UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 2002
Commission file number:
333-55284
CRYOCON, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1026503
State or other jurisdiction of I.R.S. Employer
incorporation or organization Identification No.
2773 Industrial Drive
Ogden, Utah 84401
(Address of principal executive office)
(801) 395-2796
(Issuer's telephone number including area code)
(All Correspondence to:)
Brenda Lee Hamilton
Hamilton, Lehrer & Dargan P.A.
2 East Camino Real, Suite 202
Boca Raton, Florida 33432
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock Over-the-Counter Bulletin Board
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. X Yes ___ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
The issuer's revenues for its most recent fiscal year were $57,926.
The aggregate market value of the voting and non-voting equity held by
non-affiliates computed by reference to the price at which common equity was
sold, or the average bid and asked price of such common equity (i.e., does not
include directors, executive officers or ten percent stockholders identified in
Item 11 hereof) of the issuer as of June 30, 2002 was approximately $5,909,134.
As of June 30, 2002, there were 21,885,680 shares of our common stock issued and
outstanding.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Not Applicable
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Transactional Small Business Disclosure Format (check one)
Yes __ No X
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-QSB
QUARTER ENDED June 30, 2002
PART I
FINANCIAL STATEMENTS
Consolidated Balance Sheets (June 30, 2002, March 31, 2002)....F-1
Liabilities & Stockholders Equity (Deficit)....................F-2
Consolidated Statement of Operations...........................F-3
Consolidated Statement of Stockholders' Equity (Deficit)....F-4 - F-7
Consolidated Statement of Cash Flows........................F-8 - F-9
Notes to Unaudited Financial Statements........................F-10
Managements Discussion and Analysis and Plan of Operations....4 - 7
PART II
OTHER INFORMATION
Item 1. Legal Proceedings...............................................8
Item 2. Changes in Securities & Use of Proceeds.........................9
Item 3. Defaults on Senior Securities..................................10
Item 4. Submission of Matters to a Vote of Security Holders............10
Item 5. Other Information..............................................10
Item 6. Exhibits and Reports on Form 8-K...............................10
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
-2-
Forward-Looking Statements:
This quarterly report on Form 10-QSB for the period ending June 30, 2002,
contains forward-looking statements. Cryocon, Inc. is referred to in this report
as "we", "us" or "our." The words or phrases "would be," "will allow," "intends
to," "will likely result," "are expected to," "will continue," "is anticipated,"
"estimate," "project," or similar expressions are intended to identify
"forward-looking statements". Actual results could differ materially from those
projected in the forward-looking statements as a result of a number of risks and
uncertainties, including the risk factors set forth in our "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Statements made in this report are as of the date of the filing of this Form
10-QSB with the Securities and Exchange Commission and should not be relied upon
as of any subsequent date. Unless otherwise required by applicable law, we do
not undertake, and we specifically disclaim any obligation, to update any
forward-looking statements to reflect occurrences, developments, unanticipated
events or circumstances after the date of such statements.
-3-
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002 and March 31, 2002
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
June 30, March 31,
2002 2002
------------------ ------------------
(Unaudited)
CURRENT ASSETS
Cash $ 77,685 $ 2,914
Accounts receivable, net 39,708 34,850
Deposits and prepaid expenses 5,800 11,703
------------------ ------------------
Total Current Assets 123,193 49,467
------------------ ------------------
PROPERTY AND EQUIPMENT, NET 126,270 135,880
------------------ ------------------
OTHER ASSETS
Patents, trademarks and licenses, net 216,997 239,467
------------------ ------------------
Total Other Assets 216,997 239,467
------------------ ------------------
TOTAL ASSETS $ 466,460 $ 424,814
================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
F-1
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
June 30, March 31,
2002 2002
----------------- ------------------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 165,743 $ 290,676
Accrued expenses 1,038,883 1,119,825
Notes payable, related party 491,016 118,000
Current portion long-term debt 47,874 47,874
Common stock deposits 238,000 -
------------------ ------------------
Total Current Liabilities 1,981,516 1,576,375
------------------ ------------------
LONG-TERM LIABILITIES
Notes payable, related party - 50,000
Long-term debt 144,983 144,983
