SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
Commission File Number 33-19584
POWERCOLD CORPORATION
FORMERLY
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-2582701
(State of Incorporation) (IRS Employer Identification No.)
One Passaic Street
Wood-Ridge, New Jersey 201-470-7000
(Address of principal executive offices) (Registrant's telephone No.)
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 OTC 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 March 31, 1996, 5,838,269 Common Shares were outstanding, and the
aggregate market value of such shares held by non-affiliates was approximately
$3,528,367.
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INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
Item 1: Financial Statements (Unaudited)
Consolidated Statement of Financial Position at
March 31, 1997 and December 31, 1996. 3
Consolidated Statement of Operations for Three Months
Ended March 31, 1997 and March 31, 1996. 4
Consolidated Statement of Changes in Stockholders' Equity
for Three Months Ended March 31, 1996 and March 31, 1997. 5
Consolidated Statement of Cash Flows for Three Months
Ended March 31, 1997 and March 31, 1996. 6
Notes to Consolidated Financial Statements at March 31,
1997. 7
Item 2: Management's Discussion and Analysis of 8
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION 11
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults Upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-K.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL
POSITION AT MARCH 31, 1997
(UNAUDITED) AND DECEMBER 31, 1996.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARCH 31, DECEMBER 31,
ASSETS 1997 1996
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $37,225 $457,552
Cash, invested through related party 607,960 607,960
Restricted cash 400,000 300,000
Accounts receivable, net of allowance for doubtful
accounts of $2,080 and $2,080 respectively. 21,298 48,588
Inventories 80,708 69,096
Prepaid expenses and other current assets 19,220 19,012
-------------- --------------
Total Current Assets 1,166,411 1,502,208
-------------- --------------
OTHER ASSETS:
Investment in securities available for sale 667,234 724,312
Investment in affiliate 672,407 1,000,000
Restricted cash 200,000 200,000
Property and equipment, net of accumulated depreciation 73,163 71,447
Patent rights and related technology,
net of accumulated amortization 1,120,952 1,155,986
Goodwill, net of accumulated amortization 477,268 491,892
-------------- --------------
Total Other Assets 3,211,024 3,643,637
-------------- --------------
TOTAL ASSETS $4,377,435 $5,145,845
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings, related parties $0 $15,000
Short-term borrowings 606,387 799,502
Accounts payable and accrued expenses 153,243 137,661
Income taxes payable 8,080 124,156
-------------- --------------
Total Current Liabilities 767,710 1,076,319
-------------- --------------
Commitments
STOCKHOLDERS' EQUITY:
Common Stock - $0.001 par value, 200,000,000
shares authorized, 5,838,269 and 5,838,269
shares issued at March 31, 1997 and
December 31, 1996, respectively 5,838 5,838
Additional paid-in capital 4,036,633 4,036,633
Amount due from shareholders (7,500) (7,500)
Unrealized gain (loss) on securities available for sale (19,626) 1,000
Retained earnings (accumulated deficit) (405,620) 33,555
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 3,609,725 4,069,526
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $4,377,435 $5,145,845
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED
UNAUDITED MARCH 31, 1997 AND MARCH 31, 1996.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
-------------- --------------
SALES REVENUE:
Product Sales $8,217 $108,113
Services 27,006 65,453
-------------- --------------
Total Revenue 35,223 173,566
COST OF REVENUE:
Product Sales 25,179 81,444
Services 500 14,866
-------------- --------------
Total cost of revenue 25,679 96,310
Gross Margin 9,544 77,256
OPERATING EXPENSES:
Sales and marketing 39,942 53,424
General and administrative 134,766 133,786
Research and development 29,178 34,220
-------------- --------------
Total operating expense 203,886 221,430
-------------- --------------
Income (loss) from operations before equity in earnings
of unconsolidated affiliate (194,342) (144,174)
Equity in loss of unconsolidated affiliate (327,593) 0
-------------- --------------
Income (loss) before other income (expense) (521,935) (144,174)
Other income (expense):
Interest and other income 27,079 3,283
Interest and other expense (10,204) (1,366)
Other (191) (574)
-------------- --------------
Total other income (expense) 16,684 1,343
-------------- --------------
Income (loss) before provision for income taxes (505,251) (142,831)
Provision (benefit) for income taxes
Federal current provision (66,076)
Federal deferred provision
-------------- --------------
(66,076) 0
-------------- --------------
Net income (loss) ($439,175) ($142,831)
============== ==============
Net loss per share ($0.08) ($0.03)
============== ==============
Weight average number of shares 5,838,269 5,485,323
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS' EQUITY FOR THE THREE MONTH PERIODS
(UNAUDITED) ENDED MARCH 31, 1996 AND MARCH 31, 1997.
