<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
(X) Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the annual period ended DECEMBER 31, 1999
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period _____ to______
COMMISSION FILE NUMBER 000-25973
-------------
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
-----------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 68-0406331
- ---------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3197 Boeing Road, Cameron Park, Ca. 95682 Telephone 530 677 3233
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices, including Registrant's
zip code and telephone number)
NONE
--------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports,), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
The number of shares of the registrant's common stock as of December 31, 1999:
2,034,350 shares.
Documents Incorporated by Reference
None
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
<PAGE>
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
FORM 10-K
YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
PART I
PAGE
----
Item 1. DESCRIPTION OF BUSINESS 3
Item 2. DESCRIPTION OF PROPERTIES 7
Item 3. LEGAL PROCEEDINGS 7
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 8
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED MATTERS 8
Item 6. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 8
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 9
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 17
PART III
Item 9. MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
Item 10. EXECUTIVE COMPENSATION 18
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 18
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 19
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 19
FINANCIAL DATA SCHEDULE 20
2
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FORWARD-LOOKING STATEMENTS
THIS BUSINESS SECTION AND OTHER PARTS OF THIS ANNUAL REPORT ON FORM 10-K CONTAIN
FORWARD-LOOKING STATEMENTS THAT INVOVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FORM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS, AND SUCH DIFFERENCES MAY BE MATERIAL. FACTORS THAT
MIGHT CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
PART I
Item 1. Description of Business
Business Development
Advanced Refrigeration Technologies, Inc. (the "Company") was incorporated in
the State of California on February 5, 1998, and is engaged in the business of
designing, manufacturing and marketing energy efficiency products. The Company's
first products, which are currently in production, are patented evaporator fan
controllers for walk-in refrigerators and freezers, which can save the consumer
from 30-50% in refrigeration energy costs. The Company gained the rights to the
basic product by acquiring Nevada Energy Control Systems, Inc. ("NECSI"). The
Company is currently marketing these products, the ART Evaporator Fan
Controllers Models 4000, 5000 and 6000, primarily in California, and plans to
expand its marketing operations to cover the entire United States, as well as to
bring to market other products and models currently in research and development.
Advanced Refrigeration Technologies, Inc., common stock was cleared for
quotation under the symbol ARGT on the NASD Over The Counter Bulletin Board
(OTCBB) as of October 20, 1999. The Company has two offices: the Sales and
Marketing office is located at 78365 Terra Cotta Court, La Quinta, California
92253; telephone 760-345-7196, fax 760-345-1689, e-mail
[email protected]. The corporate office mailing address is P.O. Box
1447, Shingle Springs, California 95682-1447; telephone 530-677-3233, fax
530-677-3293.
The Products
The Company's products, the ART Evaporator Fan Controllers, are energy saving
devices, which can be easily integrated into existing or new walk-in
refrigerator or freezer systems. They regulate the speed of the evaporator fan
motors in a cooler or freezer to meet the need of each phase of the
refrigeration cycle. Just as you save energy by turning off the lights in an
unoccupied room, this saves energy by running the fans only as fast as the box
requires at the time.
Current contemporary refrigeration systems consist of an insulated chamber or
"box," an electrically driven compressor, a condenser and an evaporator. The
compressor has a controller that turns the compressor on and off, according to
the temperature inside the box, but the evaporator fans run at full speed 24
hours per day. The Company's product acts as a controller for the evaporator
fans, regulating their speed to a lower level when the refrigerant is not
flowing through the system, and thus saving electrical energy. It also reduces
the actual refrigeration load because of the reduced amount of heat introduced
into the refrigerated box by the evaporator fan motors when they run at a lower
speed. The product is designed to easily retrofit into an existing system.
Original Equipment Manufacturer (OEM) customers will provide the product in new
construction.
There are three models of the ART Evaporator Fan Controllers:
The ART 4000 is the basic control unit designed to be the best price/performance
controller for OEM and sophisticated end users. This is the "bare bones" unit,
which saves the end user 30% to 50% on their refrigeration electric bill,
without the data retention or warning capabilities of the other models.
