UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
[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 OTC 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 (ยง229.405 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.
As of June 30, 2002, there were 21,885,680 shares of our common stock issued and
outstanding, which includes 70,000 shares held by us as Treasury Shares.
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)
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-QSB/A
QUARTER ENDED June 30, 2002
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets..................................F-2 - F-3
Consolidated Statement of Operations............................F-4
Consolidated Statements of Stockholders' Equity (Deficit)....F-5 - F-9
Consolidated Statement of Cash Flows........................F-10 - F-11
Notes to Unaudited Consolidated Financial Statements........F-12 - F-19
Item 2. Managements Discussion and Analysis and Plan of Operations.......4
Item 3. Controls and Procedures..........................................6
PART II
OTHER INFORMATION
Item 1. Legal Proceedings................................................7
Item 2. Changes in Securities & Use of Proceeds..........................9
Item 3. Defaults on Senior Securities....................................9
Item 4. Submission of Matters to a Vote of Security Holders..............9
Item 5. Other Information................................................9
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/A 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/A 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.
Item 1. Financial Statements
The accompanying unaudited restated consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB pursuant to the
rules and regulations of the Securities and Exchange Commission and, therefore,
do not include all information and footnotes necessary for a complete
presentation of our financial position, results of operations, cash flows, an
stockholders' equity in conformity with accounting principles generally accepted
in the United States of America. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature.
Our unaudited restated consolidated balance sheet as of June 30, 2002 and our
audited restated consolidated balance sheet as of March 31, 2002 and the related
unaudited restated consolidated statements of operations and cash flows for the
three month periods ended June 30, 2002 and 2001 and from inception from October
20, 1999 through June 30, 2002, are attached hereto and incorporated herein by
this reference.
3
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
RESTATED 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
-------------- -------------
(Restated) (Restated)
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 77,685 $ 2,914
Accounts receivable, net 14,533 34,850
Deposits, prepaids and other current assets 33,682 11,703
-------------- -------------
Total Current Assets 125,900 49,467
-------------- -------------
PROPERTY AND EQUIPMENT, NET 124,401 135,880
-------------- -------------
OTHER ASSETS
Patents, trademarks and licenses, net 216,997 239,467
-------------- -------------
Total Other Assets 216,997 239,467
-------------- -------------
TOTAL ASSETS $ 467,298 $ 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 Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
June 30, March 31,
2002 2002
-------------- --------------
(Restated) (Restated)
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 263,991 $ 293,097
Accrued expenses 1,206,152 1,218,439
Notes payable, related party 906,628 37,000
Current portion long-term debt 125,873 125,874
-------------- --------------
Total Current Liabilities 2,502,644 1,674,410
-------------- --------------
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 2,647,627 1,869,393
-------------- --------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 50,000,000 shares authorized
of no par value, 21,885,680 and 21,140,680
shares issued, 21,815,680 and 21,070,680
shares outstanding, respectively 8,797,616 8,708,866
Treasury stock, at cost, 70,000 and 70,000
shares, respectively (140,000) (140,000)
Additional paid in capital 433,274 433,274
Deficit accumulated during the
development stage (11,271,219) (10,446,719)
-------------- -------------
Total Stockholders' Equity (Deficit) (2,180,329) (1,444,579)
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 467,298 $ 424,814
============== =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
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
------------- ------------- ------------
(Restated) (Restated)
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 37,980 81,183 519,872
Impairment of goodwill - - 600,673
Loss on disposal of assets 1,169 - 278,260
Loss on forfeiture of assets - - 614,498
Financing expense 506,611 - 506,611
General and administrative 279,328 692,281 7,961,528
------------- ------------- ------------