- ----------------------------------------------------------------------------------------------------------------------------------
Unrealized Gain
(Loss) on Retained
Additional Amounts Securities Earnings
Common Stock Paid-In Due From Available (Accumulated
Stock Amount Capital Stockhold For Sale Deficit) Total
<S> <C> <C> <C> <C> <C> <C> <C>
---------- ------- ----------- -------- --------- ------------ -----------
Balances At January 1, 1996 5,371,234 $5,371 $3,717,063 ($7,500) ($2,175,194) $1,539,740
Issuance of Common Stock For Accounts Payable 173,035 173 172,862 173,035
Net (Loss) For The Three Month Period
Ended March 31, 1996 (142,831) (142,831)
---------- ------- ----------- -------- --------- ------------ -----------
Balances At March 31, 1996 5,544,269 $5,544 $3,889,925 ($7,500) ($2,318,025) $1,569,944
========== ======= =========== ======== ========= ============ ===========
Balances At January 1, 1997 5,838,269 $5,838 $4,036,633 ($7,500) ($19,626) $33,555 $4,048,900
Net (Loss) For The Three Month Period
Ended March 31, 1997 ($439,175) ($439,175)
---------- ------- ----------- -------- --------- ------------ -----------
Balances At March 31, 1997 5,838,269 $5,838 $4,036,633 ($7,500) ($19,626) ($405,620) $3,609,725
========== ======= =========== ======== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.<PAGE>
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THREE MONTH PERIODS ENDED
UNAUDITED MARCH 31, 1997 AND MARCH 31, 1996.
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
MARCH 31, MARCH 31,
1997 1996
-------------- --------------
Cash flows from operating activities:
Net income (Loss) ($439,175) ($142,832)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 54,189 56,577
Net realized loss on available for sale securities 191
Provision for doubtful accounts 805
Equity in earnings of unconsolidated affiliate 327,593
Changes in assets and liabilities:
Trade accounts receivable 27,290 (55,710)
Inventories (11,612) (373,280)
Prepaid expenses and other assets (208) 6,778
Accounts payable and accrued expenses 15,582 355,507
Income taxes payable (116,076)
-------------- --------------
Net cash provided (used) by operating activities (142,226) (152,155)
Cash flows from investing activities:
Purchase of property and equipment (6,247) (5,291)
Purchase of certificate of deposit (100,000)
Proceeds from sale of securities available for sale 409,981
Purchase of securities available for sale (373,720)
-------------- --------------
Net cash provided (used) by investing activities (69,986) (5,291)
Cash flows from financing activities:
Proceeds from short-term borrowings 99,166
Proceeds from issuance of common stock 173,035
Payments on capital lease (2,310)
Repayment of short-term borrowings (292,281)
Repayment of short-term borrowings, related parties (15,000)
-------------- --------------
Net cash provided (used) by financing activities (208,115) 170,725
-------------- --------------
Net increase (decrease) in cash and cash equivalents
and cash related party (420,327) 13,279
Cash and cash equivalents and cash related party
at beginning of period 1,065,512 158,617
-------------- --------------
Cash and cash equivalents and cash related party
at end of period $645,185 $171,896
============== ==============
Interest paid $10,204 $1,366
Income taxes paid $50,000
Noncash investing activities:
Unrealized (loss) on securities available for sale ($19,626)
</TABLE>
The accompanying notes are an integral part of these financial statements.
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POWERCOLD CORPORATION AND SUBSIDIARIES Notes to Consolidated
Financial Statements at
(Unaudited) March 31, 1997
The condensed consolidated financial statements of PowerCold Corporation
included herein have been prepared without audit, pursuant to the rules and
regulations of the securities and exchange commission. Although, certain
information normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted,
PowerCold Corporation believes that the disclosures are adequate to make the
information presented not misleading. The condensed consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto included in PowerCold Corporation's annual report on Form 10-K for the
fiscal year ended December 31, 1996.
The condensed consolidated financial statements included herein reflect all
normal recurring adjustments that, in the opinion of the management, are
necessary for a fair presentation. The results for the interim periods are not
necessarily indicative of trends or of results to be expected for a full year.
The accompanying notes are an integral part of these financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
A Plan of Agreement and Merger was signed with Rotary Power International, Inc.
("RPI") on March 21, 1997 subject to RPI shareholder approval. Each shareholder
of RPI will receive .363 shares of the Company's common stock (1.56M shares).
In December 1996 the Company agreed in principal to merge/acquire Rotary Power
International, Inc. in a stock for stock acquisition, whereby RPI would become a
wholly owned subsidiary of the Company. The Company initially acquired a 30%
equity interest in RPI (2M shares of common stock for $1M).
