable
|
|
|
|
|
|
|
(a
|
)
|
|
|
|
|
(a
|
)
|
|
|
125,000
|
|
|
|
(a
|
)
|
$
|
.75
|
|
|
|
|
None
|
|
|
|
500,000
|
|
|
|
(b
|
)
|
$
|
.01
|
|
|
|
|
None
|
|
|
|
511,200
|
|
|
|
(c
|
)
|
$
|
.01
|
|
|
|
|
None
|
|
|
|
54,500
|
|
|
|
(d
|
)
|
|
(e
|
)
|
|
|
|
|
(e
|
)
|
|
|
(e
|
)
|
|
|
(e
|
)
|
$
|
.01
|
|
|
|
|
None
|
|
|
|
39,000
|
|
|
|
(f
|
)
|
$
|
5.00
|
|
|
|
|
10 years
|
|
|
|
255,000
|
|
|
|
(g
|
)
|
$
|
.01
|
|
|
|
|
None
|
|
|
|
6,000
|
|
|
|
(h
|
)
|
$
|
.01
|
|
|
|
|
None
|
|
|
|
16,250
|
|
|
|
(i
|
)
|
$
|
1.00
|
|
|
|
|
None
|
|
|
|
20,500
|
|
|
|
(j
|
)
|
|
(k
|
)
|
|
|
|
|
(k
|
)
|
|
|
(k
|
)
|
|
|
(k
|
)
|
|
(l
|
)
|
|
|
|
|
(l
|
)
|
|
|
(l
|
)
|
|
|
(l
|
)
|
$
|
3.27
|
|
|
|
|
10 years
|
|
|
|
400,000
|
|
|
|
(m
|
)
|
$
|
3.75
|
|
|
|
|
10 years
|
|
|
|
200,000
|
|
|
|
(n
|
)
|
$
|
5.00
|
|
|
|
|
10 years
|
|
|
|
50,000
|
|
|
|
(o
|
)
|
$
|
5.00
|
|
|
|
|
10 years
|
|
|
|
100,000
|
|
|
|
(p
|
)
|
|
|
|
(a)
|
|
Exercisable only if the company has an IPO at the IPO price and exercisable five years from
IPO. Through September 30, 2008, the company has not conducted an IPO.
|
|
(b)
|
|
On April 15, 2002, the company issued 1,000,000 warrants to purchase common stock at prices
ranging from $.30 to $.75 to its then chairman of the board of directors and chief executive
officer. Of the total warrants, 250,000 were exercisable at $.30, and 250,000 were exercisable at
$.50 on the date the then board elected the executive to the board and named him chief executive
officer. During the year ended December 31, 2002, 250,000 warrants were exercised for $.30 per
share, resulting in proceeds of $75,000. During the year ended December 31, 2003, 250,000 warrants
were exercised for $.50 per share, resulting in proceeds of $125,000. The remaining 500,000
warrants are exercisable upon the execution of the company of a binding agreement for the sale,
transfer, license or assignment for value of any and/or all of its companys automotive technology
at $.75 per share. The company will record a charge representing the fair value of the warrants
when the warrants become exercisable.
|
|
(c)
|
|
The company has issued 1,080,000 warrants, exercisable at $.01 per common share, to a
management consulting firm. 528,800 of these warrants have been exercised for aggregate proceeds of
$5,484. The company is in litigation with this management consulting firm. In accordance with the
court of original jurisdictions order rendered on May 8, 2006, the company was required to honor
immediately the exercise of 40,000 of the 551,200 warrant balance, to issue an additional 245,000
warrants, exercisable at $.01 per common share and to honor, if and when presented for exercise,
the remaining 511,200 previously issued warrants. The company appealed the lower courts order to
the Appellate Division of the New York Supreme Court. On March 16, 2007, the Appellate Division
unanimously reversed the lower courts order in its entirety. During the pendency of its appeal,
the company had been required to deposit with the clerk of the court 40,000 common shares, 245,000
common stock warrants and $250,000. As the result of the Appellate Courts decision, the lower
court ordered of the 40,000 common shares, 245,000 common stock warrants and $250,000 to the
company. Upon such return, the company cancelled both the 40,000 common shares and the 245,000
common stock warrants. Thus, the 511,200 warrants do not include either the 40,000 warrants which
were exercised or the 245,000 warrants, both of which were cancelled on the companys books. See
Notes F and G.
|
|
(d)
|
|
The company has issued an aggregate 123,500 warrants to its nonmanagement directors for
services rendered to the board under its Nonmanagement Directors Stock Plan prior to its amendment
on October 13, 2006. No further warrants are issuable under the Plan as modified by the board of
directors on October 13, 2006 (See Note D 6). An aggregate 69,000 warrants have been exercised for
approximately $630 of proceeds, with 6,000 warrants exercised during the second quarter of 2007 for
proceeds of $60. No warrants were exercised during the three and nine month periods ended September
30, 2008.
|
|
(e)
|
|
During 2005, the company issued 120,000 warrants to a consultant, immediately exercisable at
$.01 per common share. 48,000 warrants were exercised in 2005. The remaining 72,000 warrants were
exercised in 2006. During the years ended December 31, 2006 and 2005, the company received proceeds
of $720 and $480 respectively.
|
|
(f)
|
|
In 2005, the company issued 12,000 warrants to a consultant, immediately exercisable at .01
per common share. During 2005, 3,000 warrants were exercised for proceeds of $30. In 2006, the
company issued 30,000 warrants to consultants exercisable immediately for a ten year term at $5.00
per common share.
|
13
|
|
|
(g)
|
|
During 2005, the company issued 210,000 warrants to certain engineering consultants,
exercisable immediately for a ten year term at $5.00 per common share. During 2006, the company
issued 295,000 warrants to certain engineering consultants
exercisable over a ten year term at $5.00 per common share, but only exercisable if the
company sells, licenses or otherwise transfers one or more technologies for value. The engineering
consultants holding 445,000 of these warrants agreed to cancel them in the fourth quarter of 2007
in exchange for their participation in the companys Commercializing Event Plan. On March 28, 2008,
the company issued an aggregate 195,000 warrants exercisable until 2016 at $5.00 per common shares
to two engineers who elected not to participate in the companys 2007 Commercializing Event Plan.
The company recorded a charge of $249,000 to general and administrative expense.
|
|
(h)
|
|
During 2005, the company issued 6,000 warrants to a consultant, exercisable at .01 per common
share. None of these warrants have been exercised through September 30, 2008.
|
|
(i)
|
|
During 2005, the company issued 62,500 warrants to investors in connection with their
purchase of 62,500 Class A Preferred, exercisable at $.01 per common share. During 2006, the
company issued 135,849 warrants to investors along with their purchase 162,000 Class A Preferred
and 20,000 Class B Preferred, all immediately exercisable at $.01 per common share. An aggregate
182,099 of these warrants have been exercised for proceeds of approximately $1,258, including 2,500
and 12,500 warrants exercised in the nine month periods ended September 30, 2008 and 2007. No
additional warrants were issued in the nine month period ended September 30, 2008.
|
|
(j)
|
|
During 2006, one investor purchased 20,500 warrants immediately exercisable at $1.00 per
common share for a purchase price of $2,000. None of these warrants have been exercised through
September 30, 2008.
|
|
(k)
|
|
During 2006, the company issued 360,000 warrants to a director for specific services rendered
by such director as chairman of the companys executive committee. These warrants were exercised on
September 1, 2006 and September 11, 2006 at $.01 per common share. The company received proceeds of
$3,600.
