FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1996 Commission file number 0-14996
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CRYENCO SCIENCES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 52-1471630
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3811 Joliet Street, Denver, CO 80239
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Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: 303-371-6332
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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None None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 par value
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
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Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K 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 [X]
The aggregate market value at November 25, 1996 of shares of the
registrant's Common Stock, $.01 par value, held by non-affiliates of the
registrant was approximately $13,334,638. On such date, the closing price of the
Common Stock on the NASDAQ-National Market System was $2.00 per share. Solely
for the purposes of this calculation, shares held by directors and executive
officers of the registrant have been excluded. Such exclusion should not be
deemed a determination or an admission by the registrant that such individuals
are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: At November 25,
1996, there were outstanding 6,996,997 shares of Class A Common Stock, $.01 par
value.
Documents Incorporated by Reference: Certain portions of the registrant's
definitive proxy statement to be filed not later than December 29, 1996 pursuant
to Regulation 14A are incorporated by reference in Items 10 through 13 of Part
III of this Annual Report on Form 10-K.
CRYENCO SCIENCES, INC.
INDEX TO FORM 10-K
Item Number Page
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PART I
Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
Signatures 31
PART I
ITEM 1. BUSINESS.
GENERAL
Cryenco Sciences, Inc., its subsidiaries and their predecessors (the
"Company") have manufactured vacuum jacketed containment systems and related
products since 1978. Vacuum jacketing provides a highly efficient and
cost-effective insulation to prevent heat transfer and is therefore critical for
many applications that are temperature-sensitive. The Company's products are
used in such applications as magnetic resonance imaging ("MRI"), industrial gas
transportation and storage, military cryogenics, liquefied natural gas
transportation, storage and dispensing, vacuum jacketed intermodal
transportation, and other applications requiring both custom and standard design
and fabrication.
The Company has significant expertise in the field of cryogenics, a
branch of physics that deals with the production and effects of extremely cold
temperatures on the properties of matter. To date, most applications for the
Company's products have required the storing and handling of cryogenic liquids.
Cryogenic liquids are typically atmospheric gases in the liquid state which have
extremely low boiling points, such as liquid oxygen (-297 degrees Fahrenheit; 90
Kelvin), liquid nitrogen (-320 degrees Fahrenheit; 77 Kelvin) and liquid helium
(-452 degrees Fahrenheit; 4 Kelvin), and density ratios reaching 700 to 1
compared to their atmospheric state. Cryogenic liquids are produced by
compressing and cooling gases until they reach the liquid state. As liquids,
they can be stored and transported with weight and volume advantages of five to
ten times compared with compressed gases. The Company's vacuum jacketed
containers minimize evaporation of these cryogenic liquids and preserve low
temperature.
The Company's expansion strategy is to extend vacuum jacketed technology
into new areas, including high performance insulated containers which enhance
energy conservation and environmental protection, and to take a leadership
position in the introduction of products to advance the use of liquefied natural
gas ("LNG") and compressed natural gas ("CNG") as alternatives to other fuels.
Management believes that current international efforts to conserve energy
together with growing concerns for environmental issues provide opportunities
for the Company to broaden the applications for its existing technology, both
within and outside of its historical focus. One such opportunity is a direct
application of the Company's current manufacturing expertise to develop
alternative fuel powered transportation systems including dispensing systems
using LNG and CNG. Another application is the use of LNG for heat and power in
areas which are not served by gas pipelines. LNG is less costly than propane and
is a much more environmentally friendly fuel. The Company is working with
various bus and engine manufacturers, transit authorities and private fleet
operators to supply LNG fuel tanks and systems. See "Products -- Liquefied and
Compressed Natural Gas Products."
2
PRODUCTS
The Company offers a wide range of custom and standard vacuum systems,
components and accessories to meet the needs and requirements of customers in
the medical, industrial gas, transportation, chemical, pharmaceutical, food, and
aerospace and defense industries, as well as national laboratories,
semiconductor manufacturers and the United States Government. The Company's
products generally include an inner vessel that is surrounded by a jacket
casing. An annular space is created between the vessel and the jacket casing
into which insulation such as aluminum foil, glass paper or fiberglass is
installed and a vacuum is created. This insulated system is designed to prevent
heat gain or, in some cases, to promote heat retention. Both the inner vessel
and jacket casing are generally made of carbon steel, stainless steel or
aluminum. While the Company's products differ substantially in their use, they
all require close tolerance forming and sophisticated welding of stainless steel
and aluminum to create microscopically leak-tight systems.
MRI CRYOSTAT COMPONENTS
MRI is generally regarded as a significant advance in medical diagnostics
and has been found to offer benefits not provided by other forms of medical
examination. From a clinical point of view, MRI may also be considered superior
to other available techniques in providing images of the central nervous system,
particularly in the brain. Unlike x-rays and certain other imaging techniques,
such as computerized axial tomography, MRI is a non-invasive procedure where the
patient is not exposed to radiation or required to ingest any liquids or receive
injections of any type. Although MRI is a relatively expensive technology to
purchase and to operate, its growth has been substantial. MRI use has replaced
or complemented much of the imaging done by other techniques and can decrease
the number of necessary tasks performed on a patient, thereby eliminating the
need for many exploratory procedures and adding significantly to diagnostic
knowledge.
The basis of the MRI technique is the magnetic properties of certain
nuclei of the human body which can be detected, measured and converted into
images for analysis. MRI equipment uses high-strength magnetic fields, applied
radio waves and high-speed computers to obtain cross-sectional images of the
body. The major components of the MRI assembly are a series of concentric
thermal shields and a supercooled magnet immersed in a liquid helium vessel (a
"cryostat") that maintains a constant, extremely low temperature (-452 degrees
Fahrenheit; 4 Kelvin) to achieve superconductivity. The Company manufactures
large cryostats, various cryogenic interfaces, electrical feed-throughs and
various other MRI components, that are used to transfer power and/or cryogenic
fluids from the exterior of the MRI unit to the various layers of the cryostat
and superconducting magnet.
The Company currently sells all of its MRI cryostats to General Electric
Company ("GE"), and is the exclusive supplier of GE's cryostats. GE is the
leading worldwide manufacturer of MRI equipment. The Company will soon complete
the second year of its current two-year contract with GE for the production of
MRI cryostats, its tenth consecutive year of this work for GE. A new contract of
two years is currently being negotiated with GE. It is anticipated that the
contract will allow for price adjustments based upon the cost of material, which
can be modified if GE changes specifications and contains options under which GE
may adjust the number of units which it will purchase. Revenue from MRI
cryostats and components was 35%, 36% and 50% of the Company's total revenue
during the fiscal years
3
ended August 31, 1996, 1995 and 1994, respectively. The Company's backlog of
purchase orders with GE was approximately $6.0 million and $4.3 million at
September 30, 1996 and September 30, 1995, respectively. It is expected that all
of the Company's current backlog for MRI cryostat components will be filled by
August 31, 1997.
TRANSPORTATION AND STORAGE EQUIPMENT
Cryogenic Transport Trailers
Cryogenic transport trailers are designed to hold a variety of gases in
liquid or gaseous state and are capable of storing and transporting such gases
without substantial evaporation, limiting the loss to less than one percent per
day. Because of these characteristics, cryogenic liquids can be transported over
relatively long distances with marginal loss.
The Company designs and produces transport trailers to the specific
requirement of its customers. The primary purchasers of cryogenic transport
trailers are industrial gas companies, independent carriers which service
producers and users of these gases, and independent carriers transporting LNG
for use as an alternative fuel. During the past year, the increased demand for
new cryogenic transport trailers, combined with the Company's success in
obtaining a high percentage of trailer orders placed, has resulted in an
increased level of trailer production by the Company. The Company also repairs
transport trailers built by others and provides such services for its own
trailers.
Revenue from cryogenic transport trailers was 42%, 33% and 17% of the
Company's total revenue for the fiscal years ended August 31, 1996, 1995 and
1994, respectively. Sales of cryogenic transport trailers to Jack B. Kelley,
Inc. and affiliated companies accounted for 21%, 12% and 6% of total revenue for
the fiscal years ended August 31, 1996, 1995 and 1994, respectively. The
Company's backlog of cryogenic transport trailers at September 30, 1996 and
September 30, 1995 was $2.7 million and $10.3 million, respectively. It is
expected that the Company's current backlog of cryogenic transport trailers will
be filled by August 31, 1997.
TVAC(R) Intermodal Containers
Intermodal containers, which are used to store and transport various
items worldwide, are generally uniform in size and are transferable from one
mode of transportation or carrier to another. Management believes that there are
in excess of 70,000 intermodal tank containers worldwide, many of which rely on
mechanical refrigeration or heating to maintain the temperature of their
contents.
The Company has designed a number of models of its proprietary TVAC
intermodal tank container, which fall into two categories. The first category,
which is used in the chemical, food and pharmaceutical industries, enables the
transportation of up to 5,500 gallons of temperature sensitive hot or cold
liquids by truck, rail and ship without mechanical refrigeration or heating. The
Company has been producing these products since 1993 for applications involving
the transportation of various temperature-sensitive products, including hot
liquid chocolate, glacial acrylic acid and chilled fruit juices. The second
category, for the transportation and storage of cryogenic liquids, was developed
in 1994, and also transports up to 5,500 gallons of these liquids without the
need for mechanical refrigeration. As of
4
October 31, 1996, over 175 TVACs have been produced and are in service
transporting food and chemical products as well as various cryogenic liquids
including liquid argon and LNG.
Revenue from TVACs accounted for 13%, 21% and 13% of the Company's total
revenue for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
Sales of TVACs to Jack B. Kelley, Inc. and affiliated companies accounted for
9%, 20% and 8% of the Company's total revenue during the same years. The
Company's backlog of TVACs at September 30, 1996 and September 30, 1995 was $7.3
million and $4.8 million, respectively. It is expected that the Company's
current backlog of TVACs will be filled by August 31, 1997.
Cryogenic Storage Tanks
Large cryogenic storage tanks ("Big Tanks") are used for the storage of
liquefied atmospheric gases and LNG at sites where a permanent storage facility
is desired. The Company has designed a series of shop-built Big Tanks to
accommodate storage of cryogenic liquids from 15,000 gallons through 60,000
gallons. These tanks are an alternative to fieldbuilt tanks, and often provide a
more cost effective storage solution for customers. The Company made its initial
deliveries of Big Tanks in the fiscal year ended August 31, 1996.
LIQUEFIED AND COMPRESSED NATURAL GAS PRODUCTS
The Company believes that LNG, used as an alternative fuel in the
transportation sector, offers a significant opportunity for application of the
Company's cryogenic equipment and technology. Natural gas burns more cleanly
than gasoline or diesel fuel, and advanced natural gas-fueled vehicles have the
potential to reduce carbon monoxide emissions by about 90% and carbon dioxide
emissions by about 25% compared with most gasoline powered vehicles. Recent
legislation, including the Clean Air Act of 1990, has prompted many governmental
agencies to consider and require conversion of municipal vehicles to the
utilization of natural gas. In addition, the cost of LNG in many areas has
decreased in the past year, primarily due to the increasing supply of LNG. This
has resulted, in some cases, in an economic advantage over other fuels in both
vehicle and industrial applications. Natural gas may be used in compressed (CNG)
or liquid (LNG) states, and the Company believes that LNG offers a superior
alternative to CNG for certain transportation applications, providing
substantially longer range before refueling is required and requiring
significantly less vehicle tank space and weight. Additionally, the Company
believes that compressed natural gas made from liquefied natural gas ("LCNG")
offers some distinct advantages as an alternative fuel compared to traditional
CNG. Currently, LNG production requires liquefaction plants to convert the gas
into a liquid state and specialized cryogenic containers to store and transport
the liquid gas to fueling stations.
5
The Company continues to develop proprietary products for the LNG and CNG
transportation market. Among the products developed to date are LNG vehicle
tanks for heavy vehicle applications, portable dispensing equipment for both LNG
and LCNG, fueling facilities utilizing either a TVAC or a large permanent
storage tank and dispensing equipment which looks and operates like a gasoline
fuel station, a mobile refueling facility for dispensing both LNG and LCNG, and
fuel gas modules for converting LNG to pipeline gas for industrial and
commercial applications. Management believes that the Company's proprietary
products developed for this market will be increasingly well received as the
supply of LNG becomes more widespread, and as the advantages of LNG and LCNG as
alternative fuels, including the economic advantages in an increasing number of
cases, become apparent to the potential customers.
The Company's joint venture with Jack B. Kelley, Inc., Applied LNG
Technologies USA, LLC ("ALT-USA") has been active throughout the year in
identifying opportunities for the use of LNG as an alternative fuel source, both
for vehicle applications and for heat and power applications in areas not served
by gas pipelines. The vehicle opportunities have recently been limited by an
increased excise tax burden imposed by the Internal Revenue Service (the "IRS")
for highway use of LNG as a motor fuel.
On August 7, 1995 the IRS ruled that LNG is not a gaseous fuel, and
should be taxed as a liquid motor fuel. The result of this ruling is to impose a
much higher effective rate of tax on LNG, one that is 25.1 cents higher than CNG
and 7.1 cents higher than diesel fuel. This tax penalty compared to diesel fuel
has virtually halted the conversion of medium and large trucks from diesel to
LNG. A number of bills have been introduced in Congress to eliminate this
disparity, and this issue is currently working its way through the legislative
process. While there appears to be substantial support for a reduction of the
tax on LNG to a rate equaling the tax on CNG, the outcome of the effort and the
timing are in question.
The Company continues to seek international sales agents, licensees and
joint venture partners, and continues to pursue the sale of LNG fuel tanks and
systems to a number of potential domestic customers, including municipal and
private fleets.
