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 March 31, 1999
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 March 31, 1999, 7,086,036 Common Shares were outstanding, and the
aggregate market value of such shares held by non-affiliates was approximately
$3,401,297
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POWERCOLD CORPORATION
AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1: Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998. 3
Consolidated Statement of Operations for Three
Months Ended March 31, 1999 and March 31, 1998. 4
Consolidated Statement of Changes in Stockholders' Equity
for Three Months Ended March 31, 1998 and March 31, 1999. 5
Consolidated Statement of Cash Flows for Three
Months Ended March 31, 1999 and March 31, 1998. 6
Notes to Consolidated Financial Statements at March 31, 1999. 7
Item 2: Management's Discussion and Analysis of 8
Financial Condition and Results of Operations.
PART II. OTHER INFORMATION 13
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 MARCH 31, 1999
(UNAUDITED) AND DECEMBER 31, 1998
<S> <C> <C>
31-Mar DECEMBER 31,
ASSETS 1999 1998
----------- ------------
CURRENT ASSETS:
Cash and cash equivalents $5,423 $21,781
Restricted cash 400,000 400,000
Accounts receivable, net of allowance for doubtful
accounts of $84,533 and $84,533 respectively. 62,242 6,313
Related party receivables 136,133 72,618
Interest receivable 9,918 9,918
Inventories 162,683 156,699
Prepaid expenses and other current assets 101,157 62,511
Refundable income tax 124,156 124,156
----------- ------------
Total Current Assets 1,001,712 853,996
=========== ============
OTHER ASSETS:
Investment in securities available for sale 32,500
Investment in affiliate 790,422 825,988
Property and equipment, net 38,023 42,483
Patent rights and related technology, net 424,310 441,078
Goodwill, net 121,658 125,925
Total Other Assets 1,374,413 1,467,974
TOTAL ASSETS $2,376,125 $2,321,970
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $200,000 $300,000
Short-term borrowings 430,872 424,203
Accounts payable 228,336 190,054
Accrued expenses 182,436 207,880
Royalty payable - RPE 42,240 42,240
Advances from affiliate 295,179
----------- ------------
Total Current Liabilities 1,379,063 1,164,377
STOCKHOLDERS' EQUITY:
Convertible preferred stock, series A $0.001 par value
$1,000,000 in liquidation, 1,250,000 shares authorized,
issued and outstanding at March 31, 1999 and
December 31, 1998, respectively 1,250 1,250
Common Stock - $0.001 par value, 200,000,000
shares authorized, 7,086,036 and 6,834,136
shares issued at March 31, 1999 and
December 31, 1998, respectively 7,086 6,834
Additional paid-in capital 5,633,433 5,534,274
Amount due from shareholders (8,500) (8,500)
Accumulated deficit (4,636,207) (4,376,265)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 997,062 1,157,593
----------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $2,376,125 $2,321,970
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
AND SUBSIDIARIES FOR THE THREE MONTH PERIODS ENDED
UNAUDITED MARCH 31, 1999 AND MARCH 31, 1998
<S> <C> <C>
MARCH 31, MARCH 31,
1999 1998
----------- -----------
SALES REVENUE:
Product Sales $66,965 $29,524
Services 26,603 40,374
----------- -----------
Total Revenue 93,568 69,898
COST OF REVENUE:
Product Sales 34,468 52,754
Services 43,594
----------- -----------
Total cost of revenue 78,062 52,754
Gross Margin 15,506 17,144
OPERATING EXPENSES:
Sales and marketing 90,218 66,882
General and administrative 129,176 107,725
Research and development 16,048
----------- -----------
Total operating expense 235,442 174,607
----------- -----------
Income (loss) from operations before equity in earnings
of unconsolidated affiliate (219,936) (157,463)
Equity in loss of unconsolidated affiliate
----------- -----------
Income (loss) before other income (expense) (219,936) (157,463)
Other income (expense):
Interest and other income 10,043 5,782
Interest and other expense (14,482) (6,961)
Other (6,333)
----------- -----------
Total other income (expense) (4,439) (7,512)
----------- -----------
Income (loss) before provision for income taxes (224,375) (164,975)
Provision (benefit) for income taxes
Federal current provision 0 0
Federal deferred provision 0 0
