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 September 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 September 30, 2002, there were 23,310,680 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
QUARTER ENDED SEPTEMBER 30, 2002
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets .............................................4-5
Consolidated Statement of Operations.......................................6
Consolidated Statement of Stockholders' Equity (Deficit).................7-12
Consolidated Statement of Cash Flows....................................13-14
Notes to Unaudited Consolidated Financial Statements....................15-22
Item 2. Managements Discussion and Analysis and Plan of Operations..........23
Item 3. Controls and Procedures.............................................26
PART II
OTHER INFORMATION
Item 1. Legal Proceedings...................................................27
Item 2. Changes in Securities & Use of Proceeds.............................30
Item 3. Defaults on Senior Securities.......................................30
Item 4. Submission of Matters to a Vote of Security Holders.................30
Item 5. Other Information...................................................30
Item 6. Exhibits and Reports on Form 8-K....................................31
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
2
Forward-Looking Statements:
This quarterly report on Form 10-QSB for the period ending September 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.
Item 1. Financial Statements
The accompanying unaudited 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 consolidated balance sheet as of September 30, 2002 and our
audited restated consolidated balance sheet as of March 31, 2002 and the related
unaudited consolidated statements of operations and cash flows for the three and
six month periods ended September 30, 2002 and 2001 and from inception from
October 20, 1999 through September 30, 2002, are attached hereto and
incorporated herein by this reference.
3
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2002 and March 31, 2002
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
September 30, March 31,
2002 2002
--------- ------------
(Unaudited) (Restated)
CURRENT ASSETS
Cash $ 5,641 $ 2,914
Accounts receivable, net 16,447 34,850
Accounts receivable, related party 4,867 -
Deposits and prepaid expenses 24,893 11,703
Inventory 2,327 -
---------- ------------
Total Current Assets 54,175 49,467
---------- ------------
PROPERTY AND EQUIPMENT, NET 128,411 135,880
---------- ------------
OTHER ASSETS
Patents, trademarks and licenses, net 194,547 239,467
---------- ------------
Total Other Assets 194,547 239,467
---------- ------------
TOTAL ASSETS $ 377,133 $ 424,814
========== ============
The accompanying notes are an integral part of these consolidated financial
statements.
4
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, March 31,
2002 2002
-------------- ----------------
(Unaudited) (Restated)
CURRENT LIABILITIES
Accounts payable $ 328,835 $ 293,097
Accrued expenses 1,196,302 1,218,439
Notes payable, related party 201,392 37,000
Current portion long-term debt 165,445 125,874
Stock subscription deposits 41,200 -
--------------- ---------------
Total Current Liabilities 1,933,174 1,674,410
--------------- ---------------
LONG-TERM LIABILITIES
Notes payable, related party - 50,000
Long-term debt 105,412 144,983
--------------- ---------------
Total Long-Term Liabilities 105,412 194,983
--------------- ---------------
TOTAL LIABILITIES 2,038,586 1,869,393
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 50,000,000 shares
authorized of no par value,
23,310,680 and 21,140,680 shares
issued, 23,240,680 and 21,070,680
outstanding, respectively 8,903,600 8,708,866
Treasury stock (140,000) (140,000)
Additional paid in capital 1,276,057 433,274
Deferred consulting (9,200) -
Deficit accumulated during the
development stage (11,691,910) (10,446,719)
--------------- ---------------
Total Stockholders' Equity (Deficit) (1,661,453) (1,444,579)
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT) $ 377,133 $ 424,814
=============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
5
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
For the For the October 20,
Six Months Ended Three Months Ended 1999 Through
September 30, September 30, September 30,
------------------------------- ----------------------------- --------------
2002 2001 2002 2001 2002
--------------- ------------- ------------- -------------- --------------