|
|
(l)
|
|
In connection with its business and financial operations for the year ended December 31,
2006, the company issued 91,583 warrants, immediately exercisable over a ten year term at $.01 per
common share. During the year ended December 31, 2006, 91,083 of these warrants were exercised for
proceeds of $910. During the year ended December 31, 2007, the remaining 500 warrants were
exercised for proceeds of $5.00.
|
|
(m)
|
|
During 2006, the company issued 400,000 warrants immediately exercisable for ten years at an
exercise price of $3.27 per common share to a business consultant. None of these warrants have been
exercised through September 30, 2008.
|
|
(n)
|
|
During 2006, the company issued 200,000 warrants immediately exercisable for ten years at an
exercise price of $3.75 per common share to its governmental affairs consultant. None of these
warrants have been exercised through September 30, 2008.
|
|
(o)
|
|
During 2007, the company issued 50,000 warrants exercisable for ten years at $5.00 per common
share upon the happening of a commercializing event. The warrants were issued to a consultant who
assisted the company to potentially place its products in various state school bus programs. The
company recorded a charge of $249,000 to general and administrative expenses. None of these
warrants have been exercised through September 30, 2008.
|
|
(p)
|
|
During 2007, the company issued 100,000 warrants immediately exercisable for ten years at an
exercise price of $5.00 per common share to two engineering consultants in connection with the
companys engagement to furnish constant velocity joints to a military contractor. The company
recorded a charge of $401,000 to general and administrative expenses. None of these warrants have
been exercised through September 30, 2008.
|
14
The following summarizes the activity of the companys outstanding warrants for the nine month
period ended September 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
Outstanding at January 1, 2008
|
|
|
2,084,950
|
|
|
$
|
3.14
|
|
|
4.90 years
|
|
|
|
|
Granted
|
|
|
195,000
|
|
|
$
|
5.00
|
|
|
8.33 years
|
|
|
|
|
Exercised
|
|
|
(2,500
|
)
|
|
$
|
.01
|
|
|
|
|
|
|
|
|
|
Canceled or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2008
|
|
|
2,277,450
|
|
|
$
|
3.30
|
|
|
4.38 years
|
|
$
|
1,404,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2008
|
|
|
1,652,450
|
|
|
$
|
3.93
|
|
|
4.17 years
|
|
$
|
739,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
[9]
|
|
Issuance of Stock and Warrants by Subsidiary:
|
|
|
|
In 2003, the company majority-owned subsidiary, Ice Surface Development, Inc. (Ice Surface)
issued 308,041 of its common stock at $.76 per share realizing aggregate proceeds of $234,000 in a
private placement. These issuances reduced the companys interest in Ice Surface from 72% to
approximately 69.26%. Based on the companys accounting policy, the change in the companys
proportionate share of Ice Surfaces equity resulting from the additional equity raised by the
subsidiary is accounted for as a capital transaction.
|
|
|
|
In connection with the private placement, Ice Surface issued 53,948 warrants to the placement agent
immediately exercisable at $.76 per common share through June 9, 2008. In addition, 50,000 warrants
were issued by Ice Surface to a consultant immediately exercisable at $.76 per common share through
June 9, 2008. In connection with the issuance of these warrants, a compensation charge of $36,000
was recognized. These warrants were cancelled effective June 7, 2007 upon the adoption by Ice
Surfaces shareholders of a Plan for the complete liquidation and dissolution of Ice.
|
|
[10]
|
|
Shares Issued for Consulting Services:
|
|
|
|
On September 17, 2005, certain consultants created a trust to enable them to sell business
consultants shares issued to them by the company under their consultant agreements. The company
issued 50,000 business consultant common shares valued at $102,000 on September 27, 2005,
contingent on the performance by the consultants services under such consultant agreements. The
company fair values the shares issued to the trust using the closing market price on the date
immediately prior to the date of issuance. Amounts in excess of the consulting invoices are
classified as shares issued for consulting services in stockholders (capital deficit) equity. No
shares were sold in the trust in the year ended December 31, 2005.
|
|
|
|
The company issued an aggregate 342,500 business consultants share valued at an aggregate $972,125
to the trust to satisfy the payment of invoices submitted by the consultants for services rendered
through December 31, 2007. The trustee has sold an aggregate 339,045 business consultants shares
for aggregate proceeds of $977,059 through December 31, 2007 and distributed the proceeds from the
trust to the consultants in accordance with the trusts terms.
|
|
|
|
During the three and nine month periods ended September 30, 2008, the company issued 115,622 and
245,622 business consultants shares valued at $227,395 and $576,695, respectively, to the trust to
satisfy the payment of invoices submitted by the consultants for services rendered during such
periods. During the three and nine month periods ended September 30, 2008, the trustee sold 66,016
and 177,575 business consultant shares and distributed $146,511 and $424,932 in proceeds to the
consultants in accordance with the trusts terms.
|
|
|
|
The companys payment obligations with respect to the consultant agreements are met once it has
issued shares to the trust in accordance with directives received from the consultants and the
consultants, not the company, bear the risk of loss in the event the proceeds of stock sales by the
trustee are less than the value of the stock contributed to the trust by the company on the date of
contribution.
|
15
[11]
|
|
Commercializing Event Plan:
|
|
|
|
On October 13, 2006, the board of directors adopted a Commercializing Event Plan (2007 Event
Plan) designed to reward the companys directors, executives and certain administrative personnel
for the successful completion of one or more commercializing events. No payments were made under
the 2007 Event Plan during the years ended December 31, 2007 and 2006.
|
|
|
|
On March 28, 2008 the board of directors approved amendments to the 2007 Event Plan recommended by
the governance and compensation committee to clarify that:
|
(a)
|
|
for purposes of the good standing requirement, all participants are considered to be in good
standing unless a unanimous vote of the board of directors determines otherwise. In making this
determination, the board is required to consider whether a person has engaged in conduct which has
significantly harmed the company and to consider that any material violation of the companys Code
of Conduct shall constitute prima facie evidence that the company has been harmed;
|
|
(b)
|
|
participants shall be entitled to payment even though the participant is not actively engaged
as a consultant to or employee of the company if the reason for not being so engaged is due to
death, disability from accident, disease or similar circumstance beyond the participants control
or is on a leave of absence approved by an authorized officer;
|
|
(c)
|
|
the plan shall terminate no earlier than October 10, 2017 but that subject to such condition,
the plan may be terminated by the board of directors in its sole direction;
|
|
(d)
|
|
the benefits provided by the plan may not be reduced during its term as to amount, time,
method, manner of payment and/or any other material condition;
|
|
(e)
|
|
distributions under the plan shall be made on a commercializing event by commercializing
event basis;
|
16
(f)
|
|
the number of common shares distributable to participants in the case of any commercializing
event not involving the sale of the company shall be calculated based upon a $3.00 per share price
[the closing price of the companys common stock on the date of the plans effective date,
October 10, 2007] but that the number of shares distributable in the case of a commercializing
event involving the sale of the company shall be calculated based upon the trading price of the
acquiring companys common stock as of the date the acquisition transaction is announced.
|
|
|
|
On February 25, 2008, the company issued an aggregate 3,648 business consultants shares to thirteen
participants in the 2007 Event Plan (304 shares to each of nine director, officer and
administrative participants and 228 shares to each of four engineer participants) upon the
completed sale of the companys constant velocity joints to a military contractor.
|
|
|
|
On April 30, 2008, the company issued an aggregate 5,581 business consultant shares to thirteen
participants in the 2007 Event Plan (465 shares to each of nine director, officer and
administrative participants and 349 shares to each of four engineer participants) upon receipt of
the first quarterly payment from Ice Engineering, LLC.
