FORM 8-A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FOR REGISTRATION OF CERTAIN CLASSES OF SECURITIES
PURSUANT TO SECTION 12(b) or (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
POWERCOLD CORPORATION
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(Exact name of registrant as specified in its charter)
NEVADA
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(State of incorporation or organization)
23-2582701
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(I.R.S. Employer Identification No.)
103 Guadalupe Drive
Cibolo, Texas 78108
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(Address of principal executive offices, Zip Code)
If this form relates to the registration of a class of securities pursuant to
Section 12(b) of the Exchange Act and is effective pursuant to General
Instruction A.(c), check the following box: [ ]
If this form relates to the registration of a class of securities pursuant to
Section 12(g) of the Exchange Act and is effective pursuant to General
Instruction A.(d), check the following box: [X]
Securities Act registration statement file number to which this form relates:
33-19584
Securities to be registered pursuant to Section 12(b) of the Securities Act:
None
Securities to be registered pursuant to Section 12(g) of the Securities Act:
Common Stock
<PAGE> 1
ITEM 1. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The authorized capital stock of PowerCold consists of 200,000,000 shares, par
value $0.001 per share. The entire authorized capital stock of the Corporation
consists of 5,000,000 shares of Preferred Stock, 1,250,000 of which have been
designated as Series A Convertible Preferred Stock, par value $.001 per share,
$0.80 stated value, of which 1,250,000 shares have been issued or are
outstanding, and 200,000,000 shares of Common Stock of which (i) 8,924,996 are
issued and outstanding, fully paid and nonassessable; (ii) no shares are held as
treasury shares; (iii) 2,554,558 shares have been reserved for issuance upon
exercise of options.
Holders of PowerCold Common Stock do not have preemptive rights. The rights of
the holders of shares of PowerCold Common Stock are governed by Nevada law and
PowerCold's Certificate of Incorporation and By-laws. Under Nevada Law and
PowerCold's By-laws, each holder of record of PowerCold Common Stock is
entitled to one vote per share. Nevada law generally allows dividends to be paid
out of surplus of the corporation or out of the net profit of the corporation
for the current fiscal year and/or the prior fiscal year.
The Company's Common Stock is traded on the OTC Electronic Bulletin Board under
the trading symbol PWCL. As of April 27, 2000, there were approximately 280
record holders of the Company's Common Stock.
ITEM 2. EXHIBITS.
The following exhibits are filed as a part of this registration statement:
EXHIBIT NUMBER AND DESCRIPTION PAGE
1 Form 10KSB as filed by the registrant with the SEC for the
fiscal year ended December 1999. 3
2 Quarterly Reports filed since the end of the last fiscal year. 43
3. Proxy Statements. N/A
4.1 Original Articles of Incorporation 56
4.2 Certificate of Amendment to Articles of Incorporation 61
4.3 Certificate of Amendment to Articles of Incorporation 62
4.4 Certificate of Name Change and Certificate of Status in
Good Standing from Office of Nevada Secretary of State 63
4.5 Certificate of Third Amendment and Restatement of the Articles
of Incorporation of Powercold Corporation. 64
4.6 Amended and Restated Corporate Bylaws of the Registrant. 75
4.7 Certificate of Designations, Preferences and other Rights and
Qualifications of Series A Convertible Preferred Stock. 89
5 Specimens or copies of each security to be registered hereunder. 103
6. Copies of the last annual report submitted to stockholders by
the registrant or its predecessors. (Same as Exhibit 1.) N/A
SIGNATURE
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereto duly authorized.
POWERCOLD CORPORATION
By: /s/ Francis L. Simola Date: 05-24-2000
- --------------------------------------------- -------------------------
President
<PAGE> 2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
Commission File Number 33-19584
POWERCOLD CORPORATION
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(Name of small business issuer in its charter)
Nevada 23-2582701
------------------------- ----------------------------------
(State of Incorporation) (IRS Employer Identification No.)
103 Guadalupe Drive Cibolo, Texas 78108
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 210 659-8450
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Common Stock, $0.001 Par Value OTC Electronic Bulletin Board
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The issuer's revenues for its most recent fiscal year: $541,238.00
The aggregate market value of voting stock held by non-affiliates of the
Registrant was approximately $2,258,284, which is based on the closing price of
$0.5625 on December 31, 1999. The number of shares of Common Stock outstanding
on December 31, 1999 was 22,876,641. (15,000,000 shares were subsequently
canceled on April 3, 2000)
Documents Incorporated By Reference: None
Transitional Small Business Disclosure Format: Yes [ ] No [X]
<PAGE> 3
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
PowerCold is a solution provider of energy efficient products for the
refrigeration, air condition and power industries. 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. To
enhance this market the Company is pursuing synergistic businesses, and
marketing alliances are being formed with major utility companies and
established refrigeration companies for these products and services.
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 by forming business alliances and providing superior technology, products
and services.
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 is not impaired, and that recovery of its
intangible assets, upon which profitable operations will be based, will occur.
COMPANY HISTORY
International Cryogenics Systems Corporation (ICSC) was established as a private
company in 1988 to fabricate and market freezer systems. The Company developed
and patented the most advanced, cost-effective and environmentally safe "quick
freeze" systems in the industry. In January l993 ICSC's assets were merged into
a public entity. The name was changed to PowerCold Corporation (PowerCold) in
April 1997, currently trading on the OTC Bulletin Board - symbol (PWCL). In 1995
the Company acquired four companies - currently three operate as wholly owned
subsidiaries of PowerCold; RealCold Products, Inc., Technicold Services, Inc.
and Nauticon, Inc. RealCold Products designs and manufactures refrigeration
systems, Technicold Services provide consulting services for commercial
refrigeration and freezing systems for use worldwide, and Nauticon manufactures
and markets a unique product line of patented evaporative heat exchange systems
for the HVAC and refrigeration industry.
<PAGE> 4
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
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 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.
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.
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 as
Directors of the Company. Terrence J. Dunne received 850,000 and Francis L.
Simola received 340,041 shares of stock respectively. This represented 49.3% of
all the common stock issued for the transaction.
The structure and organization of PowerCold as a public entity through 1993 and
1994 was considered as a development stage company. 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.
SUBSIDIARIES
During 1995, PowerCold acquired four companies in the refrigeration business in
a stock exchange transaction. These entities, complimented and secured
PowerCold's position in the industry, operated as wholly owned subsidiaries.
RealCold Systems, Inc., prior to its sale to Wittcold Systems, a Wittemann
Company, offered 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, which merged into RealCold Systems,
offered industrial refrigeration system components such as liquid recirculating
packages and refrigeration system vessels of all types. RealCold Maintenance
Systems, Inc. (renamed RealCold Products, Inc.) designs and produces unique
products for the refrigeration industry.
<PAGE> 5
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
RealCold Systems Inc. signed a Joint Cooperative Agreement in July 1995 with The
Wittemann Company, a wholly owned subsidiary of Dover Resources and 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 45 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 provides an effective and cost
efficient entry for this worldwide market. Subsequently, Wittcold Systems, Inc.,
a division of Wittemann Company, acquired RealCold Systems in July 1997.
In August 1995, PowerCold acquired Nauticon Inc., 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 worldwide.
The Nauticon application should reduce these traditional concerns and enhance
the industry's growth.
The three operating subsidiaries, Technicold Services, Inc., RealCold Products,
Inc. and Nauticon Inc., supported by the parent public entity, PowerCold,
supports all operating activities for the freezing systems, the refrigeration
systems and the evaporative heat exchange systems respectively. Technicold
provides consulting services to the refrigeration industry, and RealCold
Products, Inc. supports all refrigeration and freezer systems operating from
their corporate facility in Cibolo, Texas. Nauticon supports all evaporative
heat exchange and refrigeration systems and operations from their corporate
facility in Cibolo, Texas. The corporate manufacturing facility supports 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 and distributors.
<PAGE> 6
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
Rotary Power Enterprise, Inc. was formed as a new PowerCold entity, which
acquired the Natural Gas Business from Rotary Power International on July 2,
1998. The agreement included: the business assets including intellectual
property, inventory and manufacturing capability; a marketing agreement with 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 Agreement for the 580 and 40 series engines
from Rotary Power International, Inc. The rotary engine driven screw compressor
refrigeration system significantly reduces refrigeration electrical demand
during the most expensive periods of the day and year.
Deregulation of gas and electric utilities is creating major changes in energy
use and costs. The 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 seven natural
gas engine screw compressor systems installed. The systems currently provide a
minimum of 15% energy savings with one engine per store. The market includes
over 30,000 supermarkets that 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.
Other target markets for the rotary engines include: Large cold storage
facilities, food processing plants, ice rinks and natural gas wellhead, pipeline
and distribution network. Packaged industrial refrigeration systems produced by
RealCold Products will now use natural gas rotary engines instead of competitor
engines. A packaged, commercial air conditioning system was designed using
natural gas rotary engine and the Nauticon evaporative condenser for large
building facilities.
Channel Freeze Technologies, Inc. was formed as a new PowerCold entity, which
acquired 80% of the assets of Channel Ice Technologies, 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 off. Very swift,
economical freezing of the products is much more cost effective, up to one-third
the cost, than with bulk, blast freezing or drum freezing.
Alturdyne Energy Systems, Inc. - A Letter of Agreement has been signed by The
Company to acquire Alturdyne Energy Systems from Alturdyne, a San Diego, CA
based company. A formal Agreement was signed and a $50,000.00 deposit was paid
to Alturdyne. Alturdyne Energy Systems as a wholly subsidiary of PowerCold will
market natural gas engine driven water chillers, pumps, air compressors and
generators. RealCold Products will manufacture the water chillers under the name
ALTURCOLD.
<PAGE> 7
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
AFFILIATE - In December 1996 the Company agreed in principal to merge/acquire
Rotary Power International, Inc. The Company initially acquired a 30% equity
interest in RPI (2M shares of common stock for $1M), and proposed a merger of
the companies in a stock for stock transaction, whereby RPI would become a
wholly owned subsidiary of the Company. 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 was to receive .363 shares
of the Company's common stock (1.56M shares) upon shareholder approval.
On July 21, 1997, the Company and Rotary Power International, Inc. agreed to
amend Section 1.2 - The Closing by extending the Agreement an additional
forty-five (45) days. The First Amendment to the Plan and Agreement of Merger,
the extension on the Plan and Agreement of Merger between the Company and Rotary
Power International, Inc., expired on September 5, 1997, accordingly, the Plan
and Agreement of Merger is no longer in effect.
There were 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. RPI primarily marketed engines to the US
government. The Company now had the opportunity to commercialize a proven
product that has tens of millions of dollars and years of development experience
behind it.
Since the Company initially entered into an Agreement to merge with Rotary Power
International, Inc., there was a continuing deterioration in Rotary Power's
negative cash flow from operations. Funding provided by the Company, that
initially invested $1,000,000 in equity and the $1,000,000 in proceeds from
bondholders, was not sufficient to support daily cash flow needs through the
first (5) months of 1997. The Company did not have any obligation to support
Rotary Power with any additional financing. The Company voluntarily loaned
Rotary Power $100,000 for back due rent on the building, $75,000 for the May
interest payment on bond debt, and on June 19, 1997 the Company loaned Rotary
Power an additional $41,767 due employees for payroll. In June 1997 Management
decided not to loan Rotary Power any additional funds for two reasons; the
uncertainty of Rotary Power's collateral for the Company's financing and after
receiving documentation from Company's General Counsel based on his
investigation of Rotary Power, which recently uncovered probable
misrepresentation of material financial information by RPI to PowerCold in
December 1996 and thereafter. Consequently, Rotary Power International, Inc.
requires additional funding for its daily operations. Therefore, the economic
viability and long-term future of Rotary Power International, Inc. depends on
its ability to obtain additional sources of financing, and there can be no
assurance that such financing can be obtained on acceptable terms or at all. In
November 1997, a new president took over operations of Rotary Power. Subsequent
events have led to the restructure of the bond debt and creditors.
<PAGE> 8
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
STRATEGIC ALLIANCE
Alturdyne - An innovative manufacturer of standby diesel generator sets, turbine
and rotary generator sets, pumps and natural gas engine-driven chillers.
Alturdyne is an approved vendor for all the "Baby Bells" telephone companies
that are regulated to maintain standby power. This regulation results in the
telephone companies purchasing a significant number of generator sets every
year. There are over 3600 units installed, and Alturdyne provides service field
support for these systems and other manufactured units. The generator set market
is a major new and replacement market for rotary engines where Alturdyne has
extensive manufacturing experience.
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.
Intermagnetics General Corporation (Amex: IMG) - 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 PowerCold granted Intermagnetics General Corporation
a purchase option to acquire up to 50% of the fully diluted equity of the
Company. The purchase option, which expired, was exercisable at a per share
price of the lesser of $3.00 or a market price calculation of the common stock,
for an option term no later than March 31, 1999.
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.
The strategic alliance with IMG complimented both companies and supported each
other'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. Although this new emerging opportunity had all the
necessary ingredients for success, to date the strategic alliance was never
fully implemented by the companies.
MANAGEMENT
PowerCold's management philosophy and structure supports decentralized authority
and operations, profit and loss accountability, incentive driven performance and
compensation, and total customer satisfaction. Management has over 150 years
business experience. Their extensive experience and background is adequately
related to the business. CEO - over 35 years experience in marketing and
management; COO - over 40 years experience in manufacturing and marketing in the
refrigeration and power industry; CTO - over (40) years technical experience in
refrigeration engineering and design; a well-known expert consultant in the
refrigeration industry. The subsidiary companies include experienced marketing
and technical management and support personnel.
<PAGE> 9
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
The Company's management objective is to become a major force with niche
products in the multi-billion dollar refrigeration industry and energy business.
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.
The Company maintains corporate offices in Cibolo, Texas, and an executive
office in Philadelphia, Pennsylvania. Administrative, engineering and
manufacturing facilities are located in Cibolo, Texas.
PRODUCTS:
INDUSTRIAL REFRIGERATION PACKAGES - RealCold Products, Inc. a wholly owned
subsidiary of the Company, designs and packages commercial refrigeration and
freezer systems. 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 its freezer systems. Custom innovative refrigeration
products include the following: ammonia recovery and recycling system,
non-chemical water treating system, liquid recirculating packages, and
refrigeration system vessels.
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. PowerCold 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.
EVAPORATIVE HEAT EXCHANGE SYSTEMS - Nauticon Inc., a wholly owned subsidiary of
PowerCold 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.
<PAGE> 10
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
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 the same for each
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.
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 worldwide. 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. Initial marketing of the Nauticon systems will be
primarily the mid-range systems because there is much less competition, a great
advantage to Nauticon and its unique patented product. The larger and smaller
size systems are marketed by some of the major competitors in the industry;
larger systems by Evapco and BAC, smaller systems by York and Carrier. These
competitors are well established and have substantially greater financial and
other resources than Nauticon.
CHANNEL FREEZE - patented Automated Bulk Freezing System has many applications.
Automated block ice production. Automated freezing of food and food by-products
in bulk, i.e., orange juice, offal, etc. Freeze/thaw (BiofreezeTM) applications
that reduces the cost to process residual sludge by up to 50%. This system
minimizes landfill costs and water treatment costs. This application is being
researched at this time. The technology has been proven many times usually in
areas where nature supplies the freezing during winter and thawing in summer.
BiofreezeTM automates this process. There are literally thousands of potential
users of this product. The Channel Ice System replaces the now obsolete can-ice
plants, many of which are over 50 years old. There are some 500 can-ice plants
still operating in the US. However the major market for Channel Ice is export.
Block ice is still in demand outside the US.
The Channel Freeze bulk freezing system, which has been tested freezing single
strength orange juice, can also be employed to freeze other food and non-food
products, such as red meat, gravies, seafood, fruit, eggs, etc. Channel Freeze
is working with a large chicken producer to replace their existing Vertical
Plate Freezers, which freeze chicken byproducts. Freezing time tests are being
performed now. This is a market that has considerable potential as the Channel
Freeze unit provides the following features:
<PAGE> 11
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
COMPETITION - Block Ice - Small packaged manual block ice plants manufactured
bv various people in the U.S. Up to five or ten tons of ice per day. A manual
block ice plant manufactured in Mexico with sizes up to 100 ton per day or ice.
Bulk Freezing - Vertical plate freezer manufacturers: York Food Systems -US
(manual), Gram - Denmark (manual), Technal - France (semi-automatic), APV-Baker
Ltd - Jackstone, England (manual), Dole - U.S. (manual), Blast Freezers - US
(manual).
ENGINE DRIVEN CHILLERS
In 1991 Alturdyne began manufacturing engine driven chillers as a new product
line. Chillers are cooling systems normally used for buildings, offices,
schools, hospitals or factories and provide 30 to 1100 tons of chilled water.
Currently 99% of the chillers manufactured are driven by electric motors.
However, there is a growing demand for natural gas engine driven chillers due to
deregulation of the electric and gas utilities. In some areas of the country
electric power is very expensive and operating on natural gas can save thousands
of dollars a year for user. Also in some areas gas companies provide large
rebates to natural gas users which helps reduce the higher capital cost of the
chiller. A natural gas engine is more expensive than a very high production
electrical motor and this difference makes engine driven chillers more difficult
to sell unless there is an early pay off through cost savings on the users
energy bill. Applications with co-fueled diesel engines are in development by
Alturdyne.
Since 1991, Alturdyne has developed 22 standard chiller models rated from 30 TO
300 tons that are certified by Environmental Test Labs which is comparable to
the UL listing. Designs have been made for units rated from 30 to 1100 tons and
several large units placed into service. Alturdyne has have sold over 140 units
to date and that places us in second place for this industry. Tecochill is the
industry leader, and while they enjoy sponsorship by Gas Research Institute they
utilize short life automotive derivative engines as opposed to long life
Caterpillar industrial engines used by Alturdyne.
While the Alturdyne chiller products have been a technical success, the
competitive marketplace has limited its financial success. Therefore, Alturdyne
has recently sold off the Chiller Business to PowerCold. PowerCold has the
refrigeration expertise and resources and the rotary power engine as a solution
integrator to economically produce the chillers. Alturdyne and PowerCold have
entered into is a strategic alliance for packaging PowerCold rotary engines and
Alturdyne generator sets for the power industry market.
<PAGE> 12
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
ROTARY POWER NATURAL GAS ENGINES OFFERS:
20.000 Hour engine reliability
Low fixed maintenance cost
Few moving parts
Low noise
Compact configuration
Wide horsepower range 20-15OOHP
2000 to 42OORPM variable speed capability (>1OOHP - 36OORPM maximum)
Internal gear drives shaft at three times rotor speed
No external gearing required
Light weight
Low vibration
No special or massive foundations required
Minimal structural bases required
Black start capability
Only control circuit power required
Eliminates new electrical feeders in many new installations
NGRE driven rotating equipment and Systems are applicable to a wide variety of
industrial uses, and offer customers large savings in electrical costs from both
energy and demand savings. A NGRE, providing on-site utilities, burns the
minimum annual gas flows required to allow sites to buy "transport" natural gas
rather than more expensive commercial gas. The combination of natural gas and
electrical energy allows the customer to balance its utility consumption on a
daily, weekly, monthly or annual basis. RPI feels that the unique
characteristics of natural gas powered engines allows them to successfully
compete in market sectors where low maintenance and high speed rotating
equipment is predominant or is rapidly taking over the market from older
reciprocating equipment.
Air conditioning - screw compressors
Refrigeration - screw compressors
Plant air compression systems - screw compressors
Natural Gas compression systems - screw compressors
Mobile power units - Permanent Magnet Generators
Stationary peaking power supplies - generators
65 SERIES NATURAL GAS ENGINE
The 65 Series twin rotor Natural Gas Rotary Engine. Model RN-065x2-NA, is a
natural gas engine derived from Mazda Motor Corporations RX-7 automotive rotary
engine. The basic block incorporates unique internal parts and features for
meeting the 20,000 hour life demanded by the industrial market; i.e., ceramic
apex seals, strengthened stationary gears. More durable water pump and longer
life elastomers. The engine is rated at 8OHP on natural gas at 4200RPM. It
incorporates an IMPCO natural gas carburetor and specially tuned intake
manifold.
<PAGE> 13
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
580 SERIES NATURAL GAS ENGINE
The 580 Series family of twin rotor Natural Gas Rotary Engine, which are
produced by Rotary Power International Inc., is derived from the extensive
military development of the 580 Series diesel/multi-fuel engines since 1977. The
initial 580 Series Natural Gas Rotary Engine development has been for a twin
rotor engine rated at 500HP at 36OORPM. This will provide the power to
generators for peak power shaving. The four rotor (composed of two 5OOHP
modules) rated at 1000HP and the six rotor (three 5OOHP two rotor modules) rated
at 1 5OOHP complete the family. The 580 natural gas engine runs on low pressure
natural gas and does not use expensive high pressure fuel injection equipment
and costly turbochargers found on diesel engines, thus offering a very
competitive natural gas power plant for industrial applications.
ITEM 2. DESCRIPTION OF PROPERTY
The Company maintains its corporate office in Cibolo, Texas, and an executive
office in Philadelphia, Pennsylvania. The Cibolo facility is 32,000 sq. ft. and
houses administrative, engineering and manufacturing operations.
The Company owns and maintains no properties. Properties are leased on a
short-term basis. 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 its operating facilities and is currently reviewing
other plant facilities near their respective locations.
ITEM 3. 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 management, Nauticon has incurred bad debts and certain claims
have been filed against Nauticon.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 11, 1999, the following majority shareholders of the Company voted in
favor of election of Company Directors to a new three year term by a majority
vote of 3,840,583 votes or 51.1% of the outstanding 7,518,653 common shares of
the Company:
Simco Group, Inc., Francis L. Simola & Family 2,611,846 Shares
George C. Briley 652,602 Shares
Terrence J. Dunne 414,135 Shares
Jack Kazmar 162,000 Shares
The following were elected Directors of the Company to serve for three years.
Francis L. Simola
George C. Briley
Jack Kazmar
Carl H. Rosner
<PAGE> 14
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
Intermagnetics General Corporation's investment in the Company entitled them to
have a position on the Board of Directors. Mr. Carl Rosner was never formally
elected a director of the Company prior to this election. Subsequently Carl H.
Rosner has resigned as a Company director.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock is traded on the OTC Electronic Bulletin Board under
the trading symbol PWCL. As of December 31, 1999, there were approximately 280
record holders of the Company's Common Stock.
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.