REVENUES $ 32,227 $ 26,400 $ 12,412 $ 8,269 $ 254,063
--------------- ------------- ------------- -------------- --------------
EXPENSES
Cost of sales 6,744 13,665 1,697 6,803 94,725
Advertising - 19,539 - 3,662 461,331
Bad debt expense - 9,000 - 9,000 43,875
Depreciation and amortization 75,355 118,238 37,375 37,055 557,247
Loss on disposal of assets 1,169 - - - 278,260
Loss on forfeiture of assets - 227,388 - 227,388 614,498
Impairment of goodwill - 419,198 - 419,198 600,673
Financing expense 627,887 - 121,276 - 627,887
General and administrative 535,493 1,425,405 256,165 733,124 8,217,693
--------------- ------------- ------------- -------------- --------------
Total Expenses 1,246,648 2,232,433 416,513 1,436,230 11,496,189
--------------- ------------- ------------- -------------- --------------
OPERATING LOSS (1,214,421) (2,206,033) (404,101) (1,427,961) (11,242,126)
--------------- ------------- ------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 580 5 200 - 5,156
Other income - 9,687 - - 5,188
Interest expense (31,350) (73,164) (16,790) (29,352) (876,133)
--------------- ------------- ------------- -------------- --------------
Total Other Income (Expense) (30,770) (63,472) (16,590) (29,352) (865,789)
--------------- ------------- ------------- -------------- --------------
NET LOSS BEFORE
EXTRAORDINARY ITEM (1,245,191) (2,269,505) (420,691) (1,457,313) (12,107,915)
EXTRAORDINARY ITEM
Gain on extinguishment of debt - - - - 416,005
--------------- ------------- ------------- -------------- --------------
Total Extraordinary Items - - - - 416,005
--------------- ------------- ------------- -------------- --------------
NET LOSS $ (1,245,191) $ (2,269,505) $ (420,691) $ (1,457,313) $ (11,691,910)
=============== ============= ============= ============== ==============
BASIC LOSS PER SHARE $ (0.06) $ (0.11) $ (0.02) $ (0.07)
=============== ============= ============= ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 22,064,472 19,760,778 22,400,615 19,888,837
=============== ============= ============= ==============
The accompanying notes are an integral part of these consolidated financial
statements.
6
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Common Stock Accumulated
-------------------- Additional During the
Paid in Treasury Deferred Development
Shares Amount Capital Stock Consulting 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 $0.50 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.
7
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Common Stock Accumulated
-------------------- Additional During the
Paid in Treasury Deferred Development
Shares Amount Capital Stock Consulting 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.
8
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Common Stock Accumulated
-------------------- Additional During the
Paid in Treasury Deferred Development
Shares Amount Capital Stock Consulting 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 - - - -
Net loss for the year ended
March 31, 2001 - - - - - (6,104,246)
------------ ------------ ------------ ----------- ---------- -----------
Balance, March 31, 2001 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.
9
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Common Stock Accumulated
-------------------- Additional During the
Paid in Treasury Deferred Development
Shares Amount Capital Stock Consulting 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.
10
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Common Stock Accumulated
-------------------- Additional During the
Paid in Treasury Deferred Development
Shares Amount Capital Stock Consulting 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 - - - -
Issuance of common stock
for services at $0.27 per
share (unaudited) 25,000 6,750 - - - -
Issuance of common stock
for services at $0.27 per
share (unaudited) 20,000 5,400 - - - -
Issuance of common stock
for fixed assets at $0.10 per
share (unaudited) 190,000 19,000 - - - -
Issuance of common stock
for services at $0.27 per
share (unaudited) 20,000 5,400 - - - -
Issuance of common stock
for equipment at $0.10 per
share (unaudited) 50,000 5,000 - - - -
Issuance of common stock
for domain name at $0.10
per share (unaudited) 10,000 1,000 - - - -
------------ ------------ ------------ ----------- ---------- -----------
Balance Forward 22,200,680 $ 8,840,166 $ 433,274 $ (140,000) $ - $(10,446,719)
------------ ------------ ------------ ----------- ---------- -----------
The accompanying notes are an integral part of these consolidated financial
statements.