----------- -----------
0 0
----------- -----------
Net income (loss) ($224,375) ($164,975)
=========== ===========
Equity in loss of unconsolidated affiliate ($35,567) $0
=========== ===========
Net loss per share ($0.04) ($0.03)
=========== ===========
Weight average number of shares 6,836,935 6,080,711
=========== ===========
</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
AND SUBSIDIARIES STOCKHOLDERS' EQUITY FOR THE THREE MONTH
UNAUDITED PERIODS ENDED MARCH 31, 1998 AND MARCH 31, 1999
UNREAL-
IZED
GAIN
AMOUNTS (LOSS) RETAINED
ADDITIONAL DUE FROM ON SECU- EARNINGS
PREFERRED STOCK COMMON STOCK PAID-IN STOCK- RITIES ACCUMULATED
STOCK AMOUNT STOCK AMOUNT CAPITAL HOLDERES FOR SALE (DEFICIT) TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- ------- --------- ------- ----------- -------- ------- ------------ -----------
Balances At January 1, 1998 5,995,269 $5,995 $4,099,799 ($7,500) ($50) ($2,686,078) $1,412,166
Issuance of Common Stock For Accounts 147,880 148 36,822 36,970
Payable
Net Income For The Three Month Period
Ended March 31, 1998 (164,975) (164,975)
Unrealized holding gains (loss)
arising during the period (84) (84)
--------- ------- --------- ------- ----------- -------- ------- ------------ -----------
Balances At March 31, 1998 0 $0 6,143,149 $6,143 $4,136,621 ($7,500) ($134) ($2,851,053) $1,284,077
========= ======= ========= ======= =========== ======== ======= ============ ===========
Balances At January 1, 1999 1,250,000 $1,250 6,834,136 $6,834 $5,534,274 ($8,500) ($4,376,265) $1,157,593
Issuance of Common Stock For Services 146,900 147 59,364 $59,511
Issuance of Common Stock For Deferred
Compensation 105,000 105 39,795 $39,900
Net Income For The Three Month Period
Ended March 31, 1999 (259,942) ($259,942)
--------- ------- --------- ------- ----------- -------- ------- ------------ -----------
Balances At March 31, 1999 1,250,000 $1,250 7,086,036 $7,086 $5,633,433 ($8,500) $0 ($4,636,207) $997,062
========= ======= ========= ======= =========== ======== ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
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<TABLE>
<CAPTION>
POWERCOLD CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
AND SUBSIDIARIES FOR THE THREE MONTH PERIODS ENDED
UNAUDITED MARCH 31, 1999 AND MARCH 31, 1998
<S> <C> <C>
MARCH 31, MARCH 31,
1999 1998
------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) ($259,942) ($164,975)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation and Amortization 25,494 24,423
Net loss on sale of securities 5,100
Equity in unconsolidated affiliate 35,567
Common stock issued for operating expenses 59,511 36,970
Changes in assets and liabilities
Trade accounts receivable (55,929) (22,722)
Interest Receivable (63,515) 58,082
Inventories (5,984) 16,926
Prepaid expenses and other assets 1,254 4,203
Accounts payable 38,282 535
Accrued expenses (25,444) 18,847
Income taxes payable
------------- -----------
Net cash used by operating activities (250,706) (22,611)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment
Desposition of property and equipment 1,234
Advances to affiliate 9,387
Advances from affiliate 295,179
Proceeds from sale of securities 32,500 16,858
Purchase of securities available for sale (24,525)
------------- -----------
Net cash used by investing activities 327,679 2,954
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short term borrowings 6,669 25,000
Repayment of short term borrowings (100,000) (12,397)
Repayment of short term borrowings, related parties
------------- -----------
Net cash provided (used) by financing activities (93,331) 12,603
------------- -----------
Net increase (decrease) in cash and cash equivalents (16,358) (7,054)
Cash and Cash equivalents at beginning of period 21,781 2,274
------------- -----------
Cash and Cash equivalents at end of period $5,423 ($4,780)
============= ===========
Interest paid $14,482 $6,961
Noncash operating activities:
Common stock issued for deferred compensation $39,900
Noncash investing activities:
Unrealized gain (loss) on sale of securities ($84)
</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) March 31, 1999
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, 1998.