------------------ ------------------
Total Long-Term Liabilities 144,983 194,983
------------------ ------------------
TOTAL LIABILITIES 2,126,499 1,771,358
------------------ ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 50,000,000 shares authorized
of no par value, 21,885,680 and 21,140,680
shares issued and outstanding, respectively 9,221,016 8,708,866
Treasury stock (140,000) (140,000)
Additional paid in capital 483,205 483,205
Deficit accumulated during the development stage (11,224,260) (10,398,615)
------------------ ------------------
Total Stockholders' Equity (Deficit) (1,660,039) (1,346,544)
------------------ ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 466,460 $ 424,814
================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
F-2
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
For the October 20,
Three Months Ended 1999 Through
June 30, June 30,
2002 2001 2002
------------------ ------------------ ------------------
REVENUES $ 19,815 $ 18,131 $ 241,651
------------------ ------------------ ------------------
EXPENSES
Cost of sales 5,047 6,862 93,028
Advertising - 15,877 461,331
Bad debt expense - - 43,875
Depreciation and amortization 37,279 81,183 951,272
Loss on sale and disposal of assets - - 539,579
General and administrative 790,560 692,281 8,585,238
------------------ ------------------ ------------------
Total Expenses 832,886 796,203 10,674,323
------------------ ------------------ ------------------
OPERATING LOSS (813,071) (778,072) (10,432,672)
------------------ ------------------ ------------------
OTHER INCOME (EXPENSE)
Interest income 380 5 4,956
Other income - 9,687 5,188
Interest expense (12,954) (43,812) (801,732)
------------------ ------------------ ------------------
Total Other Income (Expense) (12,574) (34,120) (791,588)
------------------ ------------------ ------------------
NET LOSS $ (825,645) $ (812,192) $ (11,224,260)
================== ================== ==================
BASIC LOSS PER SHARE $ (0.04) $ (0.04)
================== ==================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 21,303,995 19,617,364
================== ==================
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid in Treasury Development
Shares Amount Capital Stock Stage
------------ ------------ ---------- ------------ --------------
Balance forward 10,980,000 $ 557,500 $ - $ - $ -
Issuance of common stock for
cash at $1.00 per share 10,000 10,000 - - -
Issuance of common stock for
cash at $1.00 per share 10,000 10,000 - - -
Additional interest recorded on
convertible debentures - 514,050 - - -
Net loss from inception on October
20, 1999 through March 31, 2000 - - - - (1,583,981)
------------ ------------ ---------- ------------ --------------
Balance, March 31, 2000 11,000,000 1,091,550 - - (1,583,981)
Recapitalization 1,237,724 - - - -
Warrants issued below market value - 980,000 - - -
Issuance of common stock upon
exercise of options at
$0.50 per share 17,500 8,750 - - -
Issuance of common stock for
services at $5.375 per share 10,000 53,750 - - -
Issuance of common stock upon
exercise of options at
$0.50 per share 31,650 15,825 - - -
Issuance of common stock for
convertible debentures at
$0.01 per share 2,880,000 28,800 - - -
Issuance of common stock for
convertible debentures at
$0.50 per share 1,294,000 647,000 - - -
Issuance of common stock for
convertible debentures at
$1.00 per share 1,355,437 1,355,437 - - -
Issuance of common stock for
convertible debentures at
$2.00 per share 237,500 475,000 - - -
------------ ----------- ---------- ------------ --------------
Balance Forward 18,063,811 $ 4,656,112 $ - $ - $ (1,583,981)
------------ ------------ ---------- ------------ --------------
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid in Treasury Development
Shares Amount Capital Stock Stage
------------ ------------ ---------- ------------ --------------
Balance Forward 18,063,811 $ 4,656,112 $ - $ - $ (1,583,981)
Stock issuance costs - (390,708) - - -
Issuance of common stock for
convertible debentures at
$2.00 per share 782,118 1,564,236 - - -
Issuance of common stock upon
exercise of options at
$0.50 per share 13,250 6,625 - - -
Issuance of common stock for
services at $2.25 per share 300,000 675,000 - - -
Options issued below market value - 268,110 - - -
Issuance of common stock upon
exercise of options at
$0.50 per share 6,000 3,000 - - -
Purchase of treasury stock at
$3.063 per share - - - (140,000) -
Contributed capital - - 120,000 - -
Issuance of common stock for
services at $3.063 per share 3,658 11,204 - - -
Issuance of common stock for
services at $2.25 per share 51,000 114,750 - - -
Issuance of common stock for
services at $2.50 per share 100,000 250,000 - - -
Net loss for the year ended
March 31, 2001 - - - - (6,095,179)
------------ ------------ ---------- ------------ --------------
Balance, March 31, 2001 19,319,837 7,157,329 120,000 (140,000) (7,679,160)
Issuance of common stock for
Xtool at $2.37 per share 250,000 593,750 - - -
Issuance of common stock for
services at $2.10 per share 20,000 42,000 - - -
