<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 33-19584
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-258270
(State of Incorporation) (IRS Employer
Identification No.)
6626 Topper Parkway
San Antonio, Texas 78233
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: 210-654-1212
Securities registered pursuant to Sections 12(b) of the Act: NONE
Securities registered pursuant to Sections 12(g) of the Act: NONE
Common Stock, $0.001 Par Value Electronic Bulletin Board
Indicate by check mark whether the registrant (1) has filed all
reports required by Section 13 or 15(d) of the Securities and
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 .
----- -----
As of December 31, 1995, 5,371,234 shares of Common Stock were
outstanding, and the aggregate market value of such shares held by
unaffiliated stockholders was approximately $3,081,315.
Documents incorporated herein by reference: NONE<PAGE>
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PART I
ITEM 1. BUSINESS
General Company Business
International Cryogenic Systems Corporation (ICSC) and its related companies
design, engineer, manufacture, market and support industrial refrigeration and
freezing systems for use world-wide. Innovative and unique industrial
refrigeration products and packages include evaporative heat exchange systems,
ammonia recovery and recycling systems, non-chemical water treating systems,
liquid recirculating packages, and merchant carbon dioxide plants. The most
advanced, cost-effective and environmentally safe "quick freeze" system has
been developed for the billion dollar food freezing industry. The Company is
forming alliances and distribution centers with agents, distributors and
synergistic companies world wide, building a comprehensive refrigeration and
freezer business. ICSC is continually seeking related acquisitions and joint
venture partners that will compliment its line of business and support its
growth and goals.
During 1995, ICSC acquired four companies in the refrigeration business in a
stock exchange transaction. These entities, which compliment and secure ICSC's
position in the industry, operate as wholly owned subsidiaries. RealCold
Systems, Inc., offers custom industrial refrigeration packages and merchant
carbon dioxide plants in a joint venture with The Wittemann Company. Nauticon,
Ltd. offers a product line of evaporative heat exchange systems for the HVAC
and refrigeration industry. Technicold Services, Inc. offers consulting
engineering services, including process safety management compliance and
ammonia refrigeration and carbon dioxide system design. Technicold also
provides operation, maintenance and safety seminars for ammonia refrigeration
technicians and supervisors. Jordan Vessel Corporation offers industrial
refrigeration system components such as liquid recirculating packages and
refrigeration system vessels of all types. RealCold Maintenance Systems, Inc.
designs and produces unique products for the refrigeration industry. RealCold
Systems also publishes a quarterly newsletter, COLD TALK, which reaches over
(1800) refrigeration technicians in the industry.
The new companies have been a proven success, because they not only increased
the Company's sales and assets but also support ICSC's freezer systems with
their in-house engineering and manufacturing experience. Packaged systems and
custom products produced by RealCold are an integral part and compliment the
Company's freezer systems. RealCold's expertise and support has refined
progress on the Company's new drum freezer system, ReelFreeze, which is
designed to use either CO2 or liquid refrigerants for domestic and
international markets. The new drum system is currently in the process of
freeze testing various food products and is being marketed using either
refrigerant.
RealCold Systems Inc. signed a Joint Cooperative Agreement in July 1995 with
The Wittemann Company, a wholly owned subsidiary of Dover Corp. (NYSE - DOV),
for the manufacture and marketing of merchant carbon dioxide plants and
refrigeration products. The cooperation agreement combines the technical
expertise and experience of RealCold with the marketing of Wittemann. Wittemann
is the world's leading manufacturer of carbon dioxide systems and refrigeration
accessories employed by brewers and other fermentation processors. Wittemann
has carbon dioxide systems operating in almost every country in the world.
George Briley, President of RealCold Systems with over 46 years experience, is
a renown expert in the innovative design and building of merchant carbon
dioxide systems. This industry combination of technology, sales and
manufacturing experience is unsurpassed and should provide an effective and
cost efficient entry for this worldwide market.<PAGE>
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In August 1995, ICSC acquired Nauticon Ltd., a company that manufactures and
markets a product line of innovative evaporative heat exchange systems for the
HVAC and refrigeration industry, representing over five years of development.
The new patented products are innovative and unique in design and simple to
manufacture. They use new material technology with high efficiency copper
tubing to give very high efficiency, low operating costs and minimal
maintenance. The evaporative heat exchangers are self cleaning in most
applications thus eliminating chemical cleaning. The outstanding Nauticon
product features cannot be found in competitive products. Nauticon evaporative
heat exchangers serve the residential, commercial HVAC sector and the
commercial refrigeration industry. They have many applications, varying from
traditional commercial refrigeration to HVAC to industrial cooling. Customers
vary from supermarkets to ice rinks to walk-in coolers for refrigeration
systems. HVAC applications are in smaller commercial buildings, for traditional
air conditioning systems to highly efficient heat pumps. Industrial uses span
plastic molding and extrusion to conventional cooling of process water to
cooling of cutting oils. They are used for condensers, fluid coolers, booster
coolers, and cooling towers. The Company believes that the Nauticon products
may revolutionize the refrigeration industry; an industry that faces serious
changes for the first time in years due to energy and environmental concerns
world wide. The Nauticon application should reduce these traditional concerns
and enhance the industry's growth.
ICSC's freezer system, patented in May l990, quick-freezes food products by
immersing them in a bath of refrigerant, with special advantages for fragile
foods such as fruits and seafood. Quick freezing forms a protective, ice-
glazed shell around foods with little cellular damage. This method retains
freshness and flavor, and prevents clumping for processing and packaging. Quick
freezing also reduces shrinkage, promotes faster thawing, extends product
quality and shelf life up to four times longer than other processes. This
unique process provides the least cost to freeze per product pound versus
competition.
The Company has designed a unique close-looped refrigeration recovery system
which compliments the freezer system process. It contains and recycles the
refrigerant gasses to liquid, providing less costly use of refrigerants. It has
environmental advantages over competitive systems. ICSC's cost-effective
systems use less energy, less refrigerant, save space, and require no periodic
defrosting.
The Company's Star Wheel freezing system, which is an enhanced design of its
original freezer system, was completed in March l994. A second generation
compact Rotary Drum freezing system was introduced August 1995. The Star Wheel
freezing system employs inlet and outlet star wheels, which seal the
refrigerant and food product in a freezer chamber. The total system process is
automated. The star wheels are synchronized with a conveyor belt immersed in
the refrigerant. ICSC's newly designed Rotary Drum System receives food product
into rotating drum pockets. Refrigerant enters each individual pocket from
the top of the rotating drum. While rotating, the sealed food product and
refrigerant in the drum pockets are computer controlled, cycled and timed for
freezing specifications desired.
The Company feels very confident, that there is an abundant market need for the
new freezing systems, and that they will be very successful and profitable
world-wide. The refrigeration business, while complimenting the freezer
business, will grow and become more successful. This years sales and
projections are exceeding the Company's expectations. The new acquisitions and
joint venture should all become very successful because of their inherent
product line and established experience. Together with an experienced
management team and additional capital these programs will provide the Company
a tremendous opportunity to increase shareholder value through profitable
expanded growth.<PAGE>
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Previous Company Business
The Company was originally established in 1988 as a private company, Immersion
Cryogenic Systems Corporation, to fabricate and market its original freezer
systems. In January l993 the Company's assets were merged into a public entity,
International Cryogenic Systems Corporation formerly known as Marco Ventures,
and is currently trading on the Nasdaq Electronic Bulletin Board with the
symbol ICRY. The public Nevada corporation, Marco Ventures, was originally
organized on October 7, 1987 for the purpose of engaging in the acquisition of
any and all types of assets, properties and businesses. Two of the Company's
executives/directors, President and Treasurer, have been affiliated with the
public company since 1988 and were also affiliated with the private company as
directors prior to the merger.
At the Annual Meeting of Shareholders of the Company on September 30, 1988, the
shareholders of the Company approved the acquisition of Power-Tech Corporation
from Simco Data Group, Inc., for 16,000,000 shares of common restricted stock,
and entered into a joint venture between its then wholly owned subsidiary
Power-Tech Corp. and Re-Tech, Inc. The Company then entered into an Agreement
dated January 9, 1990 to cancel all failed relations with Re Tech, Inc., and to
sell its wholly owned subsidiary Power-Tech Corporation to Re-Tech, Inc. The
Company sold its entire 100% ownership interest in Power-Tech Corporation to
Re-Tech, Inc., for 250,000 shares of Re-Tech, Inc. common restricted stock. All
obligations existing among the parties were canceled. The parties further
agreed to hold the other harmless with respect to any liabilities.
On December 12, 1990, the Company entered into an agreement, relative to a
product license of certain medical and technical products, with Performance
Concepts, Inc., (PCI) a privately held Ohio Corporation. PCI was to receive
shares in the Company based on incentives for sales and revenue. Subsequently,
no sales and revenue was accounted for and all agreements were canceled for non
performance.
On December 14, 1990, the Company entered into a letter of intent with
Innovative Imaging Systems, Inc. (IISI), a privately held Ohio Corporation.
IISI is the developer of advanced technology and equipment called industrial
computed tomography (CT), and has patent positions on new electronic imaging
technology. Subsequent to the original letter of intent with IISI on December
14, a revised letter of intent was re-negotiated on January 30, 1991. The
letter of intent between the Company and IISI granting an exclusive license for
all of IISI's current and future electronic imaging hardware and software
products, and all related services such as; contract imaging services and
contract maintenance services. Negotiations on the funding agreement for a
public offering never matured, and all relationships and agreements were
canceled.
On October 31, 1991 the Company formally rescinded any and all previous
agreements and relations with any company or business that had a prior relation
with the Company (Marco Ventures), including Performance Concepts Inc. and
Innovative Imaging Systems Inc.
On December 28, 1992, the Board of Directors unanimously voted to change the
name of the Company to INTERNATIONAL CRYOGENIC SYSTEMS CORP. (ICSC)
Asset Acquisition: On December 28, 1992, the Board of Directors of the Company
agreed to issue 2,414,083 shares of common stock to six individuals for the
exclusive rights to U. S. Patent No. 4,928,492 (May 29, 1990); which provides a
method and apparatus for production treatment of a product through the usage of
a cryogenic liquid and in a manner such that minimum loss of the cryogenic
liquid is encountered. The products that will be processed by this method
includes, but not limited to, food products, computer chips, tires for
recycling, blood and plasma products, and medical utensils that require a high
degree of sterilization. In addition to the patent rights, the Company
acquired the following:<PAGE>
<PAGE> 5
1). A manufacturing agreement with R. A. Hanson Company of Spokane, WA.