3
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The ART 5000 has the same proven design, saving the same amount of energy as the
ART 4000, while an advanced microprocessor system keeps track of and stores
critical energy consumption and savings data on a daily basis for up to 120
days. Additionally, the ART 5000 SMART ART has three warning lights built in to
let the user know if the evaporator is icing, if the temperature is not holding
or if the compressor is running longer than it should, indicating a maintenance
problem. The ART 5000 SMART ART also has a serial port for local record
downloading to any PC for record keeping of energy savings and alarms.
The ART 6000 has the same proven energy saving technology of the 4000 and the
5000 with ALL the energy savings and warning systems PLUS a built-in modem for
communications. This communications port of the ART 6000 EVEN SMARTER ART allows
the vital cost savings and warning alarms to be sent to, and/or accessed
remotely, at any time by the end user, the home office or maintenance contractor
or anyone else whom the owner chooses. Advanced Refrigeration Technologies also
offers a full-time monitoring service to inform our users of possible problems
with their refrigeration systems immediately so prompt attention can be given.
The Company spent the last 6 months evaluating how the product works as seen by
the customer, and what are the best ways to sell it. The product are presently
marketing truly saves the customer 30% to 50% on their present refrigeration
electric bill. However, we have to overcome a customer resistance that has
arisen because so many so-called energy saving devices actually are just "smoke
and mirrors." There have been many highly touted devices which, when they were
thoroughly and independently tested, did not actually save energy. Because of
this, potential customers tend to not believe our statements about the
refrigeration energy savings possible with the ART controllers. We have tackled
this problem head on, by first adding the capability in the product to monitor
and report the energy used and energy saved by the system (proving our
refrigeration energy savings), and then by giving the customers access to
critical system data to alert them to problems in their entire system (added
safety features). These new features encourage customers to buy the ART 5000 and
the ART 6000 for the safety features, rather than just for the energy saving
capabilities. The combination of cost saving and alarms makes the ART 5000 and
ART 6000 products that are easy to sell.
The product has been evaluated by the National Institute of Standards and
Technology's (NIST) Office of Technology Innovation in accordance with the
United States Department of Energy (DOE) Energy Related Inventions Program
(ERIP). This resulted in a recommendation of the product by the ERIP, and the
award of a grant to the Company to fund validation testing of its claims of the
product's energy saving ability. This testing was performed by the company under
the auspices of the U.S. Department of Energy, and further testing was conducted
for the federal government through Lawrence Berkeley National Laboratory. These
test results will be provided to any interested investor or potential customer.
Tests monitored by the Pacific Gas and Electric Company (PG&E) confirmed
refrigeration energy savings potential at the national level equal to 305,000
barrels of oil per year, assuming only a 10% market penetration. The Company
estimates the refrigeration energy cost savings to the consumer to be between
30-50%. Additionally, the product has been evaluated by the Federal Energy
Management Program (FEMP), and has received a positive recommendation and been
approved for installation in federal facilities. The company has been in the
development stage of operations until March of 1999 when the first of three
products was ready to ship. The second product is also in production now, and
the third will be available in early 2000.
Patents
The Company holds United States Patent Nos. 5,488,835, issued February 6, 1996,
and 5,797,276, issued August 25, 1998 for its products.
4
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The Market
The overall market for the product is any facility, which uses a walk-in type
refrigerator or freezer system. The Company's products are marketed to
refrigeration contractors for incorporation of the product into new
construction, and to owners of existing refrigeration systems. Estimates from
sales and marketing representatives in the commercial refrigeration industry
place new walk-in refrigerator unit sales at approximately 120,000 units
annually. Estimates from the National Restaurant Association and the U.S.
