U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 30, 2001 Commission File No.33-30476-D
CRYOCON, INC.
(Exact name of registrant as specified in its charter)
COLORADO
(State or other jurisdiction of
incorporation or organization)
2250 North 1500 West
Ogden, Utah 84404
(Address of Principal's Executive Offices)
84-1O26503
(I.R.S. Employer Identification No.)
(801) 395-2796
(Registrant's Telephone No. Incl. area code)
Indicate by check mark whether the registrant (1) has filed all
reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of
1934 during the preceding 12 months (or such shorter period that
the
registrant was required to file such reports), and (2) Has been
subject to
such filing requirements for at least the past: 90 days.
Yes _X_ No ___
The number of shares outstanding of each of the Registrant's
classes of
common equity, as of June 30, 2001, are as follows:
Class of Securities Shares Outstanding
------------------- ------------------
Common Stock, no par value 21,867,360
INDEX
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements PAGE
Consolidated Balance Sheets
(June 30 2001 and March 31, 2001)................. F-1
Liabilities and Stockholders' Equity (Deficit)............... F-2
Consolidated Statement of Operations ........................ F-3
Consolidated Statement of Shareholders' Equity (Deficit)..... F-4
Consolidated Statement of Cash Flows ....................... F-8
Notes to Unaudited Financial Statements .................... F-10
Item 2. Management's Discussion and Analysis and
Plan of Operation.......................................... 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................... 16
Item 2. Changes in Securities and Use of Proceeds.............. 16
Item 3. Defaults Upon Senior
Securities...................................................... 16
Item 4. Submission of Matters to a Vote of Security Holders.... 17
Item 5. Other Information...................................... 17
Item 6. Exhibits and Reports on Form 8-K....................... 17
Signatures...................................................... 18
PART I - FINANCIAL STATEMENTS
Item 1 - Financial Statements
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
June 30, March 31,
2001 2001
(Unaudited)
CURRENT ASSETS
Cash $4,200 $
8,980
Accounts
receivabl
e, net 25,855
30,647
000 -
Deposits
and
prepaid
expenses 26,638
34,214
Total Current Assets
183,693 73,841
PROPERTY AND EQUIPMENT, NET 2,290,400 2,250,790
OTHER ASSETS
Goodwill,
net 419,198 -
Patents,
trademark
s and
licenses,
net 306,817
329,267
Total Other Assets
726,015 329,267
TOTAL ASSETS$ 3,200,108 $ 2,653,898
F-1
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
June 30, March 31,
2001 2001
(Unaudited)
CURRENT LIABILITIES
Accounts
payable $441,389 $
341,552
Due to
related
parties 208,100 -
Accrued
expenses 697,166
605,965
Stock
deposits 284,391
284,391
Notes
payable,
related
party 191,964
191,964
Current
portion
long-term
debt 1,615,303 1,603,891
Total Current Liabilities 3,438,313 3,027,763
LONG-TERM LIABILITIES
Long-term
debt 177,818
146,966
Total Long-Term Liabilities 177,818 146,966
TOTAL LIABILITIES 3,616,131 3,174,729
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 50,000,000 shares authorized of no par value,
19,864,837 and 19,319,837 shares issued and outstanding,
respectiv
ely 8,075,329 7,158,329
Deficit
accumulat
ed during
the
developme
nt stage (8,491,352 ) (7,679,160)
Total Stockholders' Equity
(Deficit)(416,023 ) (520,831 )
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 3,200,108 $ 2,653,898
F-2
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Operations
(Unaudited)
From
Inception on
For
the
October 20,
Three Months Ended 1999 Through
June
30, June
30,
2001 2000 2001
REVENUES $18,131 $- $ 182,041
EXPENSES
Cost of
sales 6,862 - 71,645
Advertisi
ng 15,877 - 466,560
Bad debt
expense - - 11,000
Depreciat
ion and
amortizat
ion 81,183 - 352,481
General
and
administr
ative 692,281
45,446 7,000,567
Total Expenses 796,203 45,446 7,902,253
OPERATING LOSS (778,072) (45,446 ) (7,720,212 )