Total Expenses 830,135 796,203 11,079,676
------------- ------------- ------------
OPERATING LOSS (810,320) (778,072) (10,838,025)
------------- ------------- ------------
OTHER INCOME (EXPENSE)
Interest income 380 5 4,956
Other income - 9,687 5,188
Interest expense (14,560) (43,812) (859,343)
------------- -------------- ------------
Total Other Income (Expense) (14,180) (34,120) (849,199)
------------- -------------- ------------
NET LOSS BEFORE EXTRAORDINARY
ITEM (824,500) (812,192) (11,687,224)
------------- ------------- ------------
EXTRAORDINARY ITEM
Gain on extinguishment of debt - - 416,005
------------- ------------- ------------
Total Extraordinary Items - - 416,005
------------- ------------- ------------
NET LOSS $ (824,500) $ (812,192) $(11,271,219)
============= ============= ============
BASIC LOSS PER SHARE $ (0.04) $ (0.04)
============= =============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 21,225,776 19,617,364
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Additional During the
Common Stock Paid in Treasury Development
Shares Amount Capital Stock Stage
----------- --------- ---------- -------- -----------
Balance at inception on
October 20, 1999 - $ - $ - $ - $ -
Issuance of common stock to founders
for services at $0.00 per share 1,000 - - - -
Issuance of common stock to founders
for services at $0.00 per share 524,000 - - - -
Issuance of common stock to founders
for services and intangible assets at
$0.00 per share 9,700,000 - - - -
Issuance of common stock for services
at $0.75 per share 100,000 75,000 - - -
Issuance of common stock for cash
at $0.50 per share 10,000 5,000 - - -
Issuance of common stock for services
at $0.50 per share 5,000 2,500 - - -
Issuance of common stock for cash
at $0.50 per share 10,000 5,000 - - -
Issuance of common stock for cash
at $0.50 per share 4,000 2,000 - - -
Issuance of common stock for services
at $0.50 per share 16,000 8,000 - - -
Issuance of common stock for services
at $0.75 per share 100,000 75,000 - - -
Issuance of common stock for services
at $0.75 per share 500,000 375,000 - - -
Issuance of common stock for cash at
$1.00 per share 10,000 10,000 - - -
----------- --------- ---------- -------- -----------
Balance forward 10,980,000 $ 557,500 $ - $ - $ -
----------- --------- ---------- -------- -----------
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)
Deficit
Accumulated
Additional During the
Common Stock 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-6
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock 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 - - -
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 - - -
Purchase of treasury stock at
$2.00 per share (restated) - - - (140,000) -
Net loss for the year ended
March 31, 2001 (restated) - - - - (6,104,246)
----------- --------- ---------- -------- -----------
Balance, March 31, 2001 (restated) 19,319,837 7,158,329 - (140,000) (7,688,227)
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 $ - $(140,000) $(7,688,227)
----------- --------- ---------- -------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid in Treasury Development
Shares Amount Capital Stock Stage
----------- ----------- ---------- -------- -----------
Balance Forward 19,614,837 $ 7,850,329 $ - $(140,000) $(7,688,227)
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 - - -
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 142,000 12,780 167,700 - -
Issuance of common stock for
debt at $0.09 per share 100,000 9,000 - - -
Contributed capital (restated) - - 265,574 - -
Net loss for the year ended
March 31, 2002 (restated) - - - - (2,758,492)
----------- ------------ ---------- -------- -----------
Balance, March 31, 2002 (restated) 21,140,680 $ 8,708,866 $ 433,274 $(140,000)$(10,446,719)
----------- ----------- ---------- -------- -----------
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
Deficit
Accumulated
Additional During the
Common Stock Paid in Treasury Development
Shares Amount Capital Stock Stage
----------- ----------- ----------- ---------- ------------
Balance Forward 21,140,680 $ 8,708,866 $ 433,274 $ (140,000) $(10,446,719)
Issuance of common stock for
services at $0.08 per share
(unaudited) 500,000 40,000 - - -
Issuance of common stock for
services at $0.25 per share
(unaudited) 75,000 18,750 - - -
Issuance of common stock for
services at $0.09 per share
(unaudited) 100,000 9,000 - - -
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) (restated) - - - - (824,500)
----------- ----------- ---------- ---------- ------------
Balance June 30, 2002
(unaudited) (restated) 21,885,680 $ 8,797,616 $ 433,274 $ (140,000) $(11,271,219)
=========== =========== ========== ========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
From
Inception on
For the October 20,
Three Months Ended 1999 Through
June 30, June 30,
2002 2001 2002
---------- ---------- ------------