Department of Commerce indicate the potential market for retrofitting existing
systems is nearly 2.8 million units in the United States alone. The potential
market for the Company's current products is approximately 800 million dollars
for upgrading the existing installed coolers and freezers. The market for new
systems being installed presently is 36 million dollars per year. With this kind
of existing market, the Company will not be limited by market size. This data
pertains to the United States market only. The following table gives a breakdown
on market segments:
TABLE 1
- -------
TYPE OF FACILITY SALES POTENTIAL IN UNITS
---------------- ------------------------
Fast Food Restaurants 735,062
Convenience Stores 195,700
Grocery Stores (3 per store) 1,058,735
Florists 52,271
Liquor Stores 40,197
Food Contractors 19,117
Bars and Taverns 36,435
Health Care Related 13,045
Retail Hosts 123,937
Other Hosts 6,439
Lodging Establishments 127,251
Recreation & Sporting Establishments 14,627
Misc. Nursing Homes, Clubs, etc. 31,568
Employer Operated 7,370
Educationally Related 97,106
Penal System 4,153
Other 236,177
TOTAL 2,799,190
- ----- =========
(Source of data: U.S. Dept. Of Commerce, Bureau of the Census, Census of Retail
Trade and Wholesale Trade, National Restaurant Association Report, "The Food
Service Industry")
5
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The Company employs one marketing Vice President in charge of all marketing and
sales functions. The Company presently employs no other salespersons. The
Company plans to hire a public relations firm and an advertising firm.
The Company has begun active marketing of its current products through industry
trade shows, and with direct presentations and installations in schools,
restaurants, grocery retailers, and convenience stores. The Company believes it
can sell directly to nation-wide chains of fast food restaurants, convenience
stores, full-serve restaurants and supermarkets with its small sales
organization, primarily because such large chains have only a single point of
contact with whom to deal. The Company plans to continue its marketing efforts
for the retrofit application of the product directly to these facilities. This
approach secured a contract for 100+ units for the Jack In The Box restaurant
chain.
Current commercial refrigeration systems are put together by local refrigeration
contractors. The Company plans a marketing campaign targeted to these
contractors. Additionally, the Company intends to expand its marketing efforts
in the Original Equipment Manufacturer (OEM) area.
Some public utilities have taken an active role in promoting energy-efficient
technologies to their commercial customers by offering direct rebates to those
who install energy-efficient equipment. The Company presently has a rebate
agreement with San Diego Gas & Electric (SDG&E) that pays for the first $100 of
each unit installed in a facility in their domain. We are presently being
qualified by Pacific Gas & Electric (PG&E) and Southern California Edison (SCE)
to obtain similar rebate agreements with them. While the recent deregulation of
the electric power industry in the state of California has affected these
programs, they are presently being funded by the Public Utilities Commission.
The Company is also working with several major city-owned public utilities,
whose programs are not affected by this deregulation, to qualify for their
incentive programs as well. These utilities include Los Angeles Department of
Water & Power (LADWP), Sacramento Municipal Utility District (SMUD) and
Roseville Electric Department.
The Company has devised a unique method to build a sales force of independent
sales contractors to handle all sales excluding OEM and major accounts. The
newest models of the ART controller, the ART 5000 and 6000, have a
microprocessor to handle some of their more complicated functions. In our
test-marketing program, we have installed 45 units in various businesses and
have discovered a wealth of knowledge of what can be done to make the cooler or
freezer more economical and maintenance-friendly. We found we can also know when
something may be going wrong with the cooler or freezer, and issue warnings to
the store or business telling them about the problem. With this ability to issue
warnings, the next step is to put the units on-line in order to warn the
maintenance people of a potential failure over the telephone. We intend to offer
the dial-up service to major store chains and maintenance companies that do the
servicing.
This feature is so cost effective we plan to offer long-term purchase terms to
the customers so that the unit will be paid for out of the saving in electricity
they will gain with the ART 5000 and ART 6000 controllers. The actual monthly
savings will be kept track of inside the unit by the microprocessor and
transmitted to the home office for billing to the customers. Typically, we save
a customer $300 to $500 per year. We are offering a program in which a
percentage of these savings is split between the customers and the Company for
several years. At that point, the customers will own the ART controllers by
paying for them out of their refrigeration energy cost savings.
Using this sales plan, we feel that a professional sales force can be
established with only management from us. We feel that sales in about 40 major
metropolitan areas can be established to give us excellent sales coverage in the
USA.
Raw Materials and Principal Suppliers and Vendors
There are no raw materials used in the composition of the product. All parts
used, including the custom case and transformer, are readily available from
multiple sources. The Company has determined that subcontract product assembly
is the most viable and economical production method for the product. It does not
make economic sense to create an in-house production facility due to the readily
available subcontract facilities.