11
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
Deficit
Common Stock Accumulated
-------------------- Additional During the
Paid in Treasury Deferred Development
Shares Amount Capital Stock Consulting Stage
------------ ------------ ------------ ----------- ---------- -----------
Balance Forward 22,200,680 $ 8,840,166 $ 433,274 $ (140,000) $ - $(10,446,719)
Issuance of common stock
for debt at $0.05 per share
(unaudited) 1,000,000 51,534 - - - -
Issuance of common stock
for services at $0.15 per
share (unaudited) 18,000 2,700 - - - -
Issuance of common stock
for deferred consulting at
$0.10 per share (unaudited) 92,000 9,200 - - (9,200) -
Additional expense for options
issued (unaudited) - - 37,995 - - -
Contributed capital
(unaudited) - - 804,788 - - -
Net loss for the six months
ended September 30, 2002
(unaudited) - - - - - (1,245,191)
------------ ------------ ------------ ----------- ---------- -----------
Balance, September 30, 2002
(unaudited) 23,310,680 $ 8,903,600 $ 1,276,057 $ (140,000) $ (9,200)$(11,691,910)
============ ============ ============ =========== ========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
12
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Unaudited)
From
Inception on
For the October 20,
Six Months Ended 1999 Through
September 30, September 30,
----------------------------- -------------
2002 2001 2002
------------ ------------ -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,245,191) $ (2,269,505) $ (11,691,910)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 75,355 118,238 557,247
Financing expense 627,887 - 627,887
Options and warrants issued below market
value 37,995 - 1,286,105
Impairment of goodwill - 419,198 600,673
Loss on sale and disposal of assets 1,169 - 278,260
Gain on extinguishment of debt - - (416,005)
Loss on forfeiture of assets - 227,388 614,498
Bad debt expense - 9,000 11,000
Additional expense recorded on convertible
debentures - - 514,050
Common stock issued for services rendered 109,000 267,365 2,271,673
Common stock issued for domain name 1,000 - 1,000
(Increase) decrease in:
Accounts receivable 18,403 10,672 (27,447)
Accounts receivable - related (4,867) - (4,867)
Deposits and prepaids (9,440) 4,899 (21,143)
Inventory (2,327) - (2,327)
Increase (decrease) in:
Common stock deposits - - 284,392
Accounts payable and accrued expenses 15,535 643,085 1,703,129
------------ ------------ -------------
Net Cash Used by Operating Activities (375,481) (569,660) (3,413,785)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash acquired from subsidiary - - 77
Purchase or development of intangibles - - (449,000)
Proceeds from sales of assets - 10,600 15,811
Equipment purchases (4,285) (2,661) (390,106)
Purchase of building - - (2,050,000)
------------ ------------ -------------
Net Cash Used by Investing Activities (4,285) 7,939 (2,873,218)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock for cash - 100,000 191,565
Stock subscription deposits 41,200 - 41,200
Stock offering costs - - (390,708)
Issuance of notes payable and debentures 341,293 462,851 6,967,753
Payments made on notes payable - (9,350) (517,166)
------------ ------------ -------------
Net Cash Provided by Financing Activities $ 382,493 $ 553,501 $ 6,292,644
------------ ------------ -------------
The accompanying notes are an integral part of these consolidated financial
statements.
13
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
For the October 20,
Six Months Ended 1999 Through
September 30, September 30,
---------------------------- -------------
2002 2001 2002
------------ ------------ -------------
NET INCREASE (DECREASE) IN CASH $ 2,727 $ (8,220) $ 5,641
CASH AT BEGINNING OF PERIOD 2,914 8,980 -
------------ ------------ -------------
CASH AT END OF PERIOD $ 5,641 $ 760 $ 5,641
============ ============ ==============
CASH PAID FOR:
Interest $ - $ 45 $ 123,969
Income taxes $ - $ - $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for services rendered $ 109,000 $ 267,365 $ 2,271,673
Common stock issued for domain name $ 1,000 $ - $ 1,000
Common stock issued in lieu of debt $ 51,534 $ 56,250 $ 73,314
Vehicles purchased under notes payable $ - $ 35,215 $ 65,549
Common stock issued in conversion of
convertible debentures $ - $ - $ 4,070,473
Common stock issued for fixed assets $ 24,000 $ - $ 24,000
Common stock issued for deferred consulting $ 9,200 $ - $ 9,200
Common stock issued for investment in XTool $ - $ - $ 593,750
Contribution of capital by shareholders $ 804,788 $ - $ 1,238,062
Options and warrants issued below market
value $ 37,995 $ - $ 1,286,105
Conversion of stock deposits to equity $ - $ - $ 284,391
The accompanying notes are an integral part of these consolidated financial
statements.