(Restated) (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (824,500) $ (812,192) $(11,271,219)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Amortization and depreciation 37,980 81,183 519,872
Impairment of goodwill - - 600,673
Financing expense 506,611 - 506,611
Options and warrants issued below
market value - - 1,248,110
Loss on disposal of assets - - 249,576
Loss on sales of assets 1,169 - 28,684
Loss on forfeiture of assets - - 614,498
Gain on extinguishment of debt - - (416,005)
Bad debt expense - - 11,000
Additional expense recorded on
convertible debentures - - 514,050
Common stock issued for services
rendered 88,750 267,000 2,251,423
Changes in operating asset and
liability accounts:
(Increase) decrease in accounts
receivable 20,317 4,792 (25,533)
(Increase) decrease in deposits,
prepaids and other current assets (21,979) 7,576 (33,682)
Increase in stock deposits - - 284,392
Increase in accounts payable and
accrued expenses (40,993) 250,007 1,646,601
---------- ---------- ------------
Net Cash Used by Operating
Activities (232,645) (201,634) (3,270,949)
---------- ---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired from subsidiary - - 77
Proceeds from sale of assets - - 15,811
Purchase or development of
intangibles - - (449,000)
Equipment purchases (5,600) (11,296) (391,421)
Purchase of building - - (2,050,000)
---------- ---------- ------------
Net Cash Used by Investing
Activities (5,600) (11,296) (2,874,533)
---------- ---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash - - 191,565
Stock offering costs - - (390,708)
Issuance of notes payable and
debentures 313,016 217,500 6,939,476
Payments made on notes payable - (9,350) (517,166)
---------- ---------- ------------
Net Cash Provided by Financing
Activities $ 313,016 $ 208,150 $ 6,223,167
---------- ---------- ------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
For the October 20,
Three Months Ended 1999 Through
June 30, June 30,
2002 2001 2002
------------- ----------- -------------
(Restated) (Restated)
NET INCREASE IN CASH
AND CASH EQUIVALENTS $ 74,771 $ (4,780) $ 77,685
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,914 8,980 -
------------- ----------- -------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 77,685 $ 4,200 $ 77,685
============= =========== =============
CASH PAID FOR:
Interest $ - $ 45 $ 123,969
Income taxes $ - $ - $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for services rendered $ 88,750 $ 267,000 $ 2,251,423
Vehicles purchased under notes payable $ - $ 35,215 $ 65,549
Common stock issued in conversion of
convertible debentures $ - $ - $ 4,070,473
Common stock issued in extinguishment
of debt $ - $ - $ 21,780
Common stock issued for investment in
Xtool $ - $ - $ 593,750
Contributions of capital by shareholders $ - $ - $ 433,274
Conversion of stock deposits to equity $ - $ - $ 284,391
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Restated 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 restated 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
accounting principles generally accepted in the United States of America
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 or control persons 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-12
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Restated Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 3 - MATERIAL EVENTS
During the period from February 16, 2001 to March 1 2001, the Company
raised $278,200 through sale of 139,100 shares of common stock at $2.00 per
share to eight individuals. At the time of the securities sales, the
Company believed that the offer and sale of these securities were exempt
from registration under Section 4(2) of the Securities Act of 1933. The
current shareholders received the Company's periodic reports and were
familiar with its operations and financial condition. No public
solicitation or general advertising was done in connection with this sale
and the Company did not pay any fees or commissions in connection with the
sales. Nonetheless, on April 30, 2001, the Securities and Exchange
Commission ("the Commission") indicated to the Company that the sale of the
shares which all occurred during the Commission's ongoing review of the
Company's Form SB-2 registration statement may have been in violation of
the registration provisions of the federal securities laws, specifically,
Securities Act of 1933 Section 5. During the month of July 2001, the
Company filed an amendment to the Form SB-2 Registration Statement to
include (subject to the Commission's review and clearance) the registration
of the 139,100 shares along with a proposed Rescission offer to the 8
investors that had invested in those shares. As of March 31, 2002, the
139,100 shares of common stock were issued and outstanding for the funds
previously received. However, on July 12, 2002, the Company affected the
withdrawal of the Form SB-2 Registration Statement, which included the
proposed Rescission Offer submitted as part of that registration statement.