6
<PAGE>
Competition
The Company has virtually no direct competition for its product. However, a
group of former marketing consultants to the inventors has formed a company
called "Energy Control Equipment, Inc." Energy Control Equipment, Inc., has
produced a product by reverse engineering the ART 4000, but which has none of
the new features that have been developed; their product is a violation of the
Company's patent rights, as well as of a covenant not to compete. The Company
has taken steps to protect its patent rights to the product. The Company knows
that its patents are excellent and intends to protect them at all costs.
Indirect competition exists in that manufacturers of motors have been producing
more energy efficient designs, which would slow the payback period of the ART
product in new applications. For example, GE Motors has introduced a
refrigeration motor that uses 50% less energy than conventional units; however,
the ART controller is compatible with these energy efficient motors and reduces
their power usage just as it does with standard motors. Additionally, other
companies are developing higher efficiency compressors, parallel compressors,
higher efficiency door seals, improved wall panel constructions, plastic air
shields, new refrigerants and total facility energy management systems. However,
since the Company's products are complementary to these new technologies, its
potential market is unaffected.
Patents
The Company holds United States Patent, No. 5,488,835, issued February 6, 1996,
and U.S. Patent No. 5,797,276, issued August 25, 1998, described as "Methods and
devices for energy conservation to be retrofitted to refrigerated chambers or
boxes of the type comprising an insulated chamber and an associated compression
type refrigeration system. The energy conservation devices disclosed are adapted
to be mounted within the refrigerated chamber, on or within the evaporator, and
connected to the thermostatic switch and the evaporator fans located within the
refrigerated chamber."
Employees
The Company presently employs four employees, all of whom are working management
employees.
Year 2000 Compliance
With respect to Year 2000 compliance, the Company manufactures a product, which
contains microprocessors. The source code for the microprocessors has been
written so that it is not dependent on dates, but, instead, functions on a
24-hour internal timing routine. To this extent, all products currently being
manufactured by the Company are Year 2000 compliant.
The Company performed an audit of all of its computer hardware, internal
accounting and software applications and found all to be Year 2000 compliant or
capable. The Company has been given assurances from its banking institution and
transfer agent that they are working toward compliance or are in compliance.
Item 2. Description of Property
The Company previously leased its executive offices at 3031 Alhambra Drive,
Suite 201, Cameron Park, California, from March 6, 1998 through February 28,
1999. The Company has since relocated its executive offices to property owned by
the Company's Vice President and Secretary, and occupies it on a month-to-month
basis, at no charge to the Company. The Company also leases office/warehouse
space at 78365 Terra Cotta Court, La Quinta, California, from a non-affiliate of
the Company.
Item 3. Legal Proceedings
There are no pending legal proceedings to which the Company is a party or to
which the property interests of the Company are subject.
7
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Item 4. Submission of matters to a vote of security holders
None
PART II
Item 5. Market for the registrant's common equity and related matters
Advanced Refrigeration Technologies, Inc., common stock was cleared for
quotation under the symbol ARGT on the NASD Over The Counter Bulletin Board
(OTCBB) as of October 20, 1999. There were 57 shareholders as of December 31,
1999. The price of the Company's common stock as of December 31, 1999 was
$1.5625 (ask) and $1.25 (bid).
>From its inception through July 1, 1999, the Company sold unregistered
securities in a Regulation D, Rule 504 exempt offering, which was commenced on
June 5, 1998, and extended on March 15, 1999. The offering closed on April 6,
1999, and resulted in the sale of 403,100 shares, resulting in gross offering
proceeds of $111,200. A Regulation D, Rule 506 exempt offering was commenced on
April 7, 1999 and closed on July 1, 1999. This offering resulted in the sale of
21,250 shares, resulting in gross offering proceeds of $22,800. There have been
no more sales of unregistered securities since July 1, 1999. The Company became
a reporting company with the Securities and Exchange Commission as of July 6,
1999.
The Company has not paid any cash dividends since its inception and does not
contemplate paying any in the foreseeable future. It is anticipated that
earnings, if any, will be retained for the operation of the Company's business.