2). Almost three years of improved engineering and cost efficiencies on the
total system by the R. A. Hanson Company of Spokane, WA.
3). A demonstration model unit in current production costing an estimated
$215,000.
4). A license and marketing agreement with Cryodynamics Corporation, a
Delaware Corp.
5). Three years of marketing studies and due diligence on the product in
Mexico, Southeast Asia and Europe.
The total value of the transaction was $724,224.90. Two of the six individuals,
(Terrence J. Dunne and Francis L. Simola) receiving stock in this transaction
are Directors of the Company. Terrence J. Dunne received 850,000 and Francis
L. Simola received 340,041 shares of stock respectively. This represents 49.3%
of all the common stock issued for the transaction.
The manufacturing and engineering agreement with R. A. Hanson Company has been
rescinded. The Company has since moved all manufacturing and engineering to a
new manufacturing facility in San Antonio, Texas. The license and marketing
agreement with Cryodynamics Corporation was canceled in June, 1993 because of
non-performance.
The current structure and organization of ICSC as a public entity through 1993
and 1994 was considered as a development stage company even though the
accumulated background and experience expanded over (24) months. The design,
manufacture and testing of two major freeze machine products, and the
restructure from a private company to a public company expended company time
and capital. The newly designed and manufactured Star Wheel freezer machine was
completed and operating consistently as of March 1994. This was a major
undertaking and technology breakthrough proving that the new immersion freezer
design concept worked. In June 1994 a marketing program was initiated for the
freezer machine, and the progress in business activity projected the company
into a true operating entity. Consequently, through December 31, 1994 there was
no revenue generating operating activities. The Company started generating
revenue after establishing RealCold Systems, Inc. and its first acquisition in
January 1995.
During 1994 the company was active in testing various food products and
demonstrating the freezing process to prospective customers. During this time
the Company acquired additional knowledge and experience; in the use of food
freezant, visiting with major chemical manufactures of refrigerants; in the use
of frozen food processing equipment, visiting major food processing customers
and food processing conventions.
The Company implemented a growth plan in 1994 as follows, that has structured
the bases of the current ICSC organization.
(1) Hire knowledgeable people into the business.
The Company entered into an employment agreement with Franco Buchbinder in May
1994. Mr. Buchbinder has over (35) years experience in international marketing
operations in the food equipment and food processing business. Mr. Buchbinder
became a Director of the Company in May 1994, and is President of ICSC
Marketing Company, responsible for international sales and marketing.
The Company entered into a long term consulting agreement with George Briley in
April 1994. Mr. Briley has over (45) years experience in the refrigeration
business. He was the principal owner of Technicold Services, Inc., a
refrigeration consulting company and RealCold Maintenance Systems Inc., a
refrigeration maintenance company that ICSC acquired in January 1995. Mr.
Briley was primarily responsible for the design of the refrigeration system
which incorporates the freezer systems. Mr. Briley became a Director of the
Company effective September 1994, and President of RealCold Systems, Inc.<PAGE>
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(2) Joint Venture or Acquire other related refrigeration and freezing
equipment suppliers, and other related products.
The company acquired l00% of the stock of Technicold, RealCold and Jordan
Vessel in exchange for 487,500 shares of its common stock. The company also
acquired l00% of the stock of Nauticon in exchange for 900,000 shares of its
common stock and an option to purchase 300,000 shares of common stock.
Technicold Services, Inc. - Refrigeration consulting services. Mr. George
Briley is a well respected consultant in the refrigeration industry. He has
also established an educational customer training program for the refrigeration
industry.
RealCold Maintenance Systems, Inc. - Provides maintenance and service programs
for refrigeration systems. Mr. Briley designs and engineers unique, cost
effective, maintenance refrigeration products; Ammonia Recycling System, Water
Treatment System.
Jordan Vessel Corp. - Fabricates and markets refrigeration pressure vessels and
various related commercial and industrial products.
Nauticon Ltd. - Designs, engineers and fabricates a new unique patented
Refrigeration and HVAC Heat Exchange System such as condensers, fluid coolers
and cooling towers.
The Company formed joint venture agreements with two companies during 1995.
Marped Engineering Co. - The Company entered into an agreement with Marped to
design, engineer and fabricate a unique low cost effective Rotary Drum freezing
system. The Company anticipates that it will extend the Marped agreement to
fabricate additional Rotary Drum Systems. The Company is also contemplating
acquiring other related industry products from Marped.
The Wittemann Company - RealCold Systems Inc., a wholly owned subsidiary of
ICSC, signed a Joint Cooperative Agreement with The Wittemann Company, a wholly
owned subsidiary of Dover Corp. (NYSE - DOV), for the manufacture and marketing
of merchant carbon dioxide plants and refrigeration products. Wittemann is the
world's leading manufacturer of carbon dioxide systems and refrigeration
accessories employed by brewers and other fermentation processors.
(3) Partner with a major chemical manufacturer to supply food grade
refrigerant.
ICSC established a relationship with ICI Klea, a major chemical manufacturer
for the supply of refrigerant. It is the desire of both companies to expand the
relationship and establish ICI Klea as the exclusive refrigerant supplier, and
jointly market respective products.
The Company also anticipates a cooperative marketing relationship with The
Wittemann Company and its relationship with the sale of merchant CO2 plants and
the production of CO2 and the freezer systems.
(NOTE) - The Company uses CO2 and CFC-12 refrigerants in its freezing process.
The refrigerant CFC-12 is used primarily overseas in third world countries for
specific freezing applications. In discussions with the EPA and review of EPA
documentation, the Company has learned that as of December 31, 1995 there will
be a restriction on the manufacture of CFC-12 for use in developed countries.
Other third world countries will probably continue to manufacture CFC-12. It
will then be more difficult to acquire food grade CFC-12 for use primarily in
the US, because of the eventual shut down of manufacturing, and because of a
federal tax in the US to limit its use. On the Company's behalf, ICI Klea has
had discussions with federal agencies in the US and a foreign country to try to
gain approval for the use of a food grade HFC134a, which is a recommended
replacement for CFC-12.<PAGE>
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The use of HFC134a may not be approved as a food grade refrigerant, therefore
the Company will market its freezer system the US using only CO2 as the
refrigerant. Specific third world countries are permitted to use CFC's for an
extended period of time. The greatest and most immediate marketing
opportunities using CFC-12 refrigerants in third world countries is in the
freezing process of scrimp.
(4) Fund the growth plan with sufficient capital.
The Company has successfully raised sufficient capital to fund daily business
operations, and is confident that additional funds can be raised when and if
necessary through private placements and the investment community.
Current Company Business
Organization and Operations:
The current structure of ICSC is organized like a holding company with
independent and self sufficient subsidiaries related to the same industry.
There are two major subsidiaries and a marketing company: RealCold Systems,
Inc., packaged refrigeration and freezer systems, and Nauticon Ltd.,
refrigeration and evaporative heat exchange systems. ICSC Marketing Company
supports all sales and marketing activities, primarily the international
market. Subsidiaries supporting RealCold Systems Inc: Jordan Vessel Corp.,
Technicold Systems Inc., and RealCold Maintenance Systems Inc. Included is the
joint venture with The Wittemann Company providing world wide market support
for refrigeration systems and merchant CO2 plants.
The Company is forming alliances and distribution centers with agents,
distributors and synergistic companies world wide, building a comprehensive
industrial refrigeration and freezer business. ICSC is continually seeking
related acquisitions and joint venture partners that will compliment its
business and support its growth and goals.
The Company has established a relationship with a finance company for a leasing
program, leasing total turn key systems including products, services,
maintenance and supplies.
Subsidiaries - Two major operating subsidiaries, RealCold Systems, Inc. and
Nauticon Ltd., supported by the parent public entity, ICSC, supports all
operating activities for the freezing systems and the refrigeration systems and
the evaporative heat exchange systems respectively. RealCold Systems, Inc.
supports all refrigeration and freezer systems and operations from their
corporate facility in San Antonio, Texas. Nauticon Ltd. supports all
evaporative heat exchange and refrigeration systems and operations from their
corporate facility in Austin, Texas. The respective corporate facilities
support all technical and service product operations including; design and
engineering; assemble and fabrication; administration; marketing, sales support
and consulting services. Sales and marketing activities are supported by
represented agents, dealers and distributors.
Synergy of operations; people and product activity all related with respective
freezing and refrigeration product knowledge. People are cross trained and
knowledgeable about all products.<PAGE>
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Sales agents and distributors may market related industry products to the same
customer. Products produced for the refrigeration business (compressors,
condensers, vessels, parts etc.) are also needed to compliment the freezing
system. Packaged freezing and refrigeration systems are a longer sales cycle,
bigger sale price; refrigeration products and components have a shorter sales
cycle, smaller sale price providing constant cash flow.
The cooperative agreement between RealCold and Wittemann combines the technical
expertise and experience of RealCold with the worldwide marketing of Wittemann.
This industry combination of technology, sales and manufacturing experience is
unsurpassed and should provide an effective and cost efficient entry for
merchant carbon dioxide systems for this worldwide market. This venture should
prove very successful for all related companies and their respective products.
New innovation technology for carbon dioxide systems should come from this
cooperative venture.
Management - The Company's business operations are supported by an executive
management team with over (150) years experience, which includes the directors
of the Company, having extensive experience and background adequately related
to the business. CEO - over (30) years experience in marketing and
management; CFO - over (22) years experience in finance, a CPA with a
concentration on SEC audit and public accounting; General Counsel - over (30)
years legal experience including counsel to two Fortune 100 companies;
Marketing Executive - over (35) years experience in international trade and
marketing of food related refrigeration and freezing equipment; Technical
Executive - over (46) years experience in engineering and design, and a well-
known expert consultant in the refrigeration industry.
ICSC's management philosophy and structure supports decentralized authority and
operations, profit and loss accountability, incentive driven performance and
compensation, and total customer satisfaction. The Company's management
objective is to become a major force in the multi-billion dollar freezer and
refrigeration industry. The Company's goal is to achieve profitable growth and
increase shareholder value by increasing its line of superior products and
services, through acquisitions and joint ventures of related products and
companies.
Facilities - ICSC corporate and administrative offices are located in San
Antonio, Texas, Austin, Texas, and Blue Bell, PA. The San Antonio facility
supports all engineering, manufacturing and marketing related to the freezer
and refrigeration products and packages. The Austin facility supports all
engineering, manufacturing and marketing related to the Nauticon products.