TADOPTR
The Company has obtained exclusive rights to license technology from the
Los Alamos National Laboratory which management believes may enable the Company
to produce a low cost, low maintenance, reliable cryogenic refrigerator, known
as "TADOPTR", to be used as a liquefier to produce LNG and CNG in a variety of
locations and applications. The TADOPTR refrigerator's maximum theoretical
efficiency occurs at approximately 110 Kelvin (-260 degrees Fahrenheit), the
liquefication temperature for natural gas.
6
In June 1994, the Company received $780,000 in funding from a limited
partnership for the purpose of developing a 500 gallon per day TADOPTR. In
return for the partnership's investment, the Company issued warrants to purchase
200,000 shares of the Company's Common Stock at $3.00 per share, and entered
into a Royalty Rights and Technology Development Agreement with the partnership
pursuant to which royalties will be paid to the partnership on net revenues from
the sale of TADOPTRs. The royalties are payable for a period of 20 years from
the execution of the agreement. The Company spent the funds provided by the
partnership for the development of a 500 gallon per day TADOPTR during the years
ended August 31, 1995 and 1994. Should the development under this contract be
successful, management believes that there are numerous potential applications
for this technology, including use at fueling stations for LNG and CNG vehicles,
use for liquefaction of natural gas at remote well locations and use in other
commercial liquefaction applications.
In May, 1995, the Company received a contract from BDM-Oklahoma, Inc., a
program manager for the U.S. Department of Energy administering funding for LNG
and CNG research, in the amount of $452,500 for further development of and
additional enhancements to the TADOPTR liquefier and LNG dispenser system.
During the year ended August 31, 1996, the Company billed approximately $120,000
against this contract.
In October 1995, the Company successfully liquefied a stream of natural
gas, utilizing a compressor to power the OPTR phase of the TADOPTR, which
demonstrates that the OPTR technology can be scaled to a large size. In August
1996, the Company successfully operated a TAD power source, designed to operate
a 500 gallon per day TADOPTR, which demonstrates that the TAD technology can
also be scaled to a large size. Currently the Company is working to integrate
the TAD and the OPTR hardware as well as developing related liquefier products.
Considerable additional development is required to transition these developments
to a refrigerator that will produce LNG efficiently and economically.
MANUFACTURING
The Company's reputation as an innovative and effective problem solver is
supported by its engineering expertise and manufacturing capabilities.
Customized products often result from extended efforts between the Company's
engineers and the customers' design staff.
The Company meets stringent industrial and governmental specifications
throughout the entire design and manufacturing process and produces fabrications
in accordance with the requirements of the American Society of Mechanical
Engineers ("ASME") and the Boiler and Pressure Container Vessel Code ("ASME
Code"). The ASME Code sets forth generally recognized standards for
manufacturing, inspection and testing of containers for pressurized gases and
liquids. The ASME, through the National Board of Pressure Vessel Inspectors, has
examined and approved the Company's quality control system. This approval
permits the Company to stamp its pressure containers with a symbol indicating
that the equipment was built according to the requirements of the ASME Code. In
addition, many of the Company's products are designed to meet various
international standards for containers used for transporting regulated
materials, such as the International Maritime Organization standards. The
Company believes that, in many cases, its ability to meet such standards gives
it a competitive advantage.
7
To the extent that the Company's products transport cryogenic liquids in
interstate commerce, they are also subject to regulation by the United States
Department of Transportation. These regulations provide safety inspections that
vary according to the method of transportation and the nature of the substance
being transported. Also, many states and localities impose safety requirements
which are independent of federal requirements.
The Company's quality control procedures incorporate many "inspection
points." Such inspection points require review of the quality of raw materials
used by the Company, review of the engineering design, inspections throughout
the manufacturing process and postmanufacture tests to insure the structural
integrity of the container, its durability and its impermeability to leaks. At
each inspection point, the quality control review is conducted both by employees
of the Company and by representatives of an independent agency acceptable to the
ASME. The frequency of inspections varies according to the nature of the
manufacturing projects underway at any given time.
The Company generally warrants its manufactured products against
defective materials and workmanship for a period of one year from the date of
delivery of the product.
The principal raw materials and supplies used by the Company in its
manufacturing processes are stainless steel, carbon steel, aluminum, valves,
pressure gauges, liquid level detectors and insulation materials, such as
aluminum foil. These materials are generally available at competitive prices
from many sources.
SALES AND MARKETING
The Company currently has five sales account executives. These sales
account executives are responsible for specific customer and industry
relationships. To facilitate its sales and marketing efforts, the Company has a
sales administration department consisting of a sales manager, a sales
administrator, an order entry clerk and a contract administrator, and agreements
with marketing representatives to cover parts of the United States and Europe.
In addition, the Company utilizes a team selling effort which draws upon the
expertise of senior management from areas such as engineering, manufacturing,
operations and finance. To supplement its direct sales efforts, the Company also
has an indirect sales and marketing network, utilizing the personnel of
customers and affiliates, including Chemical Leaman Tank Lines, Jack B. Kelley,
Inc. and ALT-USA. The Company believes that its team approach and the
utilization of outside resources enables it to address its customers'
requirements more effectively and provide a more complete understanding of the
costs involved in a particular project, allowing the Company to bid more
competitively and maximize the opportunity for longer-term, high volume
contracts.
8
CUSTOMERS
Over the past several years, the Company has developed close working
relationships with several significant customers, including GE, Jack B. Kelley,
Inc., Chemical Leaman Tank Lines, MG Industries, BOC Gases, Air Products, the
Department of Defense (the "DOD") and others. The Company's recent focus on
broadening its product lines is reducing customer concentration to levels where
the loss of a single contract or customer, other than GE and Jack B. Kelley,
Inc., would not have a material adverse effect on the Company's overall
business. GE and Jack B. Kelley, Inc. have accounted for substantial percentages
of the Company's revenues during the past three fiscal years. See "Products --
MRI Cryostat Components" and "Products -- Transportation Equipment." The Company
anticipates that its dependence on these customers will be reduced in future
years.
Historically, the Company's products were sold pursuant to customer
orders which called for delivery on a relatively short term basis. Over the past
several years, the Company has developed proprietary products which has enabled
it to enter into longer term contracts with certain of its major customers. Such
contracts contain product specifications, numbers of units, and pricing per
unit, subject in some cases to adjustment for changes in cost of materials and
product specifications. During the term of these contracts, the customer will
issue specific purchase orders against which the Company will commence
production. These orders are counted in the backlog when purchase orders are
received.
At September 30, 1996, the Company had a total backlog of $18.8 million,
compared to a backlog of $21.2 million at September 30, 1995. The Company
estimates that all of the current backlog will be filled by August 31, 1997. The
Company's backlog fluctuates depending on placement of large orders from certain
customers.
COMPETITION
The Company has competitors in each of its product lines. Certain of
these competitors are significantly larger and have greater financial resources
than the Company. The Company believes that the principal competitive factors in
the markets in which it competes are product expertise, quality, service and
price. The Company believes that its products have achieved market acceptance
due to the Company's ability to meet stringent industrial and governmental
specifications, innovative design and attention to customer service. The Company
has achieved significant market position in the fields of MRI cryostats,
cryogenic truck trailers, cryogenic intermodal tank containers and LNG fueling
systems, and has historically been one of the largest suppliers of cryogenic
tankage to the DOD.
EMPLOYEES
At September 30, 1996, the Company employed 210 persons, including 167 in
manufacturing, 5 in quality control, 12 in administration, 11 in sales and 15 in
engineering.
The Company depends on many skilled employees, and the Company's success
is affected by its ability to retain such employees. None of the Company's
employees is represented by a union or other collective bargaining group, and
management believes that its relationships with its employees are generally
good.
9
ITEM 2. PROPERTIES.
The Company leases 14,700 square feet of office space and 105,100 square
feet of manufacturing space for its primary offices and plant under a lease
expiring in 2006 at 3811 Joliet Street, Denver, Colorado. Lease expense is $3.75
per square foot per year, to be increased every two years at an annual rate of
between 3% and 5%, depending upon the level of inflation. Additionally, the
Company is required to pay all maintenance for the premises and the cost of
insurance and property taxes.
The Company also leases approximately 13,700 square feet of office space
and 91,300 square feet of manufacturing space at 5995 North Washington Street,
Denver, Colorado under a lease expiring in 1999. The facility was remodeled in
1989 and substantial leasehold improvements were made to the manufacturing area
to facilitate production and improve efficiencies. Lease expense is $3.25 per
square foot per year and the Company is required to pay all taxes, insurance and
maintenance for the premises. The Company has a right of first refusal to
purchase the facility.
The Company believes that its facilities are generally in good repair and
provide suitable and adequate capacity for its present needs. Additional
facilities may be required for future expansion of operations.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
10
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the
executive officers of the Company.
Positions and offices held
Name Age during the past fiscal year
---- --- ---------------------------
Alfred Schechter................ 76 Chairman of the Board, Chief Executive
Officer and President of the Company;
Chairman of the Board, Chief Executive
Officer and President of Cryenco, Inc.
James A. Raabe.................. 44 Vice President, Treasurer, Chief Financial
Officer and Secretary of the Company;
Vice President, Treasurer, Chief Financial
Officer and Secretary of Cryenco, Inc.
Each executive officer serves at the pleasure of the Board of Directors
and until his or her successor is duly elected and qualifies.
ALFRED SCHECHTER has been Chairman of the Board and Chief Executive
Officer of Cryenco, Inc. since September 1991, President of Cryenco, Inc. since
September 1996 and Chairman of the Board, Chief Executive Officer and President
of the Company since February 1992. Mr. Schechter has been a Director of
Charterhouse Group International, Inc. ("Charterhouse") since 1985. Mr.
Schechter served as Chairman of the Board and Chief Executive Officer of
Charter-Crellin, Inc., a designer, manufacturer and marketer of proprietary
injected molded plastic products, from 1985 to 1989 and as Chairman of the Board
and Chief Executive Officer of Paco Pharmaceutical Services, Inc., a
pharmaceutical contract packaging company, from 1975 to 1988. Mr. Schechter is
also a member of The Advisory Board of The Recovery Group, L.P., which invests
in debt and equity securities of distressed companies. Mr. Schechter has held
the positions of Chairman of Stanley Interiors Corporation, a manufacturer of
home furnishings, Vice Chairman of Joseph Kirschner Company, Inc., a
manufacturer of processed meat products, and Director of Paco Pharmaceutical
Services, Inc., WDP, Inc., a brick refractory servicing the steel industry,
Dreyers Grand Ice Cream, Inc., a manufacturer of ice cream products, Marathon
Enterprises Inc., a manufacturer of processed meat products, and Garden America
Corporation, a manufacturer and distributor of garden products.
JAMES A. RAABE became Vice President and Chief Financial Officer of
Cryenco, Inc. and Chief Financial Officer of the Company in July 1994. He later
became Vice President of the Company and Treasurer of Cryenco, Inc. in January
1995 and Secretary and Treasurer of the Company and Secretary of Cryenco, Inc.
in July 1995. Mr. Raabe was employed by Cryenco, Inc. in March 1994 as Financial
Manager. Mr. Raabe was previously employed by Stanley Aviation Corporation, a
manufacturer of aerospace products, from 1977 to 1993, where he was Vice
President - Finance, Corporate Secretary and a Director of the Company. Mr.
Raabe received his B.A. degree in Business Administration from California State
University, Fullerton, and is a Certified Public Accountant.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol CSCI. The following table sets forth the high and low sales
prices for the Company's Common Stock as reported on the NASDAQ National Market
System from September 1, 1994 to November 25, 1996. The prices set forth reflect
interdealer quotations, without retail markups, markdowns or commissions, and do
not necessarily represent actual transactions.
High Low
---- ---
Fiscal Quarter Ended
November 30, 1994....................................................... $5 1/2 $3 1/8
February 28, 1995....................................................... 4 1/2 2 1/2
May 31, 1995............................................................ 4 1/2 3
August 31, 1995......................................................... 4 1/4 3 1/4
November 30, 1995....................................................... $5 $3 5/8
February 29, 1996....................................................... 5 1/8 3 3/8
May 31, 1996............................................................ 4 3/8 3
August 31, 1996......................................................... 4 3/4 2 5/8
November 30, 1996 (through November 25, 1996)........................... $3 3/4 $1 3/8
The closing price of the Company's Common Stock on November 25, 1996 was
$2.00 per share. At November 25, 1996, there were approximately 200 stockholders
of record. However, the Company believes that at such date there were in excess
of 500 beneficial stockholders.
DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock and currently intends to retain any earnings for use in its business. The
Company's ability to pay cash dividends is currently limited by credit
agreements and the Company does not anticipate paying any cash dividends in the
foreseeable future.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data at and for the fiscal years
ended August 31, 1996, 1995, 1994 and 1993 are derived from financial statements
which have been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data at and for the fiscal year ended August 31, 1992 are
derived from the consolidated financial statements which have been audited by
KPMG Peat Marwick LLP, independent auditors. This information should be read in
conjunction with the Company's consolidated financial statements and related
notes and other financial information appearing elsewhere herein.