Issuance of common stock for
debt at $2.25 per share 25,000 56,250 - - -
------------ ------------ ---------- ------------ --------------
Balance Forward 19,614,837 $ 7,850,329 $ 120,000 $ (140,000) $ (7,679,160)
------------ ------------ ---------- ------------ --------------
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid in Treasury Development
Shares Amount Capital Stock Stage
------------ ------------ ---------- ------------ --------------
Balance Forward 19,614,837 $ 7,850,329 $ 120,000 $ (140,000) $ (7,679,160)
Issuance of common stock for
services at $2.10 per share 100,000 210,000 - - -
Issuance of common stock for
warrants exercised at $0.10
per share 150,000 15,000 - - -
Issuance of common stock in lieu
of debt at $2.00 per share 139,100 284,392 - - -
Issuance of common stock for
services at $1.75 per share 100,000 174,750 - - -
Issuance of common stock for
cash at $1.75 per share 57,000 100,000 - - -
Issuance of common stock for
warrants exercised at $1.50
per share 243 365 - - -
Issuance of common stock for
services at $0.06 per share 600,000 36,000 - - -
Contributed capital - - 116,000 - -
Issuance of common stock for
services at $0.12 per share 125,000 15,000 - - -
Issuance of common stock for
services at $0.10 per share 12,500 1,250 - - -
Issuance of common stock for
debt at $0.09 per share 242,000 21,780 - - -
Contributed capital - - 247,205 - -
Net loss for the year ended
March 31, 2002 - - - - (2,719,455)
------------ ------------ ---------- ------------ --------------
Balance, March 31, 2002 21,140,680 $ 8,708,866 $ 483,205 $ (140,000) $ (10,398,615)
------------ ------------ ---------- ------------ --------------
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Common Stock Additional During the
-------------------------- Paid in Treasury Development
Shares Amount Capital Stock Stage
------------ ------------ ---------- ------------ --------------
Balance Forward 21,140,680 $ 8,708,866 $ 483,205 $ (140,000) $ (10,398,615)
Issuance of common stock for
services at $0.08 per share
(unaudited) 500,000 40,000 - - -
Issuance of common stock for
services at $2.57 per share
(unaudited) 175,000 451,150 - - -
Issuance of common stock for
services at $0.30 per share
(unaudited) 70,000 21,000 - - -
Net loss for the three months
ended June 30, 2002 (unaudited) - - - - (825,645)
------------ ------------ ---------- ------------ --------------
Balance June 30, 2002
(unaudited) 21,885,680 $ 9,221,016 $ 483,205 $ (140,000) $ (11,224,260)
============ ============ ========== ============ ==============
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
For the Inception on
Three Months Ended October 20,
June 30, 1999 Through
-------------------------- June 30,
2002 2001 2002
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (825,645) $ (812,192) $(11,224,260)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 37,279 81,183 951,272
Options and warrants issued below market
value - - 1,248,110
Loss on sale and disposal of assets - - 539,579
Bad debt expense - - 11,000
Additional expense recorded on convertible
debentures - - 514,050
Common stock issued for services rendered 512,150 267,000 2,689,354
(Increase) decrease in:
Accounts receivable (4,858) 4,792 (50,708)
Deposits and prepaids 5,903 7,576 (5,799)
Common stock deposits 238,000 - 284,391
Accounts payable and accrued expenses (211,075) 250,007 1,307,935
------------ ------------ ------------
Net Cash Used by Operating Activities (248,246) (201,634) (3,735,076)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase or development of intangibles - - (449,000)
Equipment purchases - (11,296) (421,036)
Purchase of building - - (2,050,000)
------------ ------------ ------------
Net Cash Used by Investing Activities - (11,296) (2,920,036)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution - - 483,205
Issuance of common stock for cash - - 176,200
Stock offering costs - - (390,708)
Issuance of notes payable 323,017 217,500 6,981,692
Payments made on notes payable - (9,350) (517,592)
------------ ------------ ------------
Net Cash Provided by Financing Activities $ 323,017 $ 208,150 $ 6,732,797
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial statements.
F-8
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
For the Inception on
Three Months Ended October 20,
June 30, 1999 Through
-------------------------- June 30,
2002 2001 2002
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH $ 74,771 $ (4,780) $ 77,685
CASH AT BEGINNING OF PERIOD 2,914 8,980 -
------------ ------------ -------------
CASH AT END OF PERIOD $ 77,685 $ 4,200 $ 77,685
============ ============ =============
CASH PAID FOR:
Interest $ - $ 45 $ 119,600
Income taxes $ - $ - $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for services rendered $ 512,150 $ 267,000 $ 2,689,354
Common stock issued in lieu of debt $ - $ 56,250 $ 642,356
Vehicles purchased under notes payable $ - $ 35,215 $ 65,549
Common stock issued in conversion of
convertible debentures $ - $ - $ 4,070,473
The accompanying notes are an integral part of these consolidated financial statements.