OTHER INCOME (EXPENSE)
Interest
income 5 - 3,509
Other
income 9,687 - 11,784
Loss on
sale of
assets - - (27,515 )
Interest
expense (43,812 ) - (758,918 )
Total Other Income (Expense) (34,120 ) -
(771,140)
NET LOSS $(812,192) $ (45,446 ) $ (8,491,352 )
BASIC LOSS PER SHARE $ (0.04 ) $(0.00 )
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 19,617,364 11,000,000
F-3
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
Balance at inception on
October 20, 1999 - $- $ -
Issuance of common stock to founders
for services at $0.00 per share 1,000 - -
Issuance of common stock to founders
for services at $.00 per share 524,000 - -
Issuance of common stock to founders
for services and intangible assets at
$0.00 per share 9,700,000 - -
Issuance of common stock for services
at $0.75 per share 100,000 75,000 -
Issuance of common stock for cash
at $0.50 per share 10,000 5,000 -
Issuance of common stock for services
at $0.50 per share 5,000 2,500 -
Issuance of common stock for cash
at $0.50 per share 10,000 5,000 -
Issuance of common stock for cash
at $0.50 per share 4,000 2,000 -
Issuance of common stock for services
at $0.50 per share 16,000 8,000 -
Issuance of common stock for services
at $0.75 per share 100,000 75,000 -
Issuance of common stock for services
at $0.75 per share 500,000 375,000 -
Issuance of common stock for cash at
$1.00 per share 10,000 10,000 -
Balance forward 10,980,000 $557,500 $ -
F-4
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity (Deficit)
(Continued)
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
Balance forward 10,980,000 $557,500 $ -
Issuance of common stock for cash
at $1.00 per share 10,000 10,000 -
Issuance of common stock for cash
at $1.00 per share 10,000 10,000 -
Net loss from inception on
October 20, 1999 through
March 31, 2000 - - (1,069,931 )
Balance, March 31, 2000 11,000,000 577,500 (1,069,931)
Recapitalization 1,237,724 - -
Warrants issued below market
value -
980,000 -
Issuance of common stock upon exercise
of options at $0.50 per share 17,500 8,750 -
Issuance of common stock for
services at $5.375 per share 10,000 53,750 -
Issuance of common stock upon exercise
of options at $0.50 per share 31,650 15,825 -
Issuance of common stock for cash
at $0.01 per share 2,880,000 28,800 -
Issuance of common stock for cash
at $0.50 per share 1,294,000 647,000 -
Issuance of common stock for cash
at $1.00 per share 1,355,437 1,355,437 -
Issuance of common stock for cash
at $2.00 per share 237,500 475,000 -
Issuance of common stock for cash
at $2.00 per share 782,118 1,564,236 -
Stock issuance costs - (390,708) -
Balance Forward 18,845,929 $5,315,590 $ (1,069,931)
F-5
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
(Continued)
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
Balance Forward 18,845,929 $5,315,590 $ (1,069,931)
Issuance of common stock upon exercise
of options at $0.50 per share 13,250 6,625 -
Issuance of common stock for
services at $2.25 per share 300,000 675,000 -
Options issued below market
value - 268,110 -
Issuance of common stock upon exercise
of options at $0.50 per share 6,000 3,000 -
Issuance of common stock for services
at $3.063 per share 3,658 11,204 -
Issuance of common stock for
services at $2.25 per share 51,000 114,750 -
Issuance of common stock for
services at $2.50 per share 100,000 250,000 -
Additional interest recorded on convertible
debentures - 514,050 -
Net loss for the year ended
March 31, 2001 - - (6,609,229)
Balance , March 31, 2001 19,319,837 $7,158,329 $ (7,679,160)
F-6
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
(Continued)
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
Balance , March 31, 2001 19,319,837 $7,158,329 $ (7,679,160)
Issuance of common stock in lieu of
debt at $2.25 per share (unaudited) 25,000 56,250 -
Issuance of common stock for services
at $2.10 per share (unaudited) 100,000 210,000 -
Issuance of common stock upon exercise
of warrants at $0.10 per share (unaudited) 150,000 15,000 -
Issuance of common stock for 100% of
XTool, Inc. at $2.375 per share (unaudited) 250,000 593,750 -