Fiscal year ended August 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of income data:
Contract Revenue $31,259 $27,215 $17,665 $13,099 $22,198
Cost of revenue 24,898 22,350 14,670 12,198 16,398
------- ------- ------- ------- -------
Gross Profit 6,361 4,865 2,995 901 5,800
Selling, general and
administrative expenses 3,288 2,867 2,834 3,396 2,366
Research and development expenses 792 70 86 701 319
Amortization expense 346 346 338 286 321
------- ------- ------- ------- -------
Operating income (loss) 1,935 1,582 (263) (3,482) 2,794
Interest expense, net 943 987 1,105 1,057 1,282
Other nonoperating expense
(income), net 9 40 (69) (19) 111
------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item 983 555 (1,229) (4,500) 1,401
Income tax (expense) benefit (363) (194) 403 1,196 (483)
------- ------- ------- ------- -------
Income from operations before
extraordinary item 620 361 (896) (3,304) 918
Extraordinary item, net of taxes 93 -- -- -- --
------- ------- ------- ------- -------
Net income (loss) $ 527 $ 361 $ (896) $(3,304) 918
======= ======= ======= ======= =======
Earnings (loss) per share (1) $ .06 $ .04 $ (.17) $ (.62) $ .20
======= ======= ======= ======= =======
Balance sheet data:
Total assets $25,704 $23,377 $18,404 $20,344 $21,644
Long-term debt, excluding
current maturities 8,634 5,629 6,928 8,191 7,558
Stockholders' equity 11,673 11,236 7,047 7,191 10,420
(1) Net income (loss) per share for the fiscal years ended August 31, 1996,
1995, 1994, 1993 and 1992 have been calculated based on 7,230,773,
6,620,055, 5,346,760, 5,326,936 and 4,491,392 weighted average common and
common equivalent shares outstanding during the year, respectively.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the materials set forth under
"Business" and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth below. The Company's actual results could
differ materially from those anticipated in the forward-looking statements.
GENERAL
The Company's operating subsidiary, Cryenco, Inc. was organized in 1978.
Effective August 30, 1991, Cryenco Holdings, Inc. ("CHI") acquired all of the
outstanding common stock of Cryenco, Inc. On February 11, 1992, CHI was merged
with and into Gulf & Mississippi Corporation and Gulf & Mississippi Corporation
changed its name to Cryenco Sciences, Inc. (the "Merger"). The Merger has been
accounted for as a reverse acquisition, whereby CHI is considered to be the
acquirer of Gulf & Mississippi Corporation for accounting and financial
reporting purposes. The discussion and analysis set forth below refers to the
financial condition and results of operations of the Company, including its
predecessor, Cryenco, Inc.
The Company accounts for its revenue using the percentage-of-completion
method, units delivered or completed contract, whichever is deemed more
appropriate for the contract. See Note 1 to the consolidated financial
statements. Revenue has been generated primarily from sales of cryogenic
components and systems to a small number of significant customers. During the
fiscal years ended August 31, 1996, 1995 and 1994, revenue from MRI cryostats
and components accounted for 35%, 36% and 50%, respectively, of total contract
revenue. Revenue from the sale and repair of cryogenic transport trailers and
intermodal tank containers accounted for 55%, 55% and 40% of total contract
revenue for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
During fiscal 1996, the Company continued to concentrate its efforts on
developing new domestic and international markets with an emphasis on product
lines offering repeatability and higher volume potential while de-emphasizing
its traditional job shop or short product run products. During this period, the
Company expanded certain segments of its operations, including personnel and
plant capacity, to support the growth from these new markets for its cryogenic
technology. Management believes that the Company has been successful in securing
the majority of the orders placed during the past year for these trailers. The
markets for LNG fuel tanks and systems both in the United States and
internationally are growing, but much more slowly than the Company had hoped.
Nevertheless, this market appears to be improving as an increased availability
of LNG and new products, including the Company's dispensing equipment and TVAC,
have made LNG vehicles more economically viable.
14
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
income and expense items as a percentage of revenue:
Fiscal Year Ended
August 31,
--------------------------
1996 1995 1994
---- ---- ----
Contract revenue.............................................. 100.0% 100.0% 100.0%
Cost of revenue............................................... 79.7 82.1 83.0
----- ----- -----
Gross profit.................................................. 20.3 17.9 17.0
Selling, general and administrative expenses.................. 10.5 10.5 16.1
Research and development expenses............................. 2.5 0.3 0.5
Amortization expense.......................................... 1.1 1.3 1.9
----- ----- -----
Operating (loss) income ...................................... 6.2 5.8 (1.5)
Interest expense, net......................................... 3.0 3.6 6.3
Other nonoperating (income) expense, net...................... 0.0 0.2 (0.4)
----- ----- -----
Income (loss) before income taxes and extraordinary item...... 3.2 2.0 (7.4)
Income tax (expense) benefit.................................. (1.2) (0.7) 2.3
----- ----- -----
Income (loss) before extraordinary item....................... 2.0 1.3 (5.1)
Extraordinary item............................................ 0.3 -- --
----- ----- -----
Net income (loss)..................................... 1.7% 1.3% (5.1)%
===== ===== =====
FISCAL YEARS ENDED AUGUST 31, 1996 AND 1995
Contract revenue increased 14.9% to $31.3 million in 1996 from $27.2
million in 1995, primarily as a result of the increase in revenue derived from
the sale of industrial gas and LNG transport trailers, as well as revenue
derived from the sale of various products to ALT-USA. Additionally, the Company
recognized smaller increases in revenue from the production of MRI cryostats and
sales of LNG products.
Gross profit in 1996 increased 30.8% to $6.4 million from $4.9 million in
1995 and gross profit as a percentage of contract revenue increased to 20.3% in
1996 from 17.9% in 1995. This increase is the result of higher production levels
which reduced the unabsorbed overhead, as well as the increasing gross margins
in Transportation Equipment. Additionally, excess and obsolete inventory costs
increased to $269,000 in 1996 from $55,000 in 1995, while warranty costs
decreased from $663,000 in 1995 to $379,000 in 1996. The increase in obsolete
inventory costs is primarily due to the changing of the Company's products
during the past few years, which has resulted in certain inventory items having
no anticipated production use, and an increase in the reserve for obsolete
inventory. The decrease in warranty costs is primarily based on the improved
quality of the Company's products. At August 31, 1996 the reserve for obsolete
inventory was $150,000, compared to the $100,000 reserve at August 31, 1995.
Selling, general and administrative expenses increased 14.7% to $3.3
million in 1996 from $2.9 million in 1995 and remained at 10.5% of contract
revenue.
15
Research and development expenses increased to $792,000 in 1996 from
$70,000 in 1995. This increase is primarily due to the Company's funding of
research and development for the TADOPTR program and for the further development
of LNG products, both of which were in excess of amounts reimbursed from
customers.
Amortization expense remained at $346,000 in both 1996 and 1995.
Interest income decreased to $1,000 in 1996 from $20,000 in 1995. This
decrease is primarily due to the lower level of excess cash invested in
short-term interest bearing accounts.
Interest expense decreased to $944,000 in 1996 from $1.0 million in 1995.
This decrease is the result of slightly higher average borrowings during the
year which is more than offset by lower interest rates.
Other nonoperating expense decreased to $9,000 in 1996 from $40,000 in
1995. This decrease is primarily due to the expenses from the Company's
investment in ALT-USA in 1995 that did not recur in 1996.
Income tax expense increased to $363,000 in 1996 from $194,000 in 1995,
due primarily to the increased profit in 1996 compared to 1995.
In 1996, the Company recorded an extraordinary expense of $93,000 net of
income tax benefit of $54,000, with no corresponding expense in 1995. This
amount is the result of the expensing in the current period of certain deferred
financing expenses, due to the early retirement of the Chemical Bank loans and a
portion of The CIT Group/Equity Investments, Inc.
("CIT") note.
Net income increased to $527,000 in 1996 from $377,000 in 1995. The
resulting net income is the result of the cumulative effect of the above
factors.
Net cash used by operating activities in 1996 amounted to $356,000
compared to $1.2 million in 1995. The use of cash in 1996 is primarily the
result of an increase in accounts receivable resulting from the Company
discontinuing its policy of granting cash discounts, combined with a decrease in
accounts payable following the increase in borrowing capacity from FBS Business
Finance Corporation. This use of funds was only partially offset by the decrease
in costs and estimated earnings in excess of billings on uncompleted contracts
during 1996.
FISCAL YEARS ENDED AUGUST 31, 1995 AND 1994
Contract revenue increased 54.1% to $27.2 million in 1995 from $17.7
million in 1994, primarily as a result of the increase in revenue derived from
the sale of industrial gas and LNG transport trailers and TVAC intermodal
containers. Additionally, the Company recognized smaller increases in revenue
from the production of MRI cryostats and sales of LNG products.
16
Gross profit in 1995 increased 62.4% to $4.9 million from $3.0 million in
1994 and gross profit as a percentage of contract revenue increased to 17.9% in
1995 from 17.0% in 1994. This increase is the result of higher production levels
which reduced the unabsorbed overhead, as well as the increasing gross margins
in Transportation Equipment and LNG Products. Additionally, the excess and
obsolete inventory costs decreased to $55,000 in 1995 from $142,000 in 1994,
while warranty costs increased from $287,000 in 1994 to $663,000 in 1995. The
increase in warranty costs is primarily due to costs incurred on cryogenic
transport trailers produced in 1993, and an increase in the warranty reserve. At
August 31, 1995 the reserve for warranty costs was $200,000, compared to the
$144,000 reserve at August 31, 1994, and the allowance for excess and obsolete
inventory increased from $52,000 at August 31, 1994 to $100,000 at August 31,
1995.
Selling, general and administrative expenses increased 1.2% to $2.9
million in 1995 from $2.8 million in 1994 and decreased as a percentage of
contract revenue to 10.6% from 16.1%. This decrease resulted from continuing
savings resulting from the Company's cost reduction efforts and the fixed nature
of certain general and administrative expenses in relation to increased revenue.
Research and development expenses decreased to $70,000 in 1995 from
$86,000 in 1994. In both years, the costs for the continuing development of
products were generally charged against specific customer orders.
Amortization expense increased to $346,000 in 1995 from $338,000 in 1994.
This increase is the result of the increased warrant amortization resulting from
the 1993 debt restructuring with Chemical Bank, CIT and the Company's junior
subordinated debt holders.
Interest income decreased to $20,000 in 1995 from $103,000 in 1994. This
decrease is primarily due to the lower level of excess cash invested in
short-term interest bearing accounts.
Interest expense decreased to $1.0 million in 1995 from $1.2 million in
1994. This decrease is primarily due to reduced level of interest bearing debt
in 1995 compared to 1994.
Other nonoperating expense increased to $40,000 in 1995 from the
nonoperating income of $69,000 in 1994. This increase is primarily due to
expenses from the Company's investment in ALT-USA in the current year compared
to a reimbursement received for warranty claims in the prior year.
Income tax expense increased to $194,000 in 1995 from a tax benefit of
$403,000 in 1994, due primarily to the profit in 1995 compared to the loss in
1994.
Net income increased to $361,000 in 1995 from a net loss of $896,000 in
1994. The resulting net income is the result of the cumulative effect of the
above factors.
Net cash used by operating activities in 1995 amounted to $1.2 million
compared to $1.9 million provided by operating activities in 1994. The
difference of $3.2 million is due to
17
the increased level of operating activities of the Company, which has resulted
in increased inventories and costs and estimated earnings in excess of billings
on uncompleted contracts, which are only partially offset by the increase in
accounts payable.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company's working capital was $9.8 million, which
represented a current ratio of 2.8 to 1. Also, the Company's outstanding
indebtedness under the Credit and Security Agreement with FBS Business Finance
Corporation ("FBS") was $7.8 million, of which $615,000 represented term
indebtedness and $7.2 million represented revolving indebtedness. At August 31,
1996, the Company's outstanding indebtedness to CIT was $1.7 million which
represented subordinated indebtedness.
In December 1995, the Company entered into a Credit and Security
Agreement with FBS. Under the agreement, FBS is providing a revolving loan
facility of up to $10,000,000 and a term loan facility of up to $2,960,000,
subject to the amount of the Company's borrowing base and manufacturing
equipment additions in the fiscal year ended August 31, 1996, respectively. The
revolving loan initially bore interest at the First Bank National Association
reference rate (the "Reference Rate") plus 0.5%, while the term loan bears
interest at the Reference Rate plus 0.75%. The revolving loan has a provision
for incentive pricing whereby the rate may adjust upward or downward on a
quarterly basis depending upon the performance of the Company.
On January 16, 1996, the Company obtained the initial funding under the
revolving loan in the amount of $5,825,000. The proceeds of this loan were used
to retire the outstanding Chemical Bank revolving credit facility ($2,200,000),
to retire the outstanding Chemical Bank term loan ($2,125,000), to make a
partial payment on the outstanding note payable to CIT ($500,000), and for
general corporate purposes ($1,000,000).
The Credit and Security Agreement limits the Company's ability to make
capital expenditures to $6.5 million for fiscal 1997, and $4.5 million for
fiscal 1998. As necessary to supplement capital expenditure needs, Cryenco, Inc.
intends to utilize leasing arrangements to the extent they are available on
commercially reasonable terms. The Company intends to fund capital expenditure
needs from cash flow from operations, future borrowing capacity under the Credit
and Security Agreement, if any, and, as necessary, future financing.
The Company believes that its existing capital resources, together with
its cash flow from future operations will be sufficient to meet its short term
working capital needs. Additional financing may be required for future expansion
of operations and research and development, as necessary, including for the
continued development of the Company's TADOPTR products.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 and S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY.
See Part I, page 11. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
20
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Consolidated Financial Statements of Registrant.
Report of Independent Auditors...........................................F-2 & S-1
Consolidated Balance Sheets as of August 31, 1996 and 1995...............F-3
Consolidated Statements of Operations for the Years Ended
August 31, 1996, 1995 and 1994.........................................F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended August 31, 1996, 1995 and 1994.............................F-6
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1996, 1995 and 1994.........................................F-7
Notes to Consolidated Financial Statements...............................F-9
(a)(2) Schedule II..............................................................S-2
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
(a)(3) Exhibits.