|
|
|
|
The company is accounting for the settlement of its commission arrangement with respect to this
commercializing event transaction under SFAS 123(R) Share Based Payment. For the nine month
periods ended September 30, 2008, the company recorded a charge to operations in the amount of
$27,687 representing the fair value of the equity instruments issued.
|
|
|
|
In the fourth quarter of 2007, certain engineering consultants agreed to cancel 445,000 warrants
issued in 2005 and 2006 in exchange for their participation in the 2007 Event Plan. The exchange of
the warrants for the participation rights in a commercialization event did not result in an
accounting charge. The warrants at the date of the exchange were considered to have no value
because the underlying condition for vesting the warrants was not satisfied. The company determined
that the fair value of the rights to be de minimis at the date of the exchange based on
managements estimate.
|
|
|
|
On March 28, 2008, the board of directors approved the grant of an aggregate 195,000 common stock
warrants exercisable until December 1, 2016 at $5.00 per share to two engineering consultants in
lieu of their participation in the 2007 Event Plan. The company valued the warrants at $249,000
using the Black-Scholes option/pricing model and charged operations.
|
Black-Scholes Inputs
|
|
|
|
|
Term
|
|
8.84 years
|
|
|
|
|
|
Risk-free rate
|
|
|
2.89
|
%
|
|
|
|
|
|
Volatility
|
|
|
0.55
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.0
|
%
|
17
NOTE E Commitments and Other Matters
[1]
|
|
Employment Agreements:
|
|
|
|
On April 1, 2002, the companys majority-owned subsidiary, Ice Surface Development, Inc., entered
into employment agreements with three persons as chief executive officer, chief operating officer
and vice-president of manufacturing, respectively. The agreements expired on July 31, 2004.
|
|
[2]
|
|
Leases:
|
|
|
|
During the last three years, the company leased executive office space at Powder Mills Office Park,
Pittsford, New York and leased research, development and manufacturing space in Webster, New York.
The company terminated its Powder Mills lease as of September 30, 2007 and its Webster lease as of
December 31, 2007 in order to access additional manufacturing and assembly space and to consolidate
its executive and manufacturing functions under one roof. The company was released from all further
obligations under these leases. Rent expense for the three and nine months ended September 30,
2008 and 2007 was $15,000, $64,000 and $11,000, $39,000, respectively.
|
|
|
|
On September 14, 2007, the company moved to a new facility located at 1999 Mount Read Blvd.,
Rochester, New York. The facility consists of approximately 13,650 sq. ft., with executive and
engineer offices, conference room, clean room, manufacturing and assembly space, automotive bays,
dynamometer and lift facilities and approximately thirty acres of land suitable for vehicle testing
and demonstration. On April 29, 2008, the company executed a five-year lease for the premises (with
a December 1, 2007 lease commencement date) providing for rent to be paid at a rate of $5,687.00
per month ($68,244.00 per annum) and in addition, for the payment of the companys proportionate
share of yearly real estate taxes and yearly common area operating costs. Under the lease, monthly
rental payments commenced June 1, 2008. The lease contains three 5-year renewal options and grants
an option to the company to lease up to an additional 7,000 sq. ft. of adjacent manufacturing and
assembly space.
|
|
|
|
Rental payments and certain other payments due to the landlord is to be paid in common shares of
the company, based upon the closing price per share on the 15
th
day of the calendar
month immediately prior to the date any installment payment of monthly rent or other payment is due
landlord.
|
18
NOTE F Management Agreement
On February 20, 2004, in June, 2004 and April, 2005, the company entered into consulting agreements
with a management consulting firm. The company does not believe the June and/or the April
agreements are valid. However, to the extent a court of applicable jurisdiction finally determines
that the agreements, or any portion of them, are valid, the company has provided formal notice to
the management consulting firm that, in accordance with the agreements terms, such agreements have
been terminated effective June 30, 2006. (See Note G.)
NOTE G Litigation
(1)
|
|
On September 30, 2005, the company filed a declaratory judgment action in the Supreme Court of
the State of New York for the Seventh Judicial District seeking that courts determination that the
June, 2004 and April, 2005 agreements with a management consulting firm are null and void and
unenforceable as against the company, its officers and directors. This litigation is in the
predeposition, document-production, discovery phase.
|
|
(2)
|
|
On April 12, 2007, the company commenced a second lawsuit against the same management
consulting firm in the Supreme Court, Seventh Judicial District, alleging that such firm had
fraudulently induced the company to enter into certain purported agreements with the management
firm, did not perform the services for which the company had engaged the firm and that, as a
result, the company has been damaged in excess of $6,000,000 by such firm. This litigation is in
the predeposition, document-production, discovery phase.
|
|
(3)
|
|
On October 8, 2007, the controlling persons of the companys majority-owned subsidiary, Ice
Surface Development, Inc.(ISDI), namely its chief executive officer, its chief operating officer
and its vice-president of manufacturing, filed for arbitration of their claims that ISDI is
obligated to pay them certain amounts under their employment contracts. ISDI opposed plaintiffs
claims on the grounds that they are without merit. On August 18, 2008, the plaintiffs withdrew
their arbitration claim.
|
|
|
|
On October 19, 2007, the same three persons commenced a shareholders derivative action in the
Federal District Court for the Western District of New York claiming that the company and its
president breached their fiduciary duties to the minority shareholders of ISDI in assigning the
Dartmouth College ice technology license for inadequate consideration. On June 27, 2008, the
Federal Court dismissed, with prejudice, the shareholders derivative action and the deadline to
appeal the decision has elapsed.
|
19
NOTE H Royalty Agreement
On December 12, 2007, the company granted High Density Poweretrain, Inc. of Waterford, Michigan
(HDP) an exclusive, worldwide license to incorporate the companys constant velocity joint
technology in HDPs family of highly-powered, multifueled, fuel efficient, light weight, cost
effective internal combustion engines. In consideration for the grant of the license, the company
will receive annual royalties equal to 5% of annual gross revenues generated by the sale of HDPs
multifuel engines, including all sublicense of such technology. There are no minimum royalty
payments and the grant does not affect the companys ability to commercialize its constant velocity
joint technology in any other field and/or application. At September 30, 2008, the company did not
record any royalties under this agreement.
NOTE I Gain on Cancellation of Debt
On June 27, 2008, the company was awarded a judgment that dismissed, with prejudice, an action
seeking accrued compensation under certain employment agreements entered into by our Ice Surface
Development subsidiary. The federal district court rendered its decision that the accrued
compensation had been paid. Instead of cash, plaintiffs unpaid executive salaries were paid in
additional share ownership of ISDI stock which were immediately converted into a right to receive
an increased percentage of future royalty payments. Such a payment structure is pursuant to the
express terms of the employment agreements. Accordingly, plaintiffs were compensated pursuant to
the terms of the employment agreements and no forfeiture or breach occurred.
Based upon the courts decision, the accrued payroll (originally recorded on our ISDI subsidiary)
was written off resulting in a gain on cancellation of debt of $1,541,000. The company has
recorded the full gain on the settlement of this liability in its financial statements due to the
minority interest having been eliminated by the allocation of past losses.
On August 18, 2008, the plaintiffs withdrew their arbitration claim with respect to the same
subject matter, thus ending the litigation in its entirety.