RPI is the world's only manufacturer of stratified charge rotary engines and
large rotary engines. RPI is the internationally recognized leader in the
development and commercialization of rotary engines (15-3000 horsepower) for use
in industrial, marine and hybrid-electric vehicular markets. RPI was formed by
Richard M.H. Thompson, affiliates of Loeb Partners Corporation and management in
October 1991 to buy the assets and business of the Rotary Engine Division of
John Deere Technologies International, Inc. In 1984, John Deere had bought the
Rotary Engine Division from Curtiss-Wright Corporation, which had operated it
since 1958.
There are two major reasons for the acquisition of RPI. The refrigeration
industry desires packaged refrigeration systems and RPI'S engines add growth
value to our products along with packaging ability. Current deregulation of gas
and electric utilities is creating major competitive changes in energy use and
costs. RPI'S natural gas engines enhance the customers' economic benefits by
reducing energy costs while supporting the environment with a clean burning
energy source. Through associated markets overseas there is a complementary
demand and need for energy, (portable generators) and for refrigeration and CO2
systems in remote areas of the world.
Packaging of refrigeration systems for supermarkets - RPI has an exclusive
alliance agreement with Hussmann Corporation, the world's largest supplier of
supermarket refrigeration equipment, for marketing RPI'S energy efficient 65
series natural gas engine to supermarkets. Currently 65 series natural gas
engines have been installed in seven supermarkets providing a minimum of 15%
energy savings per store. The estimated 30,000 supermarkets consume 4% of the
energy use in the US.
Because of the ongoing deregulation of the gas and electric utilities
competition will create new markets for more efficient energy use especially for
commercial refrigeration systems. Our Company has the products (Nauticon
condensers and RPI engines) and our management has the experience and creative
ability to package refrigeration systems for the multi-million dollar commercial
refrigeration market. We are forming marketing alliances with major utility
companies and well established refrigeration companies in the business.
Subsequently, effective April 1, 1997, Rotary Power International, Inc. was
reorganized into three subsidiary companies: Rotary Power International, Inc. -
manufactures and markets large rotary engines. Rotary Power Industries, Inc. -
manufactures and markets industrial engine products. Rotary Power Marine, Inc. -
manufactures and markets marine engine products. The three companies lease an
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45,000 sq. ft. facility in Wood-Ridge, New Jersey for their administration,
engineering and manufacturing operations. RPI primarily marketed engines to the
US government and has had muti-million dollar revenue years. The Company now has
the opportunity to commercialize a proven product, that has tens of millions of
dollars and years of development experience behind it. Management is in
discussions with some of the largest companies in the world as prospective
marketing and manufacturing partners.
RealCold Products, Inc., a wholly owned subsidiary of the Company, designs and
packages refrigeration and freezer systems. RealCold Products was reorganized
with a new name, replacing RealCold Systems Inc. and RealCold Maintenance
Systems, Inc., supporting all engineering and manufacturing of commercial
refrigeration packages and freezer systems worldwide. Management believes there
is no substantial market in the US for the ReelFrez food freezing system, (a
RealCold product), because of the ban on the use of certain refrigerants. Some
countries continue to use these refrigerants, and a recent market study projects
a need for thousands of food freezing systems in third world countries, (12,000
for China alone). Management is seeking overseas alliances for this product.
Nauticon, Inc., manufactures and markets evaporative heat exchange systems,hired
a new Sales Manager for its line of evaporative heat exchange systems. There is
some 30 systems installed. The product is operating to specifications and
Nauticon management is excited about the prospects for substantial growth in
revenues. They now have 16 distributors throughout the US. Nauticon is in
negotiations with some of the largest refrigeration manufactures for product
manufacturing and marketing alliances. The prospects for these alliances, if
negotiated successfully, should support a revenue growth that will far exceed
current and future revenue projections.
Effective April 1, 1997 the Company changed its name to PowerCold Corporation,
and elected a new Company director and appointed two new officers as follows:
Richard M.H. Thompson was elected a Director and appointed Chief Financial
Officer of the Company. Mr. Thompson has been a Director, President and Chief
Executive Officer of Rotary Power International, Inc. since its incorporation
in October 1991. Mr. Thompson was associated with Kuhn, Loeb & Company, an
investment banking firm and has acted through his company, Richard M.H. Thompson
& Associates, Inc., as a financial and management advisor. In January 1988, he
initiated and advised management in the buy-out of Energy Research Corporation
("ERC") from Fluor Corporation. He is a director and Chairman of the Executive
Committee of ERC,a company specializing in the development and commercialization
of fuel cell technology. Mr. Thompson received his M.A. in mathematics and
engineering from Cambridge University and his M.B.A. from Harvard University.
H. Jack Kazmar was appointed Chief Marketing Officer of the Company. Mr. Kazmar
has been a marketing consultant to RPI since 1993. Previously he worked for ICC
as Vice President of Sales and Marketing. Mr. Kazmar has over 30 years
experience in the commercial heating, ventilation and air conditioning equipment
industry.