<TABLE>
1999 1998
----------------- -----------------
High Low High Low
-------- ------- -------- ------
<S> <C> <C> <C> <C>
First Quarter 1 3/8 5/8 1 1/2 1/4
Second Quarter 2 1 1 7/8 1 1/4
Third Quarter 1 7/8 5/8 2 1
Fourth Quarter 1 1/2 1 1/4 7/8
</TABLE>
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 and provide for the Company's growth.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 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
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 (subject
to sufficient working capital) for RealCold Products in 2000, based upon its
expertise in custom manufacturing systems. There are proposed alliances with
other refrigeration companies, whereas RealCold Products will package various
components adding value for a total turnkey refrigeration system.
<PAGE> 15
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
During 1999, RealCold Products has generated some $10M in customer proposals.
Because of insufficient working capital for raw materials and labor directly
needed for RealCold, sales and revenue was greatly impaired. The working
capital shortage for RealCold Products was mainly due because of the large
amounts of Company funds that was used for the promotion and support of the new
Channel Freeze business.
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
produce 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
150 systems installed.
Management believes that Nauticon did not meet its sales and revenue projections
in 1999 due to lack of operating cash flow and limited marketing support because
of the concentrated support on the Channel Freeze business. PowerCold has
funded Nauticon over $1M in operating capital, but the Company has been
continually hindered by major operating and legal expenses due to previous inept
management. Because of the major operating losses incurred by previous
management, Nauticon does not have sufficient resources to continue operations.
The Nauticon product technology was licensed to RealCold Products for a two and
one half per cent royalty fee on product sales.
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 one of 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 an exclusive Distributor Agreement for the Rotary Power
580 series engines form Rotary Power International, Inc.
The Company has delivered fourteen 65 HP engines and one 500 HP engine on its
major sales agreement with Kem Equipment Company, an engine packager for OEM
applications for the oil and gas industry in Western Canada. The Sales
Agreement is 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 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.
<PAGE> 16
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
Since the acquisition, Channel Freeze had to overcome changes in product design
and engineering and limited marketing experience and product credibility in the
marketplace, therefore did not meet its sales and revenue projections in 1999.
Channel Freeze has generated over $10M in proposal quotations. The new Channel
Freeze management support team believes that the product is now ready for
customer delivery and acceptance.
ALTURDYNE ENERGY SYSTEMS - PowerCold signed a Letter of Agreement (December
1998), to acquire a division of Alturdyne that produces natural gas engine
driven water chillers. The new company Alturdyne Energy System, Inc. was formed
in September 1999. 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 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 and generate
additional revenue for the Company in 2000.
RESULTS OF OPERATIONS
The following table's sets forth the company's results of operation as a
percentage of net sales for the periods indicated below:
<TABLE>
Year Ended December 31,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of revenue 77.3 89.7 83.3
Gross margin 22.7 10.3 16.7
Operating expenses (189.3) (282.5) (453.9)
Operating income (loss) (166.6) (272.1) (437.2)
Other income (expense) (13.2) (102.0) 22.0
Net income (loss) (198.9) (382.2) (694.1)
</TABLE>
<PAGE> 17
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
FISCAL 1999 AND 1998 RESULTS - The Company's Consolidated Statements of
Operations for the fiscal year ended December 31, 1999 compared to fiscal year
ended December 31, 1998: Total revenue for 1999 was $541,238 compared to
$442,172 for 1998; operating loss of ($901,762) for 1999 compared to
($1,203,301) for 1998; and net loss of ($1,076,900) or ($0.15) per share for
1999 compared to a net loss of ($1,690,187) or ($0.27) per share for 1998. Net
income (loss) per share was based on weighted average number of shares of
7,106,638for 1999 compared to 6,376,647 for 1998.
The Company's Consolidated Balance Sheets as of December 31, 1999 and December
31, 1998 respectively: Total current assets were $598,030 for 1999 and $853,996
for 1998; total assets were $1,732,824 for 1999 and $2,321,970 for 1998; total
liabilities were $1,139,636 for 1999 and $1,164,377 for 1998; total
stockholders' equity was $ 593,188 for 1999 and $1,157,593 for 1998.
The company's revenues and expenses resulted in an operating loss ($1,076,900)
for 1999 compared to an operating loss of ($1,203,301) for 1998, these are both
operating losses. The Company's operating loss in 1999 was 25.1% less than the
operating loss in 1998, and the net loss for 1999 was 36.3% less than the net
loss in 1998. The decrease in operating losses was due to a reduction of some
$224 thousand in general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1999, the Company's working capital was ($541,606) compared with
($310,381) at December 31, 1998. The decrease was primarily attributable to the
Company's increase in liabilities. The company's cash resources at December 31,
1999 were $14,455 reflecting an decrease in cash resources from $21,781 at
December 31, 1998.
Simco Group, Inc., a wholly owned affiliate of Francis L Simola, CEO of the
Company has financed the Company on several occasions since the Company's
inception. Simco Group has never received or requested payment of any interest
from the Company for providing said financing. In 1999 the Board of Directors
elected to give Simco group 8% interest on outstanding loans to the Company. As
of December 31, 1999 there was an outstanding loan of $365,254 due Simco Group.
Management believes that without the continuos financial support of Simco Group,
the Company would never have remained in business.
The Board of Directors unanimously approved establishing Simco Group, Inc. with
fiduciary responsibility for the Company, effective December 27, 1994. On April
15, 1996, the Board of Directors again voted unanimously to have Simco Group,
Inc. continue to support the financial needs of the Company and its subsidiaries
whenever necessary; making loans and borrowing money for the Companies, selling
personal stock or assets of Francis Simola to support the Company, or to make
loans to support financial transactions of the Company.
Because of these financial transactions, Simco Group, Inc. knowingly knew that
it may be at financial risk, loosing personal interest and principal money, and
incurring losses due in personal stock transactions.
The Company issued a total of 1,042 shares of new common restricted shares in
1999. 483,000 shares were issued for satisfaction of recorded liabilities for
expenses and services rendered. 559,000 shares were issued for cash.
<PAGE> 18
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
STATUS OF OPERATIONS - 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.
Company operating revenues and profit should increase in 2000 because of the new
products from acquisitions. Management believes that its working capital may
not be sufficient to support its operations and growth plans, therefore to
support the Company's growth and goals, management is seeking additional funding
for this purpose.
PREVIOUS FINANCIAL ACTIVITY - 1998
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.
RESULTS OF OPERATIONS - 1998
The following table's sets forth the company's results of operation as a
percentage of net sales for the periods indicated below:
<TABLE>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenue 100.0% 100.0% 100.0%
Cost of revenue 89.7 83.3 62.8
Gross margin 10.3 16.7 37.2
Operating expenses (282.5) (453.9) 76.7
Operating income (loss) (272.1) (437.2) (39.5)
Other income (expense) (102.0) 22.0 200.2
Net income (loss) (382.2) (694.1) 152.2
</TABLE>
<PAGE> 19
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
FISCAL 1998 AND 1997 RESULTS - The Company's Consolidated Statements of
Operations for the fiscal year ended December 31, 1998 compared to fiscal year
ended December 31, 1997: Total revenue for 1998 was $ 442,172 compared to
$391,819 for 1997; operating loss of ($1,203,301) for 1998 compared to
($1,713,203) for 1997; and net loss of ($1,690,187) or ($0.27) per share for
1998 compared to a net loss of ($2,719,633) or ($0.46) per share for 1997. Net
income (loss) per share was based on weighted average number of shares of
6,376,647 for 1998 compared to 5,893,000 for 1997.
The Company's Consolidated Balance Sheets as of December 31, 1998 and December
31, 1997 respectively: Total current assets were $853,996 for 1998 and
$1,581,736 for 1997; total assets were $2,321,970 for 1998 and $2,229,357 for
1997; total liabilities were $1,164,377 for 1998 and $817,191 for 1997; total
stockholders' equity was $1,157,593 for 1998 and $1,412,166 for 1997.
The company's revenues and expenses resulted in an operating loss ($1,203,301)
for 1998 compared to an operating loss of ($1,713,203) for 1997, these are both
operating losses. The Company's operating loss in 1998 was 30% less than the
operating loss in 1997, and the net loss for 1998 was 38% less than the net loss
in 1997. The decrease in operating losses was due to a reduction of some $1
million in general and administrative expenses; and the decrease in the net loss
was due to the write-off of the failed merger with Rotary Power International,
Inc. in 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company's working capital was ($310,381) compared with
$764,545 at December 31, 1997. The decrease was primarily attributable to the
Company's write-off of $557,145 as of December 31, 1998, in marketable
securities that were permanently impaired. The company's cash resources at
December 31, 1998 were $21,781 reflecting an increase in cash resources from
$2,274 at December 31, 1997.
Simco Group, Inc., a wholly owned affiliate of Francis L Simola, CEO of the
Company has financed the Company on several occasions since the Company's
inception. Simco Group has never received or requested payment of any interest
from the Company for providing said financing. Management believes that without
the continuos financial support of Simco Group, the Company would never have
remained in business.
The Board of Directors unanimously approved establishing Simco Group, Inc. with
fiduciary responsibility for the Company, effective December 27, 1994. On April
15, 1996, the Board of Directors again voted unanimously to have Simco group,
Inc. continue to support the financial needs of the Company and its subsidiaries
whenever necessary; making loans and borrowing money for the Companies, selling
personal stock or assets of Francis Simola to support the Company, or to make
loans to support financial transactions of the Company.
Because of these financial transactions, Simco Group, Inc. knowingly knew that
it may be at financial risk, loosing personal interest money, and incurring
losses due in personal stock transactions.
<PAGE> 20
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
At December 31, 1997, the Company had $597,300, ($607,960 in 1996) held by and
invested in an account in the name of Simco. These funds were invested in short
and long-term liquid marketable securities; these funds have been classified as
advances to affiliate. Simco has guaranteed the Company a mini-mum 8% return on
these funds. During 1998, Simco paid the Company interest of $49,284, ($48,000
in 1997 and $12,000 in 1996). Management believes these terms reflect an
arms-length transactions.
In early 1998, a major security investment decreased in value substantially and
quickly due to uncontrolled market conditions. Simco Group, at its own risk,
used its own money to support the investment during 1998, and continued to fund
and support the Company as needed. Simco also paid interest to the Company.
Management and a majority of the Directors decided to write -off, as of December
31, 1998, the loss of $557,145.
During 1998, the Company issued 120,000 restricted shares of common stock to
Simco as compensation at an expense of $30,000. The Company also recorded
$60,000 related to payment for expenses and $120,000 for services and $75,000
for consulting services provided for the three new acquisitions of Rotary Power
Enterprise, Channel Freeze Technologies and Alturdyne Energy Systems. These
amounts were credited to the investment account funds to reduce the loss.
During 1997, the Company issued 120,000 restricted shares of common stock
(150,000 shares in 1996) to Simco in satisfaction of prior years' liabilities
related to expenses and consulting services provided. During 1997, the Company
recorded expense of $48,000 related to the issuance of 120,000 restricted shares
as payment for expenses and consulting services provided. The shares were issued
at 50% of the bid price on date of issuance varying from $.30 to $.625 per share
during 1997.
In September 1998, the Company received $1,000,000 through the sale of a
redeemable, convertible, preferred series A Preferred Stock, $0.001 par value,
$0.80 stated value. 1,250,000 preferred shares are issued and outstanding.
The Company issued a total of 838,867 shares of new common restricted shares in
1998. 117,647 shares were issued at $0.85 per share for a private placement,
which raised $100,000. 100,000 shares were issued for an acquisition at $0.63
per share. 19,000 shares were issued to the Company Directors at $0.50 per
share. 285,000 shares were issued to key executives as compensation at an
average of $0.33 per share. 317,220 share were issued for satisfaction of
recorded liabilities for expenses and services rendered.
STATUS OF OPERATIONS - 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.
Company operating revenues and profit should increase because of the new
acquisitions. Management believes that its working capital may not be
sufficient to support its operations and growth plans, therefore to support the
Company's growth and goals, management is seeking additional funding for this
purpose.
<PAGE> 21
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
YEAR 2000 ISSUES
The company has formed a committee to investigate any liabilities resulting from
the Y2K problem. The Company's internal computer systems and programs are being
reviewed to make sure they are up to date. If any are not in compliance, steps
are being taken to upgrade the programs from the manufacturers. Any new
computers and/or software programs to be purchased this year will be purchased
as Y2K complied. This same procedure will be addressed for all office equipment
as well. Questionnaires are being sent to the Company's vendors and materials
suppliers to determine their compliance and actions in place to do so. We are
targeting June 1, 1999 to be complete with all compliance actions.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Power Cold Corporation and subsidiaries consolidated financial statements
incorporated in this annual report Form 10KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During the registrant's fiscal year ending December 31, 1999 and the subsequent
period up to the date of the former accountants release, there were no
disagreements with the former accountant nor with the current account on any
matter of accounting principles or practices, financial statement disclosures or
auditing scope of procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company are as follows:
<TABLE>
NAME AGE POSITION PERIOD SERVED
- ------------------- --- -------------------------- -----------------
<C> <S> <S> <S>
Francis L. Simola. 60 Chairman of the Board January 1, 1993
President and CEO
George C. Briley 74 Director, and CTO
Secretary, Treasurer September 1, 1994
President:
Technicold Services, Inc. September 1, 1994
RealCold Products, Inc September 1, 1994
Nauticon, Inc. October 1, 1998
Channel Freeze
Technologies, Inc. October 1, 1998
H. Jack Kazmar 68 Director and COO October 1, 1998
President:
Rotary Power Enterprise, Inc. October 1, 1998
Alturdyne Energy Systems, Inc. September 1, 1999
</TABLE>
A summary of the business experience and background of the Company's officers
and directors is set forth below.
<PAGE> 22
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
FRANCIS L. SIMOLA Mr. Simola has been Chairman, CEO and President of
PowerCold since the Company's inception in January 1993. Mr. Simola's background
and experience includes; over 28 years in the computer industry with positions
in various marketing and management operations with Unisys Corporation, formerly
Burroughs Corporation; over 15 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 PowerCold.
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.
GEORGE C. BRILEY Mr. Briley has been a director of the PowerCold since
September 1994, and is President of RealCold Products, Inc., and President of
Technicold Services, Inc., PowerCold 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".
H. JACK KAZMAR - Marketing Consultant with Rotary Power International, Inc. -
1993 - 1997. Mr. Kazmar is also a representative for several specialty
heating and air conditioning products. Previously he worked at ICC as Vice
President of Sales and Marketing. Mr. Kasmar has had more than 30 years
experience in the commercial heating, ventilation and air conditioning equipment
industry. From 1981 till 1969, Jack Kasmar was President and co-founder
of Skil-Aire Corporation, a manufacturer of standardized commercial heating,
ventilation and air conditioning products. From 1971 to 1981, Mr. Kasmar
served in a number of positions of increasing responsibility at Fedders
Corporation, including General Manager of Residential and Commercial Products
Division and Airtemp Applied. Prior to joining Fedders, he held various
positions with Worthington Corporation in direct sales and field management in
NYC, Washington D. C., Baltimore and Philadelphia areas. Jack Kasmar holds a
Bachelor of Science - Mechanical Engineering from Lafayette College in Easton,
Pennsylvania.
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.
<PAGE> 23
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
ITEM 10. EXECUTIVE COMPENSATION
No Officer or Director of the parent Company received any cash salary as
compensation during the year ended 1999.
Mr. Simola/Simco Group received 120,000 shares of common restricted stock for
services rendered the Company for 1999. Simco Group received $60,000 related to
payment due for expenses, which has accumulated with loans due Simco Group for
a total due of $365,254.00 loaned the Company.
Mr. Simola worked 100% of his time for PowerCold.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth information as of December 31, 1999, 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, and (ii) each
director. (iii) beneficial owner of outstanding preferred stock.
<TABLE>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP (1) OF CLASS (2)
- --------------------- --------------------------- ------------
<S> <C> <C>
George C. Briley 652,602 8.29%
17 Pembroke Lane
San Antonio, TX. 78240
Terrence J. Dunne 438,488 5.57%
West 717 Sprague Ave. No. 1100
Spokane, Washington 99204
Robert E. Jenkins 403,728 5.13%
2903 Hillview Road
Austin, Texas 78703
H. Jack Kazmar 162,000 2.06%
36 West Beechcroft Road
Short Hills, NJ 07078
Francis L. Simola and (3) 1,058,596 13.44%
Veronica M. Simola
9408 Meadowbrook Ave.
Philadelphia, Pa. 19118
Simco Group, Inc. (4) 1,146,500 14.56%
650 Sentry Parkway, Ste.1
Blue Bell, PA. 19422
Total Common Stock 3,861,914 49.03%
- -------------------- --------- ------
Intermagnetics General Corporation 1,250,000 100.00%
450 Old Niskayuna Road
Latham, NY 12110
Total Preferred Stock 1,250,000 100.00%
- ----------------------- --------- -------
</TABLE>
(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 and preferred stock.
<PAGE> 24
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(3) Includes minor children
(4) Simco Group Inc., a privately held Nevada Corporation, (100%) owned by
Francis L. Simola and Veronica M. Simola.
ITEM 13. EXHIBITS AND REPORTS
(A) FINANCIAL STATEMENTS AND SCHEDULES
Exhibits: None
Financial Statements exhibited herein the Annual Report on Form 10-KSB and
are filed as a part hereof.
(B) REPORTS ON FORM 8-K:
8-K May 7, 1999 - Resignation of Registrants Director
8-K December 12, 1999 - Changes in Registrants Certifying Accountant
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) 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.
POWERCOLD CORPORATION
Dated: April 14, 2000
/s/ Francis L. Simola
By: __________________________
Francis L. Simola
President and (Chief Executive Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Dated: April 14, 2000
/s/ Francis L. Simola
By: __________________________
Francis L. Simola
Director and President
/s/ George C. Briley
By: __________________________
George C. Briley
Director, Secretary and Treasurer
H. Jack Kazmar
By: __________________________
H Jack Kazmar
Director
<PAGE> 25
POWERCOLD CORPORATION
FORM 10-KSB
For the year ended December 31, 1999
R. E. BASSIE & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
POWERCOLD CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
(WITH INDEPENDENT AUDITORS'
REPORT THEREON)
POWERCOLD CORPORATION AND SUBSIDIARIES
INDEX
Independent Auditors' Report
Consolidated Financial Statements:
Balance Sheets - December 31, 1999 and 1998
Statements of Operations - Years ended December 31, 1999 and 1998
Statements of Stockholders' Equity - Years ended December 31, 1999 and 1998
Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE> 26
R. E. BASSIE & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
7171 Harwin Drive, Suite 306
Houston, Texas 77036-2197
Tel: (713) 266-0691 Fax: (713) 266-0692
E-Mail: [email protected]
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
PowerCold Corporation:
We have audited the consolidated balance sheet of PowerCold Corporation and
subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, changes in stockholders' equity, and cash flows for year ended
December 31, 1999. These consolidated 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
consolidated financial statements of the Company for 1998 were audited by other
auditors, whose report, dated March 5, 1999, included an explanatory paragraph
describing the uncertainty of the recovery of the Company's primary assets,
comprising patent rights and related technology of $441,078 and goodwill of
$125,925.
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 financial position of PowerCold and
subsidiaries as of December 31, 1999 and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
As shown in the consolidated financial statements, the Company incurred a net
loss of $1,075,265 for 1999 and $1,690,187 for 1998. At December 31, 1999
current liabilities exceed current assets by $531, 997. These factors, and
other discussed in Note 16 to the consolidated financial statements raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements do not include any adjustments relating to
the recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
/s/ R. E. Bassie & Co., P.C.
Houston, Texas
March 30, 2000
<PAGE> 27
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
Assets 1999 1998
------ --------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 14,455 $ 21,781
Restricted cash (notes 4 and 6) - 400,000
Trade accounts receivable, net of allowance
for doubtful accounts of $ 138,379 in 1999
and $84,533 in 1998 150,791 6,313
Receivable from Channel Freeze Technologies 274,910 -
Receivables from related parties 1,312 72,618
Interest receivable - 9,918
Refundable income taxes 52,222 124,156
Inventories 34,993 156,699
Prepaid expenses 69,347 62,511
--------------- --------------
Total current assets 598,030 853,996
--------------- --------------
Securities available for sale - 32,500
Investment in affiliate (note 3) 621,092 825,988
Property and equipment, net (note 5) 24,301 42,483
Patent rights and related technology net 374,003 441,078
Goodwill, net 115,398 125,925
--------------- --------------
Total assets $ 1,732,824 $ 2,321,970
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 672,533 697,934
Commissions payable 67,298 42,240
Advances from affiliates (note 2) 365,254 -
Notes payable (note 6) 21,378 424,203
Current installments of long-term debt (note 7) 3,564 -
--------------- --------------
Total current liabilities 1,130,027 1,164,377
Long-term debt, less current installments (note 7) 9,609 -
--------------- --------------
Total liabilities 1,139,636 1,164,377
--------------- --------------
Stockholders' equity (notes 2 and 8):
Convertible, preferred stock, Series A, $.001
par value, $1,000,000 in liquidation, 1,250,000
shares authorized, issued, and outstanding 1,250 1,250
Common stock, $.001 par value. Authorized 200,000,000
shares: issued and outstanding, 7,876,641 shares
in 1999 and 6,834,136 shares in 1998 7,876 6,834
Additional paid-in capital 6,044,092 5,534,274
Accumulated deficits (5,451,530) (4,376,265)
--------------- --------------
601,688 1,166,093
Less receivables for stock subscription 8,500 8,500
--------------- --------------
Total stockholders' equity 593,188 1,157,593
Commitments and contingent liabilities - -
--------------- --------------
Total liabilities and stockholders' equity $ 1,732,824 $ 2,321,970
=============== ==============
</TABLE> See accompanying notes to consolidated financial statements.