Issuance of common stock for services
at $2.10 per share (unaudited) 20,000 42,000 -
Net loss for the three months ended
June 30, 2001 (unaudited) - - (812,192 )
Balance, June 30, 2001 (unaudited) 19,864,837 $8,075,329 $(8,491,352)
F-7
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Unaudited)
From
Inception on
For the
October 20,
Three Months Ended 1999 Through
June 30, June 30,
2001 2000 2001
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss$(812,192 ) $ (45,446 ) $ (8,491,352)
Adjustments to reconcile net loss to net
cash used by operating activities:
Amortization and depreciation 81,183 -
352,481
Options and warrants issued below market
value - - 1,248,110
Loss on sale of assets - - 27,515
Bad debt expense - -
11,000
Additional expense recorded on convertible
debentures - - 514,050
Common stock issued for
services rendered 267,000 - 1,907,204
(Increase) decrease in:
Accounts receivable
4,792 - (36,855 )
Deposits and prepaids 7,576 - (26,638)
Stock deposits - -
284,391
Accounts payable and accrued
expenses 250,007
45,190 1,197,524
Net Cash Used by
Operating Activities
(201,634) (256)
(3,012,570)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase
or
development of intangibl
es - - (449,000 )
Sale of
assets 10,600 - 10,600
Equipment
purchases(21,896 ) - (401,766 )
Purchase
of
building - - (2,050,000 )
Net Cash (Used) by
Investing Activities
(11,296 ) - (2,890,166 )
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance
of common
stock for
cash - - 4,146,673
Stock
offering
costs - - (390,708 )
Due to
related
parties 208,100 - 208,100
Issuance
of notes
payable 9,400 - 3,497,987
Payments
made on
notes
payable (9,350 ) - (1,555,116 )
Net Cash Provided by
Financing Activities$
208,150 $- $ 5,906,936
F-8
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
From
Inception on
For the October
20,
Three Months Ended 1999 Through
June 30June 30,
2001 2000 2001
NET INCREASE IN CASH AND CASH
EQUIVALENTS $ (4,780) (256 ) 4,200
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 8,980 458 -
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,200 $ 202 $ 4,200
CASH PAID FOR:
Interest$45 $ - 119,600
Income taxes $- $ -
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common
stock
issued
for
services$267,000 $ - $ 1,907,204
Common stock
issued in
lieu of debt$ 56,250 $ -
$ 56,250
Vehicles
purchased
under
notes
payable $35,215 $ -
$ 100,764
F-9
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2001 and March 31, 2001
NOTE 1 - CONDENSED
FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated
financial statements have been prepared by the Company
pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and
footnote disclosures normally included in financial
statements prepared in accordance with generally
accepted accounting principles have been condensed or
omitted in accordance with such rules and regulations.
The information furnished in the interim condensed
consolidated financial statements include normal
recurring adjustments and reflects all adjustments,
which, in the opinion of management, are necessary for a
fair presentation of such financial statements.
Although management believes the disclosures and
information presented are adequate to make the
information not misleading, it is suggested that these
interim condensed consolidated financial statements be
read in conjunction with the Company's most recent
audited financial statements and notes thereto included
in its March 31, 2001 Annual Report on Form 10-KSB.
Operating results for the three months ended June 30,
2001 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2002.
NOTE 2 - PRONOUNCEMENTS ISSUED NOT YET ADOPTED
In July, 2001, the Financial Accounting Standards Board
issued two statements - Statement 141, Business
Combinations, and Statement 142, Goodwill and Other
Intangible Assets, which will potentially impact the
Company's accounting for its reported goodwill and other
intangible assets.
Statement 141:
* Eliminates the pooling method for accounting for business
combinations.