F-9
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in accordance with such
rules and regulations. The information furnished in the interim
condensed consolidated financial statements include normal recurring
adjustments and reflects all adjustments, which, in the opinion of
management, are necessary for a fair presentation of such financial
statements. Although management believes the disclosures and
information presented are adequate to make the information not
misleading, it is suggested that these interim condensed consolidated
financial statements be read in conjunction with the Company's most
recent audited financial statements and notes thereto included in its
March 31, 2002 Annual Report on Form 10-KSB. Operating results for the
three months ended June 30, 2002 are not necessarily indicative of the
results that may be expected for the year ending March 31, 2003.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using
generally accepted accounting principles applicable to a going concern
which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company
does not have significant cash or other material assets, nor does it
have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. Until
that time, the stockholders have committed to covering the operating
costs of the Company.
To the extent that funds generated from operations does not cover
operations, the Company will have to raise additional working capital.
No assurance can be given that additional financing will be available,
or if available, will be on terms acceptable to the Company. If
adequate working capital is not available, the Company may be required
to curtail its operations.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
F-10
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 3 - SIGNIFICANT EVENTS
On April 3, 2002, 500,000 shares of the Company's common stock was
authorized to be issued to a director for services rendered valued at
$0.08 per share or $40,000 representing the fair market value of the
shares on the date of authorization.
During the three months ended June 30, 2002, the Company authorized
the issuance of 175,000 shares of common stock to the Chairman of the
Board valued at a total of $451,150 which is the equivalent of $2.57
per share which was the fair market value of the common stock when
agreement with the Chairman of the Board was entered into in April
2001.
On July 16, 2002, 70,000 shares of the Company's common stock was
authorized to be issued to the Company's legal counsel in return for
services rendered. The value of the services rendered has been
recognized at $21,000 representing $0.30 per share which was the fair
market value of the shares at the time the issuance of the shares was
authorized.
The Company also agreed to issue a director 250,000 shares of common
stock over a 5-year term. At June 30, 2002, 100,000 shares had been
earned for services rendered, however, the shares have not yet been
issued. At the time the agreement was entered into in April 4, 2001,
the market value of the common stock was $2.38 per share. Accordingly,
$238,000 has been recognized as a liability for common stock earned
but not yet issued at June 30, 2002.
In April 2002, the Company agreed to purchase certain tangible and
intangible assets of Applied Cryogenics, Inc. in exchange for 60,000
shares of common stock. At June 30, 2002 assets have been recorded at
$6,100 along with a corresponding liability based on the fair market
value of the Company's common stock on the date of the transaction as
the shares have not yet been authorized or issued.
The Company agreed to issue the new director of research and
development 250,000 shares of common stock for services to be
performed. As of June 30, 2002, no shares have been earned or services
rendered. When shares are earned, the value of the services performed
will be recognized at $0.08 per share which was the price per share of
common stock when agreement with the new director of research and
development was entered into.
NOTE 4 - SUBSEQUENT EVENTS
On August 15, 2002, the Company authorized the issuance of 65,000
shares of restricted common stock for services performed.
On August 15, 2002, options to acquire 125,000 shares of common stock
were authorized to be issued to individuals for services performed
with an exercise price of $0.10 per share.
F-11
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 4 - SUBSEQUENT EVENTS (Continued)
In August 2002, the Company agreed to issue an individual 190,000
shares of free trading stock for services performed.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
From February 16, 2001 to March 1, 2001, the Company approved the sale
and issuance of 139,100 restricted shares of common stock to eight
individuals, consisting of five current shareholders and three new
investors, at a price of $2.00 per share. The Company received
$278,200 in gross proceeds from the sale of the restricted shares. The
Company believed that the sale of these shares was exempt from
registration under the Securities Act of 1933 (Securities Act)
pursuant to Section 4(2). The sale of the shares occurred after the
Company's filing of a registration statement on February 9, 2001. The
Securities and Exchange Commission (SEC), however, indicated in its
comments to the second amendment to the registration statement that
the sale of the shares after filing the registration statement may
have been made in violation of Section 5 of the Securities Act.
Based on comments received by the SEC, the Company believes the
issuance or sale of these securities may have been in violation of the
Securities Act. Accordingly, the Company may be liable to the
offerees. The Company therefore withheld issuance of the 139,100
shares as of March 31, 2001 and recorded a liability in the amount of
$284,392 which includes the $278,200 in gross proceeds plus accrued
interest.