NOTE J Subsequent Events
(1)
|
|
On October 7, 2008, the company delivered its full terrain vehicle(FTV) to the U.S. Air Force to
serve as the platform for the Air Forces Advanced Combat Firefighting Vehicle (ACFV). The company
invoiced the purchase price of $106,000.
|
|
(2)
|
|
In the three- day period, October 6 through October 8, 2008, the company sold 50,000 restricted
common shares to accredited investors at $1.50 per
share for proceeds of $75,000. The closing prices for the companys common shares on the OTCBB
during this three-day period were $1.25, $1.30 and $1.20, respectively.
|
|
(3)
|
|
On October 10, 2008, David M. Flaum resigned as a member of the companys board of directors for
personal reasons. Asher J. Flaum was appointed by the Board to complete his term.
|
|
(4)
|
|
On October 31, 2008, the company commenced an action in New York State Supreme Court, County of
New York, Commercial Division against Ice Engineering, LLC seeking the total balance owed by Ice
Engineering to the company pursuant to an agreement entered into by the parties, effective June 15,
2007, namely, $2,700,000. Under the agreement, in connection with Torvecs assignment of the ice
technology license to Ice Engineering, which company agreed to reimburse Torvec for approximately
$3,500,000 the company previously had expended acquiring and maintaining the license. Ice
Engineering has paid approximately $800,000 but is in arrears with respect to installments due June
1, 2008 and September 1, 2008 and apparently has repudiated its remaining payment obligations under
the agreement.
|
20
Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
PLAN OF OPERATION
(a)
|
|
Overall Business Strategy
|
|
|
|
From its inception in 1996, the companys overall business plan has been to design, develop, build
and commercialize its FTV
®
worldwide, especially in the Asian, African, South and
Central American and Eastern European markets. In addressing issues and solving problems
encountered in the design and development of the FTV, the company designed and developed a number
of automotive drive-line technologies i.e. the companys hydraulic pump/motor system, infinitely
variable transmissions, Iso-Torque differential and constant velocity joint technology.
|
|
|
|
The FTV has been developed and is ready for commercialization. In addition, each of the companys
other automotive technologies has been developed and are ready for commercialization either
independently on a stand-alone basis or as incorporated into the companys FTV.
|
|
|
|
In present circumstances, the company intends to produce, market and distribute FTVs by entering
into a joint venture relationship with an automotive manufacturer. The company intends to
incorporate its drive-line technologies into the FTV to enhance its marketability and value. The
company also intends to license and/or enter into supply contracts with automotive manufacturers,
military contractors, tier-one suppliers and possibly end-users for its drive-line technologies
independent of their utilization in the FTV.
|
|
(b)
|
|
2008 Plan of Operation
|
|
|
|
The companys plan of operation, that is, its goals, during the year ending December 31, 2008 are
as follows:
|
|
(1)
|
|
to complete and ship approximately seven design-specific infinitely variable transmissions to
the National Aeronautics and Space Administration for use in that agencys lunar rover in
connection with NASAs program entitled Americas return to the moon; to continue to work with
NASA as an official drive-line consultant to the lunar rover project;
|
|
(2)
|
|
to complete the integration of the companys patented FTV technology, namely, its steer drive,
suspension system and high speed tracks, with a cabover truck furnished by a major U.S. automotive
company in order commercialize the FTV initially in the North American market and eventually in the
worldwide markets of Asia, Africa, Latin and South America and Europe;
|
|
(3)
|
|
to deliver approximately six constant velocity joints to a major U.S. military contractor for
installation in the contractors production-ready Joint Light Tactical Vehicle the contractor is
planning to submit to the U.S. Army in 2008 as part of the bidding process for a contract and to
work with the contractor with respect to the commercialization of the companys other technologies;
|
|
(4)
|
|
to work with another major U.S. automotive manufacturer with respect to the possible
installation of the companys IsoTorque differential in a number of that manufacturers vehicles;
|
|
(5)
|
|
to deliver a design-specific, prototype constant velocity joint for installation in a
California metropolitan bus companys hybrid bus and, upon the successful integration of such unit,
to explore a potential supply contract with such company for all of its hybrid bus production;
|
|
(c)
|
|
Current Status of Projects
|
|
(1)
|
|
The company completed the integration of its patented FTV technology (that is, its steer drive,
suspension system and high speed track) with a cabover truck furnished by a major U.S. automobile
manufacturer and delivered the FTV to the United States Air Force to serve as a platform for the
Air Forces Advanced Combat Firefighting Vehicle(ACFV);
|
|
(2)
|
|
The company delivered a design-specific prototype constant velocity joint to a California
metropolitan bus company for installation and testing in its newly-designed hybrid bus;
|
|
(3)
|
|
The company delivered a design-specific prototype of its IsoTorque differential to a major U.S.
automotive manufacturer and is awaiting the results of that companys evaluation of the unit in a
number of its vehicles;
|
|
(4)
|
|
The company is actively seeking a manufacturing partner to provide the company with the
manufacturing capacity it will need to fill FTV production orders, for example, Air Force orders
for FTV substructures for incorporation into its ACFV;
|
|
(5)
|
|
The company continues to work with NASA on the re-design of its infinitely variable transmission
(IVT) so that it can deliver approximately seven design-specific IVTs to that agency;
|
|
(6)
|
|
The company continues to work with a major U.S. military contractor to develop design-specific
constant velocity joints for such contractor in connection with its Joint Light Tactical Vehicle;
|
|
(7)
|
|
More detailed information regarding the company and all of its automotive inventions, including
regular updates on technological and business developments, can be found on the companys website,
www.torvec.com.
|
21
(d)
|
|
Ice Technology License
|
|
|
|
Through June 14, 2007, the company held a license to ice technology granted by the Trustees of
Dartmouth College. This license was held through the companys majority-owned subsidiary, Ice
Surface Development, Inc. The license required the company to pay Dartmouth College a royalty of
3.5% of the net sales of licensed product with minimum annual payments of $25,000 through 2021. In
addition, the license provided for the payment of 50% of sub-license fee income.
|
|
|
|
Since its acquisition of the ice technology license, the company worked with the technologys
inventor, Dr. Victor Petrenko at Dartmouths Thayer School of Engineering, to refine the various
methods of deicing and used its best efforts to sublicense such technology to one or more domestic
and/or foreign glass
manufacturers, automotive companies and other potential end-users. A considerable amount of
additional development work was performed at the Dartmouth Colleges Center for Ice Technology on
the colleges campus, which work was supervised by Dr. Petrenko.
|
|
|
|
In December, 2006, the company was informed by Dr. Petrenko that while the physics underlying the
ice technology is still valid and the technology remains promising, he could not estimate a time
frame when the technology would be mature enough for automotive commercialization. Given
Dr. Petrenkos assessment with respect to the ice technology, management determined that the
unamortized cost of the ice license as of December 31, 2006 should be recorded as an impairment in
accordance with SFAS No. 144 as of and for the year ended December 31, 2006.
|
|
|
|
During 2007, the company and Dr. Petrenko discussed the terms and conditions under which the
company would accept Dr. Petrenkos offer to purchase the license from the company. Effective
June 15, 2007, the company assigned all of its rights, title and interest in and to the license to
Dr. Petrenkos company (Ice Engineering, LLC) in exchange for an agreement by Ice Engineering to
pay the shareholders of Ice Surface Development a royalty equal to 5% of the gross revenues
generated by the license and the assumption of the companys obligations to Dartmouth College under
the license.
|
|
|
|
Separately, Ice Engineering, LLC agreed to reimburse approximately $3,500,000 of acquisition and
maintenance costs expended by the company in connection with the ice technology. Pursuant to the
reimbursement agreement, the company received $500,000 on June 15, 2007. The $3,000,000 balance is
to be paid at the rate of $300,000 per quarter commencing March 1, 2008, less approximately $91,000
in fees payable to Dartmouth College accrued through June 14, 2007 to be deducted from the first
quarterly reimbursement amount. In the circumstances, the collectability of the amounts due under
the agreement is not reasonably determinable and the cost recovery method of accounting has been
applied.
