SECURITIES AND EXCHANGE COMMISSION
Washington, D C 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 1998
Commission File Number 33-19584
POWERCOLD CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 23-258270
(State of Incorporation) (IRS Employer
Identification No.)
103 GUADALUPE DRIVE
CIBOLO, TEXAS 78108 210-659-8450
(Address of principal executive offices) (Registrant's telephone number)
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 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 September 30, 1998, 6,577,636 Common Shares were outstanding, and the
aggregate market value of such shares held by non-affiliates was approximately
$3,869,197
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POWERCOLD CORPORATION
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1997. 3
Consolidated Statement of Operations for Three and Nine
Months Ended September 30, 1998 and September 30, 1997. 4
Consolidated Statement of Changes in Stockholders' Equity
for Three Months Ended September 30, 1998 and September 30, 1997. 5
Consolidated Statement of Cash Flows for Three and Nine
Months Ended September 30, 1998 and September 30, 1997. 6
Notes to Consolidated Financial Statements at September 30, 1998. 7
Item 2: Management's Discussion and Analysis of 8
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION 14
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 CONSOLIDATED STATEMENT OF FINANCIAL
AND SUBSIDIARIES POSITION AT SEPTEMBER 30, 1998
(UNAUDITED) AND DECEMBER 31, 1997.
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1998 1997
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $812,333 $2,274
Restricted cash 400,000 600,000
Accounts receivable, net of allowance for doubtful
accounts of $84,533 and $7,718 respectively. 15,163 117,680
Interest receivable from affiliate 58,082
Interest receivable 9,918
Employee receivable 6,017
Other receivable 8,050
Loan to Rotary Power Enterprises, Inc. 26,000
Refundable income tax 124,156 124,156
Deposit on acquisition 63,000
Inventories 34,583 69,082
Prepaid expenses and other current assets 12,246 13,162
-------------- --------------
Total Current Assets 1,511,466 984,436
-------------- --------------
Investment in securities 206
Investment in securities through affiliate 927,902 597,300
Property and equipment, net of accumulated depreciation 48,873 65,574
Patent rights and related technology, net 457,847 508,153
Goodwill, net of accumulated amortization 65,793 73,688
-------------- --------------
TOTAL ASSETS $3,011,881 $2,229,151
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $424,142 $411,108
Accounts payable 190,526 166,954
Accrued expenses 205,573 164,973
Income taxes payable 74,156 74,156
-------------- --------------
Total Current Liabilities $894,397 $817,191
-------------- --------------
STOCKHOLDERS' EQUITY:
Preferred Stock, Series A, $.001 par value
5,000,000 shaes authorized, 1,250,000 and 0 shares
issued and outstanding at September 30, 1998 and
December 31, 1997, respectively $1,250 $0
Common Stock - $0.001 par value, 200,000,000
shares authorized, 6,577,636 and 5,995,269
shares issued at September 30, 1998 and
December 31, 1997, respectively 6,577 5,995
Additional paid-in capital 5,433,366 4,099,799
Amount due from shareholders (7,500) (7,500)
Unrealized gain (loss) on securities available for sale (50)
Retained earnings (accumulated deficit) (3,316,209) (2,686,078)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 2,117,484 1,412,166
-------------- --------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $3,011,881 $2,229,357
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR
AND SUBSIDIARIES THE THREE AND NINE MONTH PERIODS ENDED
UNAUDITED SEPTEMBER. 30, 1998 AND SEPTEMBER. 30, 1997
- --------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
<S> <C> <C> <C> <C>
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
-------------- ------------- ------------- -------------
Sales Revenue:
Product sales $104,078 $160,879 $284,519 $191,626
Services $12,265 $45,386 $95,807 $121,313
-------------- ------------- ------------- -------------
Total revenue 116,343 206,265 380,326 312,939
Cost of revenue:
Product sales 129,148 159,160 322,263 221,814
Services 1,033 2,539 1,916 3,039
-------------- ------------- ------------- -------------
Total cost of revenue 130,181 161,699 324,179 224,853
-------------- ------------- ------------- -------------
Gross margin (13,838) 44,566 56,147 88,086
Operating expenses:
Sales and marketing 128,693 66,015 344,151 179,933
General and administrative 204,608 199,776 438,932 482,565
Research and development 16,129 65,292
-------------- ------------- ------------- -------------
Total operating expense 333,301 281,920 783,083 727,790