* Requires that intangible assets that meet certain criteria
be reported separately from goodwill.
* Requires negative goodwill arising from a business
combination to be recorded as an extraordinary gain.
Statement 142:
Eliminates the amortization of goodwill and other
intangibles that are determined to have an indefinite life.
Requires, at a minimum, annual impairment tests for
goodwill an other intangible assets that are determined to have
an indefinite life.
F-10
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2001 and March 31, 2001
NOTE 2 -
PRONOUNCEMENTS ISSUED NOT YET ADOPTED (Continued)
Upon adoption of these Statements, the Company is
required to:
* Re-evaluate goodwill and other intangible assets that
arose from business combinations entered into before July 1,
2001. If the recorded other intangibles assets do not meet the
criteria for recognition, they should be reclassified to
goodwill. Similarly, if there are other intangible assets that
meet the criteria for recognition but were not separately
recorded from goodwill, they should be reclassified from
goodwill.
* Reassess the useful lives of intangible assets and adjust
the remaining amortization periods accordingly.
* Write-off any remaining negative goodwill.
The company has not yet completed its full assessment of
the effects of these new pronouncements on its financial
statements and so is uncertain as to the impact. The
standards generally are required to be implemented by
the Company in its 2002 financial statements.
NOTE 3 - GOING
CONCERN
The Company's consolidated financial statements are
prepared using generally accepted accounting principles
applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in
the normal course of business. However, the Company
does not have significant cash or other material assets,
nor does it have an established source of revenues
sufficient to cover its operating costs and to allow it
to continue as a going concern. It is the intent of the
Company to raise additional funds through an SB-2 filing
in order to fund operations until revenues are
sufficient to cover the operating expenses. The Company
is also trying to restructure its long-term debt and
dispose of certain assets, if needed, in order to reduce
operating expenses. Until that time, the stockholders
have committed to covering the operating costs of the
Company.
Additionally, the Company is registering a rescission
offer concerning certain securities that may have been
offered or issued in violation with state and/or federal
securities laws. There are no assurances that (1) the
existing stockholders and warrant holders subject to
rescission will elect to retain their stock ownership
and stock warrants and (2) the Company will be able to
raise additional working capital through either private
placements or public offerings. To the extent that
funds generated from operations, standby investors and
any private placements or public offerings are
insufficient, the Company will have to raise additional
working capital.
F-11
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2001 and March 31, 2001
NOTE 3 -GOING CONCERN (CONT.)
No assurance can be given that additional financing will
be available, or if available, will be on terms
acceptable to the Company. If adequate working capital
is not available, the Company may be required to curtail
its operations.
This rescission raises substantial doubt about the
Company's ability to continue as a gong concern. The
consolidated financial statements do not include any
adjustments relating to the recoverability and
classification of asset carrying amounts or the amount
and classification of liabilities that might be
necessary should the Company be unable to continue as a
going concern.
NOTE 4 -
SIGNIFICANT EVENTS
On March 30, 2001, the Company entered into an agreement
with XTool, Inc., a Utah Corporation, to exchange all of
the outstanding shares of XTool, Inc. for 250,000 shares
of the Company's outstanding stock. The agreement was
effective as of April 3, 2001 when the 250,000 shares
were distributed equally to the four stockholders of
XTool, Inc.. XTool, Inc. is a development stage company
which has developed tooling to be sold in the petroleum,
mining and horizontal drilling industries. These tools
are unique in the industry and are cryogenically
treated.
As part of the acquisition, the Company committed to a
minimum of $250,000 of capital contribution to the new
subsidiary. In addition to other compensation, each
officer of the new subsidiary will receive stock options
to purchase 100,000 shares of the Company's common
stock. The options will vest 50,000 shares on the
anniversary of the acquisition for two years. The
exercise price of the options will be $1.50 per share
for the first vesting and eighty percent (80%) of the
average stock price for the month of December preceding
the date of vesting for the second vesting shares.