<PAGE> 28
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended December 31, 1999 and 1998
<TABLE>
1999 1998
--------------- ---------------
<S> <C> <C>
Revenues
Product sales $ 442,545 $ 148,659
Services 98,693 293,513
--------------- ---------------
Total revenues 541,238 442,172
--------------- ---------------
Cost of Revenue:
Product sales 349,804 119,532
Services 68,403 276,923
--------------- ---------------
Total cost of revenue 418,207 396,455
--------------- ---------------
Gross margin 123,031 45,717
Operating expenses:
Sales and marketing - 509,464
General and administrative 916,127 584,368
Allowance for doubtful accounts (2,755) -
Research and development - 55,229
Depreciation and amortization 111,421 99,957
--------------- ---------------
Total operating expenses 1,024,793 1,249,018
--------------- ---------------
Operating loss (901,762) (1,203,301)
Other income (expense):
Interest and other income - 137,393
Interest and other expense (71,676) (31,289)
Write-off of advances to affiliate - (557,145)
--------------- ---------------
Total other income (expense) (71,676) (451,041)
--------------- ---------------
Loss before provision for income taxes (973,438) (1,654,342)
Provision for federal income expenses - -
Net loss before losses of unconsolidated affiliates (973,438) (1,654,342)
Equity in loss of unconsolidated
affiliates (note 3) (103,462) (35,845)
--------------- ---------------
Net loss $ (1,076,900) $ (1,690,187)
=============== ===============
Basic earnings per common share:
Loss from operations $ (0.14) $ (0.19)
=============== ===============
Net loss $ (0.15) $ (0.27)
=============== ===============
Weighted average number of shares 7,106,638 6,376,647
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 29
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1999 and 1998
*begin 8 pt type*
<TABLE>
Additional Stock Total
Preferred Common Paid-in Accumulated Subscription Stockholders'
Stock Stock Capital Deficit Receivable Equity
------------ ------------ ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 $ - $ 5,995 $ 4,100,799 $(2,686,078) (8,500) $ 1,412,216
Issuance of preferred
stock Series A 1,250 - 978,246 - - 979,496
Issuance of common stock
for cash - 118 99,882 - - 100,000
Issuance of common stock
for services - 621 293,447 - - 294,068
Issuance of common stock
for purchase of
subsidiary - 100 62,900 - - 63,000
Amounts due from stockholders - - (1,000) - - (1,000)
Net loss - - - (1,690,187) - (1,690,187)
------------ ------------ ------------ ------------ ------------- --------------
Balance, December 31, 1998 1,250 6,834 5,534,274 (4,376,265) (8,500) 1,157,593
Issuance of common stock
for services - 483 161,627 - - 162,110
Issuance of common stock
for cash - 559 348,191 - - 348,750
Net loss - - - (1,075,265) - (1,075,265)
------------ ------------ ------------ ------------ ------------- --------------
Balance, December 31, 1999 1,250 7,876 $ 6,044,092 $(5,451,530) $ (8,500) $ 593,188
============ ============ ============ ============ ============= =============
</TABLE>
*end 8pt type*
See accompanying notes to consolidated financial statements.
<PAGE> 30
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
<TABLE>
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,075,265) $ (1,690,187)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 111,421 99,937
Gain on sale of investment in
unconsolidated affiliate - (37,121)
Loss realized on disposition of subsidiary - 6,028
Equity in loss of unconsolidated affiliates 103,462 35,845
Write-off of advances to affiliate - 557,145
Provision for doubtful accounts - 76,815
Issuance of common stock for services 162,110 294,068
(Increase) decrease in accounts receivable (43,044) 10,098
Increase in receivable from Channel Freeze (274,910) -
Decrease in receivable from related party 71,306 -
Decrease in interest receivable 9,918 -
Decrease in refundable income taxes 71,934 -
(Increase) decrease in inventories 121,706 (87,617)
Increase in prepaid expenses (6,836) (49,349)
Increase (decrease) in accounts payable
and accrued expenses (25,401) 66,007
Increase in commissions payable 25,058 42,240
Decrease in federal income taxes payable - (74,156)
--------------- ---------------
Net cash used in operating activities (748,541) (750,247)
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment - (3,637)
Cash received from acquired subsidiaries - (572,095)
Proceeds from sale of investment in
unconsolidated affiliate - 44,984
Cash released from escrow related to sale
of subsidiary - 200,000
Proceeds from sale of securities available for sale 32,500 (234,152)
Release of restriction on cash 400,000 -
Purchase of securities available for sale - 81,716
Increase in advances from affiliate 365,254 -
Decrease in advances to affiliate - 160,347
--------------- ---------------
Net cash provided by (used in) investing activities 797,754 (322,837)
--------------- ---------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 31
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1999 and 1998
<TABLE>
1999 1998
--------------- ---------------
<S> <C> <C>
Cash flows from financing activities:
Principal payments on long-term debt (2,464) -
Proceeds from short-term borrowings - 25,061
Principal payments on short-term notes payable (402,825) (11,966)
Proceeds from issuance of shares under
private placement 348,750 100,000
Proceeds from sales of preferred stock - 979,496
--------------- ---------------
Net cash provided by (used in) financing activities (56,539) 1,092,591
--------------- ---------------
Net increase (decrease) in cash (7,326) 19,507
Cash at beginning of year 21,781 2,274
--------------- ---------------
Cash at end of year $ 14,455 $ 21,781
=============== ===============
Supplemental schedule of cash flow information:
Interest paid $ 50,628 $ 25,261
=============== ===============
Cash paid for income taxes $ - $ 74,156
=============== ===============
Noncash investing activities:
Unrealized gain (loss) on securities
available for sale $ - $ 50
=============== ===============
Noncash financing activities:
Issuance of common stock for purchase of
subsidiary $ - $ 63,000
=============== ===============
Direct financing provided for investment
in unconsolidated affiliate $ - $ 300,000
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 32
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
PowerCold Corporation, formally International Cryogenic Systems Corporation,
(the Company) was incorporated on October 7, 1987 in the state of Nevada and
operates in one business market, the development, design, manufacture,
distribution, and servicing of refrigeration systems. The Company derives its
revenues from three principal product lines. The first is a line of evaporative
heat exchange systems for the HVAC and refrigeration and carbon dioxide system
design. As part of this product line, the company also provides operation,
maintenance, and safety seminars for ammonia refrigeration technicians and
supervisors. The third line is the design and production of unique products for
the refrigeration industry.
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 nonfood products by using a
circulating cryogenic liquid in a closed pressurized vessel system, in exchange
for 2,414,083 shares of common stock. Two directors of the Company were also
directors of the company selling such patent rights.
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. Wholly owned subsidiaries of the Company in 1999 include
Technicold Services, Inc., RealCold Products, Inc., Nauticon Inc., and Rotary
Power Enterprise, Inc.
PROPERTY AND EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated using the straight-line method over the estimated useful
lives of the assets, which range from three to ten years.
EARNINGS PER SHARE
Earnings (losses) per common share have been computed by dividing net earnings
(losses) by the weighted average number of common shares outstanding during the
respective periods.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents.
INVESTMENTS
Investments consist of marketable equity securities (common stock). Marketable
securities are stated at market value as determined by the most recently traded
price of each security at the balance sheet date.
Equity securities available for sale are carried at fair value. Unrealized
losses of such securities are included as a component of stockholders' equity.
<PAGE> 33
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
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, 1999 and 1998, capitalized patent development costs, net
of amortization, were $374,003 and $441,078, respectively. Amortization expense
was $67,075 for the year ended December 31, 1999 and $67,075 for the year ended
December 31, 1998. The Company periodically reviews its capitalized patent
costs to assess recoverability based on the projected undiscounted cash flows
from operations. Impairments are recognized in operating results when a
permanent diminution in value occurs.
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to the customer.
Service revenue is recognized when services are performed and billable.
GOODWILL
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 $10,527 for the years ended December 31, 1999 and 1998.
Accumulated amortization amounted to $52,634 and $42,108 at December 31, 1999
and 1998, respectively. The Company periodically reviews its goodwill to assess
recoverability based on projected undiscounted cash flows from operations.
Impairments are recognized in operating results when a permanent diminution in
value occurs.
RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform to the 1999 presentation.
(2) RELATED PARTY TRANSACTIONS
The Company has received funding on several occasions from Simco Group, Inc,
(Simco), a separate legal entity wholly-owned by the Company's Chairman and
Chief Executive Officer.
During 1999, Simco advanced $365,254 to the Company. During 1998, the Company
advanced funds to Simco to invest in short-term and long-term marketable
securities. At December 31, 1998, management of the Company determined that the
value of the marketable securities had been permanently impaired. The total
amount of advances to affiliate of $557,145 was written-off. Simco guarantees
the Company an 8% annual return on these funds. Simco paid interest to the
<PAGE> 34
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Company for the year ended December 31, 1998 of $49,284. During 1998, a total
of $195,000 was recorded as compensation for the Company's Chairman and Chief
Executive Officer. No cash was paid related to the $195,000, but instead was
used to reduce the funds advanced to Simco.
During 1998, the Company recorded expense of $30,000 related to the issuance of
120,000 shares of restricted common stock to Simco as payment for expenses and
consulting services provided. An additional 100,000 shares were issued to
reimburse Simco for payment of $63,000 in expenses of the Company, paid by
Simco. The shares were issued at 50% of the bid price on date of issuance
ranging from $0.25 per share to $.063 per share.
On September 30, 1994, the Board of Directors approved agreements with three key
executives. The agreements provide that compensation for services rendered be
paid through cash payments or through a stock option plan, determined annually
by the Board. Sale of stock is subject to approval by the Treasurer and
President of the Company. During 1998, the Company issued a total of 335,000
restricted shares on common stock to these three executives, including the
220,000 shares noted above for a total expense of $136,750. Shares are issued
at 50% of the current bid price of the Company's stock. No cash was paid to
these three executives during 1998.
In additions, the directors receive an annual payment of $2,500 for director's
fees. The agreements further provide that two of the individuals receive a 2%
commission not to exceed 5% on any direct sales of the Company. The third
individual receives the highest of 3% commission on gross revenues and 5% on
gross operating profits, or $10,000 per month. These employees also have the
option to purchase shares of common restrictive stock of the Company at 50% of
bid price 30 days after receiving payments for these services. In order to
obtain these benefits, the employees must perform services for a period of three
years effective on date of agreement or receive a pro rata share based on years
of service. No commissions were accrued related to the agreements at December
31, 1999 and 1998.
Included in accounts payable and accrued expenses as of December 31, 1999 is
$97,000 for amounts owed to the president of Technicold Services, Inc. and to
the former President of Nauticom Inc.
(3) ACQUISITIONS AND INVESTMENT IN AFFILIATE
ACQUISITION OF ROTARY POWER ENTERPRISE, INC.
Pursuant to the terms of the Rotary Power Enterprise, Inc. acquisition
agreement, effective October 1, 1998, the Company issued 100,000 shares of
common stock in exchange for 100% of the outstanding stock of Rotary Power
Enterprise, Inc. Rotary Power Enterprise, Inc. was formed during 1998 for the
purpose of developing a new product line for PowerCold. The acquisition
resulted in goodwill of $65,399, which is being amortized on a straight-line
basis over 10 years:
Purchase price $ 65,399
Fair value of net asset acquired -
----------
Excess of purchase price over fair value of
net assets acquired $ 65,399
======
<PAGE> 35
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
INVESTMENT IN AFFILIATE
The Company formed Channel Freeze Technologies, Inc. (CFTI) in 1998 to
accommodate the acquisition of intellectual property assets related to Channel
Ice Technology. On September 15, 1998, the Company executed an Agreement to
acquire eighty percent (80%) of the assets of Channel Ice Technologies from SIR
Worldwide LLC for a cash payment of $850,000 and additional installment fee
payments of $5,950,000, plus stock options, and together with transfer of twenty
(20%) interest in CFTL.
The Company paid an initial partial down payment of $250,000 and an additional
$400,000, plus $3,750 in interest, of the $850,000 cash purchase price. A
liability in the amount of $200,000 and $300,000 is included in accounts payable
and accrued expenses at December 31, 1999 and 1998, respectively, for the
remaining balance of the $850,000 cash payment. Fee payments due for sales of
Channel Ice Technology units; either a 10% net fee payment for distributors or a
13% net sales fee payment for the basic sale of the net gross invoice price on
all Channel Ice Technology units sold. Stock options; to acquire 400,000 shares
of the common stock of PowerCold, par value $.001, at a price of $2.50 per
share, for a period not to exceed two (2) years from the date of closing.
For each $1 million dollars in Channel Ice Technology unit sales, PowerCold
shall acquire an additional 1% equity interest in CFTI for each payment of
$85,000, up to a maximum ownership interest by PowerCold in CFTI of 80%.
The Company shall have the right to prepay any or all amounts owed. PowerCold
shall have exclusive right of first refusal and option to acquire all interest
in CFTI for a period not to exceed five years and for a price equal to the then
market value or as mutually agreed.
Financial information for Channel Freeze Technologies, Inc. is summarized below:
December 31,
-------------------------
1999 1998
--------- ----------
Current assets $ 16,452 $ 1,609
Noncurrent assets 779,746 836,869
--------- ----------
Total assets 796,198 838,478
Less current liabilities 355,568 93,548
--------- ----------
Equity $ 440,630 $ 744,930
========= ==========
Net loss $ 304,300 $ 105,069
========= ==========
(4) RESTRICTED CASH
Restricted cash at December 31, 1998, consisted of a certificate of deposit,
which collateralized short-term borrowings.
<PAGE> 36
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(5) PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
-------------------------
1999 1998
--------- ----------
Machinery and equipment $ 26,877 $ 12,540
Prototypes and molds 73,420 71,030
Furniture and fixtures 8,804 9,894
--------- ----------
Total property and equipment 109,101 93,464
Less accumulated depreciation 84,800 50,981
--------- ----------
Net property and equipment $ 24,301 $ 42,483
========= ==========
Depreciation expense for the years ended December 31, 1999 and 1998 was $33,819
and $20,700, respectively.
(6) NOTES PAYABLE
At December 31, 1999 and 1998, notes payable represented the following:
A note payable to a bank under a financing agreement that permits the Company to
borrow up to $25,000. The agreement provides for interest at 9.25%. The note
is secured by the personal guarantee from one of the officers. At December 31,
1999 and 1998, $21,378 and $25,000, respectively, were outstanding against the
note. The financing agreement matured in July 1999.
A note payable to a bank under a financing agreement that permits the Company to
borrow up to $400,000. The agreement provides for interest at 7%. The note was
secured by a $400,000 certificate of deposit. At December 31, 1998, $399,142
was outstanding against the note. The note was repaid in 1999 with the proceeds
from the above-mentioned certificate of deposit.
(7) LONG-TERM DEBT
Long-term debt at December 31, 1999 represents a note payable in monthly
installments of $297, with interest at 9.5%, through April 2004. Aggregate
yearly maturities of long-term debt for the years after December 31, 1999 are as
follows:
2000 $ 3,564
2001 2,783
2002 3,041
2003 3,785
---------
$ 13,173
=========
<PAGE> 37
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(8) PREFERRED STOCK
The Company currently has 1,250,000 shares of preferred stock outstanding at
December 31, 1999. This stock is designated as Series "A" Convertible Preferred
Stock and was issued to a single investor. This stock has a par value of $.001
per share and a stated value of $.80 per share in liquidation and has preference
over common stock in liquidation.
The stock is convertible at the option of the holder at a rate determined by
dividing $1.00 by the conversion price. Each share of stock shall automatically
be converted into shares of common stock at the then effective conversion price
on September 14, 2002. Each share of the stock may, at the option of the
Company, be converted into shares of common stock at 120% of the then effective
conversion price.
Holders of Series "A" Convertible Preferred Stock are entitled to a number of
votes per share equal to the number of shares of common stock into which each
such share of Series "A" Convertible Preferred Stock held by such holder is
convertible at the time of such vote.
Each issued and outstanding share of Series "A" Convertible Preferred Stock
shall be entitled to receive cumulative preferential dividends, payable in cash
or common stock at the option of the Company, at the annual rate of $0.064 per
share, payable quarterly.
(9) STOCK BASED COMPENSATION
During 1999, the Company authorized and issued a total of 1,004,558 options at
an exercise price of $.50 per share for employee compensation. During 1998, the
Company authorized and issued a total of 600,000 options at an exercise price of
$.60 per share, for employee compensation. The Company also issued a total of
$460,000 options during 1998 for goods and services. Since the Company accounts
for the compensation cost associated with the issuance of stock options to
employees for compensation under APB Number 25, no compensation cost was
recognized in income during the years ended December 31, 1999 and December 31,
1998.
Stock and stock options issued goods and services are valued based upon the fair
value of the consideration received.
Total and Weighted Average Exercise Price of Options
- -----------------------------------------------------------
Weighted Average
1999 Total Exercise Price
- -------------------------- ------------ ---------------
Outstanding at January 1, 1999 1,660,000 $1.24
Outstanding at December 31, 1999 2,554,558 1.00
Exercisable at December 31, 1999 2,554,558 1.00
Granted at December 31, 1999 2,554,558 1.00
Exercised at December 31, 1999 - -
Forfeited at December 31, 1999 - -
Expired during 1999 - -
<PAGE> 38
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
Weighted Average
1999 Total Exercise Price
- -------------------------- ------------ ---------------
Outstanding at January 1, 1998 300,000 $1.75
Outstanding at December 31, 1998 1,660,000 1.24
Exercisable at December 31, 1998 1,660,000 1.24
Granted at December 31, 1998 1,660,000 1.24
Exercised at December 31, 1998 - -
Forfeited at December 31, 1998 - -
Expired during 1998 - -
Valuing per SFAS 123, par 22, the weighted average exercise price is $1.00 at
December 31, 1999. Average price for 1999 was $.90 with validity of .47. The
fair value of options granted during 1999 was approximately $250,000.
(10) REPORTABLE SEGMENTS
PowerCold currently has four reportable segments: Nauticon Inc., RealCold
Products, Inc.,Technicold Services, Inc., and Rotary Power Enterprise, Inc.
Nauticon Inc. offers a product line of evaporative heat exchange systems for
HVAC and refrigeration industry. Technicold Services, Inc. offers consulting
engineering services, including process safety management compliance and ammonia
refrigeration technicians and supervisors. RealCold Products, Inc. offered
custom industrial refrigeration packages and merchant carbon dioxide plants in a
joint venture with the Wittemann Company, Inc. RealCold Products, Inc. designs
and produces unique products for the refrigeration industry. Rotary Power
Enterprise, Inc. provides customized rotary engines to power a variety of
chiller and refrigeration systems. Segment information for the years ended
December 31, 1999 and 1998 as follows:
December 31,
-------------------------
Net Revenues 1999 1998
--------- ----------
Nauticon Inc. $ 91,006 $ 112,522
RealCold Products Inc. 212,596 224,477
Technicold Services, Inc. 50,611 105,173
Rotary Power Enterprises, Inc. 187,025 -
--------- ----------
$ 541,238 $ 442,172
========== ==========
Operating loss
Nauticon Inc. $(290,568) $(461,212)
RealCold Products Inc. (213,306) (79,689)
Technicold Services, Inc. 7,538 (5,943)
Rotary Power Enterprises, Inc. (35,597) (7,671)
Corporate expenses (368,194) (648,786)
--------- ----------
$(900,127) $(1,203,301)
========== ==========
Identifiable assets
Nauticon Inc. $ 385,927 $ 545,060
RealCold Products Inc. 144,651 76,304
Technicold Services, Inc. 59,473 240,359
Rotary Power Enterprises, Inc. 129,993 96,563
Corporate 1,012,780 1,363,684
--------- ----------
$1,732,824 $2,321,970
========= =========
<PAGE> 39
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(11) FEDERAL INCOME TAX EXPENSE
There is no federal income tax expense for the year ended December 31, 1999.
Income tax expense from continuing operations differs from the amount, which
would be provided by applying the statutory federal income tax rates because of
the following:
Year ended December 31,
--------------------------
1999 1998
------------ ------------
Computed at the expected statutory rate $ (366,528) $ (574,664)
Nondeductible items and other permanent
differences 938 654
Change in valuation allowance 365,590 574,010
------------ ------------
Prior year unrecognized deferred tax asset $ - $ -
============= ===========
The temporary differences that result in deferred tax assets are as follows:
December 31,
-------------------------
1999 1998
---------- -----------
Deferred tax assets:
Accrued wages payable to shareholder $ - $ -
Write-off of intangible assets 334,686 334,686
Losses related to unconsolidated affiliate 413,700 413,700
Loss on write-off of impaired stock 189,430 189,430
Net operating loss carryforward 852,199 486,609
---------- -----------
Gross deferred tax assets 1,790,015 1,424,425
Valuation allowance (1,790,015) (1,424,425)
---------- -----------
Net deferred tax assets $ - $ -
========== ===========
A $961,085 tax net operating loss was incurred for the year-end December 31,
1999. The Company's net operating loss carryforwards for income tax purposes is
approximately $1,790,015, of which $358,015 expires in 2019, $1,055,000 in 2018,
and $377,000 in 2012.
<PAGE> 40
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
(12) EARNINGS PER SHARE
Diluted earnings per share is not presented due to the loss from operations in
the years presented. In accordance with the requirements of SFAS 128, no
potential common shares are included in the computation of diluted per share
amounts due to the loss from continued operations. Options to purchase
2,554,558 shares of common stock were outstanding at December 31, 1999 at
exercise prices ranging from $0.50 per share to $2.50 per share, but were not
included because they would have been anti-dilutive to the loss from continuing
operations. The options expire over the period from April 30, 1999 through
February 7, 2001. Preferred dividends of $20,000 increase the loss used to
calculate earnings per share.
(13) COMMITMENTS
OPERATING LEASES
The Company leases certain sales offices, plant space, and equipment under
operating lease agreements, which expire at various times throughout 2002.
Total rent expense was $95,322 and $100,902 in 1999 and 1998 respectively.
Future minimum rental commitments as of December 31, 1999 were as follows:
Year ending December 31,
2000 $ 102,934
2001 100,231
2002 50,891
----------
$ 254,056
==========
(14) LITIGATION
Management of the Company is seeking to recoup damages from the former president
and shareholder of Nauticon Inc. in connection with Nauticon Inc.'s acquisition
by the Company. Related to this matter is the ownership of certain patents
($441,078 and $508,153 carrying value at December 31, 1998 and 1997
respectively) and the amount of compensation owed to the former Nauticon Inc.
shareholder ($88,600 accrued and included in accounts payable and accrued
expenses at December 31, 1998 and 1997). The former Nauticon Inc. shareholder
was granted options to purchase 133,763 shares of common stock of the Company at
$1.50 per share (increasing to $2.00 per share before expiring in July 2000).
Nauticon Inc. is a defendant in several lawsuits filed by suppliers. Nauticon
Inc. denies any liability. Counsel has advised that it is not possible to
project the outcome at this time. It is the opinion of management that this
matter will not have a material adverse effect on the Company's financial
position or results of operations.
(15) GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years and the Company has used
substantial amounts of working capital in its operations. At December 31, 1999,
current liabilities exceed current assets by $531,997 and intangible assets
<PAGE> 41
POWERCOLD CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 1998
comprise a material portion of the Company's assets. The recovery of these
intangible assets is dependent upon achieving profitable operations and
favorable resolution of the matter discussed in note. The ultimate outcome of
these uncertainties cannot presently be determined. Management is actively
seeking additional equity financing. Additionally, management believes that the
prior year acquisitions will lead to the overall structure necessary to fulfill
the Company's strategic plans.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, and the success of its future operations. Management believes that
actions presently being taken to obtain additional equity financing and increase
sales provide the opportunity to continue as a going concern.