As part of the Rescission Offer, in exchange for their shares, the
investors were offered a note payable from the Company, bearing interest at
12% per annum, and secured by free trading shares equal to twice the number
of shares previously held. The securing stock was owned by the former Chief
Executive Officer/Founder of the Company. During the year ended March 31,
2001, four shareholders accepted the above mentioned Rescission Offer and
returned 70,000 shares of the Company's previously purchased restricted
common stock valued at $2.00 per share, or a cost of $140,000. During the
year ended March 31, 2002, the Company defaulted on the notes payable. As a
result, the Company has caused the free trading common shares to be
transferred to the note holders. In a previous period, the Company recorded
the stock returned that is associated with this transaction as treasury
stock of $140,000 and the contribution of the free trading shares for
$120,000 in notes payable and $21,265 in accrued interest as contributed
capital. As of June 30, 2002, a note payable for $20,000 is outstanding and
accruing interest at 12% per annum. During the three months ended June 30,
2002, the note accrued interest of $598.
F-13
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 3 - MATERIAL EVENTS (Continued)
During April 2002, the Company issued 500,000 shares of common stock to a
director for services valued at $40,000.
During April 2002, the Company issued 75,000 shares of common stock to a
director for services on the Company's board of directors valued at
$18,750.
During April 2002, the Company issued 100,000 shares of common stock to a
director for services on the Company's board of directors valued at $9,000.
During June 2002, the Company issued 70,000 shares of common stock to the
Company's legal counsel for services valued at $21,000.
During June 2002, the Company recorded accrued compensation of $10,125 for
shares earned but not issued during the period to a director for services
on the Company's board of directors based on the market value of the shares
owed at June 30, 2002.
During June 2002, the Company recorded accrued compensation of $3,921 for
shares earned but not issued during the period to a director for services
on the Company's board of directors based on the market value of the shares
owed at June 30, 2002.
During June 2002, the Company recorded accrued compensation of $3,750 for
shares earned but not issued during the period to the Company's director of
research and development for services based on the market value of the
shares owed at June 30, 2002.
During 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 $5,000
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.
As of June 30, 2002, shareholders have loaned $906,628 to the Company.
These amounts are secured by free-trading shares of common stock of the
Company upon default. Interest is accrued at 8% to 12% and at June 30, 2002
$4,431 of interest was accrued.
F-14
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Company is the defendant in several pending lawsuits. The Company is
aggressively defending these actions. However, the final outcome is
uncertain. Whenever it is probable that a loss will result from these
lawsuits and the amounts of the losses are reasonably estimable, the
Company accrues a related expense. Accordingly, obligations associated with
the related expenses for the period ended June 30, 2002 are included in the
consolidated financial statements as accounts payable and accrued expenses.
The Company has been served with several judgments wherein substantial
amounts are claimed. Whenever it is probable that a loss will result from
these lawsuits and the amounts of the losses are reasonably estimable, the
Company accrues a related expense. Accordingly, obligations associated with
the related expenses for the period ended June 30, 2002 are included in the
consolidated financial statements as accounts payable and accrued expenses
NOTE 5 - CORRECTION OF ERRORS
The Company has restated its unaudited consolidated financial statements
for three months ended June 30, 2002. This action was taken as the result
of the following:
1. An adjustment was made to amortize prepaid expenses incurred during
the period.
2. An adjustment was made to reverse the double booking of entries to
record treasury shares returned, associated notes payable and related
additional paid in capital for shares issued in satisfaction of notes
payable.
3. An adjustment was made to record 100,000 shares of common stock issued
in satisfaction of a liability related to services performed by a
shareholder incorrectly disclosed as "Stock deposits".
4. Adjustments were made to record accrued liabilities and the associated
consulting expense for shares earned for services performed by
shareholders during the period which have not been issued as of June
30, 2002.