The acquisition of XTool, Inc. resulted in goodwill of
$441,261 as follows:
Value of 250,000 shares
issued ($2.375 per share)$ 593,750
Assets acquired, net
(167,657)
Liabilities assumed, net 15,168
Resulting goodwill $
441,261
Amortization of the goodwill is computed on the straight-
line method over the estimated useful life of 5 years.
Amortization on the goodwill through June 30, 2001 was
$22,063.
F-12
CRYOCON, INC. AND SUBSIDIARIES
(A Development Stage Company)
Notes to the Consolidated Financial Statements
June 30, 2001 and March 31, 2001
NOTE 4 -
SIGNIFICANT EVENTS (CONT.)
On June 4, 2001, the note holder of the $1,350,000
promissory note filed a Notice of Default with the
County Recorder in an effort to commence foreclosure on
the trust deed on the Company's current administrative
and operational facility. The promissory note was
originally due February 28, 2001.
F-13
Item 2 - Management's Discussion and Analysis or Plan of
Operation
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that
involve risks and uncertainties. These statements relate to
future events or our future financial performance. In some
cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these
terms or other comparable terminology. These statements are
only predictions and involve known and unknown risks,
uncertainties and other factors that may cause our or our
industry's actual results, levels of activity, performance or
achievements to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements.
We believe these forward-looking statements are
reasonable; however, you should not unduly rely on any forward-
looking statements, which are based on current expectations.
Further, forward-looking statements speak only as of the date
they are made, and we undertake no obligation to update
publicly any of them in light of new information or future
events.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion of Cryocon's past and future
financial condition and results of operations should be read in
conjunction with the financial statements and the notes to
those statements.
Past Financial Condition:
For fiscal year 2000 Cryocon operated under the name of
the acquiring entity of ISO Block Products USA, Inc., a
Colorado Corporation. ISO Block reported revenues from
operations for that year of $118,460 with net income from
operations of $55,370 and net gains on sales of $86,378 for a
total net income of $141,748. These proceeds were from the
sale of assets and residential construction. ISO Block
discontinued operations in August of 1999. The acquisition of
Cryocon of Utah by ISO Block occurred August 16, 2000.
Cryocon's losses for fiscal year 2001 are $6,609,229.
These losses are attributable to start-up and operational
costs, market development penetration, costs incurred in
capital acquisition and asset expenditures. Unusually high
capital outlays include $700,000 for shop equipment, land and
building; approximately $313,274 in equipment (computers and
printers), approximately $275,000 for the purchase of the Cryo-
Accurizing patent and related equipment and $282,937 in
advertising.
On December 15, 2000, Cryocon announced corporate
restructuring aimed at achieving administrative and operational
cost savings. Cryocon estimated cost savings in excess of 50%
through outsourcing key functions and redefining departmental
and employee functions. As a result of this action, Cryocon's
management reduced Cryocon's full time employees by 10
employees to a total of 17 full time personnel. At the present
time here is no anticipated significant changes in the number
of employees; however, management reserves the right to further
redefine employee positions anticipates that it may need to
hire personnel specifically in the research and development
area. These changes have resulted in significant material
changes in several line items of Cryocon's financial
statements. Additional steps taken to reduce company
expenditures include the sale of company owned vehicles and
excess equipment.
Future Financial Condition
In March of 2001 Cryocon appointed a new chairman and
chief executive officer, J. Brian Morrison, who, in conjunction
with the board of directors, has identified several potential
acquisitions and/or mergers. The stated goal is to merge
Cryocon's technology into mainstream processes to generate
superior results for the customer and expand the technology
into traditional heat treating markets. Mr. Morrison believes
that given the personnel employed at Cryocon and the
opportunities that are presenting themselves, that Cryocon has
the potential to become a world leader in the cryogenics
market.
In furtherance of these goals, Cryocon acquired XTool.
Cryocon has committed to obtain funding and make the capital
expenditures necessary to develop XTool's business and
production and promote it's expansion into the petroleum
exploration, construction and mining industries. Cryocon is
also moving forward with patent development and seeking
trademark and other protections for XTool's designs, logos,
words and proprietary processes. Cryocon believes this is an
excellent opportunity for development in these areas given the
recent national trends in energy consumption, shortages and the
present emphasis within the government for increased
exploration and domestic production.