Exhibit Description
------- -----------
3.1 - Restated Certificate of Incorporation of the
Registrant, incorporated by reference to Exhibit
3.1 to the Registrant's Registration Statement on
Form S-2, File No. 33-48738, filed on June 19,
1992 (the "S-2 Registration Statement").
3.2 - By-laws of the Registrant, incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, File No.
33-7532, filed on July 25, 1986 (the "S-1
Registration Statement").
3.3 - Certificate of Amendment to the Restated
Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1995 (the "1995
Annual Report").
21
Exhibit Description
------- -----------
3.4 - Certificate of Designation, Preferences and Rights
of the Series A Preferred Stock of the Registrant,
incorporated by reference to Exhibit 3.4 to the
1995 Annual Report.
3.5 - Corrected Certificate of Amendment of Restated
Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.5 to the
1995 Annual Report.
4.1 - See Article Fourth of the Restated Certificate of
Incorporation, as amended and corrected, of the
Registrant (Exhibit 3.5 hereof), incorporated by
reference to Exhibit 4.1 to the 1995 Annual
Report.
4.2 - Forms of Common Stock and Class B Common Stock
certificates of the Registrant, incorporated by
reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-4, File No. 33-
43782, filed on December 19, 1991 (the "S-4
Registration Statement").
4.3 - Registration Rights Agreement dated as of August
30, 1991 among CHI, CIT, Chemical Bank and the
Investors named therein, incorporated by reference
to Exhibit 4.3 to the 1995 Annual Report.
4.4 - Warrant Agreement dated as of August 30, 1991
between Chemical Bank, CHI and the Registrant,
incorporated by reference to Exhibit 4.4 to the
1995 Annual Report.
4.5 - Letter Agreement dated April 15, 1992 among the
Registrant, CIT and Chemical Bank relating to the
Warrants referred to herein at Exhibits 4.8 and
4.9, incorporated by reference to Exhibit 4.9 to
the S-2 Registration Statement.
4.6 - Letter Agreement dated August 12, 1992 between the
Registrant and Chemical Bank relating to the
Warrants referred to herein at Exhibit 4.8,
incorporated by reference to Exhibit 4.6 to the
1995 Annual Report.
4.7 - Letter Agreement dated August 12, 1992 between the
Registrant and CIT relating to the Warrants
referred to herein at Exhibit 4.9, incorporated by
reference to Exhibit 4.7 to the 1995 Annual
Report.
22
Exhibit Description
------- -----------
4.8 - Warrants issued to Chemical Bank each dated April
27, 1992, incorporated by reference to Exhibit 4.8
to the 1995 Annual Report.
4.9 - Warrants issued to CIT each dated April 27, 1992,
incorporated by reference to Exhibit 4.9 to the
1995 Annual Report.
4.10 - Warrant issued to Dain Bosworth Incorporated dated
August 20, 1992, incorporated by reference to
Exhibit 4.12 to the S-2 Registration Statement.
4.11 - Warrant Agreement dated as of March 12, 1993
between the Registrant and Alfred Schechter,
incorporated by reference to Exhibit 4.11 to the
1995 Annual Report.
4.12 - Warrant Agreement dated as of March 12, 1993
between the Registrant and Don M. Harwell,
incorporated by reference to Exhibit 4.12 to the
1995 Annual Report.
4.13 - Warrant Agreement dated as of March 12, 1993
between the Registrant and MCC, incorporated by
reference to Exhibit 4.13 to the 1995 Annual
Report.
4.14 - Warrant issued to Alfred Schechter dated March 12,
1993, incorporated by reference to Exhibit 4.14 to
the 1995 Annual Report.
4.15 - Warrant issued to Don M. Harwell dated March 12,
1993, incorporated by reference to Exhibit 4.15 to
the 1995 Annual Report.
4.16 - Warrant issued to MCC dated March 12, 1993,
incorporated by reference to Exhibit 4.16 to the
1995 Annual Report.
4.17 - Letter Agreement dated as of June 9, 1993 between
the Registrant and Alfred Schechter with respect
to the Exercise Price for the Warrant referred to
herein at Exhibit 4.14, incorporated by reference
to Exhibit 4.17 to the 1995 Annual Report.
4.18 - Letter Agreement dated as of June 9, 1993 between
the Registrant and Don M. Harwell with respect to
the Exercise Price for the Warrant referred to
herein at Exhibit 4.15, incorporated by reference
to Exhibit 4.18 to the 1995 Annual Report.
23
Exhibit Description
------- -----------
4.19 - Letter Agreement dated as of June 9, 1993 between
the Registrant and MCC with respect to the Warrant
referred to herein at Exhibit 4.16, incorporated
by reference to Exhibit 4.19 to the 1995 Annual
Report.
4.20 - Warrant issued to Chemical Bank dated November 24,
1993, incorporated by reference to Exhibit 4.20 to
the 1995 Annual Report.
4.21 - Warrant issued to CIT dated November 24, 1993,
incorporated by reference to Exhibit 4.21 to the
1995 Annual Report.
4.22 - Warrant Agreement dated as of January 26, 1995
between the Company and Alfred Schechter,
incorporated by reference to Exhibit 4.22 to the
1995 Annual Report.
4.23 - Warrant Agreement dated as of January 26, 1995
between the Company and Don M. Harwell,
incorporated by reference to Exhibit 4.23 to the
1995 Annual Report.
4.24 - Warrant Agreement dated as of January 26, 1995
between the Company and MCC, incorporated by
reference to Exhibit 4.24 to the 1995 Annual
Report.
4.25 - Warrant issued to Alfred Schechter dated January
26, 1995, incorporated by reference to Exhibit
4.25 to the 1995 Annual Report.
4.26 - Warrant issued to Don M. Harwell dated January 26,
1995, incorporated by reference to Exhibit 4.26 to
the 1995 Annual Report.
4.27 - Warrant issued to MCC dated January 26, 1995,
incorporated by reference to Exhibit 4.27 to the
1995 Annual Report.
4.28 - See the Certificate of Designation, Preferences
and Rights of the Series A Preferred Stock of the
Registrant (Exhibit 3.4 hereof), incorporated by
reference to Exhibit 4.28 to the 1995 Annual
Report.
4.29 - Warrant Agreement dated as of June 8, 1994 between
the Registrant and Cryogenic TADOPTR Company, L.P.
and the Form of Warrant Certificate issued
pursuant thereto, incorporated by reference to
Exhibit 4.29 to the 1995 Annual Report.
24
Exhibit Description
------- -----------
4.30 - Warrant Agreement dated as of December 20, 1994
between the Registrant and The Edgehill
Corporation, incorporated by reference to Exhibit
4.30 to the 1995 Annual Report.
4.31 - Warrant issued to The Edgehill Corporation dated
as of December 20, 1994, incorporated by reference
to Exhibit 4.31 to the 1995 Annual Report.
4.32 - Registration Rights Agreement dated as of December
20, 1994 among the Registrant, certain parties
named therein and International Capital Partners,
Inc., incorporated by reference to Exhibit 4.32 to
the 1995 Annual Report.
4.33 - Form of Warrant issued to each of International
Capital Partners, Inc. and the parties named in
the Registration Rights Agreement dated as of
December 20, 1994 (Exhibit 4.32 hereof),
incorporated by reference to Exhibit 4.33 to the
1995 Annual Report.
10.1 - 1986 Non-Qualified Stock Option Agreement,
incorporated by reference to Exhibit 10.1 to the
1995 Annual Report.
10.2 - Stockholders Agreement dated as of August 30, 1991
among the Registrant, CHI and other stockholders
of CHI, incorporated by reference to Exhibit 10.2
to the 1995 Annual Report.
10.3 - Securities Purchase Agreement dated as of August
30, 1991 among CIT, CHI, the Registrant, CEC
Acquisition Corp. and Cryogenic Energy Company,
incorporated by reference to Exhibit 10.3 of the
1995 Annual Report.
10.4 - Credit Agreement dated as of August 30, 1991 among
Cryenco, Inc., the Lenders named therein, and
Chemical Bank, as Agent, incorporated by reference
to Exhibit 10.7 to the S-4 Registration Statement.
10.5 - Form of Amended and Restated Pledge Agreement
dated February 11, 1992 relating to the capital
stock of Cryenco, Inc. executed by CSCI
Corporation in favor of Chemical Bank,
incorporated by reference to Exhibit 10.6 to the
S-4 Registration Statement.
25
Exhibit Description
------- -----------
10.6 - Employment Agreement dated as of September 1, 1991
between Cryenco, Inc. and Alfred Schechter,
incorporated by reference to Exhibit 10.8 of the
S-4 Registration Statement.
10.7 - 1992 Employee Incentive and Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on
Form S-8, File No. 33-65864, filed on July 12,
1993 (the "S-8 Registration Statement").
10.8 - Form of Option Agreement under the 1992 Employee
Incentive and Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4.2 to the
S-8 Registration Statement.
10.9 - 1993 Non-Employee Director Stock Option Program,
incorporated by reference to Exhibit 4.3 to the
S-8 Registration Statement.
10.10 - Form of Option Agreement under the 1993 Non-
Employee Director Stock Option Program (contained
in the 1993 Non-Employee Director Stock Option
Program referred to herein at Exhibit 10.9),
incorporated by reference to Exhibit 4.4 to the
S-8 Registration Statement.
10.11 - 1991 Incentive Compensation Plan of Cryenco, Inc.,
as amended, incorporated by reference to Exhibit
10.9 to the S-2 Registration Statement.
10.12 - Lease, as amended, dated August 22, 1989
concerning the property leased by the Registrant
located at 5995 North Washington Street, Denver,
Colorado, incorporated by reference to Exhibit
10.10 to the S-2 Registration Statement.
*10.13 - Lease, as amended, dated June 19, 1996 concerning
the property leased by the Registrant located at
3811 Joliet Street, Denver, Colorado.
10.14 - Consulting Agreement dated August 30, 1991 between
the Registrant and Charterhouse, incorporated by
reference to Exhibit 10.12 to the S-2 Registration
Statement.
26
Exhibit Description
------- -----------
10.15 - Waiver and Amendment Agreement dated as of
February 28, 1993 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, amending the
Credit Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.15 to the 1995 Annual Report.
10.16 - Waiver and Amendment Agreement dated as of
February 28, 1993 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.16 to the 1995 Annual Report.
10.17 - Funding Agreement dated March 12, 1993 among
Alfred Schechter, Don M. Harwell, MCC and the
Registrant, incorporated by reference to Exhibit
10.17 to the 1995 Annual Report.
10.18 - Intentionally left blank.
10.19 - Form of Indemnification Agreement entered into
between the Registrant and certain of its officers
and directors dated March 16, 1993, incorporated
by reference to Exhibit 10.19 to the 1995 Annual
Report.
10.20 - Second Waiver and Amendment Agreement dated as of
August 31, 1993 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, amending the
Credit Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.20 to the 1995 Annual Report.
10.21 - Second Waiver and Amendment Agreement dated as of
October 31, 1993 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.22 - Letter Agreement dated April 13, 1994 among the
Registrant, Cryenco, Inc., Chemical Bank and CIT,
incorporated by reference to Exhibit 10.22 to the
1995 Annual Report.
27
Exhibit Description
------- -----------
10.23 - Exchange Agreement dated April 13, 1994 among
Alfred Schechter, Don M. Harwell, MCC and the
Registrant, incorporated by reference to Exhibit
10.23 to the 1995 Annual Report.
10.24 - Royalty Rights and Technology Development
Agreement dated June 8, 1994 between the
Registrant and Cryogenic TADOPTR Company, L.P.,
incorporated by reference to Exhibit 10.24 to the
1995 Annual Report.
10.25 - Third Waiver and Amendment Agreement dated as of
November 29, 1994 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent,
amending the Credit Agreement dated as of August
30, 1991, as amended, incorporated by reference to
Exhibit 10.25 to the 1995 Annual Report.
10.26 - Third Waiver and Amendment Agreement dated as of
November 29, 1994 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.26 to the 1995 Annual Report.
10.27 - Purchase Agreement dated as of November 29, 1994
among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein,
incorporated by reference to Exhibit 10.27 to the
1995 Annual Report.
10.28 - Fourth Waiver and Amendment Agreement dated as of
December 20, 1994 among the Registrant, Cryenco,
Inc., the Lenders named therein and Chemical Bank,
as Agent, amending the Credit Agreement dated as
of August 30, 1991, as amended, incorporated by
reference to Exhibit 10.28 to the 1995 Annual
Report.
10.29 - Fourth Waiver and Amendment Agreement dated as of
December 20, 1994 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.29 to the 1995 Annual Report.
28
Exhibit Description
------- -----------
10.30 - First Amendment to the Purchase Agreement dated as
of December 20, 1994 among the Registrant,
International Capital Partners, Inc. and the
Purchasers named therein, amending the Purchase
Agreement dated as of November 29, 1994,
incorporated by reference to Exhibit 10.30 to the
1995 Annual Report.
10.31 - Second Amendment to the Purchase Agreement dated
as of January 30, 1994 among the Registrant,
International Capital Partners, Inc. and the
Purchasers named therein, amending the Purchase
Agreement dated as of November 29, 1994, as
amended, incorporated by reference to Exhibit
10.31 to the 1995 Annual Report.
10.32 - Amended and Restated Employment Agreement dated
January 18, 1995 between Cryenco, Inc. and Dale A.
Brubaker, incorporated by reference to Exhibit
10.32 to the 1995 Annual Report.