Products:
Freezer Systems - ICSC's basic system (patented in May l990) quick-freezes
food products by immersing them in a bath of refrigerant, with special
advantages for fragile foods such as fruits and seafood. Quick freezing forms
a protective, ice-glazed shell around foods with little cellular damage. This
method retains freshness and flavor, and prevents clumping for processing and
packaging. Quick freezing also reduces shrinkage, promotes faster thawing,
extends product quality and shelf life up to four times longer than other
processes. This unique process provides the least cost to freeze per product
pound versus competition.
The Company has designed a unique refrigeration recovery system, the only
close-looped system in the industry. This system recovers CO2 refrigerants. It
contains and recycles these gasses, providing less costly use of refrigerants.
It has environmental advantages over competitive systems. ICSC's cost-effective
systems use less energy, less refrigerant, save space, and require no periodic
defrosting.<PAGE>
<PAGE> 9
The Company's newly designed Star Wheel freezing system was completed in March
l994; its second generation compact Rotary Drum freezing system will be
introduced early in 1995. The Star Wheel freezing system employs inlet and
outlet star wheels, which seal the refrigerant and food product in a freezer
chamber. The total system process is automated. The star wheels are
synchronized with a conveyor belt immersed in the refrigerant. ICSC's newly
designed Rotary Drum System (patent pending) receives food product into
rotating drum pockets. Refrigerant enters each individual pocket from the top
of the rotating drum. While rotating, the sealed food product and refrigerant
in the drum pockets are computer controlled, cycled and timed for freezing
specifications desired.
RealCold Systems and related divisions, manufacture packaged refrigeration
systems for ICSC's cryogenic freezing systems and other industrial users.
Custom innovative industrial refrigeration products include the following:
ammonia recovery and recycling system, non-chemical water treating systems,
liquid recirculating packages, and refrigeration system vessels. RealCold
Systems will also offer unique automated ice systems which produce low cost
block and sized ice.
The ISCS Quick Freeze System, employing a recoverable liquid refrigerant,
provides a cost effective method for freezing specialty products that are
difficult to freeze employing conventional systems. The ICSC Quick Freeze
System has advantages over all existing systems. The ICSC Quick Freeze System
is designed to freeze "specialty" foods. Those normally hard to freeze
products; peeled and deveined shrimp (prawns), fish fillets, sauces (gravies)
or other fragile food products. This system may also be employed in "peeling"
systems, sterilization of surgical instruments, blood freezing and possibly
others. ICSC will employ three major Quick Freeze System products meeting most
freezing requirements world-wide.
Star Wheel System - The product to be frozen is conveyed to the freezer inlet
synchronized star wheel, which seals the freezant in the freezing chamber. The
product is transferred to the perforated conveyor belt which is immersed in the
freezant. The heavily insulated freezer chamber is maintained at a slight
positive pressure to prevent air infiltration. Excess subcooled freezant is
then sprayed over the product as it is carried through a portion of the freezer
chamber on the conveyor belt.
To assure that the frozen product does not retain any freezant, the conveyor
moves the product through an equilibration zone in the freezer chamber. The
time in this zone is approximately three times that required to freeze the
product. The frozen product is then discharged from the conveyor belt through
the outlet synchronized start wheel, which also seals the freezant in the
freezing chamber, to an outlet conveyor into a container. The perforated
conveyor belt is synchronized with the inlet and outlet star wheels. The liquid
refrigerant and vapor gas is recaptured and recycled.
Belt Feed Freezer System - This product is similar to the Star Wheel System. In
lieu of the star wheel mechanized operation, a wide flat horizontal belt feed
system is incorporated and synchronized with the inlet and outlet feeder
systems.
Rotary Drum System - A small compact, low cost (42" in diameter) rotating drum,
constructed of high density (HMW polymer) plastic and stainless steel, which is
insulated and sealed maintaining a slight positive pressure to prevent air
infiltration. Food product, assembled on a conveyor system, enters sealed
rotating drum "pockets". Liquid refrigerant enters the top sealed rotating drum
"pockets" and merges with the food product. While rotating, the liquid
refrigerant is drained off and the food product remains in the "pockets" for
"drying" (evaporation of refrigerant). Rotation cycle is timed and synchronized
to produce the level of product freezing desired. Food product is discharged
from the rotating drum onto a conveyor system and container. The liquid
freezant and vapor gas is recaptured and recycled.<PAGE>
<PAGE> 10
CO2 Freezer System - Designed to operate very similar to the Star Wheel and
Rotary Drum Systems, utilizes CO2 in place of a liquid freezant. Also can be
designed as a very economical recovery freezing system for existing CO2
installations.
ICSC Quick Freeze Process - The ICSC Quick Freeze process is based upon the
principles of the low boiling point of low temperature halocarbon refrigerants,
and the subsequent surface heat removal of processed product in an environment
of less than -20. F. This is, in this case, accomplished with liquid
halocarbon refrigerants, which provides for virtually instant surface freezing.
The mechanics of the system, in general, insures an adequate pathway and
retention time which is adjusted to accommodate the mass weight and surface
heat or total heat of respiration of the product intended to be quick frozen,
and to what degree the freezing process is to be accomplished. This patented
process enclosed in a semi-hermetic chamber in which the refrigerant agent's
temperature is carefully controlled and monitored, and in which the product is
retained as long as is required to obtain the exact freeze criteria.
Upon introducing the product into the ICSC process chamber or "pockets", it is
immediately immersed in a liquid bath of refrigerant agent and crust-frozen.
This causes the crystal structure of the liquid in the crust to form a matrix
which interlocks to the firmness similar to that of an egg shell which protects
the delicate inner section which contains the meat, flavoring juices and
aromas.
The shape of a delicate form is thus preserved during the quick freezing
process, thus preventing damage during deep frozen storage. This also produces
a surface or "ice-glazed" which also prevents sticking or ice-packing or the
formation of solid clumps of frozen products. The fast freeze preserves the
delicate taste and ascetic value of the product, which is important to the
ultimate consumer and which preserves the price levels of quality products.
Competition:
Mechanical Systems - There are two types of in-line continuous freezing
systems. Each employs a mechanical refrigeration system, usually two staged or
economized. Most of the refrigeration systems employ ammonia as the
refrigerant. IQF fluidized freezers are employed to freeze loose (unpackaged)
vegetables and fruit on a continuous basis. The other mechanical freezing
system employs a spiral conveyor to transport product through the enclosure.
This type freezer is used to freeze both "open" and boxed products.
Liquid Nitrogen Freezers - Cryogenic freezing has been a factor in the food
freezing industry for many years. Its main selling point has been rapid
freezing that provides excellent quality. Its main disadvantage is cost to
freeze. Two types of nitrogen freezers are available. One is a spiral, the
other is an air in-line belt (conveyor) freezer.
Carbon Dioxide Freezers - Another cryogen, carbon dioxide (CO2), is also used
for freezing many kinds of food products. The freezer configurations are
similar to liquid nitrogen freezers. CO2 freezers in general have an advantage
over liquid nitrogen that is difficult to overcome and that is cost to freeze.
Industrial Refrigeration Packages - RealCold Systems, Inc. and related
companies, manufacture custom packaged refrigeration systems for ICSC's
cryogenic freezing systems and other industrial users. Custom innovative
industrial refrigeration products include the following: ammonia recovery and
recycling system, non-chemical water treating system, liquid recirculating
packages, and refrigeration system vessels. RealCold Systems also offers unique
automated ice systems which produce low cost block and sized ice.<PAGE>
<PAGE> 11
Packaged systems and custom products produced by RealCold are an integral part
of the Company's freezing system, which enhances the freezer system profit
margins. Their expertise and support has refined progress on the Company's new
drum freezer system, ReelFreeze, which is now designed for use with either CO2
or liquid refrigerants for domestic and international markets.
RealCold Systems, Inc. is the entity supporting all refrigeration systems and
operations. San Antonio, Texas is the corporate facility for all technical and
service product support for both the freezing and refrigeration systems
including; design and engineering, assemble and fabrication, sales support and
consulting services, and product field maintenance.
The three related companies and their products that support RealCold Systems,
Inc.
Technicold Services, Inc. (TSI) - offers consulting engineering services,
including process safety management compliance and ammonia refrigeration and
carbon dioxide system design. TSI also provides operation, maintenance and
safety seminars for ammonia refrigeration technicians and supervisors.
Jordan Vessel Corporation (JVC) - offers industrial refrigeration system
components such as liquid recirculating packages and refrigeration system
vessels of all types.
RealCold Maintenance Systems, Inc. (RCM) - designs and produces unique products
for the refrigeration industry. RealCold Systems also publishes a quarterly
newsletter, COLD TALK, which reaches over (1600) refrigeration technicians in
the industry.
RealCold Systems Inc. and The Wittemann Company - have a Joint Cooperative
Agreement for the manufacture and marketing of merchant carbon dioxide plants
and refrigeration products. Wittemann is the world's leading manufacturer of
carbon dioxide systems and refrigeration accessories employed by brewers and
other fermentation processors. Wittemann has carbon dioxide systems operating
in almost every country in the world. The cooperative agreement combines the
technical expertise and experience of RealCold with the worldwide marketing of
Wittemann. George Briley, President of RealCold Systems with 46 years
experience, is a renown expert in the innovative design and building of
merchant carbon dioxide systems. The RealCold technical and engineering staff
will provide the engineering design and manufacturing for innovative
refrigeration products and the merchant carbon dioxide plants. This industry
combination of technology, sales and manufacturing experience is unsurpassed
and should provide an effective and cost efficient entry for this worldwide
market. This venture should prove very successful for all related companies and
their respective products.
Complimenting the various product lines, the Company intends to market other
various related industry products including automated ice systems which produce
low cost block and sized ice.
Competition - varies from small industrial refrigeration manufactures to the
very large companies in the industry, all competing for this multi billion
dollar industry. The Company envisions an enormous market demand for
refrigeration systems in third world countries. America is well entrenched with
refrigeration systems, but there is a great niche market for the Company's
unique and innovative refrigeration and freezer products. ICSC and its related
entities have the refrigeration engineering expertise and new innovative
products that are needed and in demand today for an industry that hasn't seen
many changes in the last 30 - 40 years.<PAGE>
<PAGE> 12
Evaporative Heat Exchange Systems - Nauticon Ltd., a wholly owned subsidiary of
ICSC manufactures and markets a product line of evaporative heat exchange
systems for the HVAC and refrigeration industry. The new patented products are
innovative and unique in design, use new material technology, are simple to
manufacture, and have low operating costs. They are used for condensers, fluid
coolers, booster coolers, and cooling towers.
Condensers for both Refrigeration and HVAC - Capacities range from 60,000 to
525,000 BTU for refrigeration condensing. Refrigerants may be at different
incoming temperatures as would be normal for multi-circuit applications. Copper
coils are compatible with all refrigerants except ammonia.