During the year ended March 31, 2002, 139,100 shares of restricted
common stock were issued in satisfaction of the $284,392 liability. On
July 15, 2002, the Company withdrew its registration statement which,
along with other shares, sought to register the 139,100 shares for
purpose of making a rescission offer. As such, the Company is not
proceeding with the rescission offer.
The law firm of Schuering & Kerley, P.C. was responsible for managing
the transactions for the five funds developed by Paragon Investments
which involved the sale of the Company's common stock sold to the
general public. These shares sold between $.10 per share to $2.00 per
share. A rescission offer went to all stockholders who had purchased
from these funds, because the company felt that federal and state
filing requirements may have been violated. They were given 30 days to
accept the rescission offer. If they accepted the offer they would
receive their money back. In the event they did not respond to the
rescission offer within the 30 days stipulated in the offer, the offer
became void.
F-12
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
Of the hundreds of stockholders to receive the rescission offer, only
6 responded. They were:
Stockholder 1 $20,000 10,000 Shares Fund V
Stockholder 2 $ 2,000 2,000 Shares Fund III
Stockholder 3 $60,000 30,000 Shares Fund V
Stockholder 4 $40,000 20,000 Shares Fund V
Stockholder 5 $25,000 12,500 Shares Fund V
Stockholder 6 $35,000 17,500 Shares Fund V
During the next few months the Company worked with these individuals
to resolve the rescinded shares. Each one was take care of as follows:
Shareholders 1, 3, 5, and 6 agreed to receive a loan agreement with
the Company for the amount of dollars they had invested which was
secured by Company common stock valued at $.50 per share. The notes
were for a 6 month duration starting on May 3, 2001. At the time of
the Loan Agreement, each individual forwarded their certificates to
the Company. These returned shares are currently held as treasury
stock. The loan obligations to Shareholders 3, 5, and 6, were
satisfied on March 8, 2002 by the issuance of 70,000 shares of the
Company's free trading common stock contributed by the Company's
former CEO. Shareholder 1 received his shares on July 25, 2002.
Shareholder 2 chose to not revoke the rescission but to send his
shares to Schuering & Kerley to wait for resolution at some future
date. Until a final determination is made, the Company has accrued a
note payable of $2,000.
Shareholder 4 sent a letter to the Company by fax on May 23, 2001
indicating that he would retain the shares of Company common stock and
void his right to rescind and continue his investment.
Company counsel has indicated that they are not aware of any
litigation that has been filed against the Company concerning any of
the possible securities violations and rescission offers. The Company
feels they have satisfied all the shareholders involved, and will
aggressively defend any future claims.
F-13
Item 2. Management's Discussion and Analysis.
The following discussion and analysis provides information that we believe is
relevant to an assessment and understanding of our consolidated results of
operations and financial condition. This discussion and analysis covers material
changes in our financial condition and results of operations since our year end
at March 31, 2001 and for the quarter ended June 30, 2002. The terms "we" or
"our" or "us" are used in this discussion to refer to Cryocon.
Quarter Ended June 30, 2001 and 2002
Statement of Operations
Revenues. Revenues for the three months ended June 30, 2002 increased 9% to
$19,815 from $18,131 for the same period in 2001. The increase in revenues is
attributable primarily to corporate refocusing and restructuring through pricing
and market development.
Cost of Revenues. Cost of revenues consists primarily of materials and supplies.
Cost of revenues decreased 12% to $5,047 for the three months ended June 30,
2002 from $6,862 for the three months ended June 30, 2001, representing 25% and
38% of the total revenues for the three months ended June 30, 2002 and June 30,
2001, respectively. The decrease in cost of revenues is attributable to sales
price increase and our more efficient operation.
Gross Profit. Gross profit is total revenues less cost of revenues. Gross profit
excludes general corporate expenses, finance expenses and income tax. For the
three months ended June 30, 2002 and 2001, respectively, gross profit was
$14,768 and $11,269, which represents a 31% increase. The gross profit as a
percentage of revenues decreased to 75% for the three months ended June 30, 2002
from 62% for the three months ended June 30, 2001. The increase of the gross
profit as a percentage of revenues is attributable to increase in service sales
price and a more efficient operation.
Marketing and Selling Expenses. Marketing and selling expenses decreased to $0
from $15,877 for the three months ended June 30, 2002 and 2001, respectively.
Marketing and selling expenses as a percentage of revenues were 0% and 88% for
the three months ended June 30, 2002 and 2001, respectively.
General and Administrative Expenses. General and administrative expenses
increased to $790,560 for the three months ended June 30, 2002 from $692,281 for
the three months ended June 30, 2001. As a percentage of revenues, general and
administrative expenses increased to 3990% for the three months ended June 30,
2001 from 3818% for the three months ended June 30, 2001. The increase is mainly
attributable to expenses related to professional costs.