10.33 - Letter Agreement dated May 18, 1995 among the
Registrant, International Capital Partners, Inc.
and the Purchasers named therein, incorporated by
reference to Exhibit 10.33 to the 1995 Annual
Report.
10.34 - Fifth Waiver and Amendment Agreement dated as of
May 30, 1995 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent,
amending the Credit Agreement dated as of August
30, 1995, as amended, incorporated by reference to
Exhibit 10.34 to the 1995 Annual Report.
10.35 - Credit and Security Agreement dated as of December
19, 1995 and Supplement A thereto between Cryenco,
Inc., the Company and FBS Business Finance
Corporation, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended November 30,
1995.
29
Exhibit Description
------- -----------
10.36 - First Amendment dated as of January 16, 1996
between FBS Business Finance Corporation, Cryenco,
Inc., the Company and Cryenex, Inc., amending the
Credit and Security Agreement dated as of December
19, 1995, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended February 29,
1996 (the "February 29, 1996 Quarterly Report").
10.37 - Letter Agreement dated January 12, 1996 between
CIT and FBS Business Finance Corporation,
incorporated by reference to Exhibit 10.2 to the
February 29, 1996 Quarterly Report.
*21 - Subsidiaries of the Registrant
*23.1 - Consent of Ernst & Young LLP
*27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X filed with EDGAR filing only.
- -------------------------
* Filed herewith
(b) Reports on Form 8-K: None
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CRYENCO SCIENCES, INC.
(Registrant)
By: /s/ Alfred Schechter
--------------------------
Alfred Schechter,
Chairman of the Board
November 25, 1996
------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE DATE CAPACITY IN WHICH SIGNED
--------- ---- ------------------------
/s/ Alfred Schechter November 25, 1996 Chairman of the Board, Chief Executive
------------------- Officer, President and Director of the
Alfred Schechter Company (Principal Executive Officer)
/s/ James A. Raabe November 25, 1996 Vice President, Treasurer, Chief
------------------- Financial Officer and Secretary of the
James A. Raabe Company, Vice President, Treasurer,
Chief Financial Officer and Secretary
of Cryenco, Inc. (Principal Financial
and Accounting Officer)
/s/ Jerome L. Katz November 25, 1996 Director of the Company
-------------------
Jerome L. Katz
/s/ Russell R. Haines November 25, 1996 Director of the Company
-------------------
Russell R. Haines
/s/ Burton J. Ahrens November 25, 1996 Director of the Company
-------------------
Burton J. Ahrens
/s/ Ajit G. Hutheesing November 25, 1996 Director of the Company
-------------------
Ajit G. Hutheesing
31
Consolidated Financial Statements
Cryenco Sciences, Inc.
Years ended August 31, 1996, 1995 and 1994
with Report of Independent Auditors
Cryenco Sciences, Inc.
Consolidated Financial Statements
Years ended August 31, 1996, 1995 and 1994
CONTENTS
Report of Independent Auditors .....................................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.........................................................F-3
Consolidated Statements of Operations...............................................F-5
Consolidated Statements of Stockholders' Equity.....................................F-6
Consolidated Statements of Cash Flows...............................................F-7
Notes to Consolidated Financial Statements .........................................F-9
F-1
Report of Independent Auditors
The Board of Directors and Stockholders
Cryenco Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Cryenco
Sciences, Inc. as of August 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cryenco Sciences,
Inc. at August 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
October 5, 1996
F-2
Cryenco Sciences, Inc.
Consolidated Balance Sheets
(In Thousands, except share amounts)
AUGUST 31
1996 1995
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 111 $ 632
Accounts receivable, trade, net of allowance of $12
in 1996 and $14 in 1995 5,352 2,738
Accounts receivable, affiliate 1,423 83
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,944 6,707
Inventories 4,333 4,208
Prepaid expenses 57 116
-----------------------------
Total current assets 15,220 14,484
Property and equipment:
Leasehold improvements 739 684
Machinery and equipment 5,355 3,979
Office furniture and equipment 1,231 402
-----------------------------
7,325 5,065
Less accumulated depreciation 3,099 2,249
-----------------------------
4,226 2,816
Property on operating leases, net of accumulated
depreciation of $7 604 -
Deferred financing costs, net of accumulated
amortization of $177 in 1996 and $738 in 1995 120 256
Organizational costs, net of accumulated
amortization of $507 in 1996 and $404 in 1995 - 103
Goodwill, net of accumulated amortization of
$738 in 1996 and $589 in 1995 5,226 5,375
Other assets 308 343
-----------------------------
Total assets $25,704 $23,377
=============================
F-3
AUGUST 31
1996 1995
-----------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,224 $ 3,469
Accrued expenses 1,123 880
Accrued management fees 324 324
Current portion of long-term debt and capital lease
obligations 1,382 1,593
Income tax payable 344 246
-----------------------------
Total current liabilities 5,397 6,512
Long-term debt and capital lease obligations, less
current portion 8,634 5,629
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized shares -
2,000,000, preferences, limitations and relative
rights to be established by the Board of Directors:
Series A, nonvoting, authorized shares - 150,000
Issued and outstanding shares - 67,838
(aggregate liquidation preference of $678,380) 1 1
Common stock, $.01 par value:
Class A, voting, authorized shares - 21,500,000
Issued and outstanding shares - 6,996,997 at August 31,
1996 and 6,842,828 at August 31,
1995 70 68
Class B, nonvoting, authorized shares - 1,500,000
Issued and outstanding shares - none - -
Additional paid-in capital 14,020 14,022
Warrants 169 169
Retained earnings (deficit) (2,587) (3,024)
-----------------------------
Total stockholders' equity 11,673 11,236
-----------------------------
Total liabilities and stockholders' equity $25,704 $23,377
=============================
See accompanying notes.
F-4
Cryenco Sciences, Inc.
Consolidated Statements of Operations
(In Thousands, except share and per share amounts)
YEAR ENDED AUGUST 31
1996 1995 1994
------------------------------------------
Contract revenue $31,259 $27,215 $17,665
Cost of revenue 24,898 22,350 14,670
------------------------------------------
Gross profit 6,361 4,865 2,995
Selling, general and administrative expenses 3,288 2,867 2,834
Research and development expenses 792 70 86
Amortization expense 346 346 338
------------------------------------------
Operating income (loss) 1,935 1,582 (263)
Other (income) expense:
Interest income (1) (20) (103)
Interest expense 944 1,007 1,208
Other nonoperating (income) expense, net 9 40 (69)
------------------------------------------
Income (loss) from operations before
income taxes and extraordinary item 983 555 (1,299)
Income tax expense (benefit) 363 194 (403)
------------------------------------------
Income (loss) from operations before
extraordinary item 620 361 (896)
Extraordinary item (net of income tax
benefit of $54) 93 - -
------------------------------------------
Net income (loss) $ 527 $ 361 $ (896)
==========================================
Earnings (loss) per common share and common share equivalent:
Income (loss) from operations before
extraordinary item $ .07 $ .04 $ (.17)
Extraordinary item (.01) - -
------------------------------------------
Net income (loss) $ .06 $ .04 $ (.17)
==========================================
Weighted average number of shares
outstanding during year 7,230,773 6,620,055 5,346,760
==========================================
See accompanying notes.
F-5
Cryenco Sciences, Inc.
Consolidated Statements of Stockholders' Equity
(In Thousands, except share and per share amounts)
Preferred Common Additional Retained
Stock Stock Paid-In Earnings
------------------------------------
Shares Amount Shares Amount Capital Warrants (Deficit) Total
------------------------------------------------------------------------------
Balance at August 31, 1993 - $- 5,326,936 $53 $ 9,469 $ 55 $(2,386) $ 7,191
Issuance of warrants - - - - - 94 - 94
Issuance of preferred
stock 67,838 1 - - 678 - - 679
Issuance of common
stock in exchange for
warrants exercised - - 56,974 1 (1) - - -
Cash dividends paid on
preferred stock ($.32
per share) - - - - - - (21) (21)
Net loss - - - - - - (896) (896)
------------------------------------------------------------------------------
Balance at August 31, 1994 67,838 1 5,383,910 54 10,146 149 (3,303) 7,047
Sale of common stock - - 800,000 8 2,223 - - 2,231
Issuance of warrants - - - - - 74 - 74
Issuance of common
stock in exchange for
warrants exercised - - 658,918 6 1,653 (54) - 1,605
Cash dividends paid on
preferred stock ($1.22
per share) - - - - - - (82) (82)
Net income - - - - - - 361 361
------------------------------------------------------------------------------
Balance at August 31, 1995 67,838 1 6,842,828 68 14,022 169 (3,024) 11,236
Issuance of common
stock in exchange for
warrants exercised - - 154,169 2 (2) - - -
Dividends on preferred
stock ($1.32 per share) - - - - - - (90) (90)
Net income - - - - - - 527 527
==============================================================================
Balance at August 31, 1996 67,838 $1 6,996,997 $70 $14,020 $169 $(2,587) $11,673
==============================================================================
See accompanying notes.
F-6
Cryenco Sciences, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
YEAR ENDED AUGUST 31
1996 1995 1994
-------------------------------------------
OPERATING ACTIVITIES
Net income (loss) $ 527 $ 361 $ (896)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 857 684 571
Amortization 436 346 338
Deferred taxes 26 - -
Write-down of deferred financing costs 147 - -
Changes in operating assets and liabilities:
Accounts receivable (3,954) (48) 525
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,763 (3,191) (293)
Inventories (125) (1,562) (114)
Income tax payable 72 596 863
Prepaid expenses and other assets (101) 14 228
Accounts payable (1,245) 2,107 217
Accrued expenses 220 (16) 87
Accrued management fees - 80 133
Customer deposits - (607) 285
-------------------------------------------
Net cash provided (used) by operating activities (377) (1,236) 1,944
INVESTING ACTIVITIES
Purchases of property and equipment (1,956) (1,402) (601)
Payments for operating lease property (611) - -
Proceeds from sale of property and equipment - 6 17
-------------------------------------------
Net cash used by investing activities (2,567) (1,396) (584)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock - 3,892 -
Net proceeds from issuance of stock warrants - 72 60
Principal payments on long-term debt and capital
lease obligations (31,322) (1,343) (1,927)
Proceeds from long-term debt borrowings, net
of expenses 33,812 - -
Exercise of common stock options and warrants - (54) -
Dividends paid on preferred stock (67) (82) (21)
-------------------------------------------
Net cash provided (used) by financing activities 2,423 2,485 (1,888)
-------------------------------------------
F-7
Cryenco Sciences, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
YEAR ENDED AUGUST 31
1996 1995 1994
-------------------------------------------
Net decrease in cash and cash equivalents $ (521) $ (147) $ (528)
Cash and cash equivalents at beginning of year 632 779 1,307
-------------------------------------------
Cash and cash equivalents at end of year $ 111 $ 632 $ 779
===========================================
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 247 $ - $ -
Cash paid for interest 787 875 1,267
Supplemental disclosures of noncash financing activities:
Equipment acquired and financed under capital
leases 304 317 87
Retirement of debt in exchange for issuance of
Series A preferred stock - - 678
Issuance of common stock in exchange for
warrants exercised 2 2 1
Issuance of warrants as part of debt restructurings - - 35
See accompanying notes.
F-8
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements
August 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Cryenco Sciences, Inc. (the Company) designs and manufactures controlled
atmospheric enclosures and products to transport, store and dispense cryogenic
materials.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cryenco Sciences,
Inc. and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
INCOME TAXES
Deferred tax liabilities or assets (net of a valuation allowance) are provided
in the financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences that will result
in net taxable or deductible amounts in future years as a result of events
recognized in the financial statements in the current or preceding years.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
CONTRACT REVENUE AND COST RECOGNITION
Revenue and costs on long-term contracts (contracts with a value in excess of
$100,000 and requiring more than six months to complete) are recognized using
the percentage-of-completion method (measured by the percentage of costs
incurred to date to total estimated costs for each contract) or units delivered,
whichever is deemed more appropriate for the contract.
Revenue and costs on short-term contracts (contracts with a value less than
$100,000 and requiring six months or less to complete) are recognized using the
completed contract method, which results in the deferral of revenue and costs
until such time as the contracts
F-9
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are complete. A contract is considered complete when all costs, except
insignificant items, have been incurred and the units have been delivered to the
customer.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, building and
equipment rental, supplies, freight and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period such losses are
determined.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market. The
Company records an allowance for excess and obsolete inventory based on periodic
reviews.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the straight-line method over the
term of the related indebtedness.
ORGANIZATIONAL COSTS
Organizational costs are amortized using the straight-line method over five
years.
GOODWILL
Goodwill is being amortized using the straight-line method over forty years. The
Company periodically evaluates goodwill impairment on the basis of whether the
goodwill is fully recoverable from projected, undiscounted operating cash flows.
F-10
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development expenses are typically charged to expense as incurred
or are charged against a specific contract, if to be reimbursed by the customer.
In May 1995, the Company entered into an arrangement with a corporation under
which the corporation would provide $452,500 to the Company for the development,
demonstration, delivery, and installation of an on-site Thermo-Acoustic Driven
Orifice Pulse Tube Refrigerator (TADOPTR) liquefier and LNG dispensing system.
The period of performance under the arrangement was over twelve months. For the
year ended August 31, 1995, the Company incurred approximately $255,000 in costs
for development for which it was fully reimbursed. For the year ended August 31,
1996, the Company incurred approximately $504,000 in costs for development and
received $120,000 of reimbursement.