Fluid Coolers - Water. oil, glycol - anything compatible with the copper coils
can be cooled according to each thermal characteristics. The separate coils can
handle different liquids at the same time, according to needs.
Booster Coolers - Applies to new or existing applications. Especially
advantageous in systems now short of capacity, as it can be inserted in the
existing cooling loop to circumvent the need for an entirely new system. Gives
low cost additional cooling to refrigerants or liquids plus the multi-circuit
ability.
Cooler Tower - Several important differences set this cooling tower apart from
others. Hot water is dispersed through Nauticon's unique "cyclone" water heads
- - there are no sprinkler moving arms to break, stall or clog. No bottom
openings to attract debris, thus polluting the system.
Unique low cost manufacturing procedures are essentially for the same product,
which is offered in four varieties. This is attributed to communality of parts
and manufacturing. Manufacturing processes and techniques are both simple and
well worked out utilizing low cost labor.
The Company envisions an enormous opportunity for the small market - a low end
HVAC system for the home and commercial uses. A related, but completely
separate opportunity exists in the small unit market for a self contained
evaporative condenser unit - 2.5 to 10.0 ton. Primary use is for mid to upper
priced homes and small commercial users. Its primary advantage is energy
savings, yielding extremely high EER ratings to not only better, but to offset
the regulated change to low efficiency refrigerants. To be sold as a
replacement or new applications and to also be offered packaged with
compressors.
Competition - Nauticon products could revolutionize the refrigeration industry;
an industry that faces serious changes for the first time in years due to
energy and environmental concerns world wide. The Nauticon application should
reduce these traditional concerns and enhance the industry's growth. The
Company believes that it has a truly unique product concept that serves a very
wide arena of commercial applications for the national market as well as the
international market.
ITEM 2. PROPERTIES
The Company maintains its corporate office in San Antonio, Texas, and an
executive office in Blue Bell, Pennsylvania. A 6,500 sq. ft. administrative,
engineering and manufacturing facility is located in San Antonio, Texas for
RealCold Systems, Inc., and a 4,300 sq. ft. administrative, engineering and
manufacturing facility is located in Austin, Texas for Nauticon, Ltd.
All properties are leased on a short term basis. The Company owns and maintains
no properties. Management believes that the Company's facilities are adequate
for its operations and are maintained in good condition. The Company is aware
of the growth potential of RealCold Systems and Nauticon and is currently
reviewing larger facilities near their respective locations.<PAGE>
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
The Company filed legal action against a former employee, and it is the
Company's understanding that a settlement is forthcoming. The suit has no
material effect on the results of the Company.
No other material legal proceedings are pending by or against the Company, and
nor are the Directors or the Company aware of any claims which could give rise
to any litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Current - No matters were submitted to a vote of the Company's shareholders
during 1995.
Previous - At the Annual Meeting of Shareholders of Marco Ventures on July 30,
1992, the shareholders of the Company approved the recapitalization of the
Company Common Stock consisting of a 100 to 1 reverse split.
Part II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
The Company's Common Stock is traded on the Nasdaq Electronic Bulletin Board
under the trading symbol ICRY.
The following table sets forth the high and low sale prices of the Company's
Common Stock as reported by one of the market makers for the periods indicated.
Fiscal 1995 High Low
------------------------------------------------
First Quarter $ 2 3/4 $ 2 1/4
Second Quarter 2 3/4 2
Third Quarter 2 3/4 1 7/8
Fourth Quarter 2 5/8 1 1/2
As of December 31, 1995, there were approximately 158 record holders of the
Company's Common Stock.
The Company has paid no cash dividends to date, and it does not intend to pay
any cash dividends in the foreseeable future. The present policy of the Board
of Directors is to retain any future earnings to provide for the Company's
growth.<PAGE>
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial data for ICSC and its
subsidiaries. The financial data for fiscal years ending December 31, 1993
through December 31, 1995 have been derived from the Company's audited
Consolidated Financial Statements included elsewhere in this Report and should
be read in conjunction with those Consolidated Financial Statements and related
notes.
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
SUMMARY STATEMENT OF OPERATIONS
Year Ended December 31, 1995 1994 1993
- ------------------------------------------------------------------
Summary of Operations:
Revenues $ 2,243,752 $ 0 $ 0
Operating Loss $(1,060,002) $(245,280) $(268,549)
Net Loss $(1,088,949) $(245,280) $(268,549)
Net Loss Per Share $ (0.23) $ (0.07) $ (0.08)
SUMMARY BALANCE SHEET
Year Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------
Summary of Operations:
Total Assets $ 2,298,761 $ 726,598 $ 764,443
Long Term Debt $ 0 $ 0 $ 0
Shareholders' Equity $ 1,539,740 $ 627,189 $ 753,269<PAGE>
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL FINANCIAL ACTIVITY
Changes In Registrant's Certifying Accountant - ICSC has contracted with
Coopers & Lybrand, a major international professional services firm, as the new
Company auditors effective for the 1995 fiscal year audit. The Company believes
that because of the increased financial activities, and management's desire to
produce a credible growth company, the Company warrants the need of an
independent auditor with the stature of Coopers & Lybrand.
The former accountant verified that there have been no disagreements on any
matter of accounting principals or practices, financial statements disclosure,
or auditing scope of procedure either during the recent fiscal years and
subsequent to the date of his resignation.
RealCold Acquisitions - On January 30, l995, the Board of Directors approved
(retroactive to January l, l995) the acquisitions of Technicold Services, Inc.,
RealCold Maintenance Systems, Inc. and Jordan Vessel Corporation. The company
acquired l00% of the stock of these three companies in exchange for 487,500
shares of its common stock.
The three companies, with over $1.7M in orders booked in 1974, will support and
operate under RealCold Systems, Inc., a new wholly owned subsidiary of ICSC.
RealCold Systems, Inc. will manufacture and support all related products,
including packaged refrigeration systems for ICSC's cryogenic freezing systems
and custom commercial sales, ammonia recovery and recycling systems, and non-
chemical water treating systems. RealCold Systems will also offer automated
block ice systems.
Technicold Services, Inc. offers consulting engineering services including
process safety management compliance and ammonia refrigeration system design.
Technicold Services also provides operation, maintenance and safety seminars
for ammonia refrigeration technicians and supervisors. Jordan Vessel
Corporation offers industrial refrigeration system components such as liquid
recirculating packages and refrigeration system vessels of all types. RealCold
Maintenance Systems, Inc. offers unique innovative refrigeration products such
as an Ammonia Recovery and Recycle System and an Evaporative Condenser Water
Conditioning System.
Nauticon Acquisition - On August 4, 1995, the Board of Directors approved the
acquisition of 100% of Nauticon, Ltd. in a stock exchange for 900,000 shares of
common stock and 300,000 options of ICSC common stock. Nauticon will operate as
a wholly owned subsidiary in concert with ICSC's other subsidiaries, each
concentrating in unique, proprietary products for the food freezing,
refrigeration and cooling fields.
Nauticon, is an Austin, Texas based manufacturer of innovative evaporative heat
exchangers. Nauticon line of products represent five years of development. An
unique patented concept couples modern plastics with high efficiency copper
tubing to give very high efficiency, low operating costs and minimal
maintenance. These evaporative heat exchangers are self cleaning in most
applications thus eliminating chemical cleaning. These outstanding features
cannot be found in competitive products. Nauticon evaporative heat exchangers
serve the residential, commercial HVAC sector and the commercial refrigeration
industry. They have many applications, varying from traditional commercial
refrigeration to HVAC to industrial cooling. Customers vary from supermarkets
to ice rinks to walk-in coolers for refrigeration systems. HVAC applications
are in smaller commercial buildings, for traditional air conditioning systems
to highly efficient heat pumps. Industrial uses span plastic molding and
extrusion to conventional cooling of process water to cooling of cutting oils.<PAGE>
<PAGE> 16
RealCold & Wittemann - RealCold Systems Inc. and The Wittemann Company signed a
Joint Cooperative Agreement for the manufacture and marketing of merchant
carbon dioxide plants and refrigeration products. Wittemann is the world's
leading manufacturer of carbon dioxide systems and refrigeration accessories
employed by brewers and other fermentation processors. Wittemann has carbon
dioxide systems operating in almost every country in the world. The cooperative
agreement combines the technical expertise and experience of RealCold with the
worldwide marketing of Wittemann. George Briley, President of RealCold Systems
with 46 years experience, is a renown expert in the innovative design and
building of merchant carbon dioxide systems. The RealCold technical and
engineering staff will provide the engineering design and manufacturing for
innovative refrigeration products and the merchant carbon dioxide plants. This
industry combination of technology, sales and manufacturing experience is
unsurpassed and should provide an effective and cost efficient entry for this
worldwide market. This venture has proved to be very successful for all related
companies and their respective products. Since the cooperative agreement was
initiated there are twelve orders booked for CO2 plants and refrigeration
systems through the first quarter of 1996.
RESULTS OF OPERATIONS
Fiscal 1995 - For the fiscal year ended December 31, 1995, the Company incurred
a loss of ($1,060,002) or ($0.23) per share on sales revenue of $2,243,752.
This compares with a net loss of ($245,280) or ($0.07) per share on sales
revenue of $0 as a development stage company in 1994. Company total assets are
$2,298,761, stockholders equity is $1,539,740, and there is no long term debt.
For additional detailed financial information on the Company, reference the
Financial Statements on pages F-1 through F-14 included in this Annual Report
on Form 10K.
Sales Backlog - Backlog as of December 31, 1995 was approximately $500K which
is scheduled for delivery throughout the first and second quarter 1996.
Subsequent backlog as of March 31, 1996 was approximately $3.4 million which is
scheduled for delivery throughout 1996.
Management's comments on the primary reasons for the loss in 1995: Research and
development of the new rotary drum freezer system ReelFreeze. The affect on
daily operations and expenses associated with the acquisition of the four
companies. The cost of sales were higher than expected through most of 1995 due
to the related startup costs of the new subsidiaries for the administrative
offices, coordinating sales and marketing activities and setting up new
manufacturing production procedures. The ammonia industrial refrigeration
contractor demand for system components was in an industry cycle "lull" for the
latter part of 1995. New vessel product orders under Jordan Vessel Corp. were
manufactured through third party subcontractors which resulted in lower profit
margins.