-------------- ------------- ------------- -------------
Operating income (loss) (347,139) (237,354) (726,936) (639,704)
Equity in loss of unconsolidated affiliate (427,593)
Write off of unconsolidated affiliate (789,175) (789,175)
Gain on sale of 3% interest of unconsolidated
affiliate 37,121
-------------- ------------- ------------- -------------
Income (loss) before other income (347,139) (1,026,529) (689,815) (1,856,472)
Other income (expenses):
Interest and other income 34,500 (3,417) 83,589 73,786
Interest and other expense (4,775) (6,028) (17,572) (23,943)
Other Eexpense (3,123) (6,333) (28,818)
-------------- ------------- ------------- -------------
Total other income (expense) 29,725 (12,568) 59,684 21,025
-------------- ------------- ------------- -------------
Income (loss) before provision
For income taxes (317,414) (1,039,097) (630,131) (1,835,447)
Provision (benefit) for income taxes
For income provision (124,156)
-------------- ------------- ------------- -------------
Net income (loss) ($317,414) ($1,039,097) ($630,131) ($1,711,291)
============== ============= ============= =============
Net income (loss) per share ($0.05) ($0.18) ($0.10) ($0.29)
============== ============= ============= =============
Weighted average number of shares 6,515,471 5,903,160 6,277,489 5,872,005
============== ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND SUBSIDIARIES FOR THE THREE AND NINE MONTH PERIODS
UNAUDITED ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
RETAINED
ADDITIONAL AMOUNTS EARNINGS ACCUMULATED
PREFERRED COMMON STOCK PAID-IN DUE FROM ACCUMULATED OTHER
STOCK AMOUNT STOCK AMOUNT CAPITAL STOCKHOLDERS (DEFICIT) INCOME TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- ------- ---------- ------- ----------- ----------- ------------ --------- -----------
Balances At July 1, 1997 $0 5,878,269 $5,878 $4,061,591 ($7,500) ($638,639) ($23,938) $3,397,392
Issuance of Common Stock 65,000 65 22,060 22,125
for Accounts Payable
Unrealized gain (loss) on
securities as
available for sale 18,146 18,146
Net Income For The Three
Month Period
Ended September 30, 1997 (1,039,097) (1,039,097)
--------- ------- ---------- ------- ----------- ----------- ------------ --------- -----------
Balances At September 30, 1997 $0 5,943,269 $5,943 $4,083,651 ($7,500) ($1,677,736) ($5,792) $2,398,566
========= ======= ========== ======= =========== =========== ============ ========= ===========
Balances At July 1, 1998 $0 6,345,796 $6,346 $4,308,668 ($7,500) ($2,998,795) $0 $1,308,719
Sale of Preferred Stock 1,250,000 $1,250 $978,246 $979,496
(net of expenses of $20,504)
Issuance of Common Stock 117,340 117 74,431 74,548
for Accounts Payable
Issuance of Common Stock
as a Deposit on an 100,000 100 62,900 63,000
acquisition
Issuance of Common Stock
for Compensation 14,500 14 9,121 9,135
0
Net Income For The Three
Month Period 0
Ended September 30, 1998 (317,414) (317,414)
--------- ------- ---------- ------- ----------- ----------- ------------ --------- -----------
Balances At September 30, 1998 1,250,000 $1,250 6,577,636 $6,577 $5,433,366 ($7,500) ($3,316,209) $0 $2,117,484
========= ======= ========== ======= =========== =========== ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
AND SUBSIDIARIES FOR THE THREE AND NINE MONTH PERIODS ENDED
UNAUDITED SEPTEMBER. 30, 1997 AND SEPTEMBER. 30, 1996
- ---------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ($317,414) ($1,039,097) ($630,131) ($1,711,291)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and Amortization 24,821 54,470 73,668 163,099
Net loss on sale of securities 3,123 5,100 28,818
Equity in unconsolidated affiliate 427,593
Write off investment in affiliate 789,175 789,175
Common stock issued for expenses 83,683 22,125 192,903 47,123
Changes in assets and liabilities
Trade accounts receivable 35,471 (58,594) 25,702 (91,009)
Provision for doubtful accounts 76,815 7,718 76,815 7,718
Interest receivable 48,164
Employee receivable (1,434) (6,017)
Other receivable (8,050) (8,050)
Loan to Rotary Power Enterprise (26,000) (26,000)
Inventories 6,340 (4,567) 34,499 (15,526)
Prepaid expenses and other assets (3,210) (1,193) 916 (691)
Accounts payable 20,237 93,485 23,572 154,946
Accrued expenses (6,364) 37,002 40,600 56,369
Income taxes payable (174,156)
Cash used by subsidiary sold
------------- ------------- ------------- -------------
Net cash used by operating activities (115,105) (96,353) (148,259) (317,832)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,466) (13,833)
Disposition of property and equipment 1,234
Purchase of certificate of deposit (100,000)
Release of escrow from sale of subsidiary 200,000 200,000
Proceeds from sale of securities 94,407 16,858 1,090,237