WARRANTIES
The Company records a warranty accrual at the time of sale for estimated claims,
based on actual claims experience. The warranty for the Company's products
generally is for defects in material and workmanship for a period of twelve
months.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed using the weighted average
number of shares of common stock outstanding. When dilutive, stock options and
warrants are included as share equivalents using the treasury stock method. In
calculating net earnings (loss) per share, preferred dividends of $89,661 and
$82,538 decreased the net earnings during 1996 and 1995, respectively. Preferred
dividends of $21,150 increased the net loss during 1994. Fully diluted net
earnings (loss) per common share is not significantly different from primary net
earnings (loss) per common share.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
During the fiscal years ended August 31, 1996, 1995 and 1994, revenue from one
customer, General Electric, was approximately $11,067,000 (35% of revenue),
F-11
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$9,702,000 (36% of revenue), and $8,888,000 (50% of revenue), respectively. This
customer also represented $1,140,000 (21%) and $659,000 (24%) of accounts
receivable at August 31, 1996 and 1995, respectively, and $2,775,000 (70%) and
$2,734,000 (40%) of costs and estimated earnings in excess of billings on
uncompleted contracts at August 31, 1996 and 1995, respectively.
Revenue from Jack B. Kelley, Inc. and affiliates totaled approximately
$9,566,000 (31% of revenue) in 1996, $9,854,000 (36% of revenue) in 1995 and
$2,545,000 (14% of revenue) in 1994. Jack B. Kelley, Inc. and affiliates also
represent $1,835,000 (34%) and $821,000 (30%) of accounts receivable and
$435,000 (11%) and $2,182,000 (32%) of costs and estimated earnings in excess of
billings on uncompleted contracts at August 31, 1996 and 1995, respectively.
Revenue from Air Products totaled approximately $4,024,000 (13% of revenue) in
1996. Air Products also represents $408,000 (8%) of accounts receivable and
$960,000 (24%) of costs and estimated earnings in excess of billings on
uncompleted contracts as of August 31, 1996.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are generally
due within 30 days. Credit losses consistently have not been significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial assets approximate fair value.
The fair values of debt are estimated using discounted cash flow analyses with
discount rates equal to the interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. While the Company
believes the carrying value of its note payable generally approximates fair
value, a reasonable estimate of the fair market value could not be made without
incurring excessive costs.
F-12
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123 is
applicable for fiscal years beginning after December 15, 1995 and gives the
option to either follow fair value accounting or to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and
related interpretations.
The Company has determined it will follow APB No. 25 and related interpretations
in accounting for its employee stock options. The Company has not yet determined
the impact on its financial position or results of operations had fair value
accounting been adopted.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present. The Company is required to adopt Statement
No. 121 in the first quarter of fiscal year 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
2. INVENTORIES
At August 31, inventories consist of:
1996 1995
---------------------------------
(In Thousands)
Raw materials $3,344 $3,514
Finished goods and work-in-process 1,139 794
---------------------------------
4,483 4,308
Less reserve for obsolescence 150 100
---------------------------------
$4,333 $4,208
=================================
F-13
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
At August 31, costs and estimated earnings in excess of billings on uncompleted
contracts consist of:
1996 1995
---------------------------------
(In Thousands)
Costs on uncompleted contracts $5,436 $ 8,776
Estimated gross profit to date 2,203 2,616
---------------------------------
Estimated revenue 7,639 11,392
Less billings to date 3,695 4,685
---------------------------------
$3,944 $ 6,707
=================================
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
AUGUST 31
1996 1995
---------------------------
(In Thousands)
Note payable bearing interest at 14%, subordinated,
unsecured. Interest is payable quarterly and
principal payments of $275,000 are payable quarterly
beginning November 30, 1996. $ 1,700 $2,200
Term loan maturing December 31, 1998 bearing interest
at the reference rate (as defined in the loan agreement)
plus 3/4% (9.0% at August 31, 1996)
payable monthly. Principal payments of $12,806 are
payable monthly beginning September 15, 1996. 615 -
Term loan bearing interest at the adjusted LIBO rate
plus 3 1/2%. - 2,500
Revolving credit facility. Interest payable at the
adjusted LIBO rate plus 3 1/2%. - 2,200
F-14
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
AUGUST 31
1996 1995
---------------------------
(In Thousands)
Revolving credit facility maturing December 31, 1998
bearing interest at the reference rate (as defined in
the loan agreement) plus up to an additional 1.0%
depending upon financial performance (9.25% at
August 31, 1996). $ 7,210 $ -
Capital lease obligations 491 322
---------------------------
10,016 7,222
Less current portion 1,382 1,593
---------------------------
$ 8,634 $5,629
===========================
In December 1995, the Company entered into a Credit and Security Agreement (the
Agreement) with FBS Business Finance Corporation (FBS). Under the Agreement, FBS
has provided a revolving loan facility of up to $9,000,000 through December 31,
1997, increasing to $10,000,000 through December 31, 1998, subject to the amount
of the Company's borrowing base, and a term loan facility of up to $2,960,000,
subject to eligible manufacturing additions for the year ended August 31, 1996.
On January 16, 1996, the Company obtained the initial funding under the
revolving loan in the amount of $5,825,000. The proceeds of this loan were used
to retire the outstanding revolving credit facility ($2,200,000), to retire the
outstanding term loan ($2,125,000), to make a partial payment on the outstanding
note payable ($500,000) and for general corporate purposes ($1,000,000). As a
result of the early retirement of the term loan, the revolving credit facility,
and the partial payment on the note payable, the Company recognized an
extraordinary expense of $93,000 (net of the related tax benefit of $54,000) for
the write-down of deferred financing expenses related to these debts.
The term loan and revolving credit facility are secured by the common stock of
Cryenco, Inc. and all accounts receivable, inventories, property and equipment
and intangible assets of the Company.
The Company must comply with certain debt covenants, including the maintenance
of certain financial ratios and restrictions on dividends.
F-15
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt are as follows (in thousands):
Year ending August 31:
1997 $ 1,382
1998 899
1999 7,648
2000 74
2001 13
-----------
$10,016
===========
5. LEASES
Office space, production facilities, and certain equipment are leased under
agreements which are classified as operating leases for financial reporting
purposes. The facilities leases provide for renewal options of up to five and
ten years at approximately the same rates. Total rental expense charged to
operations for the years ended August 31, 1996, 1995 and 1994 was $784,000,
$853,000 and $828,000, respectively.
The Company's assets held under capital leases, which are included in property
and equipment, consist of the following at August 31:
1996 1995
-----------------------------
Machinery and equipment $628,003 $418,039
Less accumulated depreciation 110,481 52,824
-----------------------------
$517,522 $365,215
=============================
F-16
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
5. LEASES (CONTINUED)
Future minimum lease payments under capital and noncancelable operating leases
are as follows (in thousands):
CAPITAL OPERATING
LEASES LEASES
-----------------------------
Year ending August 31:
1997 $180 $ 860
1998 180 360
1999 155 359
2000 80 42
2001 20 13
-----------------------------
Total minimum lease payments 615 $1,634
===========
Less interest 124
--------------
Present value of minimum lease payments $491
==============
Depreciation expense relating to assets held under capital leases for the years
ended August 31, 1996, 1995 and 1994 was $98,323, $36,023 and $16,801,
respectively.
Subsequent to August 31, 1996, the property located at 3811 Joliet Street,
Denver, Colorado, was sold and a new lease agreement between the Company and the
new owners became effective. Under the terms of the lease, the Company is
obligated to pay a minimum rent of $38,841 per month for 10 years (subject to
increases based on an inflation index), property taxes and insurance. This lease
replaces the Company's lease with the prior owners which had one year remaining
with rent of $41,666 per month, and is not included in the future minimum lease
payments shown above.
6. EQUIPMENT LEASING
During the year ended August 31, 1996, the Company entered into lease agreements
under which equipment manufactured by the Company is leased to customers. These
leases have been classified as operating leases by the Company.
F-17
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
6. EQUIPMENT LEASING (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
Year ending August 31:
1997 $ 81
1998 74
----------
$155
==========
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS
In connection with a term loan and subordinated note payable, the Company issued
warrants to purchase 197,456 shares of its Class A common stock and 543,372
shares of its Class B common stock for $.86112 per share (the original
warrants). At April 15, 1992, the Company issued warrants to purchase a total of
38,323 additional shares of Class B common stock at $5 per share (the new
warrants) to the holders of the original Class A and Class B warrants in
exchange for the removal of a feature of the original warrants whereby the
holders had the option to require the Company to purchase the warrants or the
stock issued pursuant to the warrants. During 1995, the Company increased the
number of original warrants to purchase an additional 1,443 shares of its Class
A common stock and 16,854 shares of its Class B common stock and reduced the
exercise price to $.8352 per share as a result of antidilutive provisions which
were invoked when the Company issued the shares of common stock described below.
In addition, the new warrants were increased to purchase an additional 1,189
shares of Class A common stock and the exercise price was reduced to $4.8496 per
share. The holders of the original warrants, as amended, and the new warrants
have a "cashless exercise right," whereby the holders may reduce the number of
shares to be received to pay the exercise price, such reduction to be equal to
the exercise price to be paid divided by the then fair market value per share.
These warrants expire August 29, 2003. During the years ended August 31, 1996,
1995 and 1994, warrants for 191,766, 150,000 and 75,925 shares, respectively,
were exercised, using the cashless exercise option, which resulted in the
issuance of 154,169, 118,918 and 56,974 shares, respectively, of Class A common
stock.
In 1992, 130,000 outstanding options and warrants to acquire shares of Gulf &
Mississippi Corporation, which had acquired the Company in a reverse
acquisition, were converted into options and warrants to purchase the same
number of shares of Class A common stock of the Company. Warrants to purchase
100,000 shares of the Company's Class A common stock at $3.6956 per share
expired July 9, 1995 and options to purchase 30,000 shares of the Company's
Class A common stock at $16 per share are exercisable
F-18
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
prior to November 5, 1996. The options were issued pursuant to the Company's
1986 Non-Qualified Stock Option Plan, which provides for an aggregate of 50,000
shares of common stock to be issued under the Plan.
In connection with the 1992 public offering, the Company sold a warrant to
purchase 10,000 shares of Class A common stock at $5.50 per share for $100 to
one of the underwriters. The warrant is exercisable for a period of five years
commencing August 13, 1993.
In March 1993, in conjunction with a debt restructuring, the Company was
advanced $650,000 from stockholders, treated as junior subordinated notes. In
consideration for the advances, these stockholders received warrants to purchase
130,000 shares of Class A common stock at $7.90 per share. The warrants are
exercisable for a period of five years commencing March 12, 1993. The warrants'
fair value of $55,000 at time of issuance, as determined by an independent
appraiser, was capitalized as a deferred expense and is being amortized to
expense over five years.
In November 1993, the Company amended certain of its debt agreements with
respect to certain covenants. Under the terms of these amendments, the Company
issued warrants to purchase 35,000 shares of the Company's Class B common stock
and warrants to purchase 17,500 shares of the Company's Class A common stock.
The warrants were exercisable at a price of $6.38 per share and expire on August
29, 2003. The warrants' fair value at time of issuance, as determined by the
Company, was $22,000. During 1995, the Company increased the number of warrants
to purchase an additional 1,086 shares of its Class B common stock and 542
shares of its Class A common stock and reduced the exercise price to $6.19 per
share as a result of antidilutive provisions which were invoked when the Company
issued the shares of common stock described below.
During the year ended August 31, 1994, the Company exchanged 67,838 shares of
its Series A Preferred Stock for the junior subordinated notes and related
current interest notes totaling approximately $678,000. The Series A Preferred
Stock provides for a cumulative cash dividend of 12% of the aggregate
liquidation value, as defined, per annum through August 31, 1995, increasing 1%
per annum thereafter to a maximum of 18%. However, all dividends in excess of
12% per annum shall not be paid in cash, but shall be paid by issuing additional
shares of Series A Preferred Stock. The Series A Preferred Stock shall be
redeemable, in whole or in part, at the option of the Company by
F-19
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
resolution of its Board of Directors, at any time and from time to time, at the
liquidation value of such shares, plus all dividends payable on such shares up
to the date fixed for redemption. In consideration for the exchange, the Company
issued warrants to purchase up to 65,000 shares of the Company's Class A common
stock, at an exercise price of $3.55 per share. The warrants expire January 29,
2000. The warrants' fair value of $13,000 at time of issuance, as determined by
an independent appraiser, was capitalized as a deferred expense and is being
amortized to expense over five years.
As described in Note 10, in June 1994, the Company received $780,000 from a
limited partnership to fund the development of a 500 gallon per day TADOPTR. The
partnership received warrants as a part of the transaction to purchase 200,000
shares of Class A common stock at $3.00 per share. The warrants expire March 20,
2000. The warrants' fair value, as determined by an independent appraiser, was
$60,000 at the time of issuance.
On November 29, 1994, the Company entered into a Purchase Agreement with a group
of purchasers which provided for the sale of 800,000 shares of Class A common
stock and warrants to purchase 700,000 shares of Class A common stock in the
future at an exercise price of $4.00 per share. The aggregate purchase price for
the shares and warrants was approximately $2,700,000. The purchase was completed
in two closings, on December 20, 1994 and January 30, 1995, from which the
Company realized net proceeds of approximately $2,300,000. Warrants for 507,503
and 192,497 shares are exercisable for a period of five years commencing
December 20, 1994 and January 30, 1995, respectively. The warrants' fair value,
as determined by the Company, was $70,000 at the time of issuance.
On May 18, 1995, the Company agreed, among other things, to reduce the exercise
price of the warrants referred to in the preceding paragraph to $3.00 per share
and the purchasers agreed to exercise a portion of the warrants. On June 8,
1995, the purchasers exercised warrants to purchase 539,900 shares of Class A
common stock, from which the Company realized net proceeds of approximately
$1,600,000.