During 1995 the Company made significant advances fulfilling most of its
internal Business Plan. The three new companies, acquired in January 1995 and
related with RealCold Systems, have been a proven success, because they not
only increased the Company's sales and assets but also support ICSC's freezer
systems with their in-house engineering and manufacturing experience. Packaged
systems and custom products produced by RealCold are also an integral part of
the Company's freezing system, which enhances the freezer system profit
margins. Proposals for ammonia refrigeration packages have greatly increased
and sales activity in the industry has shown signs of improving during the
fourth quarter 1995 and into 1996. Since the cooperative partnership with The
Wittemann Company, over forty proposals have been submitted for carbon dioxide
plants and refrigeration systems generating twelve orders through the first
quarter 1996.
As the RealCold manufacturing facility improves its operations and additional
product is manufactured in house, profit margins should improve. Administration
office procedures have been implemented for new work flow accounting functions.
These new functions should greatly improve order processing, receivables and
payables, and customer relations resulting in reduced administration costs.
Management believes the Company will continue to improve profit margins and
income as these operating functions improve and as sales increase during the
next year.<PAGE>
<PAGE> 17
Nauticon, as a new ICSC operating subsidiary, recorded financials for the
fourth quarter 1995. Nauticon is beginning to see favorable results from
having shown their evaporative condenser system at the Food Marketing
Exhibition and the ARI - ASHRAE Exhibition in Chicago. They have hosted a
number of interested visitors, (both from the United States and foreign
countries), who represent very significant markets for their products.
Nauticon has initiated their sales and marketing program during the fourth
quarter 1995. Primary sales targets will be the large refrigeration
manufactures that could produce and distribute product under their own private
label. Besides marketing direct through agents in the U S, other market outlets
will be through distributors world wide. Company executives representing
Nauticon and executives from a major manufacturer of refrigeration equipment
have recently exchanged facility visits. The major manufacturer expressed a
very strong interest in pursuing a joint manufacturing and marketing program
with Nauticon. Management also believes that there are many opportunities for
licensing the Nauticon technology to major manufactures in the U S and foreign
countries.
Single unit sales of Nauticon products were shipped in the fourth quarter. A
Nauticon Evaporative Condenser was purchased by an Israel customer that
exhibited the system at the heating-air conditioning-refrigeration show in Tel
Aviv before installing it in its permanent location. The customer desires to
represent Nauticon products in Israel. Recently Nauticon shipped its first
system to a prospective distributor in Costra Rica, where the company
anticipates additional orders for Central and South America.
The Company has successfully raised sufficient capital to fund the business
operations, and is confident that additional funds can be raised when and if
necessary. To support the Company's growth and goals, ICSC is continually
seeking other related acquisitions and joint venture partners. The Company
believes that its working capital and funds generated from outside investors
will be sufficient to support its operations and growth plans for the near
future. The Company has established a relationship with a finance company for
a leasing program; leasing total turn key systems including products, services,
maintenance and supplies as one monthly fixed cost to the customer.
The Company is currently live on the INTERNET, a world wide information
network. The real time system will provide anyone, investor or customer,
Company news releases, financial data and product information. A new on-line
proposal writing system and sales tool, which will produce text, drawings,
color pictures and video, is currently being developed for the INTERNET that
should enhance sales world wide for all Company products. A remote sales rep
will be able to prepare a sales proposal with the customer in a real time
environment producing text, drawings, color pictures and video. Anyone can
access the ICSC home page on the INTERNET by addressing
http://www.ucsc.com/icsc.
Third Quarter 1995 - For the third quarter ended September 30, 1995, the
Company incurred a net loss of ($128,192) or ($0.02) per share on sales of
$738,703. This compares with a net loss of ($13,305) on sales of $0 as a
development stage company in the third quarter of 1994. Year todate total
assets are $2,670,340, stockholders equity is $2,197,765, and there is no long
term debt. For the nine months ended September 30, 1995, the Company incurred a
net loss of ($325,430) or ($0.06) per share on sales of $3,300,354. This
compares with a net loss of ($95,376) on sales of $0 as a development stage
company for the same period in 1994. The Company reported that the loss was
expected due to the costs associated with the third quarter acquisition of
Nauticon, and the ammonia industrial refrigeration contractor demand for system
components was in an industry cycle "lull" for the past three months.<PAGE>
<PAGE> 18
Second Quarter 1995 - For the second quarter ended June 30, 1995, the Company
incurred a net loss of ($46,128) or ($0.01) per share on sales of $1,252764.
This compares with a net loss of ($74,156) or ($0.02) per share on sales of $0
as a development stage company in the second quarter of 1994. As compared to
the first quarter, operations improved in the second quarter 1995. Sales
backlog increased and the net loss from operations decreased. Year todate
assets are $1,925,257, stockholders equity is $1,425,949, and there is no
significant long term debt. As expected, there was a continued affect on daily
operations from the merger of three companies in January of this year and the
ongoing development and testing of the new freezer systems.
First Quarter 1995 - During the first three months of operation the Company
made significant progress while encountering a major transition with the
acquisition of the three companies. While consolidating the new organization
into a new administration and manufacturing facility, the Company managed to
book sales of over $1.3M for the first quarter compared to a total of $1.7M
sales booked in 1994 for the acquired companies. Total assets increased to over
$1.6M and the Company's Net Equity increased to over $1.1M. There was a total
of 4,253,234 common shares outstanding as of March 31, 1995. The Company has a
consolidated loss carry forward of over $1.2M. Due to the related startup costs
for the administrative office, coordinating the marketing activities and
setting up new manufacturing production procedures, the estimated cost of sales
was higher than expected.
PREVIOUS FINANCIAL ACTIVITY
The Company was incorporated on October 7, l987, in the State of Nevada for the
purpose of engaging in the acquisition of any and all types of business
ventures. In l989 the company recorded an unrealized loss of $363,302 on a
failed joint venture between its then wholly owned subsidiary (Power-Tech
Corp.) and Re-Tech, Inc. In May, l990, the company (Marco) rescinded the
original transaction which resulted in the increase of l6,000,000 shares of
stock to acquire Power-Tech Corp. This resulted in a recovery of $237,9l4 from
the original unrealized loss of $363,302, for a net realized loss of $l25,388.
In December, l990, the company entered into a product license agreement to
market certain medical and technical products. Under the terms of the
agreement, l0% of the gross sales, beginning in 1991, was to have gone to a
wholly owned newly-created subsidiary of the company for the marketing rights.
The company was to have issued l,000,000 shares of common stock in return for
the license. The license issued also had options to acquire up to l0,000,000
shares of stock at $.30 per share until December l0, l993, based upon attaining
certain sales targets. The company rescinded this product license agreement
October, 1991.
On August 5, 1992 the Board of Directors of the Company adopted and ratified by
unanimous vote a reverse split of the common stock 100:1, which the
shareholders approved by a majority vote at the Annual Shareholders Meeting on
July 30, 1992.
On December 28, l992, the company acquired the patent rights (US. Patent No.
4,928,492) and related engineering and technology to a process of quick
freezing food products, and cleaning and treating various non-food products by
using a circulating cryogenic liquid in a closed pressurized vessel system in
exchange for 2,4l4,083 shares of common stock to the shareholders of Immersion
Cryogenic Systems Corp. The common stock was valued at $.30 per share which was
determined by management to be a fair market value. Simultaneously, the company
changed its name from Marco Ventures to International Cryogenic Systems
Corporation. Two directors of the company were also directors of Immersion
Cryogenic Systems Corporation.<PAGE>
<PAGE> 19
During 1992, the Company issued 730,000 post split shares of common stock
valued at $.05 per share to affiliated parties for consulting services and
accounts payable. On December 28, 1992, the Company issued 100,000 shares of
common stock valued at $.01 per share to the president of the Company as an
adjustment for services rendered in 1991. Affiliates of the Company received
2,040,041 of the shares issued for the acquisition.
A total of 544,951 shares were issued and outstanding prior to the acquisition
of Immersion Cryogenic Systems Corporation. As of December 31, 1992 a total of
3,059,034 shares were issued and outstanding. The Company had no liabilities
and no debt through December 31, 1992. During January and February, 1993, the
company sold 170,000 shares of common stock in a private placement transaction
at $.50 per share for a total of $85,000.
On December 28, 1992, the Board of Directors unanimously voted to change the
name of the Company to INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION (ICSC).
The company previously filed the following statements during this period of
time; Form 10-K, 10-Q and 8-K with the SEC; 15c2-11 Broker Dealer Due
Diligence; Filing with Standard and Poor's; Filing with NASDAQ - OTC Bulletin
Board.
During 1993, the Company completed construction of a working-prototype
Immersion Freeze Machine. The machine was for testing food products and for
demonstrations to potential customers.
On February 5, 1993, the Company issued 15,000 shares of common stock valued at
$.50 per share to directors as compensation for director services. On February
12, 1993, the Company authorized the offer for subscription and sale, at $.50
per share, 170,000 common shares exempt from Securities Registration. The offer
was fully subscribed and 50,000 shares of the offering was purchased by an
officer of the Company. On June 21, 1993, the Company purchased back 90,000
common shares for $50,000 from two individuals who are affiliates or
controlling shareholders of the Company. On December 21, 1993, the Company
issued 60,000 shares of common stock valued at $1.00 per share to officers of
the Company for services performed for the Company.
The Company, by corporate resolutions dated February 5, 1993, and September 1,
1993, agreed that all accounts payable, commissions and fees due for any direct
expenses, services and/or supply purchases can be paid for in either cash or
company stock valued at 50% of the share bid price within 90 days of the
payment due date.
The Company issued an additional 390,000 shares of common restricted stock for
consulting services and cash to private investors and directors during 1993.
The Company currently had 3,449,034 common shares issued and outstanding. The
Company had no revenue and no long term debt through December 31, 1993. The
Company deposited $15,000 toward a facility which is undergoing leasehold
improvements and will house the working-prototype Immersion Freeze Machine. The
company stockholder equity was $753,269, and had a net operating loss carryover
of $840,965.
During 1994 the company entered into various consulting agreements with its
officers and directors. Incentive compensation is based upon attaining sales
and gross operating profits plus time and effort devoted to the company. If
compensation is due, the recipient has the option of receiving cash or common
stock at 50% of the then quoted bid price of the stock.
On May 10, 1994, the Company issued a total of 61,000 shares of common stock
valued at $1.00 per share to two directors of the Company for consulting
services. On August 19, 1994, the Company issued 10,000 shares of common stock
valued at $1.00 per share to a director of the Company for consulting services.<PAGE>
<PAGE> 20
On September 30, l994, the Board of Directors approved a stock option plan for
the benefit of the company's officers and directors. The option is for 300,000
shares of common stock at $l.00 per share, exercisable through September 30,
l997. The stock options, when granted, will be allocated among its officers and
directors as determined by the Board of Directors.