(16) YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions to various activities and
operations.
The Company primarily uses licensed software products in its operations with a
significant portion of processes and transactions centralized in several
particular accounting software packages. The Company has not experienced any
year 2000 problems to date; however, the Company plans to continue to monitor
the situation closely.
<PAGE> 42
EXHIBIT 2
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
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, 2000, 8,924,996 Common Shares were outstanding, and the
aggregate market value of such shares held by non-affiliates was approximately
$2,852,729
<PAGE> 43
POWERCOLD CORPORATION
AND SUBSIDIARIES
INDEX
-----
PART I. FINANCIAL INFORMATION PAGE
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999. 3
Consolidated Statement of Operations for Three
Months Ended March 31, 2000 and March 31, 1999. 4
Consolidated Statement of Cash Flows for Three
Months Ended March 31, 2000 and March 31, 1999. 5
Notes to Consolidated Financial Statements at March 31, 2000. 6
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.
<PAGE> 44
R. E. BASSIE & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
A PROFESSIONAL CORPORATION
7171 Harwin Drive, Suite 306
Houston, Texas 77036-2197
Tel: (713) 266-0691 Fax: (713) 266-0692
E-Mail: [email protected]
INDEPENDENT ACCOUNTANTS' REPORT
-------------------------------
The Board of Directors
PowerCold Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
PowerCold Corporation and Subsidiaries as of March 31, 2000, and the related
condensed consolidated statements of operations and cash flows for the
three-month periods ended March 31, 2000. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
The accompanying condensed financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
condensed financial statements (and Note 4 to the annual financial statements
for the year ended December 31, 1999 (not presented herein), certain conditions
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 2 (and
Note 4) to the respective financial statements.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of PowerCold Corporation and
Subsidiaries as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein); and in our report dated March 30, 2000, we expressed an
unqualified opinion on those consolidated financial statements and included an
explanatory paragraph concerning matters that raise substantial doubt about the
Company's ability to continue as a going concern. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of December 31, 1999 is fairly stated, in all material respects, in relation
to the consolidated balance sheet from which it has been derived.
/s/ R. E. Bassie & Co., P.C.
Houston, Texas
May 10, 2000
<PAGE> 45
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
(Unaudited - see accompanying accountants' review report)
<TABLE>
2000 1999
(Audited)
--------------- ---------------
<S> <C> <C>
Assets
Current assets:
Cash $ 363,728 $ 14,455
Trade accounts receivable, net of allowance
for doubtful accounts of $81,778 in 2000
and 1999 69,291 150,791
Receivable from Channel Freeze Technologies 283,410 274,910
Receivable from related parties 1,312 1,312
Refundable income taxes 52,222 52,222
Inventories 34,993 34,993
Prepaid expenses 69,347 69,347
--------------- ---------------
Total current assets 874,303 598,030
--------------- ---------------
Investment in affiliate 616,332 621,092
Property and equipment, net 20,596 24,301
Patent rights and related technology, net 361,426 374,003
Goodwill, net 112,766 115,398
--------------- ---------------
Total assets $ 1,985,423 $ 1,732,824
=============== ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses 711,711 672,533
Commissions payable 67,298 67,298
Advances from affiliates 398,198 365,254
Short-term borrowing 21,378 21,378
Current installments of long-term debt 3,564 3,564
--------------- ---------------
Total current liabilities 1,202,149 1,130,027
Long-term debt, less current installments 9,609 9,609
--------------- ---------------
Total liabilities 1,211,758 1,139,636
--------------- ---------------
Stockholders' equity:
Convertible, preferred stock, Series A,
$.001 par value, $1,000,000 in liquidation,
1,250,000 shares authorized, issued
and outstanding 1,250 1,250
Common stock, $.001 par value. Authorized
200,000,000 shares: issued and outstanding,
8,924,996 shares in 2000 and 7,876,641 in 1999 8,925 7,876
Additional paid-in capital 6,557,108 6,044,092
Accumulated deficit (5,785,118) (5,451,530)
--------------- ---------------
782,165 601,688
Less receivable for stock subscription (8,500) (8,500)
--------------- ---------------
Total stockholders' equity 773,665 593,188
Commitments and contingent liabilities
Total liabilities and stockholders' equity $ 1,985,423 $ 1,732,824
============== ===============
</TABLE> See accompanying notes to consolidated financial statements.
<PAGE> 46
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended March 31, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
<TABLE>
2000 1999
(Reviewed) (Unaudited)
--------------- ---------------
<S> <C> <C>
Revenues:
Product sales $ 28,708 $ 66,965
Services 14,190 26,603
--------------- ---------------
Total revenues 42,898 93,568
--------------- ---------------
Cost of revenues
Product sales 34,945 34,468
Services 9,876 43,594
--------------- ---------------
Total cost of revenues 44,821 78,062
--------------- ---------------
Gross margin (1,923) 15,506
Operating expenses:
General and administrative 295,352 103,682
Sales and marketing - 90,218
Research and development - 16,048
Depreciation and amortization expense 18,914 25,494
--------------- ---------------
Total operating expenses 314,266 235,442
--------------- ---------------
Operating loss (316,189) (219,936)
Other income (expenses):
Interest income - 10,043
Interest expense (12,639) (14,482)
--------------- ---------------
Total other income (expense) (12,639) (4,439)
Loss before provision for income tax (328,828) (224,375)
--------------- ---------------
Provisions for income taxes - -
Loss before losses of unconsolidated
affiliates (328,828) (224,375)
Equity in loss of unconsolidated
affiliates (4,760) (35,567)
--------------- ---------------
Net loss $ (333,588) $ (259,942)
=============== ================
Net loss per share $ (0.04) $ (0.03)
=============== ================
Weighted average common shares 8,222,811 6,836,935
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 47
POWERCOLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31, 2000 and 1999
(Unaudited - see accompanying accountants' review report)
<TABLE>
2000 1999
(Reviewed) (Unaudited)
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (333,588) $ (259,942)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 18,914 25,494
Equity loss in unconsolidated affiliate 4,760 35,567
Common stock issued for operating expenses 139,065 59,511
(Increase) decrease in accounts receivable 81,500 (55,929)
(Increase) decrease in receivable from
Channel Freeze (8,500) -
Increase in interest receivable - (63,515)
(Increase) decrease in inventories - (5,984)
(Increase) decrease in prepaid expenses
and other current assets - 1,254
Increase in accounts payable and accrued
expenses 39,178 12,838
--------------- ---------------
Net cash used in operating activities (58,671) (250,706)
--------------- ---------------
Cash flows from investing activities:
Increase in advances from affiliate 32,944 295,179
Proceeds from sale of securities available
for sale - 32,500
--------------- ---------------
Net cash provided by investing activities 32,944 327,679
--------------- ---------------
Cash flows from financing activities:
Proceeds from short-term borrowings
- 6,669
Repayment of short-term borrowings
- 100,000)
Proceeds from issuance of shares under
private placement 375,000 -
--------------- ---------------
Net cash provided by (used in)
financing activities 375,000 (93,331)
--------------- ---------------
Net increase (decrease) in cash 349,273 (16,358)
Cash at beginning of year 14,455 21,781
--------------- ---------------
Cash at end of year $ 363,728 $ 5,423
=============== ===============
Supplemental schedule of cash flow information:
Interest paid $ 12,639 $ 14,482
=============== ===============
Noncash operating activities:
Common stock issued for deferred compensation $ - $ 39,900
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 48
POWERCOLD CORPORATION Notes to Consolidated
AND SUBSIDIARIES Financial Statements at
March 31, 2000 (Unaudited)
(1) GENERAL
The unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation for each of the periods presented. The
results of operations for interim periods are not necessarily indicative of
results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission (SEC) under Rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related footnotes have been condensed and do not contain certain information
that will be included in the Company's annual consolidated financial statements
and footnotes thereto. For further information, refer to the Company's 1999
audited consolidated financial statements and related footnotes.
(2) OPERATIONAL STATUS
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. However, the Company has
sustained substantial operating losses in recent years and for the three-month
period March 31, 2000, and the Company has used substantial amounts of working
capital in its operations. At March 31, 2000, current liabilities exceed
current assets by $327,846 and intangible assets comprise a material portion of
the Company's assets. The recovery of these intangible assets is dependent upon
achieving profitable operations and favorable resolution of the matter discussed
in this note. The ultimate outcome of these uncertainties cannot presently be
determined. Management is actively seeking additional equity financing.
Additionally, management believes that the prior years acquisitions will lead to
the overall structure necessary to fulfill the Company's strategic plans.
In view of these matters, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, and the success of its future operations. Management believes that
actions presently being taken to obtain additional equity financing and
increasing sales provide the opportunity to continue as a going concern.
(3) UPDATED INFORMATION
The following updated transaction is from prior information, which was included
in Form 10KSB for the year ended December 31, 1999.
The Company formed Channel Freeze Technologies, Inc. (CFTI) in 1998 to
accommodate the acquisition of intellectual property assets related to Channel
Ice Technology. On September 15, 1998, the Company executed an Agreement to
acquire eighty percent (80%) of the assets of Channel Ice Technologies from SIR
Worldwide LLC for a cash payment of $850,000 and additional installment fee
payments of $5,950,000, plus stock options, and together with transfer of
twenty (20%) interest in CFTI.
<PAGE> 49
POWERCOLD CORPORATION Notes to Consolidated
AND SUBSIDIARIES Financial Statements at
March 31, 2000 (Unaudited)
The Company paid an initial partial down payment of $250,000 and an additional
$400,000, plus $3,750 in interest of the $850,000 cash purchase price. Fee
payments due for sales of Channel Ice Technology units; either a 10% net fee
payment for distributors or a 13% net sales fee payment for the basic sale of
the net gross invoice price on all Channel Ice Technology Units sold. Stock
options; to acquire 400,000 shares of the common stock of PowerCold, par value
$0.001, at a price of $2.50 per share, for a period not to exceed two (2) years
from the date of Closing.
For each 1 million dollars in Channel Ice Technology Unit sales, PowerCold shall
acquire an additional (1%) equity interest in Purchaser for each payment of
85,000, up to a maximum ownership interest by PowerCold in CFTI of (80%).
The Company shall have the right to prepay any or all amounts owed. PowerCold
shall have the exclusive right of first refusal and option to acquire all
interest in CFTI for a period not to exceed five years and for a price equal to
the then market value or as mutually agreed.
<PAGE> 50
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 CORPORATION - 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 (subject
to sufficient working capital) for RealCold Products in 2000, based upon its
expertise in custom
manufacturing systems. There are proposed alliances with other refrigeration
companies, whereas RealCold Products will package various components adding
value for a total turnkey refrigeration system.
<PAGE> 51
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
150 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.
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 one of 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 an exclusive Distributor Agreement for the Rotary Power
580 series engines form Rotary Power International, Inc. The Company has
delivered fourteen 65 HP engines and one 500 HP engine on its major sales
agreement with Kem Equipment Company, an engine packager for OEM applications
for the oil and gas industry in Western Canada. The Sales Agreement is for (100
small 65 HP and 60 large 500 HP) natural gas engines valued some $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 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.
<PAGE> 52
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 2000
The Company's Consolidated Statements of Operations for the first quarter ended
March 31, 2000 compared to the first quarter ended March 31, 199: Total revenue
for the first quarter 2000 was $42,898 compared to $93,568 for 1999; operating
loss of ($316,189) for 2000 compared to ($219,936) for 1999; and net loss of
($333,588) or ($0.04) per share for 2000 compared to a net loss of ($259,942) or
($0.04) per share for 1999. Net income (loss) per share was based on weighted
average number of shares of 8,222,811 for 2000 compared to 6,836,935 for 1999.
The Company's Consolidated Balance Sheets as of March 31, 2000 and March 31,
1999 respectively: Total current assets were $874,303 for 2000 and $1,001,712
for 1999; total assets were $1,985,423 for 2000 and $2,376,125 for 1999; total
liabilities were $1,211,758 for 2000 and were $1,379,063 for 1999; total
stockholders' equity was $773,665 for 2000 and $997,062 for 1999; and the
Company has no long term debt.
The first quarter ending March 31, 2000; operating loss was due to maintaining
general Company operating overhead including additional engineering and
marketing costs for Nauticon and Channel Freeze product lines. The Company
issued a total of 448,355 shares of new common restricted shares in the first
quarter for consulting services. The Company issued a total of 600,000 shares of
new common restricted shares in the first quarter for $375,000.00 cash.
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. But, actions presently being taken to obtain additional financing
to support its related acquisitions and their unique products will provide the
opportunity to increase its sales and revenue.
Because of insufficient working capital needed for raw materials and labor for
the Company, sales and revenue was greatly impaired. The Company had to cancel
some $1.7 Million in orders. The working capital shortage was mainly due
because of the large amounts of Company funds that was used for the promotion
and support of the new Channel Freeze business in 1999.
Nauticon has been continually hindered by major operating and legal expenses due
to previous inept management. Because of the major operating losses incurred by
previous management, Nauticon does not have sufficient resources to continue
operations, therefore the Company has ceased Nauticon's operations. The
Nauticon product technology was licensed to RealCold Products for a two and one
half per cent (2 1/2%) royalty fee on product sales.
Channel Freeze sales and revenue continues to be slow, because of the limited
marketing experience and lack of product credibility in the marketplace. The
new Channel Freeze management support team believes that the product is now
ready for customer delivery and acceptance.
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.
<PAGE> 53
FINANCIAL SUMMARY:
Three Months Ended Three Months Ended
March 31, 2000 March 31, 1999
-------------------- --------------------
Revenue $ 42,898 $ 93,568
Net Income (Loss) $ (328,828) $ (224,375)
Net Income (Loss) Per Share $ (0.04) $ (0.04)
Shares Outstanding (Avg.) 8,222,811 6,836,935
Total Assets $ 1,985,423 $ 2,376,125
Total Liabilities $ 1,211,758 $ 1,379,063
Total Stockholders Equity $ 773,665 $ 997,062
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 these and other financial and managerial
problems, and continued lack of operating capital, bad debts and certain claims
have been filed against some of the Companies
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 - Dated April 5, 2000
<PAGE> 54
POWERCOLD CORPORATION
FORM 10-Q
MARCH 31, 2000
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.
POWERCOLD CORPORATION
Registrant
By: /s/Francis L. Simola Date: May 12, 2000
- -------------------------------------- ----------------------
President and CEO
<PAGE> 55
EXHIBIT 4.1
Stamped Filed in the office of the Secretary of State of the State of Nevada:
October 2, 1987
ARTICLES OF INCORPORATION
OF
MARCO VENTURES
ARTICLE ONE
The name of the Corporation is Marco Ventures.
ARTICLE TWO
Its principal office in the State of Nevada is located at 115 Taurus Circle,
Reno, county of Washo, State of Nevada. The name and address of its resident
agent is as follows: Marilyn K. Radloff, 115 Taurus Circle, Reno, Nevada 89511.
ARTICLE THREE
The purpose or purposes for which this corporation is organized are:
To engage, without qualification, in any lawful act or activity for which
Corporations may be organized under the laws of the State of Nevada.
To purchase and maintain insurance or make other financial arrangements, to
the fullest extent permitted by Chapter 78 of the Nevada Revised Statutes, on
behalf of any person who is or was an officer, director, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as an
officer, director, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise for any liability asserted against such
person and liability and expenses incurred by such person in his or her
capacity as an officer, irector, employee or agent or arising out of such
person's status as such, whether or not the Corporation has the authority to
indemnify such person against such liability and expenses.
To indemnity, to the fullest extent permitted by Chapter 78 of the Nevada
Revised Statutes, any person who was or is a party or is threatened to be made a
part to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, including an action by or in
the right of the Corporation, by reason of the cfact that such person is or was
an officer, director, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines anda mounts paid
in settlement actually and reasonably incurred by such person in connection with
the action, suit or proceeding. The indemnification provided for herein shall
not be exclusive of or preclude any other rights to which a person indemnified
hereunder may be entitled under law or decision, or Bylaw or agreement of this
corporation, or by any vote of the directors or stockholders of this
Corporation, or otherwise.
<PAGE> 56
ARTICLE FOUR
The amount of the total authorized capital stock the corporation shall have
the authority to issue is Two Hundred Million (200,000,000) shares of Common
Stock, each having a par value of $0.001.
Each share of Common Stock issued and outstanding, shall be entitled to one
vote on all matters. Dividends shall be declared and paid only out of funds
legally available therefor. Shares of such stock may be issued for such
consideration and for such corporate purposes as the Board of Directors may from
time to time determine. Fully paid stock of this corporation shall not be
liable to any further call or assessment.
ARTICLE FIVE
The governing board of this corporation shall be known as directors, and
the number of directors may from time to time be increased or decreased in such
manner as shall be provided by in the bylaws of this corporation, provided that
the number of directors shall not be reduced to less than two (23), except that
in cases where all the shares of the corporation are beneficially owned and of
recorded by either one or two stockholders, the nubmer of directors may be less
than two (2) but not less than the number of stockholders.
Then names and post office address of the first board of directors, which
shall be three (3) in number are as follows:
Name Address
1. Art P. Wood 2717 Willow Bend Drive
Sandy, UT 84070
2. R. Scott Strong 8864 Alta Canyon Drive
Salt Lake City, UT 84092
3. Darrell Thompson 2729 Willowbend Drive
Sandy, UT 84092
The Board of Directors shall be limited in number to no less than two (2)
nor more than nine (9).
Directors of the corporation need not be residents of the State of Nevada
and need not own shares of the corporation's stock.
ARTICLE SIX
The capital stock of the corporation, after the amount of the subscription
price has been paid in money, property, or services, as the directors shall
determine, shall not be subject to assessment to pay the debts of the
corporation, nor for any other purpose, and no stock issued as fully paid up
shall ever be assessable or assessed, and the Articles of Incorporation shall
not be amended in this particular.
ARTICLE SEVEN
The name and post office address of each of the incorporators signing the
Articles of Incorporation are as follows:
Name Address
1. Art P. Wood 2717 Willow Bend Drive
Sandy, UT 84070
2. R. Scott Strong 8864 Alta Canyon Drive
Salt Lake City, UT 84092
3. Darrell Thompson 2729 Willowbend Drive
Sandy, UT 84092
<PAGE> 57
ARTICLE EIGHT
The corporation is to have perpetual existence.
ARTICLE NINE
In furtherance and not in limitation of the powers conferred by statute,
the board of directors is expressly authorized:
Subject to the bylaws, if any, adopted by the stockholders, to make, alter,
or amend the bylaws of the corporation
To fix the amount to be renewed as working capital over and above it's
capital stock paid in, to authorize and to cause to be executed mortgages and
liens upon the real and personal property of this corporation.
By resolution passed by a majority of the whole board, to designate one or
more committees, each committee to consist of one or more of the directors of
the corporation, which, to the extent provided in the resolution or in the
bylaws of the corporation, shall have and may exercise the powers of the board
of directors in the management of the business an affairs of the corporation,
and may authorize the seal of the corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name or names as
may be stated in the bylaws of the corporation or as may be determined from time
to time by resolution adopted by the board of directors.
When and as authorized by the affirmative vote of stockholders holding
stock entitling them to exercises at least a majority of the voting power given
at a stockholder's meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the board of directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
corporation, including it's good will and it's corporate franchises, upon such
terms and conditions as its board of directors deems expedient and for the best
interests of the corporation.
ARTICLE TEN
Meetings of the stockholders may be held at such place within or without
the State of Nevada, if the bylaws so provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Nevada at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the corporation.
ARTICLE ELEVEN
No officer or Director of the Corporation shall be personally liable to the
Corporation or to the shareholders for breach of such officer's or Director's
fiduciary duty as an officer or Director, except for those acts or omissions
which involve intentional misconduct, fraud, a known violation of the law or
payment of dividends in violation of Section 78.300 of the Nevada revised
statutes.
ARTICLE TWELVE
This corporation reserves the right to amend, alter, change or repeal any
provision contained in the Articles of Incorporation, in the manner now or
hereafter prescribed by statute, or by the Articles of Incorporation, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
<PAGE> 58
ARTICLE THIRTEEN
No shareholder shall be entitled as a matter of right to subscribe for or
receive additional shares of any class of stock of the corporation, whether now
or hereafter authorized, or any bonds, debentures or other securities
convertible into stock, but such additional shares of stock or other securities
convertible into stock may be issued or disposed of by the board of directors to
such persons and on such terms as in its discretion it shall deem advisable.
WE, THE UNDERSIGNED, being each of the incorporators, herein-before named
for the purpose of forming a corporation pursuant to the General Corporation Law
of the State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set our hands this 30th day of September, 1997.
/s/ Art P. Wood
/s/ R. Scott Strong
/s/ Darrell Thompson
(This space intentionally left blank.)
<PAGE> 59
State of Utah )
) ss.
County of Salt Lake)
On this 30 day of Sept, 1987, before me, the undersigned, a Notary Public
in and for the county and state aforesaid, personally appeared Art P. Wood known
to me to be the person described in and who executed the foregoing instrument
and who acknowledged to me that he/she executed the same freely and voluntarily
and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ John A. Dial
Notary Public
My commission expires, 11/4/88
State of Utah )
) ss.
County of Salt Lake)
On this 30 day of Sept, 1987, before me, the undersigned, a Notary Public
in and for the county and state aforesaid, personally appeared R. Scott Strong
known to me to be the person described in and who executed the foregoing
instrument and who acknowledged to me that he/she executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ John A. Dial
Notary Public
My commission expires, 11/4/88
State of Utah )
) ss.
County of Salt Lake)
On this 30 day of Sept, 1987, before me, the undersigned, a Notary Public
in and for the county and state aforesaid, personally appeared Darrell Thompson
known to me to be the person described in and who executed the foregoing
instrument and who acknowledged to me that he/she executed the same freely and
voluntarily and for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ John A. Dial
Notary Public
My commission expires, 11/4/88
<PAGE> 60
EXHIBIT 4.2
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Stamped Filed in the office of the Secretary of State of the State of Nevada:
January 25, 1993
MARCO VENTURES
Francis L. Simola and Robert D. Klages of Marco Ventures do hereby certify: That
the board of directors of said corporation at a meeting duly convened and held
on the 28th day of December, 1992, adopted a resolution to amend the original
articles as follows:
Article One is hereby amended to read as follows:
The name of the corporation is: International Cyrogenic Systems Corporation
The number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation are 544,951; that the said change(s)
and amendment has been consented to and approved by a majority vote of the
stockholders at least a majority of each class of stock outstanding and entitled
to vote thereon.