|
|
|
|
The company has accounted for the receipt of the reimbursement proceeds as a recovery of costs
since such amounts represent an initial payment and is subject to additional installments and when
payments received exceed the cost accumulated, revenue will be recorded under the cost recovery
approach to the extent that the proceeds exceed the basis.
|
|
|
|
The company received the first quarterly reimbursement of $209,000, due March 1, 2008, on April 3,
2008. The company has not received payment of the installments due June 1, 2008 and September 1,
2008 and Ice Engineering has apparently repudiated its remaining payment obligations under the
agreement. On October 31, 2008, the company commenced an action in New York State Supreme Court,
County of New York, Commercial Division against Ice Engineering, LLC seeking the total balance owed
by Ice Engineering to the company pursuant to an agreement, namely $2,700,000.
|
|
(e)
|
|
Company Expenses
|
|
|
|
The net loss for the three month period ended September 30, 2008 was $457,000 as compared to the
three month period ended September 30, 2007 of a net loss of $569,000. The net loss for the nine
month period ended September 30, 2008 was $939,000 as compared to the nine month period ended
September 30, 2007 net loss of $2,327,000. The decrease in the net loss of $112,000 and $1,388,000,
respectively, is principally related to the gain on cancellation of debt which provided the company
with other income of $1,541,000.
|
|
|
|
Research and development expenses for the three month period ended September 30, 2008 amounted to
$143,000 as compared to $152,000 for the three month period ended September 30, 2007. Research and
development expenses for the nine month period ended September 30, 2008 amounted to $405,000 as
compared to $541,000 for the nine month period ended September 30, 2007. The decrease of $9,000
and $136,000 in the three and nine month comparative is due to decreased cost associated with
commercializing our technologies. The decrease expense is based on the change of allocation of
expenses to research and development. In 2007, management allocated sixty six percent of
engineering costs to research and development. In 2008, management decided to change the
allocation to thirty three percent of engineering costs to research and development due to the
change in project development and costs that needed to be specifically traced to business
components.
|
|
|
|
General and administrative expense for the three month period ended September 30, 2008 amounted to
$694,000 compared to $434,000 for the three month period ended September 30, 2007. General and
administrative expenses for the nine month period ended September 30, 2008 amounted to $2,475,000
as compared to $1,935,000 for the nine month period ended September 30, 2007. This increase of
$260,000 and $540,000 in the three and nine month comparative is due to the increased cost
associated with commercializing the products, increased litigation costs, accrued compensation to
James and Keith Gleasman, accrued estimated payroll tax expense, and the legal expenditures for
patents.
|
22
(f)
|
|
Liquidity and Capital Resources
|
|
|
|
The companys business activities during the nine month period ended September 30, 2008 were
funded principally through:
|
|
|
|
the receipt in 2007 of the first installment of $500,000 of an aggregate $3,500,000 reimbursement
payable in connection with the assignment of the companys ice technology license and the receipt
of $209,000 representing the second reimbursement installment;
|
|
|
|
|
the receipt in 2007 of $126,000 in revenue from the sale of the companys products to various
end-users;
|
|
|
|
|
the receipt of approximately $30,000 of revenue during the nine month period ended September 30,
2008 attributable to the sale of a constant velocity joint prototype to a California bus company
and the sale of a prototype to a military contractor;
|
|
|
|
|
the purchase of restricted common stock in June 2008 for $100,000 by an accredited investor at a
price of $2.75 per common share.
|
|
|
|
|
the purchase of restricted common stock in
September 2008 for $30,000 by accredited investors at
a price of $1.50 per common share.
|
During the nine month period ended September 30, 2008 and 2007, the company issued 664,021 and
174,803 common shares to business consultants under its Business Consultants Stock Plan in exchange
for ongoing corporate legal services, internal accounting services, business advisory services as
well as legal fees and associated expenses for ongoing patent work and litigation. As of September
30, 2008 and 2007, there are 3,989,605, and 4,791,826 shares available for future grants under the
plan.
On March 28, 2008 the board of directors approved the governance and compensation committees
recommendation that, effective January 1, 2008, each of the Gleasmans be compensated at the rate of
$300,000 per year. Such amount is payable in cash. No payment of all or any portion of the
Gleasmans compensation shall be paid unless and until the company shall have the requisite cash
available. The determination of the availability of the requisite amount of cash shall be made by
the board of directors in the light of approved-budgets, existing and anticipated capital
requirements and existing and estimated cash flows. Unpaid amounts are accumulated and carry over
from one year to the next. No amount was paid to either of the Gleasmans under this compensation
arrangement during the nine month period ended September 30, 2008. The amount of unpaid
compensation accrued as of September 30, 2008 is $450,000.
At September 30, 2008 and 2007, the companys cash position was $43,000 and $483,000 and the
company had a working capital deficit of $241,000 and $1,258,000. The companys cash position at
anytime during the nine month periods ended September 30, 2008 and 2007 was dependent upon its
success in selling its preferred stock, the receipt of reimbursement monies with respect to its ice
technology license and revenues generated by the sale of its products. Since
our inception, we have incurred significant operating and net losses and have not generated
positive cash flows from operations. The balance of cash and cash equivalents and the funding
commitment as of September 30, 2008 will not sufficient to meet our anticipated cash requirements
through September 30, 2009, based on our present plan of operation. As a result, we are seeking to
raise additional capital. Additional capital may not be available on acceptable terms or at all.
Equity financings may be dilutive to existing stockholders. If we are unable to obtain sufficient
capital as and when needed, we may be forced to delay, scale back or eliminate some or all of our
operations including our research and development programs and commercialization plans, and/or
license to third parties certain products or technologies that we would otherwise seek to
commercialize independently. Our ability to continue is dependent on obtaining additional long-term
financing and ultimately achieving profitable operating results. Please see Note A of our condensed
consolidated financial statements for the nine month s ended
September 30, 2008. Unless we are able to obtain financing and
ultimately achieve profitability we will not be able to continue as a
going concern.
At
September 30, 2008, the company had accounts payable, accrued
expenses, and deferred compensation and other expenses totaling
$826,000 (of which $471,000 is attributed to the Gleasmans unpaid but
accrued compensation).
23
(g)
|
|
Critical Accounting Policies
|
|
|
|
Revenue Recognition
|
|
|
|
The companys terms provided that customers are obligated to pay for products sold to them within a
specified number of days from the date that title to the products is transferred to the customers.
The companys standard terms are typically net 30 days. The company recognizes revenue when
transfer of title occurs and risk of ownership passes to a customer at the time of shipment or
delivery depending on the terms of the agreement with a particular customer. The sale price of the
companys products is substantially fixed and determinable at the date of the sale based upon
purchase orders generated by a customer and accepted by the company. To the extent that
collectability of the receivable is not assured, the company follows the cost recovery approach.
Accordingly, amounts collected will be accounted for as a reduction of costs.
|
|
|
|
Effective January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements (SFAS
157), which defines fair value, establishes a framework for measuring fair value and requires
additional disclosures about fair value measurements. In February 2008, the FASB delayed the
effective date of SFAS 157 for one year for all nonfinancial assets and nonfinancial liabilities,
except for those items that are recognized or disclosed at fair value in the financial statements
on a recurring basis. Management has determined that the adoption of SFAS 157 did not have a
material effect on the companys consolidated financial statements.
|
|
|
|
Effective January 1, 2008, the company adopted SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities- including an amendment of FASB Statement 115 (SFAS 159). This
statement provides companies with an option to report selected financial assets and liabilities at
fair value. As of September 30, 2008, the company has not elected to use the fair value option
allowed by SFAS 159. Management has determined that the adoption of SFAS 159 did not have a
material effect on the companys consolidated financial position, results of operations, cash flows
or financial statement disclosures.
|
|
|
|
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51 (SFAS 160). The standard changes the accounting
for noncontrolling (minority) interests in consolidated financial statements including the
requirements to classify noncontrolling interests as a component of consolidated stockholders
equity, and the elimination of minority interest accounting in results of operations with
earnings attributable to noncontrolling interests reported as part of consolidated earnings.