The company has not provided any tax benefit for net operating losses incurred
because realization is not assured. At December 3l, l994, the company has a net
operating loss carry forward of $l,086,245 for Federal Income Tax purposes.
This loss carry forward commences to expire in 2002. The Company had no
revenue and no long term debt through December 31, 1994. The Company
stockholder equity was $627,189.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements appear on sequential pages F-1 to F-16 Index to
Financial Statements of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.<PAGE>
<PAGE> 21
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
Name Age Position Period Served
------------------ --- ---------------- -------------------
Francis L. Simola. 57 Chairman of the Board January 1, 1993 to
President and CEO Present
Terrence J. Dunne 47 Director January 1, 1993 to
Treasurer and CFO Present
Robert D. Klages 64 Director January 1, 1993 to
Secretary and General Present
Counsel
George C. Briley 72 Director September 1, 1994
President to Present
RealCold Systems, Inc.
Robert E. Jenkins 60 Director September 1, 1995
President to Present
Nauticon, Ltd.
Franco Buchbinder 62 Director May 1, 1994 to
Present
A summary of the business experience and background of the Company's officers
and directors is set forth below.
Francis L. Simola Mr. Simola has been Chairman, CEO and President of ICSC
since the Company's inception in 1993. Mr. Simola's background and experience
includes; over 28 years in the computer industry with positions in various
marketing and management operations with the former Burroughs Corporation, now
Unisys Corporation; over 14 years as a consultant and principal in various
high-tech companies. Mr. Simola is the founder and president of Simco Group
Inc., a private investment company, that controls a major interest in ICSC.
Simco provides services consisting of financing, marketing and management
consulting for small technical start-up companies that have proven specialized
niche products. Mr. Simola is a graduate of Peirce Business College with a
degree in Marketing and Management, and attended Villanova University and
Drexel University Evening College for additional course studies in Finance and
Business Administration.
Terrence J. Dunne Mr. Dunne has been CFO and Treasurer of ICSC since the
Company's inception in 1993. Mr. Dunne is a Certified Public Accountant, and a
member of the SEC Practice Section of the American Institute of CPA's. Mr.
Dunne has over 24 years of experience in public accounting, with a
concentration of work in the SEC area of auditing and public accounting. Mr.
Dunne has extensive experience providing financial consulting to a variety of
businesses. Mr. Dunne is a graduate of Gonzaga University in Accounting, and
has a MBA from Gonzaga University with a Masters in Taxation.<PAGE>
<PAGE> 22
Robert D. Klages Mr. Klages has been Secretary and General Counsel of ICSC
since the Company's inception in 1993. Mr. Klages served as a trial attorney
in the Civil and Antitrust Divisions of the U. S. Department of Justice for
five years. Mr. Klages served as Licensing and Litigation Counsel to Xerox
Corporation, and later held the positions of Counsel to the Univac Division and
thereafter Vice President and General Counsel to Sperry Computer Systems. Mr.
Klages has since been in private practice which has included practicing before
the Iran United States Tribunal at The Hague. Mr. Klages is a member of the
Bar's of the District of Columbia, Maryland and Pennsylvania. He has served on
a number of government and private committees which include: Member of the
Technical Advisory Committee to the Secretary of Commerce and Ambassador to
GATT on international trade matters; Chairman of the Computer Technical
Advisory Committee to the Secretary of Commerce on East-West trade; National
Export Expansion Council Committee on Office Machines and Computers; Chairman
of the Computer and Business Equipment Manufactures Association Foreign Trade
Committee; and member of U. S. Delegation to the United Nations Economic
Commission for Europe Seminar on the Transfer of Technology. Mr. Klages
graduated from the U. S. Merchant Marine Academy and Georgetown University Law
School.
George C. Briley Mr. Briley has been a director of the ICSC since 1994, and
is President of RealCold Systems, Inc., and President of Technicold Services,
Inc., ICSC subsidiary companies. Mr. Briley has over forty-seven years
experience in engineering and marketing in the refrigeration industry. After
receiving his BSEE at Louisiana Polytechnic University, Summa Cum Laude, Mr.
Briley was employed by York Corp. for twelve years, where he attended the York
Engineering Training Program. At York he served as a Project Engineer and
Sales Manager prior to management positions as a Branch Manager and Regional
Manager. He then served with Frick Company for two years as Field Sales
Manager. Mr. Briley was employed for thirteen years with Lewis Refrigeration
Company, as Vice President and Board Member; and fifteen years with
Refrigeration Engineering Corp. (RECO), as Vice President, Marketing and
Research and Board Member. While serving Lewis and RECO, he helped build the
companies into multi million dollar organizations, where they designed,
engineered, manufactured, installed and serviced industrial refrigeration
systems. Mr. Briley holds four US patents, and is a Registered Professional
Engineer in five states. He is the author of many articles and papers regarding
all aspects of industrial refrigeration. His services on professional
organizations include; Founding President of the International Institute of
Ammonia Refrigeration (IIAR); Fellow in American Society of Heating
Refrigeration and Air Conditioning Engineers (ASHRAE), fellow and life member;
Chairman and member of many committees, and a member at present of the ANSI-
ASHRAE 15-1993 "Safety Code for Air Conditioning and Refrigeration".
Robert E. Jenkins Mr. Jenkins has been a director of ICSC since 1995, and is
President of Nauticon Ltd., an ICSC subsidiary. Mr. Jenkins has been associated
with Nauticon since its inception in the mid 1980's, and is one of its founding
principals. As a real estate developer of mixed used properties, it was Mr.
Jenkins' experience with the corrosion problems associated with air cooled air
conditioning condensers that led to the development of the various concepts
which are now utilized in the unique Nauticon Heat Exchanger. Mr. Jenkins left
real estate development in 1990 to devote full time to product development for
Nauticon.
Franco Buchbinder Mr. Buchbinder has been a director of ICSC since 1994. as
President of ICSC Marketing Company, he supports all world-wide marketing
activities for ICSC. Mr. Buchbinder has over thirty-five years experience in
international trade and marketing distribution. After graduating with a
business degree from Milan's prestigious Bocconi University, Mr. Buchbinder
began his entrepreneurial path to success by joining La Commissionaria
Mercantile Company, a Milan based import distribution company in the food
products equipment industry. His commitment and innovation eventually led him
to be named President. Seeking new and inventive opportunities, Buchbinder
branched out into his own Zurich-based company, Elcomac, a sales and service
organization which distributed food processing equipment from Borden, Inc. and
FMC throughout Europe. As business rapidly expanded, new offices were opened in
Paris, Frankfurt and Boston. It was through his lucrative business
relationships in the USA that prompted Mr. Buchbinder to make Boston his home
and base of international operations. Over the past l5 years, Mr. Buchbinder
has used his global contacts, import/export expertise and fluency in language,
to organize distribution networks for high-tech and industrial products in both
Europe and the US. In addition to these areas, Buchbinder is also connected in
European media and communications industry through a long-standing, high-level
relationship with Italy's Berlusconi Group, a renowned communications company
with vast holdings in television, radio, film and publishing.<PAGE>
<PAGE> 23
Directors of the Company are elected every three years. Officers of the
Company, elected by the Board of Directors, serve annually. There are no family
relationships among the Directors and Officers of the Company.
ITEM 11. EXECUTIVE COMPENSATION
No Officer or Director of the parent company, ICSC, received any cash
compensation during the year ended 1995. Mr. Klages received 10,000 shares of
common stock for legal services rendered in 1995. Three officers received a
total of 7,500 shares of common stock for director's fees in 1995. Mr. Briley,
as president of RealCold Systems Inc., received cash compensation from personal
consulting services through Technicold Services, Inc. in 1995.<PAGE>
<PAGE> 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of December 31, 1995, regarding
the number of shares of the Company's common stock beneficially owned by (i)
all beneficial owners of five percent (5%) or more of common stock, (ii) each
director and (iii) directors and officers as a group.
SECURITY OWNERSHIP:
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership (1) of Class (2)
-------------------- --------------------------- ------------
George C. Briley 506,000 9.42%
1606 Colquitt
San Antonio, TX. 78217
Franco Buchbinder 52,500 .98%
28 Cliff Road
Wellesley Hills, MA 02181
Terrence J. Dunne 333,600 6.21%
West 717 Sprague
Spokane, Washington 99204
Robert E. Jenkins 401,228 7.47%
2903 Hillview Road
Austin, Texas 78703
Robert D. Klages 127,000 2.36%
Country Club Road
Phoenixville, Pa. 19460
Francis L. Simola 908,532 16.91%
9408 Meadowbrook Ave.
Philadelphia, Pa. 19118
Simco Group, Inc. 988,164 18.40%
6198 West Butler Pike
Blue Bell Pa. 19422
All Directors and Executive 3,317,024 61.75%
Officers
(1) The nature of beneficial ownership for all shares is sole voting and
investment power.
(2) The per cent of class is all common stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Simco Group Inc., a privately held Nevada Corporation, is (100%) owned by
Simola Family.<PAGE>
<PAGE> 25
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules
1. Financial Statements: The financial statements and other information
appear on pages F-1 to F-16 of the Annual Report on Form 10-K and
are filed as a part hereof.
2. Schedules: The schedules are not filed with this Annual Report on
Form 10-K because the schedules are either inapplicable or the
required information is presented in the Financial Statements or
Notes hereto.