Purchase of securities (126,518) (27,522) (690,119)
Advances to affiliate company (252,888) (324,782) (216,768)
Proceeds from sale of subsidiary
Capital contribution to subsidiary
------------- ------------- ------------- -------------
Net Cash Provided by (Used) by Investing (52,888) (33,577) (134,212) 69,517
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 979,496 979,496
Proceeds from issuance of common stock 100,000
Proceeds from short term borrowings 45,173 28,643 168,681
Proceeds from related parties 11,750
Repayment of short-term borrings (3,212) (15,609) (514,824)
Repayment from related parties (15,000)
------------- ------------- ------------- -------------
Net Cash Provided (Used) By Financing 976,284 45,173 1,092,530 (349,393)
activities ------------- ------------- ------------- -------------
NET Increase (Decrease) in Cash 808,291 (84,757) 810,059 (597,708)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 4,042 552,561 2,274 1,065,512
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $812,333 $467,804 $812,333 $467,804
============= ============= ============= =============
INTEREST PAID $4,775 $6,026 $17,572 $23,943
INCOME TAXES PAID $50,000
NONCASH INVESTING ACTIVITIES:
Unrelated (loss) on sale of securities $18,146 $134 ($6,792)
NONCASH FINANCING ACTIVITIES:
Deposit on Acquisition paid in stock $63,000 $63,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
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POWERCOLD CORPORATION Notes to Consolidated
AND SUBSIDIARIES Financial Statements at
(Unaudited) September 30, 1998
The condensed consolidated financial statements of PowerCold Corporation and
Subsidiaries 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, 1997.
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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL BUSINESS
PowerCold is a solution provider of energy efficient products for users of
industrial and commercial refrigeration systems world-wide. The Company
operates across many market sectors from large industrial food processors to
small commercial air conditioning systems. The firm's focus is to give
customers products and systems that allow them to benefit from current changes
occurring in the natural gas and electrical utility marketplace. Refrigeration
is the most energy intensive operation most business operators face. PowerCold
has the opportunity to provide products and systems, that customers require
taking advantage of these changes, to improve profitability by reducing their
operating costs.
Deregulation of the gas and electric utilities will provide continuing
opportunities, creating new markets for more efficient refrigeration systems.
PowerCold has the products, experience and creative ability to package unique
refrigeration systems for the multi-billion dollar refrigeration market. The
Company is acquiring synergistic businesses, and marketing alliances are being
formed with major utility companies and established refrigeration companies for
these products and services.
The Company's business operations are supported by a management team with over
(150) year's experience. The Company maintains administrative corporate offices
in Cibolo, Texas, and Philadelphia, Pennsylvania. Engineering and manufacturing
facilities are located in Cibolo, Texas.
As of September 30, 1998, there are three wholly owned operating subsidiaries
of PowerCold; RealCold Products, Inc., Nauticon, Inc. and Technicold Services,
Inc. These subsidiaries manufacture, market and provide consulting services for
commercial refrigeration and freezing systems for use worldwide. Nauticon
manufactures and markets a unique product line of patented evaporative heat
exchange systems for the HVAC and refrigeration industry. These companies offer
unique and innovative products, which compliment and secure PowerCold's
position in the refrigeration and air conditioning industry.
RealCold Products, Inc., a wholly owned subsidiary of the Company, located in
Cibolo, Texas, designs and produces unique products and commercial
refrigeration packaged systems for the refrigeration industry. RealCold
Products was reorganized with its new name in March 1997, replacing RealCold
Systems Inc. and RealCold Maintenance Systems, Inc. RealCold Products supports
all engineering and manufacturing of commercial refrigeration packages and
freezer systems.
RealCold Products Packaging - There are proposed alliances with other
refrigeration companies, whereas RealCold Products packages various components
adding value for a total turnkey refrigeration system. Management believes the
Company should improve income and profits as this entity provides the industry
expertise for its custom packaged products.