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Financing Expenses. Financing expenses, net, decreased to $12,954 for the three
months ended June 30, 2002 from $43,812 for the three months ended June 30,
2001.
Income (Loss) Before Taxes. Loss before taxes for the three months ended June
30, 2002 increased by 1.7% to ($825,645) from ($812,192) for the three months
ended June 30, 2001. The increase of the loss before taxes is attributable
primarily to the 14% increase in general and administrative expenses. Income
before taxes as a percentage of revenues was 4167% for the three months ended
June 30, 2002 and 4480% for the three months ended June 30, 2001.
Taxes on Income. Taxes on income for the year ended June 30, 2002 amounted to $0
which represents 0% of the income before taxes as compared with $0 for the three
months ended June 30, 2001 that represents 0% of the income before taxes.
Net Income. Net loss for the three months ended June 30, 2002 amounted to
$825,645 and represents 4167% of the revenues, as compared with 4480% of the
revenues, for the three months ended June 30, 2001. The increase in the net loss
is mainly attributable to the increase in general and administrative costs.
Earning per share. The earning per share for the three months ended June 30,
2002 was ($0.04) for the basic 21,303,995 weighted average Shares.
Balance Sheet
Current Assets. Current Assets amounted to $123,193 as of June 30, 2002 compared
to current assets of $49,467 as of March 31, 2002, representing a 149%
increase in current assets. This increase is mainly attributable to increase in
cash.
Fixed assets. Fixed assets after depreciation decreased to $126,270 as of June
30, 2002 as compared with $135,880 as of March 31, 2002. Purchase of equipment
during the three months ended June 30, 2002 amounted to $5,600. Depreciation for
the three months ended June 30, 2002 amounted to $32,279.
Current Liabilities. As of June 30, 2002, Current Liabilities increased by
$405,141 to $1,981,516 as compared with $1,576,375 as of March 31, 2002. This
increase is attributable to an increase in Notes Payable to a related party and
stock deposits and the reduction in Accounts Payable and Accrued Expenses.
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Liquidity and Capital Resources
Net cash used by operating activities for the year ended June 30, 2002 was
$248,246.
The cash used by operating activities was primarily attributable to $588,600
from professional fees.
Net financing activities provided $323,017.
Cash at June 30, 2002 amounted to $77,685, an increase of $74,771 since March
31, 2002. Our current assets for June 30, 2002 are lower than our current
liabilities by $1,981,516.
Our commitments for capital expenditures as of June 30, 2002 were $0.
We will attempt to finance our operations and fund the commitments for capital
expenditures mainly from investors.
We believe that our future cash flow from operations together with our current
cash is inadequate to provide for 60 days of operations; therefore, we may need
funding traditional bank financing or from a debt of equity offering.
Risk Factors
In addition to the risks set forth above, our business is subject to certain
other risk factors, as follows:
Because we have a limited operating history with limited revenues, you will be
unable to determine whether we will ever become profitable.
Because we are a development stage company with minimal operations and limited
revenues, you will be unable to evaluate our performance or potential
profitability.
We have a history of losses and expect losses for the foreseeable future due to
increasing costs which may prevent us from ever becoming profitable.
Through June 30, 2002, we have accumulated losses of $(11,224,260). We believe
that our costs will increase over the next twelve months and our losses will
continue to increase in the foreseeable future. As a result, we may never
achieve or sustain profitability.
If we are unable to obtain financing to support our operations and future growth
plans, we will have to curtail our operations and our growth plans.
Our auditors have issued a going concern opinion based upon our lack of
significant cash or material assets or established sources of revenues
sufficient to cover our operating costs. Our future operations involve
substantial research and development and marketing costs. If our revenues and
existing cash are insufficient to support our operations and/or future plans, we
may need traditional bank financing or financing from a debt or equity offering.
If we are unable to obtain financing when needed on favorable terms, we may be
forced to curtail our operations and our growth plans.
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If we fail to expand our services business to other product areas, we will be
unable to expand our revenues or compete effectively against our competitors.
Currently, 72% of our business is concentrated on applying our cryogenic process
to gun barrels. If we fail to expand our services business to other product
areas, it will be more difficult to expand our revenues or compete effectively
against our competitors.
If we fail to devote funds to advertising costs, our business and revenues will
not expand.
We currently rely upon individual contact by our Marketing Manager or
independent sales representatives to generate sales of our services; however, we
have not spent any funds on advertising our services. If we fail to expend any
funds towards advertising, we will be unable to expand our business or revenues.
We may be subject to litigation costs and/or judgments which may affect our
ability to continue as a going concern.