Most of the principals of XTool have extensive experience
in the petroleum exploration, construction and/or mining
industries. Many of the principals have experience in tool
design, manufacturing and marketing in these areas. XTool
currently has two different prototypes in field tests. With
financing of approximately $350,000, it is projected that XTool
has the potential to bring in revenues of $3,500,000 during
it's first 12 months of funded operations with a positive cash
flow being achieved by the 11th month.
Additional funding is necessary for Cryocon to satisfy
it's cash requirements. Currently Cryocon does not have
sufficient cash reserves to meet it's obligations for the next
30 days. However, management is confident in it's abilities to
raise short term funding to meet it's current needs. Upon the
effectiveness of this prospectus and registration statement,
Cryocon has a stock purchase agreement with Millennium Capital
Partners, LLC, for 1,500,000 shares of common stock which
should produce sufficient revenues for operations and expansion
for approximately six months. Thereafter it is anticipated
that revenues would substantially increase, but further capital
will need to be raised. Management's stated goals, as issued
by J. Brain Morrison, Cryocon's chairman and chief executive
officer is to merge Cryocon's technology into mainstream
processes to generate superior results for the customer and
expand the technology into traditional heat treating markets.
In-house research and development has been focused on the
success of Cryocon's proprietary process with different
materials and the development of more efficient cryogenic
processors, including a table top model and custom, portable
processing technology that can be implemented on the customer's
site meeting the customer's size, dimensional and quantity
requirements. Research and development planned for the next 12
months includes design enhancement and production of high
quality tools and bits for the petroleum exploration,
construction and mining industries.
Cryocon will also focus efforts in the it's new medical
division (See Description of Business) through research and
development in the application of Cryocon's technology in the
medical field and the patenting of the successful applications,
as well as obtaining trademark, copyright and other
intellectual property protections as appropriate.
At the present there are no expected purchases or sale of
plant and/or significant equipment. However, upon additional
funding Cryocon anticipates making the capital expenditures
necessary to allow XTool to either purchase and/or lease
equipment necessary to begin production of tools to meet
expected purchase orders and the development of additional
prototypes for it's targeted industries. Until these capital
expenditures are made, XTool will outsource production and
prototype development.
Liquidity and Capital Resources.
Cryocon Utah commenced operations on January 3, 2000.
Since start of operations January 2000, Cryocon has realized
$182,041 in gross sales and has $25,855 in accounts receivable.
Cryocon had gross sales in the quarter ending June 30, 2001 of
$18,131. Of those gross sales $12,028 resulted from the
treatment of firearm components through the Cryo-Accurizing
Division and $6,103 has resulted from deep cryogenic tempering
of miscellaneous parts for various individuals and
manufacturers. Cryocon's cumulative operating loss through
June 30, 2001 is $8,491,352. The loss is attributable to pre-
organizational, start-up and operating costs of its subsidiary
Cryocon Utah, and costs incurred in Cryocon's financing
efforts. These costs include $1,248,110 assessed for options
granted below market value, $1,907,204 assessed for common
stock for services, and $514,050 assessed as additional
expenses on convertible debentures.
Cryocon's operation to date has consumed substantial
amounts of cash. As of June 30, 2001, Cryocon had a working
capital deficit of $2,498,842, which includes the current
portion of all notes payable including the debt on the
building. Since inception the net cash loss from operations is
$3,612,570 and is expected to continue; however it is
anticipated that these losses may increase in the foreseeable
future. The consumption of capital during the start-up phase
included $700,000 for a building purchase, equipment purchases
of $313,274, and a patent purchase of $275,000. The rate in
which Cryocon expends its resources is variable and may
accelerate, depending on many factors. Many of the factors are
outside of Cryocon's control, including:
* the continued progress of Cryocon's research and
development of new process applications; the cost, the timing,
and outcome of further regulatory approvals;
* the expenses of establishing a sales and marketing force,
the timing and cost of establishing or procuring additional
requisite production and other manufacturing capacities,
* the cost; if any, the cost of preparing, filing,
prosecuting, maintaining, defending and enforcing patent
claims; and
* the status of competitive products and the availability of
other financing.