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The Company originally developed and patented the most advanced, cost-effective
and environmentally safe "IQF - Individual Quick Freeze" systems in the
industry. RealCold Products now supports the "Quick Freeze" systems, and plans
to develop the product for the rapidly growing frozen food industry in the
emerging markets of Asia and Latin America where electrical power is expensive
and often not reliable.
WittCold Systems, Inc., a Wittemann Company and wholly owned subsidiary of
Dover Corporation acquired RealCold Systems Inc., (a former wholly owned
subsidiary of PowerCold), whereas the Company receives a long term royalty
payment. The two combined companies provide worldwide market support for
industrial refrigeration systems and merchant CO2 plants. Wittemann is the
world's leading manufacturer of carbon dioxide systems and refrigeration
accessories employed by brewers and other fermentation processors. The
acquisition culminated after a successful (50/50) joint venture between the two
companies for the manufacture and marketing of Merchant Carbon Dioxide Plants
and Refrigeration System Packages. Only the per cent of sales royalty is booked
and consolidated by the Company.
It is management's belief that revenue from the royalty alliance with WittCold
Systems may not be as high as previously projected for 1998, because of the
overseas problems in the Asian financial markets. WittCold relies mainly on the
international market for sales and revenue from its Merchant CO2 systems.
Nauticon, Inc., a wholly owned subsidiary of the Company, manufactures and
markets a product line of patented evaporative heat exchange systems for the
air conditioning and refrigeration industry, which significantly reduces
electric power consumption during peak electrical rate periods for most air
conditioning and refrigeration users. The 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. Nauticon products may revolutionize the air
conditioning and refrigeration industry; an industry that faces serious changes
for the first time in years due to energy and environmental concerns worldwide.
The product is operating to specifications after delays in product development.
There are over 130 systems installed to date, and the Company expects to double
growth annually over the next three years. Nauticon has set up a distributor
network throughout the US, and is in negotiations with some of the largest OEM
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.
Primary sales targets are the large OEM refrigeration manufacturers that could
produce and distribute product under their own private label. Besides marketing
direct through agents in the US, other market outlets will be through major
distributors worldwide.
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. TSI also
publishes a quarterly newsletter, COLD TALK, which reaches over (2000)
refrigeration supervisors and technicians.
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Rotary Power International, Inc. (RPI) - The worlds only manufacturer of
stratified charge rotary engines and large rotary engines. PowerCold currently
owns 30% of RPI and was to acquire 100% of RPI, but the merger between the two
companies was not successful. PowerCold's prime interest is the Industrial
Natural Gas engine business with its compact packaged screw compressor
refrigeration system.
Deregulation of gas and electric utilities is creating major 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. Supermarkets, as the initial target market, have been
estimated to save a minimum of 15% energy savings with one engine per store.
The market includes over 30,000 supermarkets, which consume 4% of the
electrical energy used in the US. Also, through associated overseas markets
there is a complementary demand and need for low cost energy for similar
refrigeration systems in remote areas of the world.
Intermagnetics General Corporation Investment - On September 16, 1998, the
Company and Intermagnetics General Corporation (AMEX: IMG) entered into an
Agreement, whereby Intermagnetics General Corporation purchased for $1,000,000
an aggregate of 1,250,000 shares of the Company's Series A Preferred Stock, par
value $0.001 per share; and the Company granted Intermagnetics General
Corporation an option to acquire up to 50% of the fully diluted equity of the
Company. The purchase option is exercisable at a per share price of the lesser
of $3.00 or market price through March 31, 1999. Various restrictions are also
imposed on certain Shareholders' ability to transfer or dispose of their stock
as well as allowing Intermagnetics General Corporation to nominate individuals
as directors of the Company. On October 5, 1998 the Company filed a Form 8K
relating to the definitive Agreement.
Intermagnetics is the largest integrated developer and manufacturer in the
United States, of superconducting LTS and HTS magnets, wire and cable as well
as associated low-temperature refrigeration equipment, and radio-frequency (RF)
coils, the combination of which is essential to successful application of
superconductivity such as Magnetic Resonance Imaging (MRI). The Company is
dedicated to the development and commercialization of applied superconductivity
and refrigeration systems. The Company also supplies permanent magnet systems,
materials separation equipment and FRIGC(R) refrigerants as replacements for
ozone-depleting refrigerants.