5. An adjustment was made to properly record the disposal of property and
equipment.
6. An adjustment was made to record additional accrued interest and
financing fees on related party notes payable currently in default.
7. An adjustment was made to correct the improper valuation of common
stock issued in satisfaction of a liability.
F-15
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 5 - CORRECTION OF ERRORS (Continued)
The impact of these adjustments on the Company's consolidated financial
results as originally reported is summarized below:
June 30, 2002
-------------------------------------------
As Reported As Adjusted Difference
-------------- -------------- -----------
Accounts receivable, net $ 39,708 $ 14,533 $ (25,175)
Deposits, prepaids and
other current assets 5,800 33,682 27,882
Property and equipment, net 126,270 124,401 1,869
Accounts payable 165,743 263,991 98,248
Accrued expenses 1,038,883 1,206,152 167,269
Stock deposits 238,000 - (238,000)
Notes payable, related party 491,016 899,628 408,612
Current portion long-term debt 47,874 132,873 84,999
Common stock 9,221,016 8,797,616 (423,400)
Additional paid in capital 483,205 433,274 (49,931)
Accumulated deficit (11,224,260) (11,271,219) (46,959)
Depreciation and amortization 37,279 37,980 661
Loss on disposal of assets - 1,169 1,169
General and administrative 790,560 785,939 (4,621)
Interest expense (12,954) (14,560) (1,606)
Net loss $ (825,645) $ (824,500) $ 1,145
NOTE 6 - SUBSEQUENT EVENTS
During July 2002, the Company (Licensor) entered into a License Agreement
with Licensee for the right to use the Company's Deep Cryogenic Solutions
process technology within the territory of New England and certain counties
in New York. Licensor retains title and ownership of the technology. The
Licensee agreement provides that the Licensor retains title and ownership
of the technology and the Licensee agrees to pay a royalty of 15% of all
gross revenues related to the technology.
During August 2002, the Company issued 25,000 shares of common stock to a
consultant for services valued at $6,750.
During August 2002, the Company issued 20,000 shares of common stock to a
consultant for services valued at $5,400.
During August 2002, the Company issued 190,000 shares of common stock to an
independent contractor for fixed assets valued at $19,000. As of December
31, 2002, 37,500 of these shares valued at $3,750 were prepaid.
During August 2002, the Company issued 20,000 shares of common stock to a
consultant for services valued at $5,400.
During August 2002, the Company issued 50,000 shares of common stock to an
independent contractor for equipment valued at $5,000.
F-16
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 6 - SUBSEQUENT EVENTS (Continued)
During August 2002, the Company issued 10,000 shares of common stock to an
independent contractor for a domain name valued at $1,000.
During August 2002, the Company accepted the resignation of James Cundiff
as Corporate Secretary and appointed P. Clay Thomas to the office of
Corporate Secretary.
During August 2002, the Company issued 1,000,000 shares of common stock to
a director of the Company for $51,534 of debt.
During September 2002, the Company issued 18,000 shares of common stock to
legal counsel for services valued at $2,700.
During September 2002, the Company issued 92,000 shares of common stock to
legal counsel for deferred consulting valued at $9,200. As of December 31,
2002, all of the consulting expense has been recognized.
In exchange for cash received during August 2002, the Company entered into
loan agreement with a director of the Company for $20,000 to be repaid
within 90 days at an interest rate of 8% per annum with 275,000 shares of
the Company's common stock as collateral for the loan.
In exchange for cash received during September 2002, the Company issued a
promissory note to a director of the Company for $8,000 with interest of 8%
per annum due on demand.
During July 2002, the Company recognized contributed capital for
free-trading shares of the Company's common stock held by a related party
given in settlement of shareholder loans and related accrued interest
totaling $804,788.
On August 15, 2002, the Company issued options to a consultant to purchase
125,000 shares of common stock at $0.10 per share. The Company recognized
$30,591 in expense associated with these options calculated using the
Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 1.78%, volatility of 279.85% and expected lives
of 1 year.