In connection with the aforementioned Purchase Agreement, the Company also
issued warrants to purchase 25,000 shares of Class A common stock at an exercise
price of $4.00 per share. The warrants expire December 20, 1999. The warrants'
fair value, as determined by the Company, was $2,500 at the time of issuance.
F-20
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
The Company's 1992 Employee Incentive and Non-Qualified Stock Option Plan (the
1992 Plan) was adopted effective April 1, 1992. The 1992 Plan provides for up to
187,500 shares of the Company's Class A common stock pursuant to the exercise of
stock options which may be granted to employees and directors. Options may be
issued at not less than the fair market value on the date of grant.
Information for each of the three years in the period ended August 31, 1996,
with respect to activity of the 1992 Plan, is as follows:
NUMBER OF EXERCISE
OPTIONS PRICE
-----------------------------
Options outstanding at August 31, 1993 26,000 $4.00 - 6.75
Granted in 1994 19,500 $3.00 - 6.38
--------------
Options outstanding at August 31, 1994 45,500 $3.00 - 6.75
Granted in 1995 58,000 $5.38
Forfeited in 1995 (17,500) $4.00 - 6.38
--------------
Options outstanding at August 31, 1995 86,000 $3.00 - 6.75
Granted in 1996 96,500 $4.50
Forfeited in 1996 (52,000) $4.50 - 6.38
==============
Options outstanding at August 31, 1996 130,500 $3.00 - 6.75
==============
The Company's 1995 Incentive and Non-Qualified Stock Option Plan (the 1995 Plan)
was adopted effective November 16, 1995. The 1995 Plan provides for up to
300,000 shares of the Company's Class A common stock pursuant to the exercise of
stock options which may be granted to employees and directors. Options may be
issued at not less than the fair market value on the date of grant. No options
have been granted under the 1995 Plan at August 31, 1996.
The Company adopted the 1993 Non-Employee Director Stock Option Program (the
Program) effective September 1, 1993, whereby each director who is not an
officer or employee of the Company is entitled to receive options to purchase
500 shares of the Company's Class A common stock for each fiscal quarter served
as a director, commencing with the quarter ending November 30, 1993. Eligible
directors are limited to a total of 20,000 shares under the Program. The
purchase price is determined based on the fair market value of outstanding
shares as of the last business day of the applicable fiscal quarter (the Award
Date). Options are exercisable for a period of ten years subsequent to the Award
Date. In connection with the Program, the Company has
F-21
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
reserved 40,000 authorized and unissued shares of Class A common stock for
issuance and delivery upon exercise of the options.
Information for each of the three years in the period ended August 31, 1996,
with respect to activity of the Program, is as follows:
NUMBER OF EXERCISE
OPTIONS PRICE
-----------------------------
Options outstanding at August 31, 1993 -
Granted in 1994 3,000 $2.50 - 6.13
--------------
Options outstanding at August 31, 1994 3,000 $2.50 - 6.13
Granted in 1995 4,000 $3.75 - 4.25
--------------
Options outstanding at August 31, 1995 7,000 $2.50 - 6.13
Granted in 1996 4,000 $3.50 - 4.75
--------------
Options outstanding at August 31, 1996 11,000 $2.50 - 6.13
==============
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts
F-22
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
used for income tax purposes. Significant components of the Company's deferred
tax liabilities and assets at August 31 are as follows:
1996 1995
-----------------------------
(In Thousands)
Deferred tax liabilities:
Prepaid expenses $ 9 $ 35
-----------------------------
Deferred tax assets:
Inventory obsolescence 56 37
Warranty 52 75
Inventory capitalization 23 25
Accrued liabilities 64 50
Tax basis of assets in excess of book basis 35 87
Other 4 6
-----------------------------
Total deferred tax assets 234 280
Valuation allowance for deferred tax assets (225) (245)
-----------------------------
Net deferred tax assets 9 35
-----------------------------
$ - $ -
=============================
Components of income tax expense (benefit) are as follows:
CURRENT DEFERRED TOTAL
----------------------------------------
(In Thousands)
1996
Federal $ 389 $(26) $ 363
State - - -
----------------------------------------
$ 389 $(26) $ 363
========================================
1995
Federal $ 194 $ - $ 194
State - - -
----------------------------------------
$ 194 $ - $ 194
========================================
F-23
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
CURRENT DEFERRED TOTAL
----------------------------------------
(In Thousands)
1994
Federal $(403) $ - $(403)
State - - -
----------------------------------------
$(403) $ - $(403)
========================================
A reconciliation between the actual income tax expense (benefit) and income
taxes computed by applying the statutory tax rates is as follows:
1996 1995 1994
----------------------------------------
(In Thousands)
Computed "expected" tax expense (benefit) $334 $189 $(442)
Goodwill and other permanent differences 99 86 -
Other (70) (81) 39
----------------------------------------
Actual tax expense (benefit) $363 $194 $(403)
========================================
The Company has net operating loss carryforwards for state income tax purposes
of approximately $2,668,000 which expire in various amounts from 2008 to 2009.
Net operating loss carryforwards of approximately $1,048,000 and $977,000 were
used for state income tax purposes in 1996 and 1995, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company's 401(k) savings plan provides for both employee and employer
contributions. Employees who have reached the age of 21 years and who have
completed one year of service are eligible to participate in the Plan. Employees
may contribute up to 15% of their annual compensation limited to the maximum
contribution allowable under Internal Revenue Service guidelines. The employer
matches 25% of each employee's contribution, up to $1,000. Employee
contributions vest immediately, while amounts contributed by the employer vest
based upon the employee's term of service. Contributions for the years ended
August 31, 1996, 1995 and 1994 were $68,000, $52,000 and $41,000, respectively.
F-24
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS
In June 1994, the Company entered into an arrangement with a limited partnership
in which the partnership would contribute $780,000 to the Company for the
development of a 500 gallon per day TADOPTR. A director of the Company is a
general partner of the limited partnership. In exchange for this funding, the
Company issued warrants to purchase 200,000 shares of Class A common stock at
$3.00 per share, and entered into a Royalty Rights and Technology Development
Agreement with the partnership pursuant to which royalties of between 1% and 5%
of net revenues from the sale of TADOPTRs will be paid to the partnership until
the partnership receives an aggregate of $1,600,000, after which the royalties
decrease to between 0.6% and 0.75% of net revenues. The royalties are payable
for a period of 20 years from the execution of the agreement. In addition, the
partnership was given a security interest in the Company's rights in the TADOPTR
to secure the royalty payments. The Company was obligated to spend funds
provided by the partnership for the development of a 500 gallon per day TADOPTR
over a period of 12 to 18 months. For the years ended August 31, 1996 and 1995,
the Company incurred approximately $455,000 and $325,000, respectively, in costs
for this development, for which it has been fully reimbursed under this
agreement.
In fiscal year 1992, the Company entered into an agreement with an affiliate of
several of the Company's principal stockholders pursuant to which such entity
provides a variety of management advisory services to the Company. The
agreement, which terminates on August 30, 1997, provides for monthly payments of
approximately $10,000 by the Company. At August 31, 1996 and 1995, the Company
has accrued management advisory fees of approximately $324,000 related to the
agreement.
In connection with the Purchase Agreement described in Note 7, the Company
issued warrants to purchase 700,000 and 25,000 shares of Class A common stock to
two entities within the purchaser group in which two directors of the Company
have a financial interest.
In June 1995, a limited liability company agreement was signed between Cryenex,
Inc. (Cryenex), a wholly owned subsidiary of the Company, and an affiliate of
Jack B. Kelley, Inc. for the establishment of a limited liability company,
Applied LNG Technologies USA, LLC (ALT), to develop turnkey projects utilizing
liquefied natural gas. Cryenex is a 49% owner of ALT, and accounts for its
investment using the equity method, under which Cryenex's share of income and
losses of ALT is reflected in income as earned and distributions will be
credited against the investment when received. As of August 31, 1995, Cryenex's
investment of $49,000 was reduced to zero. Under terms of the
F-25
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
agreement, Cryenex agreed to provide certain services to ALT, reimbursable to
Cryenex, in an amount up to $490,000. During the fiscal years ended August 31,
1996 and 1995, Cryenex has provided services to ALT in the amount of $189,000
and $83,000, respectively. In addition, during the fiscal year ended August 31,
1996, revenue resulting from sales to ALT amounted to approximately $1,344,000.
At August 31, 1996 and 1995, receivables from ALT represented $1,423,000 and
$83,000, respectively.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB No. 107, Disclosures about Fair Value of Financial Instruments, requires
the disclosure of the fair value of all financial instruments, both on and off
balance sheet, for which it is practicable to estimate their value. Financial
instruments are generally defined as cash, equity instruments or investments and
contractual obligations to pay or receive cash or another financial instrument.
In defining fair value, the Statement indicates quoted market prices are the
preferred means of estimating the value of a specific instrument, but in cases
where market quotes are not available, fair values should be determined using
various valuation techniques such as discounted cash flow calculations. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. FASB No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts do not represent the underlying value of the
Company.
F-26
Report of Independent Auditors
The Board of Directors and Stockholders
Cryenco Sciences, Inc.
We have audited the consolidated financial statements of Cryenco Sciences, Inc.
as of August 31, 1996 and 1995, and for each of the three years in the period
ended August 31, 1996, and have issued our report thereon dated October 5, 1996
(included elsewhere in this Form 10-K). Our audits also included the financial
statement schedule of Cryenco Sciences, Inc. listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
October 5, 1996
S-1
Cryenco Sciences, Inc.
Schedule II - Valuation and Qualifying Accounts
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------
YEAR ENDED AUGUST 31, 1996
Deducted from asset
accounts:
Allowance for excess and
obsolete inventory $100,000 $268,726 $218,726(1) $150,000
Allowance for doubtful
accounts 14,240 11,900 14,240 11,900
---------------------------------------------------------------------
$114,240 $280,626 $232,966 $161,900
=====================================================================
Accrued warranty reserve $200,000 $379,259 $438,713(2) $140,546
=====================================================================
YEAR ENDED AUGUST 31, 1995
Deducted from asset accounts:
Allowance for excess and
obsolete inventory $ 52,226 $ 55,309 $ 7,535(1) $100,000
Allowance for doubtful
accounts 22,070 14,240 22,070 14,240
---------------------------------------------------------------------
$ 74,296 $ 69,549 $ 29,605 $114,240
=====================================================================
Accrued warranty reserve $143,697 $662,988 $606,685(2) $200,000
=====================================================================
YEAR ENDED AUGUST 31, 1994
Deducted from asset accounts:
Allowance for excess
and obsolete inventory $105,801 $142,319 $195,894(1) $ 52,226
Allowance for doubtful
accounts 1,791 20,279 - 22,070
---------------------------------------------------------------------
$107,592 $162,598 $195,894 $ 74,296
=====================================================================
Accrued warranty reserve $327,791 $287,955 $472,049(2) $143,697
=====================================================================
(1) Obsolete and excess inventories written off, net of recoveries
(2) Warranty claims honored during the year
S-2
INDEX TO EXHIBITS
Exhibit Description of Exhibit Page
------- ---------------------- ----
3.1 - Restated Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.1 to the Registrant's
Registration Statement on Form S-2, File No. 33-48738, filed
on June 19, 1992 (the "S-2 Registration Statement").
3.2 - By-laws of the Registrant, incorporated by reference to
Exhibit 3.2 to the Registrant's Registration Statement on
Form S-1, File No. 33-7532, filed on July 25, 1986 (the "S-1
Registration Statement").
3.3 - Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 3.3 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended August 31, 1995 (the "1995 Annual
Report").
3.4 - Certificate of Designation, Preferences and Rights of the
Series A Preferred Stock of the Registrant, incorporated by
reference to Exhibit 3.4 to the 1995 Annual Report.
3.5 - Corrected Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant, incorporated by reference to
Exhibit 3.5 to the 1995 Annual Report.
4.1 - See Article Fourth of the Restated Certificate of
Incorporation, as amended and corrected, of the Registrant
(Exhibit 3.5 hereof) , incorporated by reference to Exhibit
4.1 to the 1995 Annual Report.
4.2 - Forms of Common Stock and Class B Common Stock certificates
of the Registrant, incorporated by reference to Exhibit 4.3
of the Registrant's Registration Statement on Form S-4, File
No. 33-43782, filed on December 19, 1991 (the "S-4
Registration Statement").
E-1
Exhibit Description of Exhibit Page
------- ---------------------- ----
4.3 - Registration Rights Agreement dated as of August 30, 1991
among CHI, CIT, Chemical Bank and the Investors named
therein, incorporated by reference to Exhibit 4.3 to the 1995
Annual Report.
4.4 - Warrant Agreement dated as of August 30, 1991 between
Chemical Bank, CHI and the Registrant, incorporated by
reference to Exhibit 4.4 to the 1995 Annual Report.
4.5 - Letter Agreement dated April 15, 1992 among the Registrant,
CIT and Chemical Bank relating to the Warrants referred to
herein at Exhibits 4.8 and 4.9, incorporated by reference to
Exhibit 4.9 to the S-2 Registration Statement.
4.6 - Letter Agreement dated August 12, 1992 between the Registrant
and Chemical Bank relating to the Warrants referred to herein
at Exhibit 4.8, incorporated by reference to Exhibit 4.6 to
the 1995 Annual Report.
4.7 - Letter Agreement dated August 12, 1992 between the Registrant
and CIT relating to the Warrants referred to herein at
Exhibit 4.9, incorporated by reference to Exhibit 4.7 to the
1995 Annual Report.
4.8 - Warrants issued to Chemical Bank each dated April 27, 1992,
incorporated by reference to Exhibit 4.8 to the 1995 Annual
Report.