He was President and co-founder of Skil-Aire Corporation, from 1981-1989, a
manufacturer of standardized commercial heating, ventilation and air
conditioning products. Mr. Kazmar served in a number of positions of increasing
responsibility at Fedders Corporation from 1971-1981, including General Manager
of Residential and Commercial Products Division and Airtempt Applied. Prior to
joining Fedders, he held various positions with Worthington Corporation in
direct sales and field management. Mr. Kazmar holds a BS in Mechanical
Engineering from Lafayette College.
Sequential Page 9 of 12<PAGE>
RESULTS OF OPERATIONS - First Quarter 1997
The Company's Consolidated Statements of Operations for the first quarter ended
March 31, 1997 compared to the first quarter ended March 31, 1996: Sales revenue
decreased 79.7% to $35,223 for the first quarter 1997 compared to $173,566 for
the same period in 1996; operating loss increased 25.8% to ($194,342) compared
to ($144,174); and net loss increased 67.5% to ($439,175 or ($0.08) per share
compared to a net loss of ($142,831) or ($0.03) per share - increase in net loss
for the quarter was due from consolidated equity interest in affiliate Rotary
Power Int. Inc. Net loss per share was based on weighted average number of
shares of 5,838,269 compared to 5,485,323 for the same period in 1996.
The Company's Consolidated Balance Sheets as of the first quarter ended March
31, 1997 compared to the first quarter ended March 31, 1996: Total assets
increased 61.5% to $4,377,435 compared to $1,686,599; total liabilities
decreased 31% to $767,710 compared to $1,112,218; total stockholders' equity
increased 56.5% to $3,609,725 compared to $1,569,944; and the Company has no
long term debt.
The Company's substantial gain in assets and stockholders equity for the first
quarter ended March 31, 1997 compared to the first quarter ended March 31, 1996
was due to the sale of RealCold Systems, Inc., a Company subsidiary, to WittCold
Systems, Inc.
The operating loss was due to the acquisition and reorganization of Rotary
Power, maintaining general Company operating overhead including additional
enhancements to the Nauticon product line and the move to new plant facilities
in Texas.
Effective January 1, 1997, the Company will receive from WittCold Systems, Inc.,
under the sale agreement, a "percentage amount" payment on product sales for the
next ten years, as previously stated. For WittCold year to date; three systems
will be shipped and billed in the second quarter 1997, there are over $5M in
pending orders waiting on letters of credit and formal contract approval, and
over $30M of proposals are out for new systems world wide.
Management projects improved growth in earnings from WittColds' sales this year.
Consolidated gross revenues will not improve until the second half of this year
due to the recent acquisition and reorganization of RPI during the first half of
the year, and implementation of Nauticon's new marketing program.
"Safe Harbor" Statement
Forward looking statements made herein are based on current expectations of the
Company that involves a number of risks and uncertainties and should not be
considered as guarantees of future performance. These statements are made under
the Safe Harbor Provisions of the Private Securities Litigation Reform Act of
1995. The factors that could cause actual results to differ materially include;
interruptions or cancellation of existing contracts, impact of competitive
products and pricing, product demand and market acceptance risks, the presence
of competitors with greater financial resources than the Company, product
development and commercialization risks and an inability to arrange additional
debt or equity financing.
Sequential Page 10 of 12<PAGE>
PART 11. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None.
Item 6 Exhibits and Reports on Form 8-K.
January 6, 1997 - The Company acquired 30% equity interest in
Rotary Power International, Inc.
Exhibit 27 - Financial Data Schedule
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POWERCOLD CORPORATION
FORM 10-Q
March 31, 1997
Signature
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 13, 1997
POWERCOLD CORPORATION
/s/Francis L. Simola
- -------------------------
Francis L. Simola
Chairman and President
(Chief Executive Officer)
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1166411
<SECURITIES> 667234
<RECEIVABLES> 21298
<ALLOWANCES> 0
<INVENTORY> 80708
<CURRENT-ASSETS> 1166411
<PP&E> 73163
<DEPRECIATION> 0
<TOTAL-ASSETS> 4377435
<CURRENT-LIABILITIES> 767710
<BONDS> 0
0
0
<COMMON> 5838
<OTHER-SE> 3609725
<TOTAL-LIABILITY-AND-EQUITY> 4377435
<SALES> 8217
<TOTAL-REVENUES> 35223
<CGS> 25679
<TOTAL-COSTS> 203886
<OTHER-EXPENSES> (327593)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16684
<INCOME-PRETAX> (505251)
<INCOME-TAX> (66076)
<INCOME-CONTINUING> (439175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (439175)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