Item 6. Management's discussion and analysis of financial condition and results
of operations
General
The following discussion should be read in conjunction with selected
consolidated financial data and the consolidated financial statements and notes
to financial statements.
The Company has continued as a development stage company during the year 1999.
The Company has continued to develop its products and increase its marketing
efforts. The Company will need to raise additional capital in order to continue
its development and marketing.
Overview
The Company was incorporated February 5, 1998, and purchased for stock the
assets and liabilities of Nevada Energy Control Systems, Inc., (NECSI), which
had developed what became the Company's first product, the ART Model 4000
Evaporator Fan Controller. The Company actively began business on March 5, 1998
(date of inception).
The Company is still a development stage company and is seeking additional
financing to implement the rest of its business plan. The Company is being
financed by loans from major stockholders and the sale of its products into the
market. These sales are primarily orders from customers whom the Company hopes
will become major customers, and in most cases are test units to prove the
technology works as presented.
In the fiscal year ended December 31, 1999, the Company sold $29,065 worth of
its products with a gross profit of $14,568; expenses other than direct cost of
sales totalled $62,635 for the same period. This compared with gross sales of
$2,737 in the period from inception of business March 5, 1998 to December 31,
1998, with expenses other than direct costs of sales of $66,535 for the same
period.
A major effort was undertaken by the Company in 1999 to pursue major companies
that have the need for large numbers of units. Marketing staff attended a number
of industry trade shows and made sales calls on the large users of refrigeration
walk-in coolers and managed to get test efforts underway with a high percentage
of these potential customers. Sales should reflect this effort in the coming
years.
8
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The Company banks with Wells Fargo Bank, checking account only, and has no other
accounts or lines of credit with this bank or any other bank. The Company has
short term credit lines with most of its vendors and pays its bills in 30 to 60
days.
The Company will continue in its efforts to raise capital so that the ART
Evaporator Fan Controllers can be sold and delivered. There can be no assurance
that the Company will be able to obtain capital.
Item 7. Financial statements and supplementary data
The consolidated financial statements of the Company required to be included in
Item 7 are listed in this index, and follow this page:
Report of Independent Certified Public Accountant
Financial Statements
Balance Sheet
Statement of Operations
Statement of Shareholder's Equity
Statement of Changes in Financial Position
Notes to Financial Statements
9
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WILLIAM D. LINDBERG
CERTIFIED PUBLIC ACCOUNTANT
1034 CLIPPER COURT
COSTA MESA, CA. 92627
To the Board of Directors and Stockholders
of Advanced Refrigeration Technologies, Inc.
I have audited the accompanying balance sheet of Advanced Refrigeration
Technologies, Inc. (a California corporation), as of December 31, 1998 and 1999,
and the related statements of operations, shareholders' equity, and changes in
financial position for the period March 5, 1998 (date of inception) through
December 31, 1998 and the year ended December 31, 1999. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Advanced Refrigeration
Technologies, Inc., as of December 31, 1998 and 1999, and the results of its
operations and its changes in financial position for the period March 5, 1998 to
December 31, 1998 and the year ended December 31, 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in General Note the
Company is in the development stage and has filed an initial public offering in
order to raise additional capital. The Company's ability to achieve the
foregoing financing, which may be necessary to permit their realization of
assets and satisfaction of liabilities in the ordinary course of business, is
uncertain. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ William D. Lindberg
February 2, 2000
Costa Mesa, Ca.