On September 30, 2002, the Company issued options to a consultant to
purchase 200,000 shares of common stock at $0.10 per share. The Company
recognized $7,404 in expense associated with these options calculated using
the Black-Scholes option pricing model with the following assumption:
risk-free interest rate of 1.53%, volatility of 192.14% and expected life
of four months.
F-17
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 6 - SUBSEQUENT EVENTS (Continued)
During October 2002, the Company authorized the sale of $1,500,000 worth of
restricted common shares in a private placement with the first 500,000
shares to be sold at $0.05 to $0.10 per share and the balance to be sold at
or near market value. The purchaser will be given an option to purchase
additional shares equaling 50% of the original shares purchased at the
average 30-day closing price of the Company's common stock multiplied by
50%. The option would be available 3 months following the date of the
Option Agreement and end on the Option ending date.
During October 2002, the Company issued 6,000 shares of common stock to an
independent contractor for services valued at $540.
During November 2002, the Company issued 200,000 shares of common stock to
a director of the Company for services valued at $32,000.
During October 2002, the Company issued 1,000,000 shares of common stock to
a director of the Company for $125,350 of debt.
During December 2002, the Company issued 200,000 shares of common stock to
investors for cash of $20,000.
During December 2002, the Company issued 500,000 shares of common stock to
a noteholder for debt of $128,866.
During December 2002, the Company authorized the issuance of 500,000 shares
of common stock to a consultant for services pursuant to a Consulting
Agreement with a term of 2 years. Shares are to be issued as agreed upon by
the parties as services are performed.
In exchange for cash received during November 2002, the Company issued a
promissory note to a director of the Company for $45,000 at 8% interest per
annum with a term of 3 months. This note is secured by production equipment
owned by the Company with a net book value of $39,029.
On October 14, 2002, the Company issued an option to a consultant to
purchase 150,000 shares of common stock at $0.10 per share. The Company
recognized $6,567 in expense associated with these options calculated using
the Black-Scholes option pricing model with the following assumptions:
risk-free interest rate of 1.53%, volatility of 182% and expected life of
210 days.
During January 2003, the Company issued 303,000 shares to investors for
stock subscription deposits totaling $30,300.
During January 2003, the Company received cash of $34,100 resulting from
out of court settlements of two lawsuits on January 28, 2003. Additionally,
the parties agreed to a license agreement for the cryogenic treatment of
rifle barrels at stipulated prices.
F-18
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2002 and March 31, 2002
NOTE 6 - SUBSEQUENT EVENTS (Continued)
In exchange for cash received during February 2003, the Company issued a
promissory note to a consultant for $5,000 at 8% per annum with a term of
44 days secured by a 0.5% shared interest in the brake patent (Patent
Pending Serial #09/844,526) and any subsequent brake rotor patents filed by
the Company.
In exchange for cash received during February 2003, the Company issued a
promissory note to a director of the Company for $10,000 at 8% per annum
with a term of 44 days secured by a 10% security interest in the
Cryo-Accurizing US Patent # 5,865,913 owned by the Company.
In exchange for cash received during February 2003, the Company issued a
promissory note an investor for $20,000 at 8% per annum with a term of 90
days secured by a 2% shared interest in the brake patent (Patent Pending
Serial # 09/844,526) and any subsequent brake rotor patents filed by the
Company.
In exchange for cash received during April 2003, the Company issued a
promissory note to an investor for $20,000 at 8% per annum with a term of
149 days secured by a 20% security interest in the Cryo-Accurizing US
Patent #5,865,913 owned by the Company.
During March 2003, the Company issued 100,000 shares to a director pursuant
to an agreement dated December 1, 2000 and reversed an accrual for these
shares of $257,800 which was accrued in a prior period.
During March 2003, the Company issued 19,975 shares of common stock to a
shareholder for settlement of debt at $0.10 per share.
During March 2003, the Company issued 37,500 shares of common stock for
exercise of option for services valued at $1,875 to a former employee. No
cash consideration was given; therefore the Company recognized an expense
for the value of the shares issued.
During March 2003, the Company issued 20,000 shares to a consultant for
services pursuant to an agreement dated January 3, 2003 valued at $200.