Because Cryocon is still in the development stage, it has
limited working capital and limited internal financial
resources. Cryocon's limited cash flows have prevented Cryocon
from borrowing funds from conventional lending institutions.
Since the Cryocon has not been able to secure funding from
commercial lenders, Cryocon has relied on private investments
from third-parties, including Cryocon's management, to meet its
current obligations. As of August 1, 2001, Cryocon will not
have sufficient cash on hand to fund another month of
operations at the current run rate; however, Management is
confident of being able to obtain operational funds through
various means.
Cryocon's financial information is prepared using
generally accepted accounting principles applicable to a going
concern that contemplates the realization of assets and
liquidation of liabilities in the normal course of business.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On June 4, 2001, Bourn Inc. filed a Notice of Default with the
Weber County Recorder, in its effort to commence foreclosure on
the deed trust on Cryocon's current administrative and
operational facility located at 2250 North 1500 West, in Ogden,
Weber County, Utah. On June 1, 2000, Bourn, Inc. loaned Cryocon
$2,050,000. The promissory note became due on February 28,
2001. The remaining balance due is $1,350,000.
On August 7, 2001,Cryocon was served legal process in a
collection action by Rushford/Ross Advertising Agency claiming
a debt owed in the amount of $7,709.26, interest and costs in
collection.
Cryocon has not been served with any other legal process
providing it with legal notice of any other pending
proceedings. Cryocon is not a plaintiff in any pending action.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this
report, except those indicated as having previously been filed
with the Securities and Exchange Commission and which are
incorporated by reference to another report, registration
statement or form. The Company will furnish any exhibit
indicated in the list below as filed with this report (not
incorporated by reference) upon payment to the Company of its
expenses in furnishing the information upon the request of any
Shareholder of Record.
2.0 Plan of Acquisition, Reorganization, Arrangement,
Liquidation or Succession
2.1 Agreement and Plan of Reorganization dated April 25,
2000 (incorporated by reference to Exhibit 2.1 to
Form 8-K dated August 18, 2000).
3.0 Articles and Bylaws
3.1 Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to
registration statement on Form S-8 of Champion
Computer Rentals, Inc., file no. 33-23257-D)
3.3 Bylaws of the Company (incorporated by reference to
Exhibit on Form 10-KSB for fiscal year ended 1993).
3.4 Certificate of Amendment and Restatement to Articles
of Incorporation (incorporated by reference to
Exhibit 3.4 to Form 8-K dated February 10, 1994)
3.5 Certificate of Amendment to Articles of
Incorporation, changing the Company's name to Iso-
Block Products USA, Inc. (incorporated by reference
to Exhibit 2(c) to registration statement on Form 8-
A, file no. 0-25810)
3.6 Certificate of Amendment to Articles of
Incorporation, changing the Company's name to
Cryocon, Inc., authorizing a four to one reverse
split, authorizing the increase of capital stock to
50,000,000 shares of Common Stock, and ratifying the
change of auditors to HJ & Associates of Salt Lake
City, Utah. (Incorporated by reference to Exhibit 3.6
to the quarterly report filed on Form 10-QSB for the
Quarter ending September 30, 2000).
(b) Reports on Form 8-K. : There were no reports filed
on Form 8-K between March 31, 2001 and June 30, 2001.
SIGNATURES
_______________________________________________________________
____________
In accordance with the requirements of the Exchange Act, the
Registrant caused this Report on Form 10-QSB to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: August 17, 2001
CRYOCON, INC.
By:
____________/s/________________________
J. BRAIN MORRISON
Chairman/Chief Executive Officer
By:
_________/s/_________________________
VAUGHN
P. GRIGGS
Chief Financial Officer