10
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<TABLE>
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash $ 3,737 $ 360
Accounts receivable 2,455 -
Inventory 5,589 3,584
------------ ------------
Total current assets $ 11,781 $ 3,944
Equipment & furniture 24,812 25,542
Depreciation 3,468 -
------------ ------------
21,344 25,542
Total assets $ 33,125 $ 29,486
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15,777 $ 17,166
Accruals 3,926 772
Loans from shareholders 31,176 2,560
------------ ------------
Total current liabilities $ 50,879 $ 20,498
Note payable-non current - 55,000
Shareholders' equity
Common stock (no par value) 20,000,000 shares authorized;
December 31, 1999-2,034,850 issued; December 31, 1998-
1,497,200 issued $ 155,424 $ 61,623
Deficit accumulated during development stage (173,178) (107,635)
------------ ------------
Total shareholders' equity ($17,754) ($46,012)
Total liabilities and shareholders' equity $ 33,125 $ 29,486
============ ============
</TABLE>
11
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<TABLE>
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE PERIOD FROM INCEPTION MARCH 5 TO DECEMBER 31, 1998
<CAPTION>
Year ended From inception March 5
December 31, 1999 to December 31, 1998
------------------ ----------------------
<S> <C> <C>
Sales $ 29,065 $ 2,737
Cost of sales 14,497 -
----------- -----------
Gross profit $ 14,568 $ 2,737
Expenses
Payroll $ 36,893 $ 25,466
Patent 470 890
Research 1,224 1,116
Marketing 5,478 3,824
Travel 5,186 10,158
Depreciation 1,451 -
Office 3,642 2,819
Postage 920 932
Utilities 454 1,480
Telephone 3,145 2,813
Rent 9,685 6,300
Professional fees 4,360 13,325
Taxes 712 -
Grant - (5,279)
Public offering expense 3,583 2,692
----------- -----------
Total expenses $ 77,203 $ 66,535
Loss from operations before interest and income taxes (62,635) (63,798)
Interest expense 2,108 1,079
----------- -----------
Net loss before income taxes ($64,743) ($64,877)
State income tax 800 -
----------- -----------
Net (loss) ($65,543) ($64,877)
=========== ===========
</TABLE>
12
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<TABLE>
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE PERIOD FROM INCEPTION MARCH 5 TO DECEMBER 31, 1998
<CAPTION>
For the year From inception
ended March 5 to
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Funds provided from (used for) operations
Net (loss) during development stage ($65,543) ($64,877)
Depreciation 3,468 -
Funds provided by (used for) working capital
Inventory (2,005) (1,684)
Accounts receivable (2,456) -
Accounts payable (1,388) 16,629
Accruals 3,154 (263)
Loans 28,616 2,560
Funds provided by (used for) equipment purchase 730 (2,653)
Funds provided from (used for) financing activities
Decrease in long term debt (55,000) (16,173)
Proceeds from sale of stock 93,801 61,623
----------------- -----------------
Net funds provided from (used for) all activities $3,377 ($4,838)
Cash balance at beginning of year 360 5,198
Cash balance at end of year $3,737 $360
================= =================
</TABLE>
13
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<TABLE>
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE PERIOD FROM INCEPTION MARCH 5 TO DECEMBER 31, 1998
<CAPTION>
Common stock number
of shares Amount Deficiency
--------------------- ---------------- -----------------
<S> <C> <C> <C>
Common stock issued to acquire Nevada Energy
Control Systems Research and development on
evaporator fan controllers 400,000 - ($42,758)
Common stock issued to founders and key people
after acquisition 1,085,100 $ 37,423
Common stock issued under 504 public offering 12,100 24,200
Net (loss) during development stage (64,877)
--------------------- ---------------- -----------------
Balance at December 31, 1998 1,497,200 $ 61,623 ($107,635)
Common stock issued to key people authorized in
1998 149,900 -
Common stock issued under 504 public offering 366,000 71,001
Common stock issued under 506 public offering 21,250 22,800
Net (loss) during development stage (65, 543)
--------------------- ---------------- -----------------
Balance at December 31, 1999 2,034,350 $ 155,424 ($173,178)
===================== ================ =================
</TABLE>
14
<PAGE>
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE PERIOD FROM INCEPTION MARCH 5 TO DECEMBER 31, 1998
GENERAL
The Company has been in the development stage since it acquired the
deficit accumulated by Nevada Energy Control Systems, Inc., in developing an
evaporator fan control system. The Company's activities have consisted of
obtaining financing and capital and initiating marketing of the product. The
Company filed a public offering as of June 5, 1998. Since that date, the Company
has sold stock in compliance with an exemption from registration under the
Federal and State Securities laws provided by Regulation D, Rule 504 and Rule
506 of the Securities and Exchange Commission. Due to changes in requirements to
be listed on the over the counter bulletin board by the National Association of
Security Dealers, the Company filed Form 10SB12G on May 2, 1999 with the
Securities and Exchange Commission in order to qualify for listing and is now
listed.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. EQUIPMENT AND FURNITURE
Equipment and furniture are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of seven years.