3. Exhibits: Exhibit (27) FINANCIAL DATA SCHEDULE
(b) Reports on Form 8-K:
The Company did not file any Reports on Form 8-K during the fourth quarter
of fiscal 1995.<PAGE>
<PAGE> F-1
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-7<PAGE>
<PAGE> F-2
Report of Independent Accountants
To the Board of Directors and Stockholders
International Cryogenic Systems Corporation
We have audited the accompanying consolidated balance sheet of International
Cryogenic Systems Corporation and Subsidiaries as of December 31, 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
financial statements of International Cryogenic Systems Corporation for 1994
and 1993, were audited by other auditors, whose reports, dated April 4, 1995
and April 4, 1994, included explanatory paragraphs describing the uncertainty
of the recovery of the Company's primary asset, comprising patent rights and
related technology aggregating $726,572.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International Cryogenic Systems Corporation and Subsidiaries as of December 31,
1995, and the consolidated results of their operations and their cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
The acc ompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from
operations, primarily in development stage activities, and has a working
capital deficiency that raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
The Company's primary assets comprise intangible assets, including patent
rights and related technology of $1,295,718 and goodwill of $605,340. The
recovery of these intangible assets is dependent upon raising additional
working capital through equity or debt financing transactions, and achieving
profitable operations. The ultimate outcome of this uncertainty cannot
presently be determined. Accordingly, the financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Austin, Texas
April 4, 1996<PAGE>
<PAGE> F-3
<TABLE>
<CAPTION>
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
-------------------------------
ASSETS 1995 1994
-------------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 158,616 $ 26
Trade accounts receivable, net of allowance for doubtful accounts
of $31,060 31,514
Inventories 58,994
Prepaid expenses and other current assets 43,951
-------------- --------------
Total current assets 293,075 26
Property and equipment, net 104,628
Patent rights and related technology, net of accumulated amortization 1,295,718 726,572
Goodwill, net of accumulated amortization 605,340
-------------- --------------
Total assets $ 2,298,761 $ 726,598
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loans from officers $ 69,105
Note payable 100,000
Accounts payable and accrued expenses 518,234 $ 99,409
Deferred revenue 61,148
Capital lease obligations, current portion 8,837
-------------- --------------
Total current liabilities 757,324 99,409
Long-term liabilities:
Capital lease obligations, net of current portion 1,697
-------------- --------------
Total liabilities 759,021 99,409
-------------- --------------
Commitments
Stockholders' equity:
Common stock, $0.001 par value, 200,000,000 shares authorized,
5,371,234 and 3,682,234 shares issued at December 31, 1995
and 1994, respectively 5,371 3,682
Additional paid-in capital 3,717,063 1,849,752
Amounts due from stockholders (7,500) (140,000)
Accumulated deficit (2,175,194) (1,086,245)
-------------- --------------
Total stockholders' equity 1,539,740 627,189
-------------- --------------
Total liabilities and stockholders' equity $ 2,298,761 $ 726,598
============== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<PAGE> F-4
<TABLE>
<CAPTION>
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
--------------- ------------- ----------------
<S> <C> <C> <C>
Revenue:
Product sales $ 2,069,588
Services 174,164
--------------- ------------- ----------------
Total revenue 2,243,752
Cost of revenue:
Product sales 1,879,639
Services 167,739
--------------- ------------- ----------------
Total cost of revenue 2,047,378
--------------- ------------- ----------------
Gross margin 196,374
Operating expenses:
Sales and marketing 559,027 $ 211,089 $ 80,953
General and administrative 486,228 11,010 4,056
Research and development 211,121 23,181 183,540
--------------- ------------- ----------------
Total operating expenses 1,256,376 245,280 268,549
--------------- ------------- ----------------
Operating loss (1,060,002) (245,280) (268,549)
Other (income) expense:
Interest on other income (5,498)
Interest expense 20,168
Other 14,277
--------------- ------------- ----------------
Total other (income) expense 28,947
--------------- ------------- ----------------
Net loss $ (1,088,949) $ (245,280) $ (268,549)
=============== ============= ================
Net loss per share $ (0.23) $ (0.07) $ (0.08)
=============== ============= ================
Weighted average number of shares 4,776,000 3,504,000 3,357,000
=============== ============= ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<PAGE> F-5
<TABLE>
<CAPTION>
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1995, 1994 and 1993
Additional Amounts
Common Stock Paid-In Due From Accumulated
Shares Amount Capital Stockholders Deficit Total
--------- -------- ------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993 3,059,034 $ 3,059 $ 1,293,675 $ (572,416) $ 724,318
Issuance of common stock for cash 405,000 405 279,595 280,000
Issuance of common stock for services 75,000 75 67,425 67,500
Purchase of common stock (90,000) (90) (49,910) (50,000)
Net loss (268,549) (268,549)
--------- -------- ------------- ------------ -------------- --------------
Balance at December 31, 1993 3,449,034 3,449 1,590,785 (840,965) 753,269
Issuance of common stock for services 81,200 81 81,119 81,200
Issuance of common stock for cash 40,000 40 37,960 38,000
Issuance of common stock for amounts
due from stockholders 112,000 112 139,888 $ (140,000)
Net loss (245,280) (245,280)
--------- -------- ------------- ------------ -------------- --------------
Balance at December 31, 1994 3,682,234 3,682 1,849,752 (140,000) (1,086,245) 627,189
Issuance of common stock for services 101,500 102 101,398 101,500
Issuance for common stock and options
for acquisitions 1,387,500 1,387 1,486,113 1,487,500
Payments of amounts due from
stockholders 140,000 140,000
Issuance of common stock for amounts
due from stockholders (7,500) (7,500)
Issuance of common stock for cash 200,000 200 279,800 280,000
Net loss (1,088,949) (1,088,949)
--------- -------- ------------- ------------ -------------- --------------
Balance at December 31, 1995 5,371,234 $ 5,371 $ 3,717,063 $ (7,500) $ (2,175,194) $ 1,539,740
========= ======== ============= ============ ============== ==============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.<PAGE>
<PAGE> F-6
<TABLE>
<CAPTION>
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,088,949) $ (245,280) $ (268,549)
Adjustments to reconcile net loss to net cash
used in operating activities:
Income from discontinued operations 15,000
Depreciation and amortization 152,744
Provision for doubtful accounts 31,060
Common stock issued for operating expenses 101,500 81,200 67,500
Changes in assets and liabilities:
Trade accounts receivable 170,602
Inventories (17,532)
Prepaid expenses and other assets (20,130) (15,000)
Accounts payable and accrued expenses 344,465 88,235 11,170
-------------- ------------ ------------
Net cash used in operating activities (326,240) (60,845) (204,879)
-------------- ------------ ------------
Cash flows from investing activities:
Capital expenditures (40,985) (2,347)
Cash purchased in acquisition 13,869
-------------- ------------ ------------
Net cash used in investing activities (27,116) (2,347)
-------------- ------------ ------------
Cash flows from financing activities:
Proceeds from related party financing 345,000
Proceeds from note payable 100,000
Proceeds from issuance of common stock 420,000 38,000 230,000
Distributions to related party for financing (345,000)
Payments on capital leases (8,054)
-------------- ------------ ------------
Net cash provided by financing activities 511,946 38,000 230,000
-------------- ------------ ------------
Net increase (decrease) in cash and cash equivalents 158,590 (22,845) 22,774
Cash and cash equivalents at beginning of period 26 22,871 97
-------------- ------------ ------------
Cash and cash equivalents at end of period $ 158,616 $ 26 $ 22,871
============== ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 12,176 $ - $ -
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
<PAGE>
<PAGE> F-7
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Background and Basis of Presentation:
Background
International Cryogenic Systems Corporation (the "Company" or "ICSC") was
incorporated on October 7, 1987 in the State of Nevada, and operates in one
business segment, the development, design, manufacture, distribution and
servicing of cryogenic refrigeration systems.
On December 28, 1992, the Company acquired the patent rights (U.S. Patent
No. 4,928,492) and related engineering and technology to a process of quick
freezing food products, and cleaning and treating various non-food products
by using a circulating cryogenic liquid in a closed pressurized vessel
system, in exchange for 2,414,083 shares of common stock. The common stock
was valued at $.30 per share, which was determined by management to be the
fair market value. Two directors of the Company were also directors of the
company selling such patent rights.
On January 30, 1995, the Board of Directors approved, effective January 1,
1995, the acquisitions of Technicold Services, Inc., RealCold Maintenance
Systems, Inc., and Jordan Vessel Corporation (RealCold Systems Group). The
Company acquired 100% of the stock of these three companies in exchange for
487,500 shares of its common stock. These acquisitions were accounted for
as purchases (see Note 3).
The three companies will operate under RealCold Systems, Inc., a wholly
owned subsidiary of the Company.
On July 25, 1995, the Board of Directors approved the acquisition of the
assets and liabilities of Nauticon in exchange for 900,000 shares of the
Company's common stock, and options to purchase 300,000 shares of the
Company's common stock at prices ranging from $1.00 to $2.00, expiring in
2000. This acquisition has been accounted for as a purchase (see Note 3).
For the years ending December 31, 1994 and prior, International Cryogenic
Systems Corporation was considered a development stage enterprise, devoting
substantially all of its efforts to establishing its business, with no
significant revenue from its planned principal operations.
Basis of Presentation
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, and that
recovery of its intangible assets, primarily patent rights and related
technology and goodwill, will occur. The Company's ability to continue as a
going concern, and recover the value of its intangible assets is dependent
upon raising additional working capital through debt or equity financing
transactions, and achieving profitable operations. Management intends to
raise additional working capital and eventually achieve profitable
operations. The ultimate outcome of this uncertainty cannot be presently
determined. Accordingly, the financial statements do not include any
adjustments that might result from the outcome of this uncertainty.<PAGE>
<PAGE> F-8
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, after elimination of intercompany
accounts and transactions.
Cash and Cash Equivalents
All highly liquid investments with remaining maturities at purchase date of
three months or less are considered cash equivalents.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight line method over the estimated useful lives of the assets,
generally three to seven years. Expenditures that increase the value or
extend the life of an asset are capitalized, while cost of maintenance and
repairs are expensed as incurred. Gains or losses upon disposal of assets
are recognized in income.
Research and Development
Research and development expenses are charged to operations as incurred.
The cost of intellectual property purchased from others that are immediately
marketable or that have an alternative future use are capitalized and
amortized as intangible assets. Capitalized costs are amortized using the
straight line method over the estimated economic life of the related asset,
typically 10 years. At December 31, 1995 and 1994, capitalized patent
development costs, net of amortization, were $1,295,718 and $726,572.
Amounts capitalized and expensed during the years ended December 31, 1995
and 1994 were as follows:
1995 1994
--------- -----------
Capitalized patent costs $ 670,726 $ 726,598
Amortization expense 101,606
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the
customer. Service revenue is recognized when services are performed and
billable.<PAGE>
<PAGE> F-9
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies, continued:
Intangible Assets
Goodwill represents the excess of the purchase price and related direct
costs over the fair value of net assets acquired as of the date of the
acquisition. Goodwill is amortized on a straight-line basis over 10 years.
Amortization of goodwill amounted to $40,687 for the year ended December 31,
1995.
Loss Per Common Share
The computation of loss per common share is based upon the weighted average
number of common shares and common equivalent shares outstanding during the
period. The effect of common shares issuable from the potential exercise of
stock options have not been included in the calculation of loss per share
for any period, since their effect would be antidilutive.
Income Taxes
The Company complies with SFAS No. 109, "Accounting for Income Taxes," which
requires the use of an asset and liability approach for financial accounting
and reporting for income taxes.