During March 2003, the Company issued 50,000 shares of common stock to a
consultant for services valued at $5,000.
During March 2003, the Company issued 500,000 shares to investors for stock
subscription deposits totaling $50,000.
F-19
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, 2002 and for the quarter ended June 30, 2002. The terms "we" or
"our" or "us" or "the Company" 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 by 9% to
$19,815 from $18,131 for the same period in 2001. This 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 by 26% 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 cost of revenues has decreased because the Company has
installed more efficient equipment and tooling.
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 an increase in our service
sales price and increased efficient production procedures and costs.
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. The decrease in
marketing and selling expenses can be attributed to our limited revenues.
General and Administrative Expenses. General and administrative expenses
decreased to $279,328 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 decreased to 1410% for the three months ended June 30,
2002 from 3818% for the three months ended June 30, 2001. This decrease is
mainly, attributable to a reduction of our professional and payroll costs.
Interest Expenses. Interest expenses, net, decreased to $ 14,560 for the three
months ended June 30, 2002, from $ 43,812 for the three months ended June 30,
2001. The decrease in interest expense was due to the decrease in notes payable.
Financing Expenses. Financing expenses, net, increased to $506,611 for the three
months ended June 30, 2002, from $0.00 for the three months ended June 30, 2001.
These financing expenses relate to increased liabilities for stockholders shares
pledged for defaulted loans made to the Company.
Income (Loss) Before Taxes. Loss before taxes for the three months ended June
30, 2002 increased by 1.5% to ($824,500) from ($812,192) for the three months
ended June 30, 2001. Income before taxes as a percentage of revenues was 4161%
for the three months ended June 30, 2002 and 4480% for the three months ended
June 30, 2001.
4
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
$824,500 representing 4161% 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 financing expenses.
Earning per share, The earning per share for the three months ended June 30, 2002
was ($0.04) for the basic 21,225,776 weighted average shares.
Balance Sheet
Current Assets. Current Assets amounted to $125,900 as of June 30, 2002 compared
to current assets of $49,467 as of March 31, 2002, representing a 255% increase
in current assets. This increase is mainly attributable to an increase in cash.
Fixed assets. Fixed assets after depreciation decreased to $124,401 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 and
amortization for the three months ended June 30, 2002 amounted to $37,980.
Current Liabilities. As of June 30, 2002, Current Liabilities increased by
$828,234 to $2,502,644 as compared with $1,674,410 as of March 31, 2002. This
increase is attributable to an increase in Notes Payable to related parties,
stock deposits and the reduction in Accounts Payable and Accrued Expenses.
Liquidity and Capital Resources
Net cash used by operating activities for the three months ended June 30, 2002
was $232,645. The cash used by operating activities was primarily attributable
to $593,786 from financing expenses and payroll.
Net financing activities provided $313,016.
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 $2,376,744.
Our commitments for capital expenditures as of June 30, 2002 were $0.
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; however,
we may have difficulty in obtaining funding due to our poor financial condition.
5
Risk Factors
Our business is also 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 $(11,271,219). 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.
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, 43% of our business is concentrated on applying our cryogenic process
to gun barrels and 57% being derived from other cryogenic processes. 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, as explained in note 3 to our
financial statements for the period ending June 30, 2002, 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 be able to continue as a going concern.
Item 3. Controls and Procedures
The Company's Chief Executive Officer and Chief Financial Officer evaluated the
Company's disclosure controls and procedures within the 90 days preceding the
filing date of this quarterly report. Based upon this evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in ensuring that material
information required to be disclosed is included in the reports that it files
with the Securities and Exchange Commission.
There were no significant changes in the Company's internal controls or, to the
knowledge of the management of the Company, in other factors that could
significantly affect these controls subsequent to the evaluation date.
6
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.
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.
7
Kreiger Barrels, Inc. and Crierion 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. The lawsuit was
settled on January 28, 2003 with Kreiger paying Cryocon $34,200 in a settlement
agreement. Settlement agreement included a license agreement for future
treatment of gun barrels.