The Company recognizes an impairment loss on a fixed asset when the
asset is no longer useful and the carrying amount of the asset cannot be
realized through sale.
B. INVENTORIES
The Company has adopted the first-in, first-out (FIFO) method of
inventory valuation or market, if that is lower.
C. RESEARCH AND DEVELOPMENT
As a development stage company the Company expenses all research and
development costs.
INVENTORIES
Inventory consists of finished evaporator fan control units and parts.
1999 1998
------------ ------------
Finished goods $ 1,470 $ 1,900
Parts 4,119 1,684
------------ ------------
Total $ 5,589 $ 3,584
============ ============
EQUIPMENT AND FURNITURE
Equipment and furniture consist of testing equipment and office equipment and
furniture.
1999 1998
------------ ------------
Testing equipment $ 14,116 $ 14,846
Office furnishings 10,696 10,696
------------ ------------
Total $ 24,812 $ 25,542
============ ============
15
<PAGE>
GRANT
The U.S. Department of Energy made a grant of $98,279 to the Company, of which
the final $5,279 is included as a reduction of expense in the statement of
operations for the period ended December 31, 1998. The $98,279 expended for
research and development is in addition to the funds expended by the Company,
none of which has been deferred.
INCOME TAXES
The Company has a tax loss carry-forward resulting from the acquisition of
Nevada Energy Control Systems, Inc., of approximately $42,000. It has an
additional tax loss carry-forward resulting from losses in 1998 and 1999 of
$130,419.
NOTE PAYABLE - NON-CURRENT
The note payable at December 31, 1998 ($55,000) was converted to common stock
under Regulation D Rule 504 in 1999.
RELATED PARTY TRANSACTIONS
Three of the founding stockholders have been active in the running of the
day-to-day business of the Company on a full or part-time basis. They have
received no compensation for such work and the Company has reflected no expense
in the statement of operations.
COMMON STOCK
Shares of common stock issued to acquire Nevada Energy Control Systems Research,
to founders and key people and sold under Rule 506 are restricted.
16
<PAGE>
Item 8. Changes in and disagreements with accountants on accounting and
financial disclosure
There have been no changes in or disagreements with accountants on accounting or
financial disclosure from the inception of the company to the date of this
report.
PART III
Item 9. Managers and executive officers of the registrant
The Executive Officers of the Company, and their ages, are as follows:
Name Age Position
- ---- --- --------
Charles E. McEwan 64 President, Director
David J. Kimber 41 Vice President/Marketing, Director
Allan E. Schrum 58 Vice President/Engineering, Director
Clare C. Schrum 58 Secretary, Chief Financial Officer
Charles E. McEwan. Mr. McEwan is the President and Director of the Company.
Since 1972, he has been successful in founding small companies and making them
successful through management and private and public financing. From 1994
through 1997, he founded and was President of AirWave Corporation. In 1987, Mr.
McEwan was a member of the Board of Directors and a founder of RasterOps. From
1972 through 1988, he founded and was President of Ramtek Corporation. Mr.
McEwan was employed as the marketing manager of Data Disk in Palo Alto,
California, from 1969 through 1972, and was a computer programmer for Ford
Aerospace from 1959 through 1969. He served from 1953 through 1955 in the United
States Army; after this he attended San Francisco City College and University of
New Mexico, Albuquerque.
David J. Kimber. Mr. Kimber is the Vice President, Marketing, and Director of
the Company. Mr. Kimber has directed the Company's marketing efforts since
April, 1995. He served as Director of Marketing for Nevada Energy Control
Systems, Inc., the Company's predecessor ("NECSI"), from June, 1995 through
March, 1998. From 1990 through 1997, he was a self-employed marketing
consultant. Mr. Kimber has experience in general business management, strategic
planning, project development, budgeting and advertising. He holds a BS in
Business Administration and Finance from California State University, Hayward.