Additionally, SFAS 160 revises the accounting for both
increases and decreases in a parents controlling ownership interest. SFAS 160 is effective for
fiscal years beginning after December 15, 2008, with early adoption prohibited. The company is
currently evaluating the effect, if any, the adoption will have on the companys financial position
and results of operations, but does not expect the adoption of SFAS 160 to have a significant
impact on the companys financial position.
|
|
|
|
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 161,
Disclosures about Derivative Instruments and Hedging
Activities-an amendment of FASB Statement No. 133.
SFAS 161 requires enhanced disclosures about
an entitys derivative and hedging activities. SFAS 161 is effective for financial statements
issued for fiscal years and interim periods beginning after November 15, 2008 with early
application encouraged. As such, the Company is required to adopt these provisions at the
beginning of the fiscal year ended December 31, 2009. in review of SFAS 161, the Company has
determined that it is not applicable and will have no effect to its consolidated financial
statements.
|
|
|
|
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 (SFAS 162), The
Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles to be used in the preparation
of financial statements of nongovernmental entities that are presented in conformity with U.S.
GAAP. SFAS 162 will become effective 60 days following the SECs approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles. This statement is not expected to result
in a change in our current practice.
|
|
(h)
|
|
Impact of Inflation
|
|
|
|
Inflation has not had a significant impact on the companys operations to date and management is
currently unable to determine the extent inflation may impact the companys operations during the
nine month period ended September 30, 2008.
|
|
(i)
|
|
Quarterly Fluctuations
|
|
|
|
As of September 30, 2008 and 2007, the company had not engaged in substantial revenue producing
operations. Once the company actually commences significant revenue producing operations, the
companys operating results may fluctuate significantly from period to period as a result of a
variety of factors, including purchasing patterns of consumers, the length of the companys sales
cycle to key customers and distributors, the timing of the introduction of new products and product
enhancements by the company and its competitors, technological factors, variations in sales by
product and distribution channel, product returns, and competitive pricing. Consequently, once the
company actually commences significant revenue producing operations, the companys product revenues
may vary significantly by quarter and the companys operating results may experience significant
fluctuations.
|
24
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
Item 4.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The company maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed by the company in reports it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized, and reported on a timely basis
and that such information is accumulated and communicated to management, including the chief
executive officer and the chief financial officer, as appropriate, to allow for timely decisions
regarding required disclosure.
The companys management, including the chief executive officer and interim chief financial
officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) of the Exchange Act) as of September 30, 2008 pursuant to Rule 13a-15(b)
under the Exchange Act and has concluded that our disclosure controls and procedures were effective
as of September 30, 2008.
Changes in Internal Control Over Financial Reporting
The companys management, with the participation of the companys chief executive officer and
interim chief financial officer, has concluded that there were no changes in the companys internal
control over financial reporting that occurred during the quarter ended September 30, 2008 that has
materially affected, or is reasonably likely to materially affect, the companys internal control
over financial reporting.
25
PART II OTHER INFORMATION
Item 1.
Legal Proceedings
(1)
|
|
On September 30, 2005, the company filed a declaratory judgment action in the Supreme Court of
the State of New York for the Seventh Judicial District seeking that courts determination that
certain, purported agreements with a management consulting firm are null and void and unenforceable
as against the company, its officers and directors. This litigation is in the predeposition,
document-production discovery phase.
|
|
(2)
|
|
On April 12, 2007, the company commenced a second lawsuit against the same management
consulting firm in the Supreme Court, Seventh Judicial District, alleging that such firm had
fraudulently induced the company to enter into certain purported agreements with the management
firm, did not perform the services for which the company had engaged the firm and that, as a
result, the company has been damaged in excess of $6,000,000 by such firm. This litigation is in
the predeposition, document-production discovery phase.
|
|
(3)
|
|
On October 8, 2007, the controlling persons of the companys majority-owned subsidiary, Ice
Surface Development, Inc.(ISDI), namely its chief executive officer, its chief operating officer
and its vice-president of manufacturing, filed for arbitration of their claims that ISDI is
obligated to pay them certain amounts under their employment contracts.
|
|
|
|
On October 19, 2007, the same three persons commenced a shareholders derivative action in the
Federal District Court for the Western District of New York claiming that the company and its
president breached their fiduciary duties to the minority shareholders of ISDI in assigning the
Dartmouth College ice technology license for inadequate consideration.
|
|
|
|
On June 27, 2008, the Federal Court dismissed, with prejudice, the shareholders derivative action
and the deadline for appealing the decision has expired.
|
|
|
|
On August 18, 2008, the plaintiffs withdrew their arbitration claim, thus ending the litigation in
its entirety.
|
|
(4)
|
|
On October 31, 2008, the company commenced an action in New York State Supreme Court, County of
New York, Commercial Division against Ice Engineering, LLC seeking the total balance owed by Ice
Engineering to the company pursuant to an agreement entered into by the parties, effective June 15,
2007, namely, $2,700,000. Under the agreement, in connection with Torvecs assignment of the ice
technology license to Ice Engineering, that company agreed to reimburse Torvec for approximately
$3,500,000 the company previously had expended acquiring and maintaining the license. Ice
Engineering has paid approximately $800,000 but is in arrears with respect to installments due June
1, 2008 and September 1, 2008 and apparently has repudiated its remaining payment obligations under
the agreement.
|
Item 1A.
Risk Factors
There have been no significant changes to the risk factors facing the company as
disclosed in the Companys Form 10-K for the year ended December 31, 2007, other than those
described in Footnote A to the companys financial statements with respect to the companys ability
to continue as a going concern, in Item 2, Managements Discussion and Analysis of Financial
Condition and Results of Operation and Part II, Item 1, Legal Proceedings, all as set forth herein.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
As disclosed in a Current Report (SEC Form 8-K) filed on October 8, 2008, the company sold 50,000
restricted common shares at $1.50 per share to accredited investors at $1.50 per share. The sales
occurred on October 6, 7, and 8, 2008. The closing price for the companys common stock on the
OTCBB on such dates was $1.25, $1.30 and $1.20, respectively.
Item 3.
Defaults Upon Senior Securities
None
Item 4.
Submission of Matters to a Vote of Security Holders
Item 5.
Other Information
None.
26
Item 6.
Exhibits
Exhibits as required by Item 601 of Regulation S-K, as applicable, are attached to this quarterly
report (Form 10-Q). The Exhibit Index is found on the page immediately succeeding the signature
page, and the Exhibits follow on the pages immediately succeeding the Exhibit Index.