/s/ Francis L. Simola
President
/s/ Robert D. Klages
Secretary
State of PA )
) SS.
County of Chester)
On January 12, 1993, personally appeared before me, a Notary Public, Francis
Simola and Robert Klages who acknowledged that they executed the above
instrument.
/s/ Lorelei J. Wessick
(signature and seal of Notary Public, Commission expires Aug. 26, 1996)
<PAGE> 61
EXHIBIT 4.3
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Stamped Filed in the office of the Secretary of State of the State of Nevada:
February 24, 1997, 07779-87
INTERNATIONAL CRYOGENIC SYSTEMS CORPORATION
(Name of Corporation)
Francis L. Simola and Robert D. Klages, of International Cyrogenic Systems
Corporation do hereby certify:
That the board of directors of said corporation at a meeting duly convened, held
on the 13th day of December 1996, adopted a resolution to amend the original
articles as follows:
Article One is hereby amended to read as follows:
The name of the Corporation is PowerCold Corporation.
Then number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation is 5,838,269; that the said change(s)
and amendment have been consented to and approved by a majority of vote of the
shareholders holding at least a majority of each class of stock outstanding and
entitled to vote thereon.
/s/ Francis L. Simola
President
/s/ Robert D. Klages
Secretary
State of PA
County of Chester
On January 29, 1997 personally appeared before me, a Notary Public, Robert D.
Klages and Francis L. Simola, who acknowledged that they executed the above
instrument.
/s/ Diane E. Brooks
(signature and Seal of Notary, Commission Expires October 28, 2000)
<PAGE> 62
EXHIBIT 4.4
Secretary of State
(Seal of the State of Nevada)
CERTIFICATE OF NAME CHANGE
- ---------------------------
I, Dean Heller, the duly qualified and elected Nevada Secretary of State do
hereby certify that on February 24th, 1997 a Certificate of Amendment to its
Articles of Incorporation changing the name to POWERCOLD CORPORATION was filed
by International Cryogenic Systems Corporation. Said change of name has been
made in accordance with the laws of the State of Nevada and that said
Certificate of Amendment is now on file and of record in this office.
In Witness Whereof I have hereunto set my hand,
and affixed the Great Seal of the State, at my office
in Carson City, Nevada on March 3, 1997.
/s/ Dean Heller
Secretary of State
By: C. Morton
Certification Clerk
Secretary of State
(Seal of the State of Nevada)
CERTIFICATE OF EXISTENCE WITH STATUS IN GOOD STANDING
- ------------------------------------------------------------
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that I am, by the laws of said State, the custodian of the
records relating to filings by corporations, limited-liability companies,
limited partnerships, and limited-liability partnerships pursuant to Title 7 of
the Nevada Revised Statutes which are either presently in a status of good
standing or were in good standing for a time period subsequent of 1976 and am
the proper officer to execute this certificate.
I further certify that the records of the Nevada Secretary of State, at the date
of this certificate evidence POWERCOLD COPRORATION, as a corporation duly
organized under the laws of Nevada and existing under and by virtue of the
laws of the State of Nevada since October 7, 1987, and is in good standing
with this state.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the Great Seal of
State, at my office, in Carson City, Nevada, on July 16, 1998
/s/ Dean Heller, Secretary of State
By: /s/ G. Musseh, Certification Clerk
<PAGE> 63
EXHIBIT 4.5
( FILED )
( In the office of the )
(Secretary of State of the)
( STATE OF NEVADA )
( SEP 14 1998 )
( No C-7779-87 )
(/s/ Dean Heller )
(Dean Heller,
Secretary of State)
THIS FORM SHOULD ACCOMPANY ANY AMENDED AND RESTATED ARTICLES OF
INCORPORATION FOR A NEVADA CORPORATION
Name of Corporation: Powercold Corporation
Date of adoption of Amended or Restated Articles: September 14, 1998
a) Was there a name change? No
b) Did you change the Resident Agent? No
c) Did you change the purpose? No
d) Did you change the capital stock? No
e) Did you change the Directors? Yes
Article IX - Directors shall be 4 - maximum of 9
f) Did you add the directors liability provision? No
g) Did you change the period of existence? No
h) If none of the above apply, and you have amended or modified
the Articles of Incorporation, how did you change the Articles?
(blank)
Name and Title of Officer: /s/ Francis L. Simola, President, September 14, 1998
Name and Title of Officer: /s/ George C. Briley, Secretary, September 14, 1998
Acknowledgement;
State of Nevada
County of Clark
On September 14, 1998 personally appeared before me, a Notary Public, Francis
Simola and George Briley, who acknowledged he executed the above instrument on
behalf of said Corporation.
/s/ Richard Daniel Fritzler II, Notary Public in the State of Nevada,
County of Clark, Commission expires May 23, 1999.
( RECEIVED )
(September 14, 1998)
(Secretary of State)
<PAGE> 64
EXHIBIT 4.5 (Continued)
( FILED )
( In the office of the )
(Secretary of State of the)
( STATE OF NEVADA )
( SEP 14 1998 )
( No C-7799-87 )
(/s/ Dean Heller )
(Dean Heller,
Secretary of State)
CERTIFICATE OF THIRD AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
POWERCOLD CORPORATION
(After Issuance of Stock)
Pursuant to the provision of the Nevada Business Corporation Act,
Section 78.010, et. Seq. The undersigned Corporation hereby adopts the
following Articles of Incorporation as follows:
1. The name of the Corporation is POWERCOLD CORPORATION.
2. The text of each amendment adopted and restatement is as follows:
ARTICLE I
NAME
The name of the Corporation is POWERCOLD CORPORATION.
ARTICLE II
DURATION
This Corporation has perpetual existence.
ARTICLE III
CORPORATION PURPOSES
The purpose or purposes for which the Corporation is organized are all
things necessary or convenient to carry out any lawful business, including
the financial services industry, as well as those itemized under the Nevada
Business Corporation Act, including any amendments thereto or successor
statute that may hereinafter be enacted.
ARTICLE IV
CAPITALIZATION
SECTION 1: Aggregate Number of Shares. The total number of shares which the
Corporation shall have authority to issue is 205,000,-000 shares of which:
(a) 5,000,000 shares shall be Preferred Stock of par value $0.001 per share,
(b) 200,000,000 shares shall be Common Stock of the par value of $0.001 per
share.
<PAGE> 65
SECTION 2: Rights of Preferred Stock. The Preferred Stock may be issued
from time to time in one or more series and with such designations for each
such series as shall be stated and expressed in the resolution or resolutions
providing for the issue of each such series adopted by the Board of
Directors. The Board of Directors in any such resolution or resolutions is
expressly authorized to state and express for such series:
(i) The voting powers, if any, of the holders of the stock of such
series;
(ii) The rate per annum and the times at and conditions upon which
the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or non-
cumulative and if cumulative the terms upon which such dividends
shall be cumulative;
(iii) The price or prices and the time or times at and the manner
in which the stock of such series shall be redeemable and the terms
and amount of any sinking fund provided for the purchase or redemption
of shares;
(iv) The rights to which the holders of the shares of stock of such
series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(v) The terms, if any, upon which shares of stock of such series shall
be convertible into, or exchangeable for, shares of stock of any other
class or classes or of any other series of the same or any other class
or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative participating,
optimal or other special rights, and qualifications, limitations or
restrictions thereof so far as they are not inconsistent with the
provisions of the Articles of Incorporation, as amended, and to the full
extent now or hereafter permitted by the laws of Nevada.
SECTION 3: Rights of Common Stock. The Common Stock may be issued from time
to time in one or more series and with such designation for each such series
as shall be stated and expressed in the resolution or resolutions providing
for the issue of each such series adopted by the Board of Directors. The
Board of Directors in any such resolution or resolutions is expressly
authorized to state and express for each such series:
(i) The voting powers, if any, of the holders of the stock of such
series;
(ii) The rate per annum and the times at and conditions upon which
the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or non-
cumulative and if cumulative the terms upon which such dividends
shall be cumulative;
(iii) The price or prices and the time or times at and the manner
in which the stock of such series shall be redeemable and the terms
and amount of any sinking fund provided for the purchase or redemption
of shares;
<PAGE> 66
(iv) The rights to which the holders of the shares of stock of such
series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(v) The terms, if any, upon which shares of stock of such series shall
be convertible into, or exchangeable for, shares of stock of any other
class or classes or of any other series of the same or any other class
or classes, including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences, and relative participating,
optimal or other special rights, and qualifications, limitations or
restrictions thereof so far as they are not inconsistent with the
provisions of the Articles of Incorporation, as amended, and to the full
extent now or hereafter permitted by the laws of Nevada.
(vii) Each holder of the Common Stock shall have one vote in respect of
each share of such stock held by such holder of Common Stock.
ARTICLE V
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no preemptive
rights shall exist with respect to shares of stock or securities convertible
into shares of stock of this Corporation.
ARTICLE VI
NO CUMULATIVE VOTING
Each shareholder entitled to vote at any election for Directors shall have
the right to vote, in person or by proxy, one vote for each share of stock
owned by such shareholder for as many persons as there are Directors to be
elected and for whose election such shareholder has a right to vote, and no
shareholder shall be entitled to cumulate their votes.
ARTICLE VII
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws or adopt new Bylaws. Nothing herein shall deny the concurrent power
of the shareholders to adopt, alter, amend or repeal the Bylaws.
ARTICLE VIII
REGISTERED OFFICE AND ADDRESS
The address of the registered office of the Corporation is: 1800 East
Sahara, Suite 107, Las Vegas, Nevada 891-4 and the name of it's initial
registered agent at such address is Nevada Corporate Services.
ARTICLE IX
DIRECTORS
SECTION 1: Classification.
(i) The governing board shall be styled "Board of Directors" and the
Board of Directors shall consist of (4) directors. Provided that the
Corporation has at least one director, the number of directors may at
any time or times be increased or decreased to a maximum number of
nine (9) as provided in the Bylaws, except that the number of directors
<PAGE> 67
may exceed nine (9) in the case of an increase in the number of
directors by reason of any rights with respect to any outstanding
series of Preferred Stock. The board is divided into three classes,
Class I, Class II, and Class III. The number of directors in each
class shall be the whole number contained in the quotient arrived at
by dividing the authorized number of directors by three and if a
fraction is also contained in such quotient, then if such fraction is
one-third (1/3) the extra director shall be a member of Class III and
if the fraction is two-thirds (2/3) one of the directors shall be a
member of Class III and the other shall be a member of Class II.
Each director shall serve for a term ending on the third annual
meeting following the annual meeting at which such director was
elected; provided, however, that the directors first elected to
Class I shall serve for a term ending on the annual meeting next
ensuing, the directors first elected to Class II, shall server for a
term ending on the second annual meeting following the meeting at
which such directors were first elected, and the directors first
elected to Class II shall serve a full term as herein above provided.
The foregoing notwithstanding, each director shall serve until his/her
successor shall have been duly elected and qualified, unless he shall
resign, become disqualified or disabled, or shall otherwise be
removed.
For purposes of the preceding paragraph, reference to the first election
of directors shall signify the first election of directors concurrent
with the approval of stockholders of this Article. At each annual
election held thereafter, the directors chosen to succeed those whose
terms then expire shall be identified as being of the same class as the
directors they succeed. If for any reason the number of directors in
the various classes shall not conform with the formula set forth in the
preceding paragraph, the board of Directors may redesignate any director
into a different class in order that the balance of directors in such
classes shall confirm hereto.
(ii) Except as provided herein, no director of the Corporation shall be
removed from his office as a director by vote or other action of
stockholders or otherwise except by the affirmative vote of the holders
of not less than sixty-six and two-thirds percent (66 2.3%) of the
outstanding shares of voting stock of the Company.
(iii) A director need not be a stockholder. The election of Directors
need not be by ballot unless the bylaws require.
ARTICLE X
DIRECTORS' LIABILITY
No director or officer of the Corporation shall be personally liable to the
Corporation or any of its stockholders for damages for breach of fiduciary
duty as a director or officer involving any act or omission of any such
director or officer. However, the foregoing provision shall not eliminate or
limit the liability of a director or officer for (i) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law; or (ii)
the payment of dividends in violation of Section 78.300 of the Nevada Revised
Statues. Any repeal or modification of the Article by the shareholders of
the Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director or officer of the
Corporation for acts or omissions prior to such repeal or modification.
<PAGE> 68
ARTICLE XI
INDEMNITY
SECTION 1: Right to Indemnify. Subject to any restrictions set forth in
the Bylaws of this Corporation, every person who was or is a party, or is
threatened to be made a party or is involved win any action, suit or
proceeding, whether civil, criminal, administrative or investigative by
reason of the fact that he or a person of whom he is the legal representative
is or was a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director or officer of another
corporation, or as it'' representative in a partnership, joint venture, trust
or other enterprise, shall be indemnified and held harmless to the fullest
extent legally permissible under the laws of the State of Nevada from time to
time against all expenses, liability and loss (including attorneys' fees,
judgments, fines and amounts paid in settlement) reasonably incurred by him
or suffered by him in connection therewith. Such right of indemnification
shall be a contract right which may be enforced in any manner desired by such
person. Such right of indemnification shall not be exclusive of any other
right to which such directors, officers, or representatives may have or
hereafter acquire, and without limiting the generality of such statement,
they shall be entitled to their respective rights of indemnification under
any bylaw, agreement, vote of shareholders, provision of law, or otherwise,
as well as their rights under this Article.
SECTION 2: Expenses Advanced. Subject to any restrictions set forth in the
Bylaws of this Corporation, expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding by reason of any act
or omission of such director or officer acting as a director or officer,
shall be paid by the Corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if
it is ultimately determined by a court of competent jurisdiction that is he
is not entitled to be indemnified by the Corporation.
SECTION 3: Bylaws; Insurance. Without limiting the application of the
foregoing, the Board of Directors may adopt bylaws from time to time with
respect to indemnification, to provide at all times the fullest
indemnification permitted by the laws of the State of Nevada, to limit the
right of indemnification, and may cause the Corporation to purchase and
maintain insurance or make other financial arrangements on behalf of any
person who is or was a director or officer of the Corporation, as a director
or officer of another corporation, or as its representative in a partnership,
joint venture, trust or other enterprise, against any liability asserted
against such person and incurred in any such capacity or arising out of such
status, to the fullest extent permitted by the laws of the State of Nevada,
whether or not the Corporation would have the power to indemnify such person.
The indemnification and advancement of expenses provided in this Article
shall continue for a person who has ceased to be a director, officer,
employee, or agent and inure to the benefit of the heirs, executors, spouses,
and administrators of such a person.
ARTICLE XII
LIMITATION ON RIGHT TO CALL SPECIAL SHAREHOLDERS' MEETING
Special meetings of stockholders of the Corporation may be called by the
Board of Directors pursuant to a resolution approved by a majority of the
Board of Directors, or by the holders of ten percent (10%) of the voting
power of the Corporation, upon not less than 30 nor more than 50 days'
written notice to the stockholders of the Corporation.
<PAGE> 69
ARTICLE XIII
AMENDMENT TO ARTICLES OF INCORPORATION
This Corporation reserves the right to amend or repeal any provisions contained
in these Articles of Incorporation, in any manner now or hereafter permitted by
law, and all rights and powers conferred herein on the shareholders an directors
of this Corporation are subject to this reserved power.
ARTICLE XIV
STOCK REDEMPTION
SECTION 1: Right of Redemption. In the event that a person ("Acquiring
Person") (a) who is the beneficial owner, directly or indirectly, of more
than twenty percent (20%) of the Common shares outstanding becomes the
beneficial owner, directly or indirectly, or any additional Common Shares
pursuant to a tender offer or (b) becomes the beneficial owner, directly or
indirectly, of more than twenty percent (20%) of the Common Shares
outstanding and any of such Common Shares were acquired pursuant to a tender
offer, each holder of Common Shares, other than the Acquiring Person, its
Affiliates or Associates or a transferee of the Acquiring Person, shall have
the right until and including the thirtieth day following the date the notice
to holders of Common shares referred to in Section 3 herein is mailed, to
have the Common shares held by such holder redeemed by the Corporation at the
Redemption Price determined as provided in Section 5 herein; and, each holder
of securities convertible into Common shares or of options, warrants, or
rights exercisable to acquire Common Shares prior to such thirtieth day,
other than the Acquiring Person, its Affiliates or Associates or a transferee
of the Acquiring Person, shall have the right simultaneously with the
conversion of such securities or exercise of such options, warrants, or
rights to have the common Shares to be received thereupon by such holder
redeemed by the Corporation at the Redemption Price; PROVIDED that no holder
of Common Shares shall have any right t6o have Common Shares redeemed by the
Corporation pursuant to this Article XIV if the Corporation acting through a
majority of its Board of Directors, shall within ten days following the
announcement or publication of such tender offer or following any amendment
to such tender offer recommend to the holders of Common shares that such
tender offer be accepted by the holders of Common Shares; PROVIDED FURTHER
that no holder of Series A Convertible Preferred Stock of the Corporation or
Common Shares issued upon conversion of Series A Convertible Preferred Stock,
shall be deemed an "Acquiring Person' for purposes of this Article XIV.
SECTION 2: Definitions. For purposes of this Article XIV:
(i) The term "person" shall include an individual, a corporation,
partnership, trust or other entity or any affiliate or associates of
the above. When two or more persona act as a partnership, limited
partnership, syndicate, or other group for the purpose of acquiring
Common Shares, such partnership, syndicate or group shall be deemed
a "person".
(ii) For the purpose of determining whether a person is an
"Acquiring Person", such person shall be deemed to beneficially own:
(a) all Common shares with respect to which such person has the
capability to control or influence the voting power in respect thereof
and (b) all Common Shares which such person has the immediate or future
right to acquire, directly or indirectly, pursuant to agreements,
through the exercise of options, warrants or rights and through the
conversion of convertible securities or otherwise; and all Common Shares
<PAGE> 70
which such person has the right to acquire in such manner shall be
deemed to be outstanding shares, but Common Shares which any other
person has the right to acquire in such manner shall not be deemed to
be outstanding shares.
(iii) The acquisition of Common Shares by the Corporation or by any
person controlled by the Corporation shall not engender the right to
have Common Shares redeemed pursuant to this Article XIV.
(iv) The right to have Common shares redeemed pursuant to this
Article XIV shall attach to such shares and shall not be personal to
the holder thereof.
(v) The term "tender offer" shall mean an offer to acquire or an
acquisition of Common shares pursuant to a request or invitation for
tenders or an offer to purchases such shares for cash, securities or
any other considerations.
(vi) Subject to the provisions of Section 2, Clause (ii) herein,
"outstanding shares" shall mean Common Shares which at the time
in question have been issued by the Corporation and not reacquired
and held or retired by it or held by any subsidiary of the Corporations.
SECTION 3: Notice.
(i) Not later than twenty days following the date on which the
Corporation receives credible notice that any person has become an
Acquiring Person, whereupon the right shall be engendered to have
Common Shares redeemed by the Corporation under this Article XIV, the
Corporation shall give written notice, by first class mail, postage
prepaid, at the addresses shown on the records of the Corporation, to
each holder of record of Common Shares (and to any other person known
by the Corporation to have rights to demand redemption pursuant to
Section 1 of this Article) as of a date not more than seven days prior
to the date of the mailing pursuant to this Section 3 and shall advise
each such holder of the right to have shares redeemed and the
procedures for such redemption. In the event that the Corporation
fails to give notice as required by this Section 3, any holder entitled
to receive such notice may within twenty days thereafter serve written
demand upon the Corporation to give such notice. If within twenty days
after the receipt of written demand the Corporation fails to give the
required notice, such holder may at the expense and on behalf of the
Corporation take such reasonable action as may be appropriate to give
notice or to cause notice to be given pursuant to this Section 3.
(ii) In the event Common shares are subject to redemption in
accordance with this Article XIV, the Directors of the Corporation
shall designate a Redemption Agent, which shall be a corporation or
association: (a)(i) organized and doing business under the laws of the
United States or any State, (ii) subject to supervision or examination
by Federal or State authority, (iii) having combined capital and surplus
of at lease $5,000,000 and (iv) having the power to exercise corporate
trust powers; (b) the Transfer Agent of the Corporation.
(iii) For a period of thirty days from the date of the mailing of the
notice to holders of Common shares referred t in this Section 3,
holders of Common shares and other person entitled to have Common
shares redeemed pursuant to this Article XIV may, at their option,
deposit certificates representing all or less than all Common Shares
held of record by them with the Redemption Agent together with written
<PAGE> 71
notice that the holder elects to have such shares redeemed pursuant to
this Article XIII. Redemption shall be deemed to have been effected at
the close of business on the day such certificates are deposited in
proper form with the Redemption Agent.
(iv) The Corporation shall promptly deposit in trust with the
Redemption Agent cash in an amount equal to the aggregate Redemption
Price of all the Common shares deposited with the Redemption Agent for
purposes of redemption.
(v) As soon as practicable after receipt by the Redemption Agent of
the cash deposit by the Corporation referred to in this Section 3, the
Redemption Agent shall issue its checks payable to the order of the
persons entitled to receive the redemption Price of the Common shares
in respect of which such cash deposit was made.
SECTION 4: Common Shares Redeemed. All Common Shares with respect to which
redemption has been effected pursuant to this Article XIV shall thereupon be
deemed retired.
SECTION 5: Redemption Price.
(i) The Redemption Price shall be the amount payable by the
Corporation in respect of each Common Share with respect to which
redemption has been demanded pursuant to this Article XIV and shall
be the greater amount determined on either of the following basis,
(but in no event shall the Redemption Price be less than the amount
of shareholders' equity in respect of each outstanding Common share
as determined in accordance with generally accepted accounting
principles and as reflected in any published report by the
Corporation as at the fiscal year quarter ending immediately preceding
the notice to shareholders referred to in Section 3 herein):
(a) the highest price per Common Share, including any commission
paid to brokers or dealers for solicitation or whatever, at which
Common shares held by the Acquiring Person were acquired pursuant
to a tender offer regardless of when such tender offer was made or
were acquired pursuant to any market purchase or otherwise within
eighteen months prior to the notice to holders of Common shares
referred to in Section 3 herein. For purposes of this subsection
(a), if the consideration paid in any such acquisition of Common
Shares consisted, in whole or part, of consideration other than
cash, the Board of Directors of the Corporation shall take such
action, as in its judgment it deems appropriate, to establish the
cash value of such consideration, but such valuation shall not be
less than the cash value, if any ascribed to such consideration
by the Acquiring Person; or,
(b) the highest sale price per Common Share for any trading day
during the eighteen months prior to the notice to holders of
Common Shares referred to in Section 3 herein. For purposes of
this subsection (b), the sale price of any trading day shall be the
last sale price per Common Share traded on the National Association
of Securities Dealers Automated Quotation System or other national
securities exchange or, if Common Shares are not then traded on a
national securities exchange, the mean of the closing bid and asked
price per Common Share.