New innovative products include: A patented advanced subcooling system that
initially will be marketed to some 35,000 supermarkets and convenience stores.
The Precooled Vapor-Liquid Refrigeration Cycle could as much as double the
energy savings of traditional subcooling equipment. A state of the art
superconducting magnetic energy storage (SMES) system designed for both
industrial end-users and electric utilities, prime for an industry that is
entering a deregulation environment. The system protects critically important
electric equipment against voltage sags and/or power interruptions.
The refrigeration and power industries are currently representing a demanding,
new rapidly changing growth market worldwide. This new evolving market is
primarily driven by two major factors; the utility industries changing energy
and demand charges for the cost of energy use, and the demand for refrigeration
and power for use by third world countries. The request for lower cost "clean"
energy around the world introduces a new array of exciting opportunities and
markets, primarily emerging by the requirement for more efficient refrigeration
and power.
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A strategic alliance with IGC compliments and supports each Company's desire
and needs with their respective energy efficient products and services.
PowerCold has key personnel, industry contacts and unique products, and
Intermagnetics General has the management and financial strength and
complimenting products. This new emerging opportunity has all the necessary
ingredients for success - jump-start a small emerging company and rapidly
expand a new venture of a large company. Both companies are positioned with
product technology and management services to provide supportive integrated
solutions for this multi-billion refrigeration and power industry.
New Acquisitions - The Company is continually seeking related acquisitions and
joint venture partners with synergistic energy efficient products; to enhance
and support its growth plans and goals, and to become a comprehensive industry
wide solution provider for the refrigeration and air conditioning industry.
During October 1998, the Company acquired the assets of the following two
businesses. The Company has filed a Form 8K for each acquisition.
Channel Ice Technologies - The Company formed a new subsidiary company, Channel
Freeze Technologies, Inc., to acquire eighty percent (80%) of the related
assets and business of Channel Ice Technologies from Los Angeles, CA. based Sir
Worldwide LLC for cash, royalties and stock options.
Channel Ice Technologies has a proprietary, patented (8 patents and 3 pending)
multi purpose freezing system that is highly efficient. It can be employed for
freezing virtually any liquid or semi liquid product in a variety of industries
including: ice plants, fish, meat and produce food products, fruit and juice
products, food by-products, recreational snow for theme parks and ski resorts,
plus many other applications. The Channel Ice System was introduced to the
market in 1995, todate there are ten (10) systems produced. Installations are
in Mexico, Japan, the Philippines and the United States. A system is presently
being installed in Singapore and another to be installed in Haiti.
A major new application for the Channel Ice System is in municipal water
systems, pulp and paper plants, refineries and utilities where solids are
economically separated from industrial waste by the freeze/thaw method. The
water in the frozen sludge drains off during thaw and the remaining materials
are then disposed of and recycled at a greatly reduced cost.
Rotary Power Enterprise, Inc. - The Company acquired 100% of Rotary Power
Enterprise, Inc. for 100,000 shares of PowerCold stock. Rotary Power
Enterprise, Inc. previously signed an Agreement to acquire the Natural Gas
Engine Business assets of Rotary Power International, Inc. (RPI) (OTCBB: RPII).
The entire right, title and interest in and to RPI's Rotary Power Natural Gas
and Propane Engine Business includes the intellectual property, licenses,
contracts, inventory and manufacturing capability for the 65 Series Natural Gas
and Propane Fueled Engines. PowerCold owns approximately thirty per cent (30%)
equity interest in RPI, which manufactures and markets rotary engines.
The assets consist of the intellectual property, licenses, contracts, inventory
and manufacturing capability for the 65 Series Natural Gas and Propane Fueled
Engines. Included is the exclusive agreement with Mazda Motor Corporation and
exclusive distribution rights to Rotary Power International, Inc. 580 and 40
Series Natural Gas Engines.
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Rotary Power Enterprise will have the exclusive right to sell Mazda Rotor
Engines in North America, modified for natural gas and propane applications
except for passenger automobiles and minivan applications. Rotary Power
Enterprise will also have the exclusive right to distribute, market and sell,
and in certain circumstances manufacture under license, the Rotary Power
International, Inc. Series 580 and 40 natural gas/propane engine for stationary
industrial/commercial applications and oil and gas field applications.
Hussmann Intl. (NYSE:HSM) has the exclusive right to purchase rotary engines
for supermarket rack systems for operation of refrigeration equipment in North
America.