14
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 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 accounting
principles generally accepted in the United States of America 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 six months ended September 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.
15
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 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 Ooffer 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. During the six months ended September 30, 2002,
the Company recorded the balance of the remaining note payable of $20,000 and
accrued interest of $3,695 as contributed capital. As of September 30, 2002, all
notes payable and accrued interest relating to this transaction have been
satisfied.
16
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 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 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. 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.
17
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2002 and March 31, 2002
NOTE 3 - MATERIAL EVENTS (Continued)
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.
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.
As of September 30, 2+002, shareholders have loaned a total of $194,393 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 September 30, 2002
$11,131 of interest was accrued.
18
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2002 and March 31, 2002
NOTE 3 - MATERIAL EVENTS (Continued)
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.
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 September 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, the obligations associated with the related
expenses for the period ended September 30, 2002 are included in the
consolidated financial statements as accounts payable and accrued expenses.
NOTE 5 - STOCK SUBSCRIPTION DEPOSITS
During the six months ended September 30, 2002, the Company received a total of
$41,200 for the purchase of 412,000 shares of common stock. As of September 30,
2002, none of these shares were issued.
19
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2002 and March 31, 2002
NOTE 6 - SUBSEQUENT EVENTS
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. CRYOCON, INC. AND SUBSIDIARIES (A
Development Stage Company) Notes to the Consolidated Financial Statements
September 30, 2002 and March 31, 2002.
20
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2002 and March 31, 2002
NOTE 6 - SUBSEQUENT EVENTS (Continued)
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.
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.
21
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2002 and March 31, 2002
NOTE 6 - SUBSEQUENT EVENTS (Continued)
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.
22
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 and six months ended September 30, 2002.
The terms "we" or "our" or "us" or "the Company" are used in this discussion to
refer to Cryocon.
Quarter Ended September 30, 2001 and 2002
Statement of Operations
Revenues. Revenues for the six months ended September 30, 2002 increased by 22%
to $32,227, from $26,400 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 51% to $6,744 for the six months ended September
30, 2002, from $13,665 for the six months ended September 30, 2001, representing
21% and 52% of the total revenues for the six months ended September 30, 2002
and September 30, 2001, respectively. The cost of revenues has decreased because
the Company has installed more efficient equipment, supplies contracts and
operating efficiencies.
Gross Profit. Gross profit is total revenues less cost of revenues. Gross profit
excludes general corporate expenses, finance expenses and income tax. For the
six months ended September 30, 2002 and 2001, respectively, gross profit was
$25,483 and $12,735, which represents a 100% increase. The gross profit as a
percentage of revenues increased to 79% for the six months ended September 30,
2002, from 48% for the six months ended September 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.
23
Marketing and Selling Expenses. Marketing and selling expenses decreased to $0
from $19,539 for the six months ended September 30, 2002 and 2001, respectively.
Marketing and selling expenses as a percentage of revenues were 0% and 74% for
the six months ended September 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 $535,493 for the six months ended September 30, 2002, from
$1,425,405 for the six months ended September 30, 2001. As a percentage of
revenues, general and administrative expenses decreased to 1661% for the six
months ended September 30, 2002 from 5399% for the six months ended September
30, 2001. This decrease is mainly attributable to a reduction of our
professional and payroll costs.
Financing Expenses. Financing expenses, net, increased to $627,887 for the six
months ended September 30, 2002, from $0.00 for the six months ended September
30, 2001. These financing expenses relate to increased liabilities for
stockholders shares pledged for defaulted loans made to the Company.