(ii) The determinations to be made pursuant to this Section 5 shall be
made by the Board of Directors not later than the date of the notice to
<PAGE> 72
holders of Common Shares referred to in Section 3 herein. In making
such determination the Board of directors may engage such person,
including investment banking firms and the independent accountants, who
have reported on the most recent financial statements of the
Corporation, and utilize employees and agents of the Corporation, who
will, in the judgment of the Board of Directors, be of assistance to the
Board of Directors.
(iii) The determinations to be made pursuant to this Section 5, when
maybe by the Board of Directors acting in good faith on the basis of
such information and assistance as was then reasonably available for
such purpose, shall be conclusive and binding upon the Corporation and
its shareholders, including any person referred to in Section 1 herein.
ARTICLE XV
STATUTES NOT APPLICABLE
The provisions of Nevada Revised Statues, 78.378 through 78.3793, inclusive,
regarding the voting of a controlling interest in stock of a Nevada
corporation and sections 78.411 through 78.444, inclusive, regarding
combinations with interested stockholders, shall not be applicable to this
Corporation.
3. The amendments were adopted by the Board of Directors pursuant to
resolutions to amend the original articles at a meeting duly convened held on
the 11th day of September, 1998, in accordance with the provisions of Nevada
Law. The number of shares of the Corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation are 6,577,636; that the
said changes and amendments has been consented to and approved by a majority
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
Dated this 11 day of September, 1998.
POWERCOLD CORPORATION
/s/ Francis L. Simola
By: ________________________________
Francis L. Simola, President
/s/ George C. Briley
By: ________________________________
George C. Briley, Secretary
<PAGE> 73
STATE OF PENNSYLVANIA )
) SS
COUNTY OF MONTGOMERY )
On this day of (September 11, 1998), before me, the undersigned, a Notary
Public in and for the State of Pennsylvania, duly commissioned and sworn,
personally appeared Francis L. Simola, to me known to be the President of
PowerCold Corporation, the Corporation that executed the foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said Corporation, for the uses and purposes therein
mentioned, and on oath stated that he was authorized to execute the said
instrument and that the seal affixed is the corporate seal of said
Corporation.
WITNESS my hand and official seal hereto affixed the day and year first above
written.
(Stamped with the seal of and signed by:)
Jack B. Kustra, Notary Public in and for the State of
Pennsylvania, residing in Montgomery County. Commission
expires: April 1, 2000
STATE OF TEXAS )
) SS
COUNTY OF GUADALUPE)
On this 11th day of September, 1998 before me, the undersigned, a Notary
Public in and for the State of Texas, duly commissioned and sworn, personally
appeared George C. Briley, to me known to be the secretary of PowerCold
Corporation, the Corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said Corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute the said instrument and that the
seal affixed is the corporate seal of said Corporation.
WITNESS my hand and official seal hereto affixed the day and year first above
written.
(Stamped with the seal of and signed by:)
E. A. Hunt, Notary Public in and for the State of
Texas, residing in Guadalupe County. Commission
expires: 9 12, 1998
<PAGE> 74
EXHIBIT 4.6
AMENDED AND RESTATED
BYLAWS
OF
POWERCOLD CORPORATION
ARTICLE 1
REGISTERED OFFICE AND RESIDENT AGENT
The registered office of the Corporation shall be located in the State
of Nevada at such place as may be fixed from time to time by the officers of
the Corporation upon filing such notices as may be required by law, and the
resident agent shall have a business office identical with such registered
office. Any change in the resident agent or registered office shall be
effective upon filing such change with the Office of the Secretary of State
of the State of Nevada unless a later date is specified.
ARTICLE II
SHAREHOLDERS
2.1 PLACE OF MEETING. All meetings of the shareholders shall be held
at the principal place of business of the Corporation, or at such other
place, within or without the State of Nevada, as shall be determined from
time to time by the Board, and the place at which any such meeting shall be
held shall be state in the notice of the meeting.
2.2 ANNUAL MEETING. The annual meeting of shareholders for election of
Directors and for transaction of such other business as may properly come
before the meeting shall be held on the date and at the time fixed, from time
to time, by the Board of Directors, provided that there shall be an annual
meeting every calendar year. Shareholder annual meetings, may occur through
the use of any means of communication by which all shareholders participating
can hear each other during the meeting, or by telefacsimile transmission.
2.3 SPECIAL MEETINGS. Special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution approved by a majority of the entire Board of Directors, or by the
holders of ten percent (10%) of the voting power of the Corporation, upon not
less than 30 nor more than 50 days' written notice to the stockholders of the
Corporation. Shareholder special meetings may occur through the use of any
means of communication by which all shareholders participating can hear each
other during the meeting, or y telefacsimile transmission.
2.4 NOTICE OF MEETING.
2.4.1 Annual Meeting. Notice of the time and place of the annual
meeting of the shareholders shall be given by delivering personally or
by mailing a written or printed notice of the same to each shareholder
of record entitled to vote at the meeting, at least ten days and not
more than sixty days prior to the meeting.
2.4.2 Special Meeting. At least ten days and not more than fifty
days prior to the meeting, written or printed notice of each special
meeting of the shareholders, stating the place, day and hour of such
meeting and the purpose or purposes for which the meeting is called,
shall be delivered personally or mailed to each shareholder of record
entitled to vote at such meeting.
<PAGE> 75
2.5 VOTING RECORD. At least ten days before each meeting of the
shareholders, a completion record of shareholders entitled to vote at such
meeting, or4 any adjournment thereof, shall be made, arranged, in
alphabetical order with the address of an number of shares held by each
shareholder, which record shall be kept on file at the registered office of
the Corporation for a period of ten days prior to such meeting. The record
shall be kept open at the time and place of such meeting for inspection by
any shareholder. Failure to comply with the requirements of this subsection
shall not affect the validity of any action taken at the meeting.
2.6 QUORUM AND ADJOURNED MEETINGS. A majority of the voting power of
the Corporation entitled to vote, represented in person or b y proxy, shall
constitute a quorum at a meeting of the shareholders. If less than a
majority of the voting power entitled to vote are represented at a meeting, a
majority of the shares so represented may adjourn the meeting from time to
time without further notice. If a quorum is present or represented at a
reconvened meeting following such an adjournment, any business may be
transacted that might have been transacted at the meeting as originally
called. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
2.7 MANNER OF ACTING. Except as may be otherwise provided in the
Nevada Business Corporation Act, if a quorum is present, the affirmative vote
of the majority of the voting power represented at the meeting and entitled
to vote on the subject matter shall be the act of the shareholders, unless
the vote of a greater number is required by these Bylaws, the Articles of
Incor4poration or the Nevada Business Corporation Act.
2.8 VOTING OF SHARES. Except as otherwise provided in these Bylaws or
to the extent voting rights of shares of any class or classes are limited or
denied by the Articles of Incorporation, on each matter submitted to a vote
at a meeting of shareholders, each shareholder shall have one vote for each
share of stock registered in his name in the books of the Corporation.
Voting by ballot shall not be required for any corporate action except as
otherwise provided by Nevada law.
2.9 FIXING OF RECORD DATE FOR DETERMINING SHAREHOLDERS. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or shareholders entitled
to receive payment of any distribution, or in order to make a determination
of shareholders for any other purpose, the Board may fix in advance a date
as the record dated for and such determination. Such record dated shall not
be more than sixty days, and in case of a meeting of shareholders, not less
than ten days prior to the date on which the particular action requiring such
determination is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or vote at a meeting or
to receive payment of a distribution, the date and hour on which the notice
of meeting is mailed or on which the resolution of the Board declaring such
distribution is adopted, as the case may be, shall be the record date and
time for such determination. Such determination shall apply to any
adjournment of the meeting.
2.10 PROXIES. A shareholder may vote either in person or by written
proxy executed by the shareholder or his duly authorized attorney-in-fact.
Such proxy shall be filed with the Secretary of the Corporation before or at
the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution unless otherwise provided in the proxy. Any proxy
regular on its face shall be presented to be valid.
<PAGE> 76
2.11 WAIVER OF NOTICE. A waiver of any required shareholder notices
signed either before or after the time stated therein for the meeting any
the person or persons entitled to such notice shall be equivalent to giving
notice.
2.12 VOTING FOR DIRECTORS. Except as otherwise provided in the
Articles of Incorporation or in these Bylaws, every shareholder of record
shall have the right at every shareholders' meeting to one (1) vote for every
share standing in his/her name on the books of the Corporation, and the
affirmative vote of a majority of the shares represented at a meeting and
entitled to vote thereat shall be necessary for the adoption of a motion or
for the determination of all questions and business which shall come before
the meeting.
2.13 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or
which may be taken at a shareholders meeting may be taken without a meeting
if a written consent setting for the action so taken is signed by the holders
of a majority of the voting power of the Corporation entitled to vote with
respect to the subject matter thereof. Such consent shall be inserted in the
minute book as if it were the minutes of a meeting of the shareholders. In
no instance where action by written consent is authorized need a meeting be
called or notice.
2.14 ACTION OF SHAREHOLDERS BY COMMUNICATION EQUIPMENT. Shareholders
may participate in shareholders' meetings by means of conference telephone or
similar communication equipment by means of which all persons anticipating in
the meeting can hear each other at the same time. Participation by such
means shall constitute presence in person at a meeting.
2.15 CONDUCT OF MEETING. Meetings of the shareholders shall be
presided over by one of the following officers in the order of seniority and
if present and acting: The Chairman of the Board, if any; the President; a
Vice-President; or if none of the foregoing is in office and present and
acting, by a chairman to be chosen by the shareholders. The Secretary of the
Corporation, or in his absence an Assistant Secretary, shall act a secretary
of every meeting, but if neither the Secretary nor an Assistant Secretary is
present, the chairman of the meeting shall appoint a secretary of the
meeting.
2.16 INSPECTORS AND JUDGES. The Board of Directors in advance of any
meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as
an inspector or judge fails to appear or act, the vacancy may be filled by
appointment made by the directors in advance of the meeting, or at the
meeting by the person presiding thereat. The inspectors or judges, if any,
shall determine the number of shares of stock outstanding and the voting
power of each, the shares of stock represented at the meeting, the existence
of a quorum, the validity and effect of proxies, and shall receive votes,
ballots and consents, here and determine all challenges and questions arising
in connection with the right to vote, count and tabulate votes, ballots and
consents, determine the results, and do such acts as are proper to conduct
the election or vote with fairness to all shareholders. On request of the
person presiding at the meeting, the inspector or inspectors or judge or
judges, if any, shall make a report in writing of any challenge, question or
matter determined by him or them, and execute a certificate of any fact found
by him or them.
<PAGE> 77
ARTICLE 3
SHARES
3.1 ISSUANCE OF SHARES. No shares of stock shall be issued unless
authorized by the Board. Such authorization shall include the maximum number
of shares to be issued and the consideration to be received for each share.
No certificate shall be issued for any share until consideration for such
share is fully paid.
3.2 CERTIFICATES. Certificates representing shares of the Corporation
shall be issued in numerical order, and each shareholder shall be entitled to
a certificate signed by the President, or a Vice President, and the Secretary
or and Assistant Secretary, and may be sealed with the seal of the
Corporation or a facsimile thereof. The signatures of such officers may be
facsimiles if the certificate is manually signed on behalf of a transfer
agent, or registered by a registrar, other than the Corporation itself or and
employee of the Corporation. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be such officer
before the certificate is issued, it may be issued by the Corporation wit the
same effect as if the person were an officer on the date of issue.
Each certificate of share shall state:
a. that the Corporation is organized under the laws of the state;
b. the name of the person to whom issued; and
c. the number and class of shares and the designation of the
series,
if any, which such certificate represents.
3.3 TRANSFERS.
3.3.1 Record of Transfer. Transfer of shares shall be made only
upon the stock transfer books of the Corporation which shall be kept at
the registered office of the Corporation, its principal place of
business, or at the office of its transfer agent or registrar. The
Board may, by resolution, open a share register in any state and may
employ an agent or agents to keep such register and to record transfers
of shares therein.
3.3.2 Requirements for Transfer. Shares of the Corporation shall
be transferred by deliver of the certificates therefor, accompanied
either by an assignment in writing on the back of the certificate, and
assignment separate from certificate or a written power of attorney to
sell, assign and transfer the same signed by the holder of the
certificate. No shares of the Corporation shall be transferred on the
books of the Corporation until the outstanding certificates therefor
have been surrendered to the Corporation.
3.4 REGISTERED OWNER.
3.4.1 Name of Shareholder. Registered shareholders shall be
treated by the Corporation as holders in fact of shares standing in
their respective names and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in any share on
the part of any other person, whether or not is shall have express or
other notice thereof, except provided below or by the laws off the State
of Nevada.
<PAGE> 78
3.4.2 Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by such officer, agent, or
proxy as the bylaws of such corporation may prescribe, or, in the
absence of such provision, as the Board of Directors of such corporation
may determine. Shares held by an administrator, executor, guardian or
conservator may be voted by him, either in person or by proxy, without a
transfer of such shares into his name. Shares standing in the name of a
trustee may be voted by him either in person or by proxy, but no trustee
shall be entitled to vote shares held by him without a transfer of such
shares into his name. Shares standing in the name of a receiver may be
voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer thereof into
his name, if authority to do so be contained in an appropriate order of
the court by which such receiver was appointed. A shareholder whose
shares are pledged shall be entitled to vote such shares until the
shares have been transferred into he name of the pledgee, and thereafter
the pledgee shall be entitled to vote the shares so transferred.
3.4.3 Certification Procedure. The Board may adopt by resolution
a procedure whereby a shareholder may certify in writing to the
Corporation that all or a portion of the shares registered in the name
of such shareholder are held for the account of a specified person or
persons. The resolution shall set forth:
a. the classification of shareholder who may certify;
b. the purpose or purposes for which the certification may
be made;
c. the form of certification and information to be contained
therein;
d. if the certification is with respect to a record date or
closing of share transfer books, the date by which the
certification must be received by the Corporation;
e. and, such other provisions with respect to the procedure
as are deemed necessary or desirable.
3.4.4 Deemed Holder of Record. Upon receipt from the Corporation
of a certification complying with the procedure, the persons specified
in the certification shall be deemed, for the purposes set forth in the
certification, to be the holder of record of the number of shares
specified in place of the shareholder making the certification.
3.5 MUTILATED, LOST OR DESTROYED CERTIFICATES. In case of any
mutilation, loss or destruction of any certificate of shares, another may be
issued in its place on proof of such mutilation, loss or destruction. The
Board may impose conditi8ons on such issuance and may require the giving of a
satisfactory bond or indemnity to the Corporation in such sum as the Board
might determine or establish such other procedures as the Board deems
necessary.
3.6 FRACTIONAL SHARES OR SCRIP. The Corporation may: (a) issue
fractions of shares which shall entitle the holder to exercise voting rights,
to receive dividends thereon, and to participate in any assets of the
Corporation in the event of liquidation; (b) arrange for the disposition of
fractional interests by those entitled thereto; (c) pay in cash the fair
value of fractions of a share as of the time when those entitled to receive
such shares are determined; or (d) issue scrip in registered or bearer form
which shall entitle the holder to receive a certificate for a full share upon
surrender of scrip aggregating a full share.
<PAGE> 79
ARTICLE 4
BOARD OF DIRECTORS
4.1 GENERAL POWERS. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the Corporation shall be
managed under the direction of the Board, except as may be otherwise provided
in the Articles of Incorporation or the Nevada Business Corporation Act.
4.2 NUMBER, TENURE AND QUALIFICATIONS. The authorized number of
directors of the Corporation shall be four (4). The number of directors may
be increased or decreased by a duly adopted resolution of the Board of
Directors. The Board is divided into three classes, Class I, Class II and
Class III. The number of directors in each class shall be the whole number
contained in the quotient arrived at by dividing the authorized number of
directors by three and if a fraction is also contained in such quotient, then
if such fraction is one-third (1/3) the extra director shall be a member of
Class III and if the fraction is two-thirds (2/3) one of the directors shall
be a member of Class III and the other shall be a member of Class II.
Each director shall serve for a term ending on the third annual meeting
following the annual meeting at which such director was elected; provided,
however, that the directors first elected to Class I shall serve for a term
ending on the annual meeting next ensuing, the directors first elected to
Class II shall serve for a term ending on such second annual meeting
following the meeting at which such directors were first elected, and the
directors first elected to Class III shall serve a full term as herein above
provided. The foregoing notwithstanding, each director shall serve until his
successor shall have been duly elected and qualified, unless he shall resign,
become disqualified or disabled, or shall otherwise be removed.
For purposes of the preceding paragraph, reference to the first election of
directors shall signify the first election of directors concurrent with the
approval by stockholders of this Bylaw. At each annual election held
thereafter, the directors chosen to succeed those whose terms then expire
shall be identified as being of the same class as the directors they succeed.
If for any reason the number of directors in the various classes shall not
conform with the formula set forth in the preceding paragraph, the Board of
Directors may re-designate any director into a different class in order that
the balance of directors is such classes shall conform thereto.
4.2.1 A majority of the directors at any time in office shall
constitute a quorum for the transaction of business, and if at any
meeting of the Board of Directors there shall be less than such a
quorum, a majority of those present may adjourn the meeting from time to
time. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be
regarded as the act of the Board of Directors unless a greater number be
required by law or by this Amended bylaw.
4.2.2 A director need not be a stockholder. The election of
Directors need not be by ballot unless the Bylaws require.
4.3 VACANCIES. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or an vacancies in the
Board resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by a majority of the
remaining directors, though less than a quorum, and directors so chosen shall
hold office for a term expiring at the annual meeting of stockholders at
<PAGE> 80
which the term of the class to which they have been elected expires or, in
teach case, until their respective successors are duly elected and qualified.
No decrease in the number of directors constituting the Board shall shorten
the term of any incumbent director. When any director shall give notice of
resignation effective at a future date, the Board may fill such vacancy to
take effect when such resignation shall become effective.
4.4 REMOVAL OF DIRECTORS. Subject to the rights of the holders of any
series of Preferred Stock then outstanding, any director, or the entire Board
of Directors, may be removed from office at any time, but only by the
affirmative vote of the holders of at least 66 2/3% of the voting power of
all the shares of the Corporation entitled to vote for the election of
officers.
4.5 ANNUAL AND REGULAR MEETINGS. An annual Board meeting shall be held
without notice immediately after and at the same place as the annual meeting
of shareholders. By resolution, the Board, or any committee thereof, may
specify the time and place either within or without the State of Nevada for
holding regular meetings thereof without other notice than such resolution.
4.6 SPECIAL MEETINGS. Special meetings of the Board or any committee
appointed by the Board may be called by or at the request of the President,
the Secretary or, in the case of special Board meetings, any two Directors
and, in the case of any special meeting of any committee appointed by the
Board, by the Chairman thereof. The person or person authorized to call
special meetings may fix any place either within or without the State of
Nevada as the place for holding any special Board or committee meeting called
by them.
4.7 NOTICE OF SPECIAL MEETINGS. Notice of a special Board or committee
meeting stating the place, day and hour of the meeting shall be giving to a
Director in writing or orally by telephone or in person . Neither the
business to be transacted at, nor the purpose of, any special meeting need be
specified in the notice of such meeting.
4.7.1 Personal Delivery. If notice is given by personal delivery,
the notice shall be effective if delivered to a Director at least two
days before the meeting.
4.7.2 Delivery by Mail. If notice is delivered by mail, the
notice shall be deemed effective if deposited in the official government
mail properly addressed to a Director at the Director's address shown on
the records of the Corporation with postage prepaid at least three days
before the meeting.
4.7.3 Oral Notice. If notice is delivered orally, by telephone or
in person, the notice shall be deemed effective if personally given to
the Director at least one day before the meeting.
4.8 QUORUM AND VOTING.
4.8.1 ACTION OF BOARD. Except as provided in subsection 4.8.3,
the act of the majority of the Directors present at a Board meeting at
which there is a quorum shall be the act of the Board, unless the vote
of a greater number is required by these Bylaws, the Articles of
Incorporation or the Nevada Business Corporation Act. The Directors
present at a duly organized meeting may continue to transact business
until adjournment, notwithstanding the withdrawal of enough Directors to
leave less than a quorum.
<PAGE> 81
4.8.2 Interest in Transaction. If a transaction or contract with
the Corporation in which a Director or officer of the Corporation has a
direct or indirect interest is authorized, approved or ratified by a
vote of the majority of Directors with no direct or indirect interest in
the transaction, then:
a. a quorum for purposes of taking such action is present;
and
b. the act of such majority of disinterested Directors shall
constitute the act of the Board.
4.9 WAIVER OF NOTICE.
4.9.1 In Writing. Whenever notice is required to be given to any
Director or committee member under these Bylaws, the Articles of
Incorporation or the Nevada Business Corporation Act, a waiver thereof
in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular meeting of the Board or
any committee appointed by the Board need be specified in the waiver of
notice of such meeting.
4.9.2 By Attendance. The attendance of a Director or committee
member at a meeting shall constitute a waiver of notice of such meeting,
except where the Director or committee member attends a meeting for the
express purpose of objecting to the transaction or any business because
the meeting is not lawfully called or convened.
4.10 PRESUMPTION OF ASSENT. A Director present at a Board meeting at
which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless he votes against the matter, unless his
dissent is entered in the minutes of the meeting, unless he files his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof, or unless he forwards such dissent by
registered mail to the secretary immediately after adjournment of the
meeting. Such right to dissent shall not apply to a Director who has voted
in favor of such action.
4.11 RESIGNATION. Any Director may resign at any time by delivering
written notice to he President, Secretary or registered office of the
Corporation, or by giving oral notice to any Directors' or shareholders'
meeting.
4.12 EXECUTIVE AND OTHER COMMITTEES. The Board, by resolution adopted
by a majority of the full Board, may designate from among its members and
Executive Committee and one or more other standing or special committees.