Allan E. Schrum. Mr. Schrum is the Vice President, Engineering, and Director of
the Company. He is the co-inventor of the Company's product, and was responsible
for obtaining the U.S. patent on the product. Mr. Schrum's professional
experience spans more than 30 years as an innovative manager and engineer in the
electronic and electromechanical industries. He has been responsible for the
direction of research and development, engineering, manufacturing and new
product introduction as well as corporate budget planning and staffing. Mr.
Schrum also serves as the Vice President of Engineering for Varatouch
Technology, and has done so since March, 1997. He was Vice President,
Engineering of NECSI from February, 1992 through January, 1996, and was
President of NECSI from January 1996 through March, 1998.
Clare C. Schrum. Ms. Schrum is the Secretary and Chief Financial Officer of the
Company. She has also served as the Office Manager of Gnosis Consulting since
1982. Ms. Schrum was the corporate Secretary and Treasurer of NECSI and Office
Manager from April, 1997 through March, 1998. She is the wife of the Vice
President, Engineering, Allan E. Schrum. She holds a BA from San Jose State
University.
17
<PAGE>
Item 10. Executive Compensation
The following table sets forth all compensation awarded or paid by the Company
to its Chief Executive Officer and all other executive officers for services
rendered during the fiscal year ended December 31, 1999 and the fiscal year from
inception to December 31, 1998. The only salary paid from inception to the
present time is to the Vice President/ Marketing. There were no grants of
options or SAR grants given to any executive officers during the last fiscal
year.
Summary Compensation Table
Awards
------
Annual Other
Name and Position Year Salary Bonus Compensation
- --------------------------------------------------------------------------------
Charles E. McEwan 1998 -0- -0- -0-
President 1999 -0- -0- -0-
David J. Kimber 1998 $22,100 -0- -0-
Vice President/Marketing 1999 $31,200 -0- -0-
Allan E. Schrum 1998 -0- -0- -0-
Vice President/Engineering 1999 -0- -0- -0-
Clare C. Schrum 1998 -0- -0- -0-
Secretary, Chief Financial Officer 1999 -0- -0- -0-
Item 11. Securities ownership of certain beneficial owners and management
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock of the Company as of the end of the
fiscal year, 1999, by (i) each person who is known by the Company to be the
beneficial owner of more than five percent (5%) of the issued and outstanding
shares of common stock, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers as a group.
Name and Address Number of Shares Percentage Owned
- ---------------- ---------------- ----------------
i.
Mervin Wade Howenstine (1) 200,000 9.8%
Pounden Family Trust (2) 150,000 7.4%
ii.
Charles E. McEwan 600,000 29.5%
Rancho Mirage, CA 92270
David J. Kimber 150,000 7.4%
La Quinta, CA 92253
Allan E. Schrum (3) 400,000 19.7%
Cameron Park, CA 95682
Clare C. Schrum (3) 60,000 3.0%
Cameron Park, CA 95682
iii.
Officers and Directors Total 1,210,000 59.5%
- -------------
(1) Mr. Howenstine is a former officer of NECSI and a co-inventor of the
product.
(2) Shareholder
(3) Mr. and Mrs. Schrum are husband and wife.
18
<PAGE>
Item 12. Certain Relationships and Related Transactions
There have been no transactions since the beginning of fiscal year 1999 or any
currently proposed transactions, or series of similar transactions, to which the
Company was or is to be a party, in which the amount involved exceeds $60,000,
and in which any of the officers, or directors, or holders of over 5% of the
Company's stock have or will have any direct or indirect material interest. The
Company does not currently have any policy toward entering into any future
transactions with related parties.
PART IV
Item 13. Exhibits and reports on Form 8-K
(a) Exhibits
Exhibit No. Description
---------- -----------
3.(I) Articles of Incorporation and Amendment*
3.(II) By-laws*
4. Specimen common stock certificate*
27 Financial Data Sheet
(b) Reports on Form 8-K: Not Applicable
- ------------
* Filed with the Commission as exhibit to the Registration Statement Form 10-SB
on May 5, 1999.
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
Dated: March 24, 2000 By: /s/ Charles E. McEwan
------------------------------------
CHARLES E. McEWAN, President and
Director
Dated: March 24, 2000 By: /s/ Clare C. Schrum
------------------------------------
CLARE C. SCHRUM, Secretary, Chief
Financial Officer
19
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