Interest Expenses. Interest expenses, net, decreased to $ 31,350 for the six
months ended September 30, 2002 from $ 73,164 for the six months ended September
30, 2001. The decrease in interest expense was due to the decrease in notes
payable.
Income (Loss) Before Taxes. Loss before taxes for the six months ended September
30, 2002 decreased by 45% to ($1,245,191) from ($2,269,505) for the six months
ended September 30, 2001. Income before taxes as a percentage of revenues was
3864% for the six months ended September 30, 2002, and 8597% for the six months
ended September 30, 2001.
Taxes on Income. Taxes on income for the six months ended September 30, 2002
amounted to $0 which represents 0% of the income before taxes, as compared with
$0 for the six months ended September 30, 2001 that represents 0% of the income
before taxes.
Net Income. Net loss for the six months ended September 30, 2002 amounted to
$1,245,191 and represents 3864% of the revenues, as compared with 8597% of the
revenues for the six months ended September 30, 2001. The decrease in the net
loss is mainly attributable to the decrease in general and administrative costs.
Earnings per share. The earnings per share for the six months ended September 30,
2002 was ($0.06) for the basic 22,064,472 weighted average shares.
24
Balance Sheet
Current Assets. Current Assets amounted to $54,175 as of September 30, 2002
compared to current assets of $49,467 as of March 31, 2002, representing a 10%
increase in current assets. This increase is mainly attributable to an increase
in cash and prepaid expenses.
Fixed assets. Fixed assets after depreciation decreased to $128,411 as of
September 30, 2002, as compared with $135,880 as of March 31, 2002. Purchase of
equipment during the six months ended September 30, 2002 amounted to $4,285.
Depreciation and amortization for the six months ended September 30, 2002
amounted to $75,355.
Current Liabilities. As of September 30, 2002, Current Liabilities increased by
$258,764 to $1,933,174. as compared with $1,674,410 as of March 31, 2002. This
increase is attributable to an increase in current portion of long-term debt and
loans from related parties.
Liquidity and Capital Resources
Net cash used by operating activities for the six months ended September 30,
2002 was $375,481.
The cash used by operating activities for the six months ended September 30,
2002 was primarily attributable to $296,164 from professional fees, costs of
financing activities of $627,887, and payroll of $110,982.
Net financing activities for the six months ended September 30, 2002 provided
$382,492.
Cash at September 30, 2002 amounted to $5,641, an increase of $2,727 since March
31, 2002. Our current assets for September 30, 2002 are lower than our current
liabilities by $1,878,999.
Our commitments for capital expenditures as of September 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.
25
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 September 30, 2002, we have accumulated losses of $(11,691,910). 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 with 57% of our business in other non-gun barrel cryogenics. 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 September 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.
26
PART II
Item 1. Legal Proceedings
Bourns, Inc. v. Cryocon, Inc. (Case No. MMOJ File No. 3853).
On September 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 September 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 September 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.
27
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 September 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. On March 27. 2003 the
courts dismissed the case against Cryocon, Inc. and Brian Morrison
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 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 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. With the settlement of the Kreiger Barrel lawsuit, this action was in
the settlement agreement above.
28
Revcovar Group, LLC, (United Parcel Service) v. Cryocon, Inc., Third District
Court, State if Utah, Salt Lake County, Sandy Department ( Case No. 020409870).
On September 10, 2002 Revcovar Group filed a complaint for payment of past due
services for $3,450.10. In January 3, 2003 the debt was settled in full.
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 Decatur,
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.
29
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. Other Information
None
30
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
10.3 Lease between Halverson Real Estate and Investments, Inc. Landlord and
Cryocon, Inc.(Tenant)
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
31
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: 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
32
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 quarterly report on Form 10-QSB of Cryocon, Inc.;
2. Based on my knowledge, this 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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 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
quarterly report (the "Evaluation Date"); and
c) presented in this 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
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
33
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 quarterly report on Form 10-QSB of Cryocon, Inc.;
2. Based on my knowledge, this 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 quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 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 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
quarterly report (the "Evaluation Date"); and
c) presented in this 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
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
34