(2)
|
|
Plan of acquisition, reorganization, arrangement, liquidation, or succession
|
|
2.1
|
|
Agreement and Plan of Merger, dated November 29, 2000 by and among Torvec Subsidiary
Corporation, Torvec, Inc., UTEK Corporation and ICE Surface Development, Inc. incorporated by
reference to Form 8-K filed November 30, 2000 and Form 8K/A filed February 12, 2001.
|
(3)
|
|
Articles of Incorporation, By-laws
|
|
3.1
|
|
Certificate of Incorporation, incorporated by reference to Form 10-SB/A , Registration
Statement, registering Companys $.01 par value common stock under section 12(g) of the Securities
Exchange Act of 1934;
|
|
|
3.2
|
|
Certificate of Amendment to the Certificate of Incorporation dated August 30, 2000,
incorporated by reference to Form SB-2 filed October 19, 2000;
|
|
|
3.3
|
|
Certificate of Correction dated March 22, 2002, incorporated by reference to Form 10-KSB filed
for fiscal year ended December 31, 2002;
|
|
|
3.4
|
|
By-laws, as amended by shareholders on January 24, 2002, incorporated by reference to Form
10-KSB filed for fiscal year ended December 31, 2002;
|
|
|
3.5
|
|
Certification of Amendment to the Certificate of Incorporation dated October 21, 2004 setting
forth terms and conditions of Class B Preferred, incorporated by reference to Form 10-QSB filed for
fiscal quarter ended September 30, 2004.
|
|
|
3.6
|
|
Certificate of Amendment to the Certificate of Incorporation dated January 26, 2007
increasing the authorized common shares from 40,000,000 to 400,000,000 common shares, incorporated
by reference to annual report
(Form 10-K)
filed for the calendar year ended December 31, 2006.
|
(4)
|
|
Instruments defining the rights of holders including indentures
|
None
(9)
|
|
Voting Trust Agreement
|
None
|
10.1
|
|
Certain Employment Agreements, Consulting Agreements, certain assignments of patents, patent
properties, technology and know-how to the Company, Neri Service and Space Agreement and Ford Motor
Company Agreement and Extension of Term, all incorporated by reference to Form 10-SB/A,
Registration Statement, registering Companys $.01 par value common stock under section 12(g) of
the Securities Exchange Act of 1934;
|
|
|
10.2
|
|
The Companys 1998 Stock Option Plan and related Stock Options Agreements, incorporated by
reference to
Form S-8,
Registration Statement, registering 2,000,000 shares of the Companys $.01
par value common stock reserved for issuance thereunder, effective December 17, 1998;
|
|
|
10.3
|
|
The Companys Business Consultants Stock Plan, incorporated by reference to Form S-8,
Registration Statement, registering 200,000 shares of the Companys $.01 par value common stock
reserved for issuance thereunder, effective June 11, 1999, as amended by reference to Form S-8
Registration Statements registering an additional 200,000, 200,000, 100,000, 800,000, 250,000,
250,000, 350,000, 250,000, 2,500,000 and 5,000,000 shares of the Companys $.01 par value common
stock reserved for issuance thereunder, effective October 5, 2000, November 7, 2001, December 21,
2001, February 1, 2002,
November 12, 2002, January 22, 2003, May 23, 2003, November 26, 2003, April 20, 2004 and
October 13, 2006, respectively;
|
27
|
10.4
|
|
Termination of Neri Service and Space Agreement dated August 31, 1999, incorporated by
reference to Form 10-QSB filed for the quarter ended September 30, 1999;
|
|
|
10.5
|
|
Operating Agreement of Variable Gear, LLC dated June 28, 2000, incorporated by
reference to Form 10-QSB filed for the quarter ended September 30, 2000;
|
|
|
10.6
|
|
License Agreement between Torvec, Inc. and Variable Gear, LLC dated June 28, 2000,
incorporated by reference to Form SB-2 filed October 19, 2000;
|
|
|
10.7
|
|
Investment Agreement with Swartz Private Equity, LLC dated September 5, 2000, together with
attachments thereto, incorporated by reference to Form 8-K filed October 2, 2000;
|
|
|
10.8
|
|
Extension of and Amendment to Consulting Agreement with James A. Gleasman, incorporated by
reference to Form 10-KSB filed for the fiscal year ended December 31, 2000;
|
|
|
10.9
|
|
Extension of and Amendment to Consulting Agreement with Keith E. Gleasman, incorporated by
reference to Form 10-KSB filed for the fiscal year ended December 31, 2000;
|
|
|
10.10
|
|
Extension of and Amendment to Consulting Agreement with Vernon E. Gleasman, incorporated by
reference to Form 10-KSB filed for the fiscal year ended December 31, 2000;
|
|
|
10.11
|
|
Option and Consulting Agreement with Marquis Capital, LLC dated February 10, 1999,
incorporated by reference to Form 10-QSB filed for quarter ended March 31, 2001;
|
|
|
10.12
|
|
Option and Consulting Agreement with PMC Direct Corp., dated February 10, 1999,
incorporated by reference to Form 10-QSB filed for quarter ended March 31, 2001;
|
|
|
10.13
|
|
Investment Banking Services Agreement with Swartz Institutional Finance (Dunwoody Brokerage
Services, Inc.) dated December 8, 2000, incorporated by reference to Form 10-QSB filed for quarter
ended March 31, 2001;
|
|
|
10.14
|
|
Employment Agreement with Michael Martindale, Chief Executive Officer, dated August 1,
2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
|
|
|
10.15
|
|
Employment Agreement with Jacob H. Brooks, Chief Operating Officer, dated August 1, 2001,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2001;
|
|
|
10.16
|
|
Employment Agreement with David K. Marshall, Vice-President of Manufacturing, dated
September 1, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2001;
|
|
|
10.17
|
|
Investment Banking Services Agreement with Swartz Institutional Finance (Dunwoody Brokerage
Services, Inc.), as amended, dated October 23, 2001, incorporated by reference to Form 10-QSB filed
for fiscal quarter ended September 30, 2001;
|
|
|
10.18
|
|
Stock Option Agreement with Samuel Bronsky, Chief Financial and Accounting Officer, dated
August 28, 2001, incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2001;
|
|
|
10.19
|
|
Pittsford Capital Group, LLC Agreement dated January 30, 2002, incorporated by reference to
Form 10-KSB filed for fiscal year ended December 31, 2001;
|
|
|
10.20
|
|
Gleasman-Steenburgh Indemnification Agreement dated April 9, 2002, incorporated by
reference to Form 10-KSB filed for fiscal year ended December 31, 2001;
|
|
|
10.21
|
|
Series B Warrant dated April 10, 2002, incorporated by reference to Form 10-KSB filed for
fiscal year ended December 31, 2001;
|
|
|
10.22
|
|
Billow Butler & Company, LLC investment banking engagement letter dated October 1, 2003,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2003;
|
|
|
10.23
|
|
Letter of Acknowledgement and Agreement with U.S. Environmental Protection Agency dated
February 4, 2004, incorporated by reference to Form 10-KSB filed for fiscal year ended December 31,
2003;
|
|
|
10.24
|
|
Letter Agreement with CXO on the GO, L.L.C. dated February 20, 2004, incorporated by
reference to Form 10-KSB filed for fiscal year ended December 31, 2003;
|
|
|
10.25
|
|
Letter Amendment with CXO on the GO, L.L.C. dated February 23, 2004, incorporated by
reference to Form 10-KSB filed for fiscal year ended December 31, 2003;
|
|
|
10.26
|
|
Lease Agreement for premises at Powder Mills Office Park, 1169 Pittsford-Victor Road,
Suite 125, Pittsford, New York 14534, dated July 16, 2004; incorporated by reference to Form 10-QSB
filed for fiscal quarter ended September 30, 2004;
|
|
|
10.27
|
|
Lease Agreement for testing facility and Mustang dynamometer, dated July 21, 2004;
incorporated by reference to
Form 10-QSB filed for fiscal quarter ended September 30, 2004;
|
28
|
10.28
|
|
Advisory Agreement with PNB Consulting, LLC, 970 Peachtree Industrial Blvd., Suite 303,
Suwanee, Georgia 30024; incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2004;
|
|
|
10.29
|
|
Agreement between Torvec and ZT Technologies, Inc. dated July 21, 2004, incorporated by
reference to
Form 10-QSB
filed for fiscal quarter ended September 30, 2004;
|
|
|
10.30
|
|
Assignment and Assumption of Lease between William J. Green and Ronald J. Green and Torvec,
Inc. effective as of December 31, 2004, incorporated by reference to
Form 10-KSB
filed for fiscal
year ended December 31, 2004;
|
|
|
10.31
|
|
Bill of Sale between Dynamx, Inc. and Torvec, Inc. for equipment and machinery,
incorporated by reference to Form 10-KSB filed for fiscal year ended December 31, 2004;
|
|
|
10.32
|
|
Lease and Services Agreement between Robert C. Horton as Landlord and Torvec, Inc. as
Tenant dated March 18, 2005, incorporated by reference to Form 10-KSB filed for fiscal year ended
December 31, 2004;
|
|
|
10.33
|
|
Settlement Agreement and Mutual Release between Torvec, Inc. and ZT Technologies, Inc.