The Executive Committee shall have and may exercise all the authority of the
Board, and other standing or special committees may be invested with such
powers, subject to such conditions, as the Board shall see fit; provided that
notwithstanding the above, no committee of the Board shall have the authority
to: (1) authorize distributions, or the issuance of shares, unless a
resolution of the board, or the Bylaws or the Articles of Incorporation
expressly so provide; (2) approve or recommend to shareholders actions or
proposals required by the Nevada Business Corporation Act to be approved by
shareholders; (3) fill vacancies on the Board or any committee thereof; (4)
amend the Bylaws; (5) fix compensation of any Director for serving on the
Board or on any committee thereof; (6) approve a plan of merger,
consolidation or exchange of shares not requiring shareholder approval; (7)
appoint other committees of the Board or the members thereof; or (8) amend
<PAGE> 82
the Articles of Incorporation, except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of
shares adopted by the Board, fix any of the relative rights and preferences
of shares of any preferred or special class as permitted under the Nevada
Business Corporation Act. All committees so appointed shall keep regular
minutes of their meetings and shall cause them to be recorded in books kept
for that purpose in the office of the Corporation. The designation of any
such committee and the delegation of authority thereto shall not relieve the
Board, or any member thereof, of any responsibility imposed by law.
4.13 COMPENSATION. The Board of Directors, by affirmative vote of a
majority of the Directors then in office, and irrespective of any personal
interest of any of its members, may establish reasonable compensation for
their services as Directors and such reimbursement for any reasonable
expenses incurred in attending Directors' meetings. The compensation of
Directors may be on such basis as is determined by the Board of Directors.
The Board of Directors may also establish compensation for members of
standing or special committees of the Board for serving on such committees.
4.14 ACTION BY BOARD OR COMMITTEE WITHOUT A MEETING. Any action
required or which may be taken at a meeting of the Board or a committee there
of may be taken without a meeting if a consent in writing, setting forth the
action so taken or to be taken, shall be signed by all Directors or committee
members as the case may be.
4.15 PARTICIPATION OF DIRECTORS BY COMMUNICATION EQUIPMENT. Members of
the Board or committees thereof may participate in a meeting of the Board or
committee by means of conference telephone or similar communication
equipment allowing all persons participating in the meeting to hear each
other at the same time. Participation by such means shall constitute
presense in persn at a meeting.
ARTICLE 5
OFFICERS
5.1 DESIGNATIONS. The officers of Corporation shall be a President, a
Secretary, and a Treasurer, each of whom shall be elected by the Board. One
or more Vice Presidents and such other officers and assistant officers may be
elected or appointed by the Board, such officers and assistant officers to
hold office fur such period, have such authority and perform such duties as
are provided in these Bylaws or as may be provided by resolution of the
Board. Any officer may be assigned by the Board any additional title that
the Board deems appropriate. The board may delegate to any officer or agent
the power to appoint any such subordinate officers or agents and to prescribe
their respective terms of office, authority and duties. Any two or more
offices may be held by the same person, except that of President and
Secretary; provide, however, that if there is only one shareholder, all
corporate offices can be held by one individual.
5.2 ELECTION AND TERM OF OFFICE. The officers of the Corporation shall
be elected annually by the Board at the meeting of the Board held after the
annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as a Board
meeting conveniently may be held. Unless an officer dies, resigns or is
removed from office, the officer shall hold office until then next annual
meeting of the Board or until his or her successor is elected.
5.3 PRESIDENT. The President shall be the Chief Executive Officer of
the Corporation and shall have general control and management of the business
affairs and policies of the Corporation. He or she shall be generally
<PAGE> 83
responsible for the proper conduct of the business of the Corporation. The
President shall possess the power to sgn all certificates, contracts and
other instruments of the Corporation. The President shall, unless a Chairman
of the Board is elected, preside at all meetings of the shareholders and of
the Board. The President shall have such other powers and perform such other
duties as from time to time may be conferred or imposed upon the President by
the Board of Directors.
5.4 VICE PRESIDENT. During the absence or disability of the President,
the Executive Vice Presidents, if any, and the Vice Presidents, if any, in
the order designated by the Board, shall exercise all functions of the
President. Each Vice President shall have such powers and discharge such
duties as may be assigned to him from time to tome by the President or the
Board.
5.5 SECRETARY AND ASSISTANT SECRETARIES. The Secretary shall issue
notices for all meetings, except notices for special shareholders' meetings
and special Directors' meetings call by those persons so authorized, shall
keep minutes of all meetings, shall have charge of the seal and the corporate
books, and shall make such reports and perform such other duties as are
incident to such office or as are properly required of the Secretary of the
Board. The Assistant Secretary, or Assistant Secretaries in the order
designated by the Board, shall perform all duties of Secretary during the
absence or disability of the Secretary, and at other times shall perform such
duties as are directed by the President or the Board.
5.6 TREASURER. The Treasurer shall have the custody of all monies and
securities of the Corporation and shall keep regular books of account. The
Treasurer shall disburse the funds of the Corporation in payment of the just
demands against the Corporation or as may be ordered by the Board, taking
proper vouchers for such disbursements, and shall render to the Board, from
time to time as may be required of the Treasurer, an account of all
transactions as Treasurer and of the Corporation's financial condition. The
Treasurer shall perform other duties incident to his office as are properly
required of him by the Board. The Assistant Treasurer, or Assistant
Treasurers in the order designated by the Board, shall perform all duties of
the Treasurer in the absence or disability of the Treasurer, and at other
times shall perform such other duties as are directed by the President or the
Board.
5.7 DELEGATION. In the case of absence or inability to act of any
officer of the Corporation and, of any person herein authorized to act in the
place of such person, the Board may from time to time delegate the powers or
duties of such officer to any other officer, Director or person whom it may
elect.
5.8 OTHER OFFICERS. The Board may appoint such other officers and agents
as it shall deem necessary or expedient, who shall hold offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
5.9 RESIGNATION. An officer may resign at any time by delivering written
notice to the President, a Vice President, the Secretary, or the Board, or by
giving oral notice and any meeting of the Board. Any such resignation shall
take effect at the time specified therein, or if time is not specified, upon
delivery thereof and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
<PAGE> 84
5.10 REMOVAL. Any officer or agent elected or appointed by the Board may
be removed by the Board whenever in its judgment the best interests of the
Corporation would be served thereby, but such removal shall be without
Prejudice to the contract rights, if any, of the person so removed.
5.11 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification, creation of a new office or any other cause may
be filled by the Board for the unexpired portion of the term or for a new
term established by the Board
5.12 SALARIES. The salaries of the officers shall be fixed from time
to time by the Board or by any person or persons to whom the Board has
delegated such authority. No officer shall be prevented from receiving such
salary because he or she is also a Director of the Corporation.
ARTICLE 6
CONTRACTS, LOANS, CHECKS AND DEPOSITS
6.1 CONTRACTS. The Board may authorize any officer or officers, or
agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation. Such authority
may be general or confined to specific instances.
6.2 LOANS TO THE CORPORATION. No loans shall be contracted on behalf
of the Corporation and no evidences of indebtedness shall be issued in its
name unless authorized by a resolution of the Board. Such authority may be
general or confined to specific instances.
6.3 LOANS TO DIRECTORS. The Corporation may not lend money to or
guarantee the obligation of a Director unless either (a) the loan or
guarantee is approved by the holders of at least a majority of the votes
represented by the outstanding shares of all classes entitled to vote
thereon, excluding the votes of the benefited Director or, (b) the Board
determines that the loan or guarantee benefits the Corporation and either
approves the specific loan or guarantee or a general plan authorizing loans
and guarantees.
6.4 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name
of the Corporation shall be signed by such officer or officers, or agent or
agents, of the Corporation and in such manner as if from time to time
determined by resolution of the Board.
6.5 DEPOSITS. All funds of the Corporation no otherwise employed shall
be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select.
ARTICLE 7
INDEMNIFICATION OF DIRECTORS AND OFFICERS
7.1 NONDERIVATIVE LAWSUITS. This Corporation does hereby indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or in the
right of the Corporation, by reason of the fact that he is or was a director,
officer, employee or agent of this Corporation, or is or was serving at the
request of this Corporation as director, officer, employee or agent of
another corporation, against expenses, including attorneys' fees, judgment,
fines and amounts paid in settlement actually and reasonable incurred by him
in connection with the action, suit or proceeding if he acted in good faith
<PAGE> 85
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent does not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and that, with respect to any criminal action
or proceeding, he had reasonable cause to believe his conduct was unlawful.
7.2 DERIVATIVE ACTIONS. The Corporation does hereby indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee or agent of this Corporation, or is
or was serving at the request of this Corporation as a director, trustee,
officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including amounts paid
in settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the actions or suit if he acted
in good faith and in a manner which he reasonable believed to be in or not
opposed to the best interests of the Corporation. Indemnification may not be
made for any claim, issue or matter as to which such a person shall have been
adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable to this Corporation or for amounts paid in
settlement to this Corporation, unless and only to the extent that the court
in which the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
7.3 IF DIRECTOR OR OFFICER PREVAILS. To the extent that a director,
trustee, officer, employee or agent of the Corporation has been successful
on the merits or otherwise, in defense of any action, suite or proceeding
referred to in Sections 7.1 and 7.2 of this Article 7, or in defense of any
claim, issue or matter therein, he must be indemnified against expenses,
including attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
7.4 APPROVAL. Any indemnification under Sections 7.1 and 7.2 of this
Article 7, unless ordered by a Court, or advanced pursuant to Sections 7.5
herein, must be made by the Corporation only as authorized in the specific
case upon a determination that the indemnification of the director, trustee,
officer, employee or agent is proper in the circumstances. Such
determination shall be made:
(a) by the stockholders; or
(b) by the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to such act,
suit or proceeding; or
(c) if a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders,
by independent legal counsel in a written opinion; or
(d) if a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
7.5 ADVANCES. The expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding shall be paid by
this Corporation, as they are incurred and in advance of the final
<PAGE> 86
disposition of the action, suit or proceeding, upon receipt of an undertaking
by or on behalf of the director, trustee, officer, employee or agent, to
repay the amount if it is not determined by a court of competent jurisdiction
that he is not entitled to be indemnified by this Corporation. The
provisions of this subsection do not affect any rights to advancement of
expenses to which corporate personnel other than directors or officers may be
entitled under any contract or otherwise by law.
7.6 NON-EXCLUSIVITY. The indemnification and advancement of expenses
authorized in or ordered by a court pursuant to this Article 7:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the Articles of Incorporation or any Bylaw, agreement,
vote of shareholders or disinterested directors or otherwise,
for either an action in his official capacity or an action in
another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section
7.2 above, may not be made to or on behalf of any director
officer if a final adjudication establishes that his acts or
commissions involved intentional misconduct, fraud or knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
trustee, officer, employee or agent and inures to the benefit
of the heirs, spouses, executors, and administrators of such a
person.
ARTICLE 8
BOOKS AND RECORDS
8.1 BOOKS OF ACCOUNTS, MINUTES, AND SHARE REGISTRAR. The Corporation
shall keep complete books and records of accounts and minutes of the
proceedings of the Board and shareholders and shall keep at its registered
office, principal place of business, or at the office of its transfer agent
or registrar a share register giving the names of the shareholders in
alphabetical order and showing their respective addresses and the number of
shares held by each.
8.2 COPIES OF RESOLUTIONS. Any person dealing with the Corporation may
rely upon a copy of any of the records of the proceedings, resolutions, or
votes of the Board or shareholders, when certified by the President or
Secretary.
ARTICLE 9
CORPORATE SEAL
The Board may provide for a corporate seal which shall have inscribed
thereon the name of the Corporation, the year and state of incorporation and
the words "corporate seal".
ARTICLE 10
ACCOUNTING FISCAL YEAR
The accounting year of the Corporation shall be the calendar year unless
a different accounting year is selected by resolution of the Board.
<PAGE> 87
ARTICLE 11
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adop0ted by the Board of Directors. The shareholders may also alter, amend
and repeal these Bylaws or adopt new Bylaws. All Bylaws made by the Board of
Directors may be amended, repealed, altered or modified by the shareholders.
ARTICLE 12
RULES OF ORDER
The rules contained in the most recent revised Robert's Rules of Order,
Newly Revised, shall govern all meetings of shareholders and Directors where
those rules are not inconsistent with the Articles of Incorporation, Bylaws,
or special rules of order of the Corporation.
ARTICLE 13
REIMBURSEMENT OF DISALLOWED EXPENSES
If any salary, payment, reimbursement, employee fringe benefit, expense
allowance payment, or other expense incurred by the Corporation for the benefit
of an employee is disallowed in whole or in part as a deductible expense of the
Corporation for Federal Income Tax purposes, the employee shall reimburse the
Corporation, upon notice and demand to the full extent of the disallowance.
This legally enforceable obligation is in accordance with the provisions of
Revenue Ruling 69-115, 1969-1 C.B. 50, and is for the purpose of entitling such
employee to business expense deduction for the taxable year in which the
repayment is made to the Corporation. In this manner, the Corporation shall be
protected from having to bear the entire burden of disallowed expenses.
AFFIDAVIT
STATE OF TEXAS )
) SS
COUNTY OF QUADALUPE)
I, GEORGE C. BRILEY, being first duly sworn on oath, depose and say:
I am the Secretary of POWERCOLD CORPORATION, a Nevada corporation. On
September 11, 1998, the attached Amended and Restated Bylaws consisting of
15 pages were adopted by the Corporation.
/s/ George C. Briley
__________________________________
George C. Briley, Secretary
Subscribed and Sworn to before me this 11 day of September, 1998.
/s/ Charla K. Wiemers, Notary Public in and for the State of Texas, residing
at Norwest B. TX Na. My Commission expires 10-31-2001.
(Stamped with seal of above signed Notary Public)
<PAGE> 88
EXHIBIT 4.7
POWERCOLD CORPORATION
(a Nevada Corporation)
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
SERIES A CONVERTIBLE PREFERRED STOCK
POWERCOLD CORPORATION, a Corporation organized and existing under the
Business Corporation Act of the State of Nevada ("Corporation"),
DOES HEREBY CERTIFY: That, pursuant to authority conferred upon the
Board of Directors of the Corporation ("Board") by the Amended and Restated
Articles of Incorporation of said Corporation, and pursuant to the provisions
of Nevada Law, said Board of Directors, by unanimous consent dated September
11, 1998, duly adopted resolutions providing for the issuance of 1,250,000
shares of Preferred Stock designated as "Series A Convertible Preferred
Stock," and to that end the Board adopted a resolution providing for the
designation, preferences and relative, participating, optional or other
rights, and the qualifications, limitations and restrictions, of the Series A
Convertible Preferred Stock, which resolution is as follows:
RESOLVED, that the Board, pursuant to the authority vested in it by the
provisions of the Amended and Restated Articles of Incorporation of the
Corporation, hereby creates a series of Preferred Stock of the Corporation,
par value $0.001 per share, to be designated as "Series A Convertible
Preferred Stock" and to consist of an aggregate of 1,250,000 shares. This
Board of Directors hereby fixes the designations, powers, preferences and
rights, and the qualifications, limitations or restrictions thereof, of
the shares of such Series A Convertible Preferred Stock as follows:
SECTION 1
Designations and Amount
1,250,000 shares of the Preferred Stock of the Corporation, par value
$0.001 per share, shall constitute a class of Preferred Stock designated as
"Series A Convertible Preferred Stock" ("Series A Preferred Stock"). The
Series A Preferred Stock shall have a stated value of $0.80 per share
("Stated Value").
SECTION 2
Liquidation Rights
(a) Liquidation. In the event of any liquidation or winding up of the
affairs of the Corporation, each holder of shares of Series A Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of
any of the assets or surplus funds of the Corporation to the holders of the
Common Stock and any other series of preferred stock which is junior to the
Series A Preferred Stock, by reason of his or her ownership thereof, an
amount per share of the Series A Preferred Stock equal to $0.80, plus any
declared or accrued, but unpaid, dividends thereon. Upon payment of the
amount set forth in this Section 2(a), each share of Series A Preferred Stock
shall be deemed cancelled and retired.
<PAGE> 89
A consolidation or merger of the Corporation with or into another
corporation, or a conveyance of all or substantially all of the assets of
the Corporation, shall be regarded as a liquidation or winding up of the
Corporation for the purposes of this Section 2(a).
(b) Pro Rata Distribution. If the assets or surplus funds to be distributed
to the holders of (i) the Series A Preferred Stock under subparagraph (a) of
this Section 2 and (ii) any other series of preferred stock ranking on a
parity with the Series A Preferred Stock are insufficient to permit the
payment to such holders of their full preferential amount, the assets and
surplus funds legally available for distribution shall be distributed ratably
among (i) the holders of the Series A Preferred Stock and (ii) the holders of
such other series of preferred stock in proportion to the full preferential
amount each such holder is otherwise entitled to receive.
(c) Series Preferred Stock Priority. All of the preferential amounts to be
paid to the holders of (i) the Series A Preferred Stock under this Section 2
and (ii) the holders of any other series of preferred stock ranking on a
parity with the Series A Preferred Stock shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for,
or the distribution of any assets of the Corporation to, the holders of the
Common Stock and any other series of preferred stock which is junior to the
Series A Preferred Stock in connection with such liquidation, dissolution
or winding up. After the payment or the setting apart of payment of the
preferential amounts payable to the holders of (i) the Series A Preferred
Stock and (ii) the holders of such other series of preferred stock, the
holders of Common Stock, the holders of Series A Preferred Stock, and any
other series of preferred stock shall be entitled to receive all remaining
assets of this Corporation, with the Series A Preferred Stock being treated
as equivalent to the number of shares of Common Stock into which it is
convertible.
SECTION 3
Conversion
The holders of the Series A Preferred Stock shall have conversion rights
as follows (the "Conversion Rights"):
(a) Right to Convert Series Preferred Stock. Each share of Series A
Preferred Stock shall be convertible, without the payment of any additional
consideration by the holder thereof, at the option of the holder thereof,
at the office of the Corporation or any transfer agent for the Series A
Preferred Stock, into such number of fully paid and nonassessable shares
of Common Stock as is determined by dividing $1.00 by the Conversion Price,
determined as hereinafter provided, in effect at the time of conversion.
If more than one share of the Series A Preferred Stock shall be surrendered
for conversion at the same time by the same holder of record, the number of
full shares which shall be issuable upon conversion thereof shall be computed
on the basis of the total number of shares of such stock so surrendered by
such holder. Each share of Series A Preferred Stock shall be so convertible
at any time after the date of issuance of such share. The price at which
shares of Common Stock shall be deliverable upon conversion of Series A
Preferred Stock without the payment of any additional consideration by the
holder thereof (the "Conversion Price") shall be (i) until June 14, 1999,
the lesser of (a) 78% of the average closing bid price for the Common Stock
on the OTC Bulletin Board (the "OTCBB") for the thirty (30) trading days
<PAGE> 90
ending the day prior to the conversion and (b) 110% of the average closing
bid price for the Common Stock on the OTCBB for the thirty (30) trading days
prior to September 14, 1998, or (ii) after June 14, 1999, the lesser of (a)
75% of the average closing bid price for the Common Stock on the OTCBB for
the thirty (30) trading days ending the day prior to the conversion and (b)
110% of the average closing bid price for the Common Stock on the OTCBB for
the thirty (30) trading days prior to September 14, 1998. The Conversion
Price shall be subject to adjustment, in order to adjust the number of
shares of Common Stock into which the Series A Preferred Stock is
convertible, as hereinafter provided.
(b) Automatic Conversion of Series A Preferred Stock. Each share of Series
A Preferred Stock shall automatically be converted into shares of Common
Stock at the then effective Conversion Price on September 14, 2002. Each
party who holds of record Series A Preferred Stock at the time of any
automatic conversion shall be entitled to any dividends which, pursuant to
Section 6 hereof, have accrued but remain unpaid at such time. Such
dividends shall be paid to all such holders within thirty (30) days of the
automatic conversion.
(c) Optional Conversion of Series A Preferred Stock. Each share of Series
A Preferred Stock may, at the option of the Corporation, be converted into
shares of Common Stock at 120% of the then effective Conversion Price. Each
party who holds of record Series A Preferred Stock at the time of any
optional conversion shall be entitled to any dividends which, pursuant to
Section 6 hereof, have accrued but remain unpaid at such time. Such
dividends shall be paid to all such holders within thirty (30) days of the
optional conversion.
(d) Mechanics of Conversion. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price for the Series A Preferred Stock. Except in the
case of an automatic conversion pursuant to Section 3(b) or an optional
conversion pursuant to Section 3(c), before any holder of Series A Preferred
Stock shall be entitled to convert the same into full shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent
for the Series A Preferred Stock, and shall give written notice to the
Corporation at such office that the holder elects to convert the same.
Upon the date of an automatic conversion pursuant to Section 3(b) or an
optional conversion pursuant to Section 3(c), any party entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder of such shares of Common Stock on such
date, whether or not such holder has surrendered the certificate or
certificates for such holder's shares of Series A Preferred Stock. A holder
surrendering his or her certificate or certificates shall notify the
Corporation of the name or names of such holder's nominees in which such
holder wishes the certificate or certificates for shares of Common Stock
to be issued. Subject to applicable federal securities laws and state
"blue sky" laws, the Corporation shall, as soon as practicable thereafter
(and, in any event, within ten (10) days of such surrender), issue and
deliver at such office to such holder of Series A Preferred Stock, or to
such holder's nominee or nominees, a certificate or certificates for the
number of shares of Common Stock to which such holder shall be entitled
as aforesaid, together with cash in lieu of any fraction of a share.
<PAGE> 91
Except in the case of an automatic conversion pursuant to Section 3(b)
or an optional conversion pursuant to Section 3(c), such conversion shall
be deemed to have been made immediately prior to the close of business on
the date of such surrender of the shares of Series A Preferred Stock to be
converted, and the party or parties entitled to receive the shares of
Common Stock issuable upon conversion shall be treated for all purposes
as the record holder or holders of such shares of Common Stock on such date.
(e) Adjustments to Applicable Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section 3(e), the following
definitions shall apply:
(1) "Option" shall mean options, warrants or other rights to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) "Original Issue Date" shall mean the first date on which a share of
Series A Preferred Stock shall have been issued.