Jack Kazmar, a Director of the Company, will remain as President of Rotary
Power Enterprise. Prior to establishing Rotary Power Enterprise, Mr. Kazmar was
a Marketing Consultant with Rotary Power International from 1993 - 1997. His
background and experience includes over 30 years in the commercial heating,
ventilation and air conditioning equipment industry: Vice President of Sales
and Marketing, ICC, a manufacturer of Desiccant based dehumidification
equipment; President and Co-Founder, Skil-Aire Corporation, a manufacturer of
standardized commercial heating, ventilation and air conditioning products;
General Manager, Fedders Corporation, Residential and Commercial Products
Division, Climatrol and Airtemp Applied; and direct sales and field management
with Worthington Corporation. Mr. Kasmar holds a Bachelor of Science _
Mechanical Engineering from Lafayette College.
The Company's mission is to be a solution provider of energy efficient products
for the multi-billion dollar refrigeration, air condition and power industry.
The Company's goal is to achieve profitable growth and increase shareholder
value - providing superior products and services through related acquisitions
and joint ventures.
Management intends to continue to utilize and develop the remaining intangible
assets of the Company. It is Management's opinion that the Company's cash flow
generated from such intangible assets will not be impaired, and that recovery
of its intangible assets, upon which profitable operations will be based, will
occur.
The Company is currently live on the INTERNET, a worldwide information network.
The real time system will provide anyone, shareholder, investor or customer,
with Company news releases, financial data and product information.
PowerCold Web Page http://www.powercold.com.
RESULTS OF OPERATIONS - Third Quarter 1998
Revenue for the three month period ending September 30, 1998 decreased (44%) to
$116,343 form $206,265 for the same respective period in 1997, and revenue for
the nine month period ending September 30, 1998 increased 22% to $380,326 from
$312,939 for the same respective period in 1997.
Net Loss for the three month period ending September 30, 1998 decreased (69%)
to ($317,414) form ($1,039,097) for the same respective period in 1997, and the
net loss for the nine month period ending September 30, 1998 decreased (65%) to
($630,131) from ($1,711,291) for the same respective period in 1997.
Net Loss per share for the three month period ending September 30, 1998
decreased (72%) to ($0.05) form ($0.18) for the same respective period in 1997,
and the Net Loss per share for the nine month period ending September 30, 1998
decreased (65%) to ($0.10) from ($0.29) for the same respective period in 1997.
Sequential Page 12 of 15<PAGE>
Net loss per share was based on weighted average number of shares of 6,515,471
for the three month period ending September 30, 1998 compared to 6,277,489 for
the same respective three month period in 1997.
The Company's Consolidated Balance Sheets as of the third quarter ended
September 30, 1998 compared to the third quarter ended September 30, 1997:
Total assets decreased (6%) to $3,011,881 compared to $3,212,651; total current
liabilities increased 10% to $894,397 compared to $814,085; total stockholders'
equity decreased (12%) to $2,117,484 compared to $2,398,566, and the Company
has no long term debt.
Company revenues should continue to improve through the fourth quarter 1998;
because of the industry acceptance for Nauticon condensers, the new packaging
program for RealCold Products, the recent new acquisitions and a new marketing
and sales program. The continued operating loss was due to general Company
operating overhead, and should continue to decrease as revenue increases. The
Company's asset base and stockholders equity decreased because of the write-
down of certain assets (goodwill and related) at year end 1997. The asset base,
as well as revenues, should continue to grow because of the new acquisitions.
Management intends to continue to utilize and develop the intangible assets of
the Company. It is Management's opinion that the Company's cash flow generated
from current intangible assets is not impaired, and that recovery of its
intangible assets, upon which profitable operations will be based, will occur.
Management believes that its working capital may not be sufficient to support
both its operations and growth plans for acquisitions and joint ventures for
the near future. Therefore, to support the Company's growth and goals, the
Company is seeking additional funding for this purpose.
"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 13 of 15<PAGE>
PART II. 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
8-K Filed 9/17/98
8-K Filed 10/08/98
8-K Filed 10/13/98
8-K Filed 10/14/98
Exhibit 27 - Financial Data Schedule
Sequential Page 14 of 15<PAGE>
POWERCOLD CORPORATION
FORM 10-Q
SEPTEMBER 30, 1998
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: November 10, 1998
POWERCOLD CORPORATION
/s/Francis L. Simola
-----------------------
Francis L. Simola
President and CEO
Sequential Page 15 of 15<PAGE>
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