dated March 29, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended
March 31, 2005;
|
|
|
10.34
|
|
Advisory Agreement between Robert C. Horton and Torvec, Inc. dated February 15, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended March 31, 2005;
|
|
|
10.35
|
|
Lease and Services Agreement between Dennis J. Trask as Landlord and Torvec, Inc. as Tenant
dated April 18, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended
March 31, 2005;
|
|
|
10.36
|
|
Consulting Agreement with Matthew R. Wrona, dated September 30, 2005, incorporated by
reference to
Form 10-QSB
filed for fiscal quarter ended September 30, 2005;
|
|
|
10.37
|
|
Option Agreement between Matthew R. Wrona and Torvec, Inc. dated September 30, 2005,
incorporated by reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.38
|
|
Trust Agreement between Matthew R. Wrona, Donald Gabel, Lawrence Clark, Steven Urbanik,
Floyd G. Cady, Jr., and Michael Pomponi as Grantors and Richard B. Sullivan as Trustee, dated
September 22, 2005, incorporated by reference to Form 10-QSB filed for fiscal quarter ended
September 30, 2005;
|
|
|
10.39
|
|
Consultant Agreement with Floyd G. Cady, Jr., dated October 1, 2005, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.40
|
|
Consultant Agreement with Lawrence W. Clark, dated October 1, 2005, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.41
|
|
Consultant Agreement with Donald W. Gabel, dated October 1, 2005, incorporated by reference
to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.42
|
|
Consultant Agreement with Michael A. Pomponi, dated October 1, 2005, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.43
|
|
Consultant Agreement with Steven Urbanik, dated October 1, 2005, incorporated by reference
to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.44
|
|
Consultant Agreement with Kiwee Johnson, dated September 30, 2005, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005;
|
|
|
10.45
|
|
Confidentiality Agreement with Joseph B. Rizzo, dated October 24, 2005, incorporated by
reference to Form 10-QSB filed for fiscal quarter ended September 30, 2005.
|
|
|
10.46
|
|
Minutes of meeting Board of Directors Torvec, Inc., held October 19, 2004, creating the
non-management directors plan, incorporated by reference to Form 10-KSB filed for the fiscal year
ended December 31, 2006.
|
|
|
10.47
|
|
Excerpts from minutes of the meeting of Board of Directors Torvec, Inc., adopting changes
to the non-management directors plan creating, a commercialized event plan, approving an increase
in shares to be issued under business consulting plan and adopting recommendation that shareholders
increase number of authorized common shares from 40,000,000 to 400,000,000 common shares,
incorporated by reference to Form 8-K filed on October 16, 2006.
|
|
|
10.48
|
|
Order of Supreme Court of the State of New York with respect to litigation between the
company and a management consulting firm, incorporated by reference to Form 8-K filed on June 20,
2006;
|
|
|
10.49
|
|
Letter agreement with American Continental Group, LLC, executed on October 22, 2006,
incorporated by reference to Form 8-K filed on October 30, 2006;
|
|
|
10.50
|
|
New York State School Bus Proposal incorporated by reference to Form 10-Q filed for quarter
ended March 31, 2006;
|
29
|
10.51
|
|
Order of Supreme Court of the State of New York directing the Monroe County Clerk to
release back to the company 40,000 common shares and 245,000 common stock warrants issued to a
management consulting firm with which the company is in litigation and held in escrow by such Clerk
by virtue of a previous court order and directing the return to the company of a $250,000 (less
administrative fee) undertaking deposited with the Monroe County Treasurer in connection with the
same litigation, incorporated by reference to Form 10-Q filed for the quarter ended March 31, 2007;
|
|
|
10.52
|
|
License Assignment and Transfer Agreement by and between Ice Engineering, LLC and Torvec,
Inc. made effective June 15, 2007 assigning license granted by Dartmouth College with respect to
ice technology from Torvec to Ice Engineering, incorporated by reference to Form 8-K filed on
July 18, 2007.
|
|
|
10.53
|
|
License Agreement by and between High Density Powertrain and Torvec, Inc. dated December
12, 2007, incorporated by reference to current report (Form 8-K) filed December 14, 2007;
|
|
|
10.54
|
|
Consulting Agreement by and between Clifford Carlson and Torvec, Inc. dated December 12,
2007, incorporated by reference to current report (Form 8-K) filed December 14, 2007;
|
|
|
10.55
|
|
Minutes of meeting of Governance and Compensation Committee dated February 19, 2008
establishing compensation for the companys president and chief executive officer and amending the
companys commercializing event plan, incorporated by reference to annual report (Form 10-K) filed
for year ended December 31, 2007.
|
(11)
|
|
Statement regarding computation of per share earnings (loss)
|
Not applicable
(14)
|
|
Code of Ethics
|
|
(16)
|
|
Letter on change in certifying accountant
|
None
(18)
|
|
Letter regarding change in accounting principles
|
None
(20)
|
|
Other documents or statements to security holders
|
None
(21)
|
|
Subsidiaries of the registrant
|
|
|
|
Ice Surface Development, Inc. (New York)
Iso-Torque Corporation (New York)
IVT Diesel Corp. (New York)
Variable Gear, LLC (New York)
|
(22)
|
|
Published report regarding matters submitted to vote of security holders
|
None
(23)
|
|
Consents of experts and counsel
|
|
(23.1)
|
|
Eisner LLP Consent
|
|
(24)
|
|
Power of attorney
|
None
(31.1)
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certifications
|
|
(32)
|
|
Section 1350 Certifications
|
|
(99)
|
|
Additional exhibits
|
None
30
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
|
|
TORVEC, INC.
|
|
|
|
Date: November 14, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ James Y. Gleasman
James Y. Gleasman, Chief Executive Officer
|
|
|
In accordance with the Exchange Act, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
|
Dated: November 14, 2008
|
|
By:
|
|
/s/ James Y. Gleasman
James Y. Gleasman, Chief Executive Officer and
|
|
|
|
|
|
|
Interim Chief Financial Officer
|
|
|
31
EXHIBIT INDEX
|
|
|
(31.1)
|
|
Rule 13(a)-14(a)/15(d)-14(a) Certifications
|
|
|
|
(32)
|
|
Section 1350 Certifications
|
32
CurAegis Technologies (CE) (USOTC:CRGS)
Historical Stock Chart
From Jun 2024 to Jul 2024
CurAegis Technologies (CE) (USOTC:CRGS)
Historical Stock Chart
From Jul 2023 to Jul 2024