New Accounting Standards
In October 1995, the FASB issued Statement 123, "Accounting for Stock-Based
Compensation" ("Statement 123"), which establishes fair value-based
accounting and reporting standards for all transactions in which a company
acquires goods or services by issuing its equity securities, including all
arrangements under which employees receive stock-based compensation.
Statement 123 encourages, but does not require, companies to adopt fair
value accounting to recognize compensation expense for grants under
stock-based compensation plans. However, companies must comply with the
fair value disclosure requirements set forth in Statement 123, which is
effective for fiscal years beginning after December 15, 1995. The Company
expects to adopt only the reporting standards of Statement 123, which should
not impact the Company's financial statements.
In March 1995, the FASB issued Statement 121, "Accounting for the Impairment
of Long-lived Assets and for Long-lived Assets to be Disposed Of"
("Statement 121"), which addresses the accounting for the impairment of
long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used. It also addresses the accounting for
long-lived assets and certain identifiable intangibles to be disposed of.
Statement 121 has an effective date of January 1, 1996. The Company does
not expect application of Statement 121 to have a significant impact upon
the Company's financial statements, unless impairment occurs (see Note 1,
Basis of Presentation).<PAGE>
<PAGE> F-10
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. Summary of Significant Accounting Policies, continued:
Reclassifications
Certain amounts within the December 31, 1994 consolidated financial
statements have been reclassified to conform to the current year
presentation.
3. Acquisition of RealCold Systems Group and Nauticon:
Issuance of Common Stock to RealCold Systems Group
Pursuant to the terms of the RealCold Systems Group acquisition agreement
referred to in Note 1, on January 30, 1995 (retroactive to January 1, 1995),
the Company issued 487,500 shares of its common stock to RealCold Systems
Group in exchange for 100% of the outstanding common shares of Technicold
Services, Inc., RealCold Maintenance Systems, Inc. and Jordan Vessel
Corporation, which was formed January 1, 1995.
The RealCold Systems Group acquisition has been accounted for under the
purchase method and, accordingly, the operating results of the Company
include the operations since the date of acquisition. The acquisition
resulted in goodwill of $305,701 which is being amortized over 10 years:
Purchase price $ 487,500
Fair value of assets acquired and
liabilities assumed:
Accounts receivable 233,133
Inventories 17,774
Prepaid expenses 1,470
Property and equipment 5,000
Liabilities assumed (75,578)
----------
181,799
----------
Excess of purchase price over fair value
assets acquired $ 305,701
==========
Acquisition of Nauticon Ltd.
Pursuant to the terms of the Nauticon Acquisition agreement referred to in
Note 1, on August 29, 1995, effective July 25, 1995, the Company issued
900,000 of the Company's common stock and options to purchase 300,000 shares
of the Company's common stock at a price from $1.00 to $2.00, expiring in
the year 2000 to Nauticon's owners in exchange for all of Nauticon's assets
and liabilities. <PAGE>
<PAGE> F-11
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Acquisition of RealCold Systems Group and Nauticon, continued:
Acquisition of Nauticon Ltd., continued
The Nauticon acquisition has been accounted for as a purchase and,
accordingly, the operating results of the Company include the results of
operations of Nauticon, Inc. since the date of acquisition. The acquisition
resulted in goodwill of $342,818 which is being amortized over 10 years:
Purchase price $ 1,000,000
Fair value of assets acquired and
liabilities assumed:
Cash and cash equivalents 13,869
Accounts receivable 7,543
Inventories 23,688
Prepaid expenses 22,351
Property and equipment 48,000
Intangible assets 670,726
Liabilities assumed (128,995)
-----------
657,182
-----------
Excess of purchase price over fair
value of net assets acquired
$ 342,818
===========
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of Nauticon, Inc. had occurred at the
beginning of 1995 and 1994, respectively. The pro forma presentation
reflects the impact of adjustment relating to the amortization of goodwill.
It does not purport to be indicative of the financial results which actually
would have occurred had the acquisition been made at the beginning of 1995
and 1994, respectively, or of the results which may occur in the future.
1995 1994
------------- -------------
Net sales $ 2,243,752 $ -
Net loss $ (1,235,949) $ (306,019)
Loss per share $ (0.23) $ (0.07)<PAGE>
<PAGE> F-12
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. Acquisition of RealCold Systems Group and Nauticon, continued:
Other Issuances of Common Stock
On January 30, 1995, the Company issued 60,000 shares of common stock,
valued at $1.00 per share, to a creditor of the Company for services
rendered.
On February 21, 1995, the Company issued a total of 6,000 shares of common
stock, valued at $1.00 per share, to a three creditors of the Company for
services rendered.
On February 21, 1995, the Company issued a total of 7,500 shares of common
stock, valued at $1.00 per share to three officers of the company for
director's fees.
On February 21, 1995, the Company issued 10,000 shares of common stock,
valued at $ 1.00 per share to an officer of the company for services
rendered.
On April 1, 1995, the Company issued 200,000 shares of common stock, valued
at $1.40 per share as a private placement offering with a foreign investor.
On August 10, 1995, the Company issued 10,000 shares of common stock, valued
at $1.00 per share as to two individuals for services rendered.
On September 24, 1995, the Company issued 8,000 shares of common stock,
valued at $1.00 per share to a company for services rendered.
4. Wittemann Joint Venture:
During June 1995, RealCold Systems, Inc. entered into a Joint Cooperation
Agreement with Wittemann Company, Inc. for the sale of merchant carbon
dioxide plants and refrigeration products. The assigned responsibilities of
Wittemann Company include sales and marketing, the costing of miscellaneous
items, proposal and quotation preparation, customer contract management and
purchasing of miscellaneous items. The assigned responsibilities of
RealCold Systems, Inc. include the costing of major components, engineering,
assembly drawings and the purchasing of major components. The parties share
equally the costs associated with obtaining contracts and completing
contract requirements. The parties share equally all revenues and profits
derived from completing contract requirements upon completion of the
contract. As of December 31, 1995, no revenues have been earned as the
contracts are not completed. Amounts received as a deposit for contracts
amounted to approximately $ 43,000 for the year ended December 31, 1995 and
are included in unearned revenue in the accompanying consolidated balance
sheet at December 31, 1995. The Joint Cooperation Agreement is effective
for two years ending June 1997, with certain renewal options.<PAGE>
<PAGE> F-13
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
5. Inventories:
Inventories are stated at actual cost. The major components of inventories
are as follows:
1995 1994
-------- ---------
Parts inventory $ 22,432 $ -
Product inventory 36,562 -
-------- ---------
$ 58,994 $ -
======== =========
6. Property and Equipment:
Property and equipment consists of the following:
1995 1994
--------- ---------
Machinery and equipment $ 60,681 $ -
Prototypes and molds 44,080 -
Furniture and fixtures 7,820 -
--------- ---------
112,581 -
Less accumulated depreciation and (7,953) -
amortization
--------- ---------
$ 104,628 $ -
========= =========
Equipment acquired under a capital lease amounted to $18,588.
7. Income Taxes:
The Company has not provided any tax benefit for net operating losses
incurred because realization is not assured. The Company intends to file
separate federal income tax returns for ICSC and each of its wholly owned
subsidiaries. Net operating loss carryforwards expiring through 2010 are as
follows:
ICSC (Parent only) $ 1,435,148
RealCold Systems, Inc. 160,714
Jordan Vessel Corporation 335,089
Nauticon, Inc. 258,541<PAGE>
<PAGE> F-14
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
7. Income Taxes, continued:
Under the provisions of the Tax Reform Act of 1986, Section 382 of the
Internal Revenue Code was amended to restrict utilization of net operating
loss carryforwards after a common stock ownership change exceeding 50%.
Such utilization is restricted to an annual limit computed by applying a
prescribed percentage to the fair market value of a company immediately
prior to the time of the ownership change. Pursuant to the above mentioned
provisions, there may be a restriction on the utilization of any net
operating loss carryforwards from acquired entities.
The components of net deferred tax assets and liabilities were as follows:
1995 1994
----------- -----------
Deferred tax asset:
Deferred current tax asset:
Net operating loss carryforwards $ 375,104 $ 369,323
Valuation allowance (375,104) (369,323)
----------- -----------
Net deferred tax asset $ - $ -
=========== ===========
At December 31, 1995 and 1994, the valuation allowance for deferred tax
assets related to tax benefits applicable to net operating loss
carryforwards.
8. Note Payable:
Note payable at December 31, 1995 consisted of $100,000 line of credit
agreement entered into with Texas American Bank in January 1995 to provide
temporary working capital to the Company and renewed July 10, 1995. The
interest rate is fixed at 7% per annum. The note is collateralized by a
certificate of deposit in the amount of $100,000, dated January 9, 1995, at
a interest rate of 5%.
9. Options and Warrants:
On July 25, 1995, as part of the Nauticon acquisition, the Company granted
Nauticon shareholders an option to purchase 300,000 shares of the Company's
common stock at any time during the period commencing on the closing date of
July 31, 1995 and ending five years thereafter for the purchase price of
$1.00 per share in year one, $1.25 per share in year two, $1.50 per share in
year three, $1.75 per share in year four, and $2.00 per share in year five.<PAGE>
<PAGE> F-15
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
10. Related Party Transactions:
The Company has received funding on several occasions from Simco Group,
Inc., a separate legal entity wholly owned by the Company's Chairman and
Chief Executive Officer.
Amounts due from stockholders at December 31, 1995 represent services
receivable under a consulting agreement.
11. Leases:
Capital Leases
At December 31, 1995, the Company is obligated under a capital lease
agreement covering purchase of equipment. The agreement has been recorded
at the present value of the required rentals using the lower of the interest
rate implicit in the lease or the Company's incremental borrowing rate. The
asset is amortized over the estimated service life of seven years and
interest on the outstanding lease obligation is charged to expense during
each period.
Equipment under capital lease $ 18,588
Accumulated amortization (2,213)
---------
Equipment under capital lease, net $ 16,375
=========
Future minimum lease payments under capital leases, together with the
present value of the net minimum payment as of December 31, 1995 are as
follows:
1996 $ 11,296
1997 2,533
Less amount representing interest (3,295)
---------
Total obligations under capital lease 10,534
Less current portion (8,837)
---------
Less total obligations under capital lease $ 1,697
=========
<PAGE>
<PAGE> F-16
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. Leases, continued:
Operating Leases
The Company leases certain sales offices and miscellaneous office equipment
under operating lease agreements which expire at various times through 1997.
Total rent expense was $36,708 in 1995.
Future minimum rental commitments as of December 31, 1995 were as follows:
1996 $ 43,414
1997 41,020
1998 40,902
1999 39,600
2000 39,600<PAGE>
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