4.9 - Warrants issued to CIT each dated April 27, 1992,
incorporated by reference to Exhibit 4.9 to the 1995 Annual
Report.
4.10 - Warrant issued to Dain Bosworth Incorporated dated August 20,
1992, incorporated by reference to Exhibit 4.12 to the S-2
Registration Statement.
4.11 - Warrant Agreement dated as of March 12, 1993 between the
Registrant and Alfred Schechter, incorporated by reference to
Exhibit 4.11 to the 1995 Annual Report.
E-2
Exhibit Description of Exhibit Page
------- ---------------------- ----
4.12 - Warrant Agreement dated as of March 12, 1993 between the
Registrant and Don M. Harwell, incorporated by reference to
Exhibit 4.12 to the 1995 Annual Report.
4.13 - Warrant Agreement dated as of March 12, 1993 between the
Registrant and MCC, incorporated by reference to Exhibit 4.13
to the 1995 Annual Report.
4.14 - Warrant issued to Alfred Schechter dated March 12, 1993,
incorporated by reference to Exhibit 4.14 to the 1995 Annual
Report.
4.15 - Warrant issued to Don M. Harwell dated March 12, 1993,
incorporated by reference to Exhibit 4.15 to the 1995 Annual
Report.
4.16 - Warrant issued to MCC dated March 12, 1993, incorporated by
reference to Exhibit 4.16 to the 1995 Annual Report.
4.17 - Letter Agreement dated as of June 9, 1993 between the
Registrant and Alfred Schechter with respect to the Exercise
Price for the Warrant referred to herein at Exhibit 4.14,
incorporated by reference to Exhibit 4.17 to the 1995 Annual
Report.
4.18 - Letter Agreement dated as of June 9, 1993 between the
Registrant and Don M. Harwell with respect to the Exercise
Price for the Warrant referred to herein at Exhibit 4.15,
incorporated by reference to Exhibit 4.18 to the 1995 Annual
Report.
4.19 - Letter Agreement dated as of June 9, 1993 between the
Registrant and MCC with respect to the Warrant referred to
herein at Exhibit 4.16, incorporated by reference to Exhibit
4.19 to the 1995 Annual Report.
4.20 - Warrant issued to Chemical Bank dated November 24, 1993,
incorporated by reference to Exhibit 4.20 to the 1995 Annual
Report.
4.21 - Warrant issued to CIT dated November 24, 1993, incorporated
by reference to Exhibit 4.21 to the 1995 Annual Report.
E-3
Exhibit Description of Exhibit Page
------- ---------------------- ----
4.22 - Warrant Agreement dated as of January 26, 1995 between the
Company and Alfred Schechter, incorporated by reference to
Exhibit 4.22 to the 1995 Annual Report.
4.23 - Warrant Agreement dated as of January 26, 1995 between the
Company and Don M. Harwell, incorporated by reference to
Exhibit 4.23 to the 1995 Annual Report.
4.24 - Warrant Agreement dated as of January 26, 1995 between the
Company and MCC, incorporated by reference to Exhibit 4.24 to
the 1995 Annual Report.
4.25 - Warrant issued to Alfred Schechter dated January 26, 1995,
incorporated by reference to Exhibit 4.25 to the 1995 Annual
Report.
4.26 - Warrant issued to Don M. Harwell dated January 26, 1995,
incorporated by reference to Exhibit 4.26 to the 1995 Annual
Report.
4.27 -
Warrant issued to MCC dated January 26, 1995, incorporated by
reference to Exhibit 4.27 to the 1995 Annual Report.
4.28 - See the Certificate of Designation, Preferences and Rights of
the Series A Preferred Stock of the Registrant (Exhibit 3.4
hereof) , incorporated by reference to Exhibit 4.28 to the
1995 Annual Report.
4.29 - Warrant Agreement dated as of June 8, 1994 between the
Registrant and Cryogenic TADOPTR Company, L.P. and the Form
of Warrant Certificate issued pursuant thereto, incorporated
by reference to Exhibit 4.29 to the 1995 Annual Report.
4.30 - Warrant Agreement dated as of December 20, 1994 between the
Registrant and The Edgehill Corporation, incorporated by
reference to Exhibit 4.30 to the 1995 Annual Report.
E-4
Exhibit Description of Exhibit Page
------- ---------------------- ----
4.31 - Warrant issued to The Edgehill Corporation dated as of
December 20, 1994, incorporated by reference to Exhibit 4.31
to the 1995 Annual Report.
4.32 - Registration Rights Agreement dated as of December 20, 1994
among the Registrant, certain parties named therein and
International Capital Partners, Inc., incorporated by
reference to Exhibit 4.32 to the 1995 Annual Report.
4.33 - Form of Warrant issued to each of International Capital
Partners, Inc. and the parties named in the Registration
Rights Agreement dated as of December 20, 1994 (Exhibit 4.32
hereof), incorporated by reference to Exhibit 4.33 to the
1995 Annual Report.
10.1 - 1986 Non-Qualified Stock Option Agreement, incorporated by
reference to Exhibit 10.1 to the 1995 Annual Report.
10.2 - Stockholders Agreement dated as of August 30, 1991 among the
Registrant, CHI and other stockholders of CHI, incorporated
by reference to Exhibit 10.2 to the 1995 Annual Report.
10.3 - Securities Purchase Agreement dated as of August 30, 1991
among CIT, CHI, the Registrant, CEC Acquisition Corp. and
Cryogenic Energy Company, incorporated by reference to
Exhibit 10.3 to the 1995 Annual Report.
10.4 - Credit Agreement dated as of August 30, 1991 among Cryenco,
Inc., the Lenders named therein, and Chemical Bank, as Agent,
incorporated by reference to Exhibit 10.7 to the S-4
Registration Statement.
10.5 - Form of Amended and Restated Pledge Agreement dated February
11, 1992 relating to the capital stock of Cryenco, Inc.
executed by CSCI Corporation in favor of Chemical Bank,
incorporated by reference to Exhibit 10.6 to the S-4
Registration Statement.
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Exhibit Description of Exhibit Page
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10.6 - Employment Agreement dated as of September 1, 1991 between
Cryenco, Inc. and Alfred Schechter, incorporated by reference
to Exhibit 10.8 of the S-4 Registration Statement.
10.7 - 1992 Employee Incentive and Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8, File No. 33-65864, filed
on July 12, 1993 (the "S-8 Registration Statement").
10.8 - Form of Option Agreement under the 1992 Employee Incentive
and Non-Qualified Stock Option Plan, incorporated by
reference to Exhibit 4.2 to the S-8 Registration Statement.
10.9 - 1993 Non-Employee Director Stock Option Program, incorporated
by reference to Exhibit 4.3 to the S-8 Registration
Statement.
10.10 - Form of Option Agreement under the 1993 Non-Employee Director
Stock Option Program (contained in the 1993 Non-Employee
Director Stock Option Program referred to herein at Exhibit
10.9), incorporated by reference to Exhibit 4.4 to the S-8
Registration Statement.
10.11 - 1991 Incentive Compensation Plan of Cryenco, Inc., as
amended, incorporated by reference to Exhibit 10.9 to the S-2
Registration Statement.
10.12 - Lease, as amended, dated August 22, 1989 concerning the
property leased by the Registrant located at 5995 North
Washington Street, Denver, Colorado, incorporated by
reference to Exhibit 10.10 to the S-2 Registration Statement.
*10.13 - Lease, as amended, dated June 19, 1996 concerning the
property leased by the Registrant located at 3811 Joliet
Street, Denver, Colorado.
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Exhibit Description of Exhibit Page
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10.14 - Consulting Agreement dated August 30, 1991 between the
Registrant and Charterhouse, incorporated by reference to
Exhibit 10.12 to the S-2 Registration Statement.
10.15 - Waiver and Amendment Agreement dated as of February 28, 1993
among Cryenco, Inc., the Lenders named therein and Chemical
Bank, amending the Credit Agreement dated as of August 30,
1991, as amended, incorporated by reference to Exhibit 10.15
to the 1995 Annual Report.
10.16 - Waiver and Amendment Agreement dated as of February 28, 1993
among Cryenco, Inc., the Registrant and CIT, amending the
Securities Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit 3.4 to the 1995
Annual Report, incorporated by reference to Exhibit 10.16 to
the 1995 Annual Report.
10.17 - Funding Agreement dated March 12, 1993 among Alfred
Schechter, Don M. Harwell, MCC and the Registrant,
incorporated by reference to Exhibit 10.17 to the 1995 Annual
Report.
10.18 - Intentionally left blank.
10.19 -
Form of Indemnification Agreement entered into between the
Registrant and certain of its officers and directors dated
March 16, 1993, incorporated by reference to Exhibit 10.19 to
the 1995 Annual Report.
10.20 - Second Waiver and Amendment Agreement dated as of August 31,
1993 among Cryenco, Inc., the Lenders named therein and
Chemical Bank, amending the Credit Agreement dated as of
August 30, 1991, as amended, incorporated by reference to
Exhibit 10.20 to the 1995 Annual Report.
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Exhibit Description of Exhibit Page
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10.21 - Second Waiver and Amendment Agreement dated as of October 31,
1993 among Cryenco, Inc., the Registrant and CIT, amending
the Securities Purchase Agreement dated as of August 30,
1991, as amended, incorporated by reference to Exhibit 10.21
to the 1995 Annual Report.
10.22 - Letter Agreement dated April 13, 1994 among the Registrant,
Cryenco, Inc., Chemical Bank and CIT, incorporated by
reference to Exhibit 10.22 to the 1995 Annual Report.
10.23 - Exchange Agreement dated April 13, 1994 among Alfred
Schechter, Don M. Harwell, MCC and the Registrant,
incorporated by reference to Exhibit 10.23 to the 1995 Annual
Report.
10.24 - Royalty Rights and Technology Development Agreement dated
June 8, 1994 between the Registrant and Cryogenic TADOPTR
Company, L.P., incorporated by reference to Exhibit 10.24 to
the 1995 Annual Report.
10.25 - Third Waiver and Amendment Agreement dated as of November 29,
1994 among Cryenco, Inc., the Lenders named therein and
Chemical Bank, as Agent, amending the Credit Agreement dated
as of August 30, 1991, as amended, incorporated by reference
to Exhibit 10.25 to the 1995 Annual Report.
10.26 - Third Waiver and Amendment Agreement dated as of November 29,
1994 among Cryenco, Inc., the Registrant and CIT, amending
the Securities Purchase Agreement dated as of August 30,
1991, as amended, incorporated by reference to Exhibit 10.26
to the 1995 Annual Report.
10.27 - Purchase Agreement dated as of November 29, 1994 among the
Registrant, International Capital Partners, Inc. and the
Purchasers named therein, incorporated by reference to
Exhibit 10.27 to the 1995 Annual Report.
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Exhibit Description of Exhibit Page
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10.28 - Fourth Waiver and Amendment Agreement dated as of December
20, 1994 among the Registrant, Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent, amending the
Credit Agreement dated as of August 30, 1991, as amended,
incorporated by reference to Exhibit 10.28 to the 1995 Annual
Report.
10.29 - Fourth Waiver and Amendment Agreement dated as of December
20, 1994 among Cryenco, Inc., the Registrant and CIT,
amending the Securities Purchase Agreement dated as of August
30, 1991, as amended, incorporated by reference to Exhibit
10.29 to the 1995 Annual Report.
10.30 - First Amendment to the Purchase Agreement dated as of
December 20, 1994 among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein, amending the
Purchase Agreement dated as of November 29, 1994,
incorporated by reference to Exhibit 10.30 to the 1995 Annual
Report.
10.31 - Second Amendment to the Purchase Agreement dated as of
January 30, 1994 among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein, amending the
Purchase Agreement dated as of November 29, 1994, as amended,
incorporated by reference to Exhibit 10.31 to the 1995 Annual
Report.
10.32 - Amended and Restated Employment Agreement dated January 18,
1995 between Cryenco, Inc. and Dale A. Brubaker, incorporated
by reference to Exhibit 10.32 to the 1995 Annual Report.
10.33 - Letter Agreement dated May 18, 1995 among the Registrant,
International Capital Partners, Inc. and the Purchasers named
therein, incorporated by reference to Exhibit 10.33 to the
1995 Annual Report.
E-9
Exhibit Description of Exhibit Page
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10.34 - Fifth Waiver and Amendment Agreement dated as of May 30, 1995
among Cryenco, Inc., the Lenders named therein and Chemical
Bank, as Agent, amending the Credit Agreement dated as of
August 30, 1995, as amended, incorporated by reference to
Exhibit 10.34 to the 1995 Annual Report.
10.35 - Credit and Security Agreement dated as of December 19, 1995
and Supplement A thereto between Cryenco, Inc., the Company
and FBS Business Finance Corporation, incorporated by
reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the fiscal quarter ended November 30,
1995.
10.36 - First Amendment dated as of January 16, 1996 between FBS
Business Finance Corporation, Cryenco, Inc., the Company and
Cryenex, Inc., amending the Credit and Security Agreement
dated as of December 19, 1995, incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended February 29, 1996 (the
"February 29, 1996 Quarterly Report").
10.37 - Letter Agreement dated January 12, 1996 between CIT and FBS
Business Finance Corporation, incorporated by reference to
Exhibit 10.2 to the February 29, 1996 Quarterly Report.
*21 - Subsidiaries of the Registrant
*23.1 - Consent of Ernst & Young LLP
*27 - Financial Data Schedule pursuant to Article 5 of Regulation
S-X filed with EDGAR filing only.
- -------------------------
* Filed herewith
E-10
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as........... (R)
The section symbol shall be expressed as............. 'SS'