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.
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.
GENERAL FINANCIAL ACTIVITY
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 to
take 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) years experience. The Company maintains administrative corporate offices
in Cibolo, Texas, and Philadelphia, Pennsylvania. Engineering and manufacturing
facilities are located in Cibolo, Texas.
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.
PowerCold Companies:
RealCold Products, Inc. - designs and manufactures unique energy efficient
packaged products for the refrigeration industry. RealCold Products also
supports Rotary Power Enterprise and Alturdyne Energy Systems by engineering
and packaging their products. RealCold Products will also support Channel
Freeze Technologies by designing and packaging their accompanying refrigeration
systems. Management believes that the recent acquisition of Channel Freeze and
Alturdyne Energy Systems should provide improved revenues and profits for
RealCold Products in 1999, based upon its expertise in custom manufacturing
systems. There are proposed alliances with other refrigeration companies,
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whereas RealCold Products will package various components adding value for a
total turnkey refrigeration system.
Nauticon Inc. - manufactures and markets a product line of patented evaporative
heat exchange systems for the HVAC and refrigeration industry. The new
patented products are innovative and unique in design, use new material
technology, is simple to manufacture, and have a low operating cost. They are
used for condensers, fluid coolers, subcoolers, and cooling towers. Nauticon
products can save power cost in the refrigeration industry by 20% to 30%,
making these units contribute to the utilities needs to reduce power demand.
There are over 100 systems installed in the US.
Technicold Services, Inc. - 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.
New Acquisitions
Rotary Power Enterprise, Inc. - was formed (September 1998) as a new PowerCold
entity to acquire the Natural Gas Business from Rotary Power International. The
agreement includes: the business assets including intellectual property,
inventory and manufacturing capability; a marketing agreement with the Hussmann
Corporation, the world's largest supplier of supermarket refrigeration equipment
for marketing the natural gas engine screw compressor systems to supermarkets;
the North American rights to the small 65 series Mazda natural gas engine block,
subject to Mazda Agreement; and Distributor Agreements for the Rotary Power 580
and 40 series engines form Rotary Power International, Inc.
The Company recently announced a major sales agreement with Kem Equipment
Company, an engine packager for OEM applications for the oil and gas industry
in Western Canada, for (100 small 65 HP and 60 large 500 HP) natural gas
engines valued by management at over $5 million. The major application is for
oil and gas field systems. The initial (160) engines are scheduled for
delivery to a major Canadian oil and gas operation in Western Canada.
Channel Freeze Technologies, Inc. - was recently formed (September 1998) as a
PowerCold subsidiary to acquire 80% of the assets of Channel Ice Technologies.
Channel Ice produces a proprietary patented and economical multi-purpose
freezing system, suitable for virtually any liquid or semi-liquid product, that
is inherently more efficient than prior technologies in a variety of industries
including; block ice - for ice plants, fish and produce industries; food and
food byproducts - for food suppliers and their leftover byproducts, fruit and
juice products. The most notable new application is for highly efficient
management of liquid and semi-liquid industrial waste products for municipal
water, pulp and paper plants and utilities. The freeze-thaw process; waste is
frozen, the water in the frozen sludge drains almost immediately during thaw,
and the remaining materials are than disposed of at greatly reduced cost,
recycled or sold.
Alturdyne Energy Systems - PowerCold recently signed a Letter of Agreement
(December 1998), to acquire a division of Alturdyne that produces natural gas
engine driven water chillers. The Company also announced a Strategic Alliance
with Alturdyne for manufacturing and marketing of their respective products.
Alturdyne is an innovative manufacturer of standby diesel generator sets,
turbine and rotary generator sets, pumps and natural gas engine-driven
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chillers. Alturdyne's strength lies in its power engineering personnel, who
are knowledgeable in the generator set business, telephone company
applications, small turbines, rotaries and chillers. Their capabilities and
experience in developing low cost, customer power packages that meet specific
needs have established Alturdyne's excellent reputation in the industry.
Alturdyne's added expertise is in the design and production of rotary engines.