Certain securities that we sold during 2001 may have been offered and sold in
violation of state and/or federal securities laws. Should these securities
holders bring lawsuits or obtain judgments against us, we may be required to
curtail our operations or obtain financing to meet litigation costs or such
judgments. If we cannot obtain financing or the financing is inadequate we may
not able to continue as a going concern.
Cryocon raised $278,200 through private placements, between February 2001
and March 2001. The securities offered in these private placements were not
registered with the Securities and Exchange Commission or any state agency, but
Cryocon believes that the securities were issued pursuant to exemptions from
registration. If Cryocon failed to comply with the requirements of the
exemptions, purchasers may seek damages to rescind their purchase of the
securities.
If all of the of the purchasers successfully seek and obtain judgments for
damages, Cryocon would be liable in the aggregate amount of $278,200 plus
interest from the date of issuance.
Under federal law, the purchasers of those securities must file their
actions, if any, within one year after the violation upon which the action is
based. In some instances, Cryocon may be liable for damages under federal law
until May 2002. Under various state securities laws, the statute of limitations,
for those purchasers that may seek damages ranges from one to seven years from
the date of the violations upon which those actions may be based.
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PART II
Item 1. Legal Proceedings
Bourns, Inc. v. Cryocon, Inc. (Case No. MMOJ File No. 3853).
On June 4, 2001, Bourn, Inc. filed a Notice of Default with the Weber County
Recorder, to commence foreclosure on the deed of trust on our then
administrative and operational facility located at 2250 North 1500 West, in
Ogden, Weber County, Utah. On June 1, 2000, Bourn, Inc. had loaned us
$2,050,000. The promissory note became due on February 28, 2001. The balance due
as of the foreclosure action was $1,350,000. On October 30, 2001, the building
and property were sold through a Trustee sale by bid to Bourn, Inc. for
$1,100,000. As a result of this sale, a second deed of trust to Amerifirst
Foundation became an unsecured note. The Internal Revenue Service holds a lien
against the building from past due dues equaling $141,602. The Internal Revenue
Service has reviewed our financial status. We understand that the Internal
Revenue Service has placed the account in an "uncollectible" status.
Rushford/Ross/Orton, L.C., a Utah Limited Liability Company, v. Cryocon, Inc., a
Colorado Corporation, Fourth Judicial District Court of Utah County, State of
Utah, Division 10 (Case No. 010403425).
On August 7, 2001, we were served with legal process pertaining to a claim of a
debt owed in the amount of $7,709.26, interest and costs in collection. On
November 20, 2001, the court awarded a Judgment and Notice of Lien for the total
amount of $7,709.26 plus attorney's fees and costs. No payments have been made
on this judgment.
Staffing Solutions Southwest, Inc. d/b/a Staffing Solutions v. Cryocon, County
Court of Dallas, Texas, At Law No. 3 (Case No. 026901592).
On June 26, 2001, we were served with a legal process in the collection of an
outstanding payable to Staffing Solutions Southwest, Inc., d/b/a Staffing
Solutions, in the amount of $5,922.76. On December 10, 2001, judgment was
awarded for $4,993.76 plus interest of $172.29. The matter was settled on May
31, 2002 for $1,500, which has been paid.
Maxim Technologies v. Cryocon, Inc., Third District Court, State of Utah, Salt
Lake County, Salt Lake Department (Case No. 018903673). On October 9, 2001, we
were served with a small claims judgment for $3,425 in favor of Maxim
Technologies. No amounts have been paid on this judgment.
Reed Exhibition Companies v. Cryocon, Inc., Second Judicial District Court,
State of Utah, Weber County, Ogden Department (Case No. 010907747DC).
On October 24, 2001, we were served with a legal process in the collection of an
outstanding payable to Reed Exhibition Companies in the amount of $2,882.50.
Judgment was received on March 25, 2002 for $3,329.37. This claim was paid in
full on June 11, 2002.
-8-
North Coast Investments, Inc. v. Cryocon, Inc. and Brian Morrison, Circuit Court
of Cook County, Illinois, Municipal Department, Third District (Case No.
01M3-003818).
On January 28, 2002, we, along with our Chief Executive Officer Brian Morrison,
were served with a legal process for breach of contract by North Coast
Investments. The amount of the claim was $70,000. We have retained an attorney
in Illinois and are preparing to file a countersuit.
Wasatch Mountain Publishing, Inc. v. Cryocon, Inc., Third Judicial District
Court of Salt Lake County, State of Utah (Case No. 020900526_).
On April 9, 2002 Wasatch Mountain Publishing, Inc. received a judgment against
us for the collection of advertising for $7,344.43. The debt was settled in full
on May 30, 2002 for $5,500, which has been paid.