Cryocon, Inc. v. Kreiger Barrels, Inc. and Criterion Barrles, 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. With the settlement of the Kreiger Barrel lawsuit, this action was in
the settlement agreement above.
State of Utah, Department of Commerce, Division of Securities v. Robert Wooley
Brunson and Cryocon, Inc., Third Judicial District Court in and for Salt Lake
County, State of Utah (Civil No. 030909619).
On April 30, 2003 the State of Utah filed a complaint against Robert Wooley
Brunson and Cryocon, Inc. alleging that: (a) Mr. Brunson offered and sold his
"personal stock" to at least 12 unaccredited individuals for a total of
$128,150, without providing or allowing investors to view a prospectus; (b) Mr.
Brunson, directly or indirectly, made certain misrepresentations to investors
and omitted to state material facts in connection with the investments; and (c)
as a result of (a) and (b), the defendants violated Section 61-1-1 of the Utah
Uniform Securities Act, which essentially constitutes the anti-fraud provision
of the Utah securities laws. The complaint requests permanent injunctions from
violating these anti-fraud provisions and restitution to investors. It is our
position that this is a matter between Mr. Brunson and the State of Utah and
should not include us because we: (a) were not a party to any of the
transactions; (b) never made any representations to the investors; and (c) we
had no knowledge of the alleged offers or sales. We have retained counsel to
request removal of Cryocon, Inc. as a defendant in this action; however, we
cannot predict the outcome of this action.
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.
8
Item 2. Changes in Securities & Use of Proceeds
None
Item 3. Defaults on Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Restatement of Financial Statements.
Please note that we have restated our consolidated financial statements for the
three months ended June 30, 2002. This action was taken as the result of a
review of the Company's incorrect amortizing of prepaid expenses, to correct a
double entry of treasury shares related to the satisfaction of notes payable,
the recording of shares issued for the satisfaction of a liability but was
recorded as "stock deposits", shares issued for services rendered, the recording
of property and equipment disposal, additional costs related to financing fees
and interest on the default of a note payable and the correction of recording
the valuation of common stock issued to satisfy a liability. The corrections to
our consolidated financial statements are detailed in Note 5 to our Restated
Consolidated Financial Statements at June 30, 2002.
These corrections resulted in a decrease in Net Loss of $1,145 for three months
ending June 30, 2002 and a total net increase in Accumulated Deficit at June 30,
2002 of $46,959. Net Loss per share did not change from the amount previously
reported for the three months ended June 30, 2002.
9
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)
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, incorporated by
reference, filed with Form 10-KSB/A on August 14, 2002
10.3 Lease between Halverson Real Estate and Investments, Inc. Landlord)
and Cryocon, Inc. (Tenant), incorporated by reference, filed with
Form 10-KSB/A on August 14, 2002
16.0 Letter on Change in Certifying Account Incorporated by reference to
Exhibit 16.0 in Form S-3
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
10
SIGNATURES
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In accordance with the requirements of the Exchange Act, the Registrant caused
this Report on Form 10-QSB/A to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: May 20, 2003
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 and Principal Accounting Officer
11
CERTIFICATION ACCOMPANYING PERIODIC REPORT PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, J. Brian Morrison, certify that:
1. I have reviewed this amended quarterly report on Form 10-QSB/A of Cryocon,
Inc.;
2. Based on my knowledge, this amended quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
amended quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this amended
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this amended quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
amended quarterly report (the "Evaluation Date"); and
c) presented in this amended quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
amended quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 20, 2003
/s/ J. Brian Morrison
J. Brian Morrison
Chief Executive Officer
12
CERTIFICATION ACCOMPANYING PERIODIC REPORT PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Vaughn P. Griggs, certify that:
1. I have reviewed this amended quarterly report on Form 10-QSB/A of Cryocon,
Inc.;
2. Based on my knowledge, this amended quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
amended quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this amended quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this amended
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this amended quarterly report is
being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
amended quarterly report (the "Evaluation Date"); and
c) presented in this amended quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
amended quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 20, 2003
/s/ Vaughn P. Griggs
Vaughn P. Griggs
Chief Financial Officer and Principal Accounting Officer
13