Alturdyne Energy Systems, as an Alturdyne division installed over (140)
chillers systems. The manufacturing operations have been moved to the
Company's facility in Cibolo, Texas. The added expertise of RealCold Products
engineering and manufacturing should enhance the existing chiller business.
RESULTS OF OPERATIONS - First Quarter 1998
The Company's Consolidated Statements of Operations for the first quarter ended
March 31, 199 compared to the first quarter ended March 31, 1998: Total revenue
for the first quarter 1999 was $93,568 compared to $69,898 for 1998; operating
loss of ($219,936) for 1999 compared to ($157,463) for 1998; and net loss of
($224,375) or ($0.04) per share for 1999 compared to a net loss of ($164,975)
or ($0.03) per share for 1998. Net income (loss) per share was based on
weighted average number of shares of 6,836,935 for 1999 compared to 6,080,711
for 1998.
The Company's Consolidated Balance Sheets as of March 31, 1999 and March 31,
1998 respectively: Total current assets were $1,001,712 for 1999 and
$1,509,976 for 1998; total assets were $2,376,125 for 1999 and $2,133,253 for
1998; total liabilities were $1,379,063 for 1999 and $849,176 for 1998; total
stockholders' equity was $997,062 for 1999 and $1,284,077 for 1998; and the
Company has no long term debt.
The first quarter ending March 31, 1999; operating loss was due to maintaining
general Company operating overhead including additional start-up marketing
costs for Nauticon and Channel Freeze product lines. The Company issued a
total of 251,900 shares of new common restricted shares in the first quarter
for services rendered and deferred compensation.
Company revenues should continue to improve throughout 1999, because of the new
acquisitions and related new marketing and sales programs. During the first
quarter; the refrigeration operations have generated over $12,000,000 in sales
proposals, and the energy operations have a sales agreement for (160) engines
for $5,000,000 for the oil and gas industry.
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. Management is currently in negotiations with related business
alliances. Therefore, to support the Company's growth and goals, management is
seeking additional funding to support its current operations and new business
alliances.
Sequential Page 10 of 12
Financial Summary:
Three Months Ended Three Months Ended
March 31, 1998 March 31, 1997
-------------------- ------------------
Revenue $93,568 $69,898
Net Income (Loss) ($224,375) ($164,975)
Net Income (Loss) Per Share ($0.04) ($0.03)
Shares Outstanding (Avg.) 6,836,935 5,903,160
Total Assets $2,376,125 $2,133,253
Total Liabilities $1,379,063 $849,176
Total Stockholders Equity $997,062 $1,284,077
PART 11. OTHER INFORMATION
Item 1. Legal Proceedings.
Management of the Company is seeking to recoup damages from the former
president and director of Nauticon, in connection with Nauticon's acquisition
by the Company. Related to this matter is the ownership of certain patents. It
is the opinion of management that this matter will not have any adverse effect
on the Company at this time, because the Company legally acquired all the
assets of Nauticon including the patents in exchange for stock. The former
president of Nauticon has filed a counter claim against the Company and two
Company Executives/Directors.
Because of the financial and managerial problems incurred by the previous
Nauticon management, Nauticon has incurred bad debts and certain claims have
been filed against Nauticon.
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.
None
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POWERCOLD CORPORATION
FORM 10-Q
MARCH 31, 1999
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 17, 1999
POWERCOLD CORPORATION
/s/Francis L. Simola
------------------------
Francis L. Simola
President and CEO
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 5423
<SECURITIES> 0
<RECEIVABLES> 208293
<ALLOWANCES> 0
<INVENTORY> 162683
<CURRENT-ASSETS> 1001712
<PP&E> 38023
<DEPRECIATION> 0
<TOTAL-ASSETS> 2376125
<CURRENT-LIABILITIES> 01379063
<BONDS> 0
1250
0
<COMMON> 7086
<OTHER-SE> 997062
<TOTAL-LIABILITY-AND-EQUITY> 2376125
<SALES> 66965
<TOTAL-REVENUES> 93568
<CGS> 34468
<TOTAL-COSTS> 235442
<OTHER-EXPENSES> (4439)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (224375)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (224375)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>