Kreiger Barrels, Inc. and Criterion Barrels, Inc. v. Cryocon, Inc., United States
District Court for the Eastern District of Wisconsin (Case No. 01-C-0771).
Kreiger Barrels, Inc. and Criterion Barrels, Inc. of Germantown, Wisconsin has
filed a civil action against us alleging that our U.S. Patent # 5,865,913 was
invalid and, therefore, our letter to discontinue the cryogenic treatment of
barrels without paying an appropriate royalty was invalid. Negotiations are
currently in process concerning the civil action.
Cryocon, Inc. v. Kreiger Barrels, Inc. and Criterion Barrels, Inc., United
States District Court for the District of Utah (Case No. 1:02 CV 30-ST).
On March 15, 2002, we filed a civil action against Kreiger Barrels, Inc. and
Criterion Barrels, Inc., in the State of Utah, requesting relief from Plaintiff
for making use of a patented process without proper licensing for use of the
patent.
In addition to the above described litigation, there is a threat of litigation
involving our agreement with 300 Below, Inc., a company located in Decaytur,
Illinois. In accordance with the terms of a November 10, 1999 agreement we have
with 300 Below, in return for purchasing the names, rights, licenses, titles and
property of 300 Below's Cryo-Accuring Division, we are required to pay $449,000,
including an option payment of $2,500 to $449,000. Since February 2001 we have
been in default on our required payments totaling $40,519.57 to 300 Below.
Should judgments be rendered in the above matters and we are required to make
payments in satisfaction, such payments will have a materially adverse affect on
our consolidated results of operations and financial condition.
We have not been served with any other legal process providing us with legal
notice of any other pending proceedings. We are not a plaintiff in any other
pending action. We are not aware of any contemplated legal proceeding by a
governmental authority in which we may be involved.
Item 2. Changes in Securities & Use of Proceeds
None
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Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On September 21, 2001, we changed our name from ISO Block Products USA, Inc. to
Cryocon, Inc. and our shareholders approved a Board of Directors' resolution to
reverse split each of our issued and outstanding shares of common stock into one
fourth (1/4) share of common stock. In conjunction with the reverse split, our
shareholders authorized an increase in the total number of shares of common
stock to 50,000,000 shares, which we are currently authorized to issue.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit
Number Description
- -------- -----------
2.1 Agreement and Plan of Reorganization dated April 25, 2000
(incorporated by reference to Exhibit 2.1 to Form 8-K dated
August 18, 2000).
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to registration statement on
Form S-8 of Champion Computer Rentals, Inc., file no. 33-23257-D)
3.2 Bylaws of Cryocon (incorporated by reference to Exhibit
on Form 10-KSB for fiscal year ended 1993).
3.3 Certificate of Amendment and Restatement to Articles of
Incorporation (incorporated by reference to Exhibit 3.4
to Form 8-K dated February 10, 1994).
3.4 Certificate of Amendment and Restatement to Articles of
Incorporation (incorporated by reference to Exhibit 3.4 to
Form 8-K dated February 10, 1994)
3.5 Certificate of Amendment to Articles of Incorporation, changing
the Company's name to Iso-Block Products USA, Inc.
(incorporated by reference to Exhibit 2(c) to registration
statement on Form 8-A, file no. 0-25810)
-10-
3.6 Certificate of Amendment to Articles of Incorporation, changing
the Company's name to Cryocon, Inc., authorizing a four to one
reverse split, authorizing the increase of capital stock to
50,000,000 shares of Common Stock, and ratifying the change of
auditors to HJ & Associates of Salt Lake City, Utah.
(Incorporated by reference to Exhibit 3.6 to the quarterly report
filed on Form 10-QSB for the Quarter ending September 30, 2000).
4.0 Convertible Debenture Due January 3, 2003 between Cryocon,Inc.
and Robert Brunson in the Principal Amount of $50,000.00,
incorporated by reference to Exhibit 4.1 to Form S-3 filed
February 9, 2001.
10.1 (2) XTool, Inc. Acquisition Contract incorporated by
reference to Exhibit 4.11 in Amendment No. 1 to Form SB-2
filed April 17, 2001.
10.2 Agreement between Cryocon, Inc. and Robert W. Brunson
10.3 Lease between Halverson Real Estate and Investments, Inc.
Landlord) and Cryocon, Inc. (Tenant)
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SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report on Form 10-QSB to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: September 6, 2002
CRYOCON, INC.
By:
/s/J. Brian Morrison
J. BRIAN MORRISON
Chairman/Chief Executive Officer
By:
/s/Vaughn P. Griggs
VAUGHN P. GRIGGS
Chief Financial Officer/Chief Accounting Officer
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