(3) "Convertible Securities" shall mean any evidences of indebtedness,
shares (other than Common Stock and Series A Preferred Stock) of capital
stock or other securities directly or indirectly convertible into or
exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean, as to the Series
A Preferred Stock, any or all shares of Common Stock issued (or, pursuant
to Section 3(e)(iii), deemed to be issued) by the Corporation after the
Original Issue Date, other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of Series A Preferred Stock; or
(B) to financial institutions in connection with borrowing or lease
financing arrangements of the Corporation, provided that a majority of
the entire Board of Directors approves thereof; or
(C) up to an aggregate of 1,060,000 shares of Common Stock plus two and
one half percent (21/2%) of the outstanding shares of Common Stock (subject
to adjustment for subdivisions, split-ups or combinations of outstanding
shares of Common Stock) to be issued from time to time to employees,
officers, consultants and directors of the Corporation pursuant to
stock options, employee benefit plans, or stock bonus plans, in each
case approved by a majority of the Corporation's Board of Directors; or
(D) up to an aggregate of 700,000 shares of Common Stock to be issued to
SIR Worldwide, LLC and Nauticon, Inc. in connection with the agreements or
letters of intent entered into between the Corporation and such entities; or
(E) up to 600,000 shares to be issued to Alturdyne Corporation in
connection with the letter of intent entered into between the Corporation
and Alturdyne Corporation; provided that any such issuance is unanimously
approved by the Board of Directors of the Corporation.
(ii) No Adjustment of Conversion Price of Series A Preferred Stock.
Subject to the provisions of Section 3(e)(iii)(2) and Section 3(e)(vi)
below, no adjustment in the number of shares of Common Stock into which
the Series A Preferred Stock is convertible shall be made, by adjustment
in the Conversion Price of the Series A Preferred Stock, in respect of the
issuance of Additional Shares of Common Stock or otherwise, unless the
consideration per share for an Additional Share of Common Stock issued or
<PAGE> 92
deemed to be issued by the Corporation is less than the Conversion Price
of the Series A Preferred Stock in effect on the date of, and immediately
prior to, the issue of such Additional Share of Common Stock.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common Stock.
(1) Options and Convertible Securities. In the event the Corporation at
any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive
any such Options or Convertible Securities, then the maximum number of
shares (as set forth in the instrument relating thereto without regard
to any provisions contained therein for a subsequent adjustment of such
number) of Common Stock issuable upon the exercise of such Options or,
in the case of Convertible Securities and Options therefor, the
conversion or exchange of such Convertible Securities, shall be deemed
to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that such Additional
Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to Section 3(e)(iv)
hereof) of such Additional Shares of Common Stock would be less than
the Conversion Price in effect on the date of and immediately prior
to such issue, or such record date, as the case may be, and provided
further that in any such case in which Additional Shares of Common Stock
are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such Options or conversion or exchange of such Convertible
Securities;
(B) if such Options or Convertible Securities by their terms provide, with
the passage of time, pursuant to any provisions designed to protect against
dilution, or otherwise, for any increase or decrease in the consideration
payable to the Corporation, or increase or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or exchange thereof,
the Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease
becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange
under such Convertible Securities;
(C) upon the expiration of any such Options or any rights of conversion or
exchange under such Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be
recomputed as if such Options or Convertible Securities, as the case
may be, were never issued;
(D) no readjustment pursuant to clause (B) or (C) above shall have the
effect of increasing the Conversion Price to an amount which exceeds the
lower of (i) the Conversion Price on the original date on which an
adjustment was made pursuant to this Section 3(e)(iii)(l), or (ii) the
Conversion Price that would have resulted from any issuance of Additional
Shares of Common Stock between such original adjustment date and the date
on which a readjustment is made pursuant to clause (B) or (C) above;
<PAGE> 93
(E) in the case of any Options which expire by their terms not more than 30
days after the date of issue thereof; no adjustment of the Conversion Price
shall be made until the expiration or exercise of all such Options, whereupon
such adjustment shall be made in the same manner provided in clause (C)
above; and
(F) if such record date shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the
adjustment previously made in the Conversion Price which became effective on
such record date shall be canceled as of the close of business on such
record date, and thereafter the Conversion Price shall be adjusted pursuant
to this Section 3(e)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions. In the event
the Corporation at any time or from time to time after the Original Issue
Date shall declare or pay any dividend or make any other distribution on
the Common Stock payable in Common Stock, or effect a subdivision of the
outstanding shares of Common Stock (by reclassification or otherwise than
by payment of a dividend in Common Stock), then and in any such event,
Additional Shares of Common Stock shall be deemed to have been issued:
(A) in the case of any such dividend or distribution, immediately after the
close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of business on the
date immediately prior to the date upon which such corporate action becomes
effective.
If such record date shall have been fixed and such dividend shall not have
been fully paid on the date fixed for the payment thereof, the adjustment
previously made in the Conversion Price which became effective on such record
date shall be canceled as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to this Section
3(e)(iii) as of the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price of Series A Preferred Stock Upon
Issuance of Additional Shares of Common Stock. In the event the Corporation
shall issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to Section 3(e)(iii)(l), but
excluding Additional Shares of Common Stock deemed to be issued pursuant to
Section 3(e)(iii)(2), which event is dealt with in Section 3(e)(vi) hereof)
without consideration or for a consideration per share less than the
Conversion Price of the Series A Preferred Stock in effect on the date of
and immediately prior to such issue, then the Conversion Price of the
Series A Preferred Stock shall be reduced, concurrently with such issue,
to a price (calculated to the nearest cent) determined by multiplying the
Conversion Price by a fraction (x) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to such issue
(including shares of Common Stock issuable upon conversion of any outstanding
Series Preferred Stock or Convertible Securities), plus (2) the number of
shares of Common Stock which the aggregate consideration received by the
Corporation for the total number of Additional Shares of Common Stock so
issued would purchase at the Conversion Price, and (y) the denominator of
which shall be (1) the number of shares of Common Stock outstanding
immediately prior to such issue (including shares of Common Stock issuable
upon conversion of any outstanding Series Preferred Stock or Convertible
Securities), plus (2) the number of such Additional Shares of Common Stock so
issued; provided, however, the Conversion Price shall not be so reduced at
<PAGE> 94
such time if the amount of such reduction would be an amount less than $0.05,
but any such amount shall be carried forward and reduction with respect
thereto made at the time of and together with any subsequent reduction which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate $0.05 or more.
(v) Determination of Consideration. For purposes of this Section 3(e), the
consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
(A) insofar as it consists of cash, be the aggregate amount of cash received
by the Corporation excluding amounts paid or payable for accrued interest or
accrued dividends;
(B) insofar as it consists of property other than cash, be computed at the
fair value thereof at the time of such issue, as determined in good faith by
the Board of Directors; and
(C) in the event Additional Shares of Common Stock are issued together with
other shares of securities or other assets of the Corporation for a single
undivided consideration, be the proportion of such consideration so received
allocable to such Additional Shares of Common Stock, computed as provided
in clauses (A) and (B) above, as determined in good faith by the Board of
Directors.
(2) Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to
have been issued pursuant to Section 3(e)(iii)(l) shall be determined by
dividing:
(x) the total amount, if any, received or receivable by the Corporation as
consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such consideration) payable to the
Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities,
by
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(vi) Adjustment for Stock Dividends, Stock Distributions, Subdivisions,
Combinations or Consolidations of Common Stock.
(1) Stock Dividends, Stock Distributions or Subdivisions. In the event the
Corporation shall issue additional shares of Common Stock (or any options or
rights therefor or any securities convertible or exchangeable therefor) in a
stock dividend, other stock distribution or subdivision, the Conversion Price
in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock
dividend, stock distribution or subdivision, be proportionately increased to
<PAGE> 95
adjust equitably for such dividend, distribution or subdivision so that each
share of Series A Preferred Stock shall thereafter be convertible into the
number of shares of Common Stock which the holder of such share of Series A
Preferred Stock would have owned and to which the holder would be entitled
had the holder converted such share of Series A Preferred Stock immediately
prior to such stock dividend, stock distribution or subdivision.
(2) Combinations or Consolidations. In the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion
Price in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately decreased to adjust equitably for such combination or
consolidation so that each share of Series A Preferred Stock shall thereafter
be convertible into the number of shares of Common Stock which the holder of
such share of Series A Preferred Stock would have owned and to which the
holder would have been entitled had the holder converted such share of Series
A Preferred Stock immediately prior to such combination or consolidation.
(vii) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation
or the conveyance of all or substantially all of the assets of the
Corporation to another corporation, or any proposed reorganization or
reclassification of the Corporation (except a transaction for which provision
for adjustment is otherwise made in this Section 3), each share of Series A
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the number of
shares of Common Stock of the Corporation deliverable upon conversion of such
Series A Preferred Stock would have been entitled upon such consolidation,
merger, conveyance, reorganization or reclassification; and, in any such
case, appropriate adjustment (as determined by the Board of Directors) shall
be made in the application of the provisions herein set forth with respect
to the rights and interest thereafter of the holders of the Series A
Preferred Stock, to the end that the provisions set forth herein (including
provisions with respect to changes in and other adjustments of the
Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series A Preferred Stock. The
Corporation shall not effect any such consolidation, merger or sale unless
prior to or simultaneously with the consummation thereof the successor
corporation or purchaser, as the case may be, shall assume by written
instrument the obligation to deliver to the holder of the Series A Preferred
Stock such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder is entitled to receive.
(viii) Rounding of Calculations. All calculations under this Section 3
shall be made to the nearest one thousandth (1/1000th) of a share.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Series A Preferred Stock against impairment. Without
limiting the generality of the foregoing, before taking any action which
<PAGE> 96
would result in any adjustment to the Conversion Price then in effect below
the par value of the Common Stock, the Corporation will take or cause to be
taken any and all necessary corporate or other action which may be necessary
in order that the Corporation may validly and legally issue fully paid and
nonassessable shares of such Common Stock upon conversion. The taking of
such corporate or other action shall be a condition precedent to the
Corporation's taking the action which would result in such adjustment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Conversion Price pursuant to this Section 3, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at
any time of any holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) all such
adjustments and readjustments theretofore made, (ii) the Conversion Price at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at such time would be received upon
the conversion of Series A Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend which is in the same amount per share as cash
dividends paid in previous quarters) or other distribution, the Corporation
shall mail to each holder of Series A Preferred Stock at least ten (10) days
prior to the date thereof, a notice specifying the date on which any such
record is to be taken for the purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and at all
times keep available out of its authorized but unissued Common Stock, free
from preemptive or other preferential rights, restrictions, reservations,
dedications, allocations, options, other warrants and other rights under
any stock option, conversion option or similar agreement, such number of
shares of Common Stock as shall from time to time be sufficient to effect
conversion of the Series A Preferred Stock.
SECTION 4
Sale of New Securities by the Company
(a) Special Definitions. For purposes of this Section 4, the following
definitions shall apply:
(i) Equity Security shall mean any capital stock (including the Common and
Preferred Stock) of the Company, whether now authorized or not, and rights,
options, warrants or rights to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital stock; the
number of shares of an Equity Security which is an option, warrant, right or
convertible security shall be the number of shares of such Equity Security
which would result upon the immediate exercise of such option, warrant or
right of conversion of such convertible security, without regard to when such
option, warrant or right may in fact be exercised or such convertible
security may in fact be converted.
<PAGE> 97
(ii) New Securities shall mean any Equity Securities hereafter issued;
provided, however, that such term shall not include (i) the shares of
Series A Preferred Stock purchased under the Preferred Stock Purchase and
Option Agreement between the Company and the Preferred Shareholder dated
September 16, 1998 (the "Purchase Agreement"); (ii) securities offered to
the public pursuant to a registration statement filed in accordance with
the provisions of the Securities Act; (iii) securities issued in connection
with the acquisition of another corporation by the Company by merger,
purchase of substantially all assets or other reorganization whereby the
Company owns, upon consummation of such acquisition, greater than fifty
percent (50%) of the voting power to elect the directors of such
corporation; (iv) securities issued in any merger or consolidation of the
Company, provided that such merger or consolidation is unanimously
approved by the Board of Directors; (v) securities evidencing any borrowings,
direct or indirect, from financial institutions or other persons by the
Company, whether or not presently authorized, including any type of loan or
payment evidenced by any type of debt instrument, provided such securities
do not have equity features (such as warrants, options or other rights to
purchase capital stock) and are not convertible into capital stock of the
Company; (vi) securities issued pursuant to any stock option plan, stock
purchase or stock bonus arrangement, or grant, which in any case are
excepted from the definition of "Additional Shares of Common Stock" in
this Certificate of Designations; (vii) securities issued to financial
institutions and leasing companies in connection with borrowing or lease
financing arrangements of the Company, provided that such issuances or
grants are unanimously approved by the Board of Directors; and (viii)
securities to be issued pursuant to and as expressly set forth in those
Letters of Intent attached as Schedule 4.9 of the Purchase Agreement.
(iii) Preemptive Share shall mean, immediately prior to any issue of
New Securities, and as to each Shareholder, the percentage which expresses
the ratio between (i) the number of Equity Securities owned at such time
by such Shareholder, and (ii) the aggregate number of Equity Securities
outstanding at such time.
(iv) Preferred Shareholder shall mean Intermagnetics General Corporation,
a New York corporation.
(v) Securities Act shall mean the Securities Act of 1933, as amended, and
any successor statute thereto.
(vi) Sell, as to any Equity Security, shall mean to sell, or in any other
way directly or indirectly transfer, assign, pledge, distribute, encumber or
otherwise dispose of such Equity Security, either voluntarily or
involuntarily.
(b) The Company shall not Sell any New Securities except in accordance with
the following procedures:
(i) The Company shall first deliver to the Preferred Shareholder a written
Notice of Intention To Sell, which shall be irrevocable for a period of ten
(10) days after delivery thereof, offering to the Preferred Shareholder the
right to purchase up to its Preemptive Share of such New Securities at the
purchase price and on the terms specified therein. The Preferred Shareholder
shall have the right and option, for a period of ten (10) days after delivery
to the Preferred Shareholders of such Notice of Intention To Sell, to
purchase all or any part of the New Securities so offered at the purchase
<PAGE> 98
price and on the terms stated therein. Such acceptance shall be made by
delivering a written Notice of Acceptance to the Company within the aforesaid
ten (10) day period.
(ii) The closing of any sales of New Securities under the terms of this
Section 4(b) shall be made at the offices of the Company on a mutually
satisfactory business day within fourteen (14) days after the expiration
of the aforesaid period. Delivery of certificates or other instruments
evidencing such New Securities duly endorsed for transfer to the Preferred
Shareholder shall be made on such date against payment of the purchase
price therefor.
(iii) If effective acceptance shall not be received pursuant to this Section
4(b) above with respect to all New Securities offered for sale pursuant to a
Notice of Intention To Sell, then the Company may sell all or any part of the
remaining New Securities so offered for sale at a price not less than the
price, and on terms not more favorable to the purchaser thereof than the
terms stated in the original Notice of Intention To Sell, at any time within
ninety (90) days after the expiration of the offer required by this Section
4(b) above. In the event the remaining New Securities are not sold by the
Company during such ninety (90) day period, the right of the Company to sell
such remaining New Securities shall expire and the obligations of this
Section 4 shall be reinstated; provided, however, that in the event the
Company determines, at any time during such ninety (90) day period, that
the sale of all or any part of the remaining New Securities on the terms set
forth in the Notice of Intention To Sell is impractical, the Company can
terminate the offer and reinstate the procedure provided in this Section 4
without waiting for the expiration of such one ninety (90) day period.
SECTION 5
Voting Rights
Except as otherwise required by law or agreement, the holders of Series A
Preferred Stock and the holders of the Common Stock shall be entitled to
notice of any stockholders' meeting and to vote together as a single class
of capital stock, together with any other Series of Preferred Stock or
other classes of stock which are entitled to vote as part of such single
class, upon any matter submitted to a stockholder for a vote, on the
following basis:
(i) holders of Common Stock shall have one vote per share; and
(ii) holders of Series A Preferred Stock shall have that number of votes
per share as is equal to the number of shares of Common Stock into which each
such share of Series A Preferred Stock held by such holder is convertible at
the time of such vote.
SECTION 6
Dividend Rights
Each issued and outstanding share of Series A Preferred Stock shall be
entitled to receive cumulative preferential dividends, payable in cash or
<PAGE> 99
Common Stock at the option of the Corporation, at the annual rate of $0.064
per share, payable quarterly, in arrears, on each March 31, June 30,
September 30 and December 31 or, if such payment date is not a business day,
then on the next succeeding business day. Such dividends shall be cumulative
so that if such dividends in respect of any previous or current dividend
period, at the aforesaid rate, shall not have been declared and paid, or
declared and a sum sufficient for the payment thereof set apart, the
deficiency shall first be paid before any dividend or other distribution
shall be paid on or declared and set apart from any other shares of its
capital stock. Any accumulation of dividends on the Series A Preferred Stock
shall not bear interest. The annual dividend rate per share applicable to
the Series A Preferred Stock shall be equitably adjusted whenever there shall
occur a stock split, combination, stock dividend, reclassification or other
similar event affecting the Series A Preferred Stock. No dividends shall be
paid on the Common Stock unless and until the full dividend for the relevant
period shall have been paid, or set aside for payment on the Series A
Preferred Stock.
SECTION 7
Redemption
Subject to the prior conversion rights set forth in Section 3 of this
Certificate, the Corporation may redeem all, or any portion of the Series A
Preferred Stock, together with all underlying Common Stock issuable upon
exercise of Conversion Rights herein, upon thirty (30) days' written notice
to the holders thereof at a price equal to 120% of the sum of (i) the
Purchase Price of the Preferred Stock (ii) all accrued and unpaid Preferred
Dividends thereon through the date of redemption. At any time within such
thirty (30) day period, a holder of Series A Preferred Stock may elect to
convert his Series A Preferred Stock into Common Stock pursuant to Section 3
hereof by delivering to the Corporation the written notice contemplated by
Section 3(d) hereof and upon delivery of such notice, the Corporation's right
to redeem such shares of Series A Preferred Stock shall terminate.
SECTION 8
Amendments and Other Actions
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or
written consent) of the holders of all of the then outstanding shares of
Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock or any other capital stock of the Corporation so as to affect
adversely the Series A Preferred Stock; or
(b) create any new class or series of capital stock senior to or pari passu
with the Series A Preferred Stock.
Notwithstanding the foregoing, the Corporation, when approved (by vote or
written consent) by the holders of at least sixty-six and two thirds percent
(66_%) of the then outstanding shares of Series A Preferred Stock, may amend
or supplement this Certificate without the consent of any holder of Series A
Preferred Stock to cure any ambiguity, defect or inconsistency provided that
such amendments or supplements shall not adversely affect the interests of
such holders.
<PAGE> 100
SECTION 9
Registration and Transfer
The Corporation shall maintain at its principal executive offices (or at
the principal executive offices of its transfer agent or such other office
or agency of the Corporation as it may designate by notice to the holders of
the Series A Preferred Stock) a stock register for the Series A Preferred
Stock in which the Corporation shall record the names and addresses of
persons in whose names the shares of Series A Preferred Stock are issued, as
well as the name and address of each transferee. Holders of share
certificates for the Series A Preferred Stock may present such certificates
for transfer and exchange at such offices.
Prior to due presentment for registration of transfer of any Series A
Preferred Stock, the Corporation may deem and treat the person in whose name
any Series A Preferred Stock is registered as the absolute owner of such
Series A Preferred Stock and the Corporation shall not be affected by notice
to the contrary.
No service charge shall be made to a holder of Series A Preferred Stock for
any registration, transfer or exchange. The Corporation shall not be
required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares or
any federal or state taxes on any gain or income recognized in such
transaction, if any.
SECTION 10
Miscellaneous Provisions
Business Day. If the day upon which any payment is to be made or any other
action is to be taken or any event is scheduled to occur pursuant to the
terms of this Certificate of Designation is not a business day, the payment
shall be made or the other action shall be taken on the next succeeding
business day. A "business day" is defined as a day in the City of New York,
County of New York, State of New York, that is not a legal holiday or a day
on which banking institutions are authorized or obligated by law to close.
Such resolution was signed by the President and Secretary of the Corporation.
IN WITNESS WHEREOF, POWERCOLD CORPORATION has caused its corporate seal to
be hereunder affixed and this Certificate to be executed by its President
and its Secretary this 14th day of September, 1998.
POWERCOLD CORPORATION
/s/ Francis L. Simola
By:_________________________
Francis L. Simola, President
/s/ George C. Briley
By:_________________________
George C. Briley, Secretary
<PAGE> 101
STATE OF PENNSYLVANIA )
)ss
COUNTY OF MONTGOMERY )
On this 14th day of September, 1998, before me, the undersigned, a Notary
Public in and for the State of Pennsylvania, duly commissioned and sworn,
personally appeared Francis L. Simola, to me known to be the President of
PowerCold Corporation, the Corporation that executed the foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said Corporation, for the uses and purposes therein mentioned,
and on oath stated that he was authorized to execute the said instrument and
that the seal affixed is the corporate seal of said Corporation.
WITNESS my hand and official seal hereto affixed the day and year first
above written.
(Stamped with the seal of and signed by:)
Jack B. Kustra, Notary Public in and for the State of
Pennsylvania, residing in Montgomery County. Commission
expires: April 1, 2000
STATE OF TEXAS )
) SS
COUNTY OF GUADALUPE)
On this 14th day of September, 1998 before me, the undersigned, a Notary
Public in and for the State of Texas, duly commissioned and sworn, personally
appeared George C. Briley, to me known to be the secretary of PowerCold
Corporation, the Corporation that executed the foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said Corporation, for the uses and purposes therein mentioned, and on oath
stated that he was authorized to execute the said instrument and that the
seal affixed is the corporate seal of said Corporation.
/s/ George C. Briley
WITNESS my hand and official seal hereto affixed the day and year first above
written.
(Stamped with the seal of and signed by:)
E. A. Hunt, Notary Public in and for the State of
Texas, residing in Guadalupe County. Commission
expires: 9 12, 1998
<PAGE> 102
EXHIBIT 5
DESCRIPTION OF STOCK CERTIFICATE
Incorporated in the State of Nevada
POWERCOLD, 200,000,000 shares authorized
Non-assessable, CUSIP NO. 739 31Q 103
Certificate Number (to be filled in) par value .001 per share
This certifies that _________________ is the owner of _______________ fully paid
and non-assessable Shares of the Common Stock of POWERCOLD CORPORATION
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon the surrender of this certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ___ day of _____ A.D. 19 __
Valid until countersigned by transfer agent.
/s/ Francis Simola
President
/s/ Robert D. Klagas
Secretary
PowerCold will mail the holder of this Certificate without charge, within five
(5) days after the receipt of written request therefor, a copy of the express
terms of the shares represented by this certificate and of the other class or
classes of shares and any series thereof which the Company is authorized to
issue.
The following abbreviations, when used in the inscription on the face of this
certificate shall be construed as though they were written out in full according
to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - __Custodian__
TENANT - as tenants by the entireties (Cust.)(Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
Survivorship and not as tenants _________________________________
in common (State)
Additional abbreviations may be used although not in the above list.
For Value Received, ___________ hereby sell, assign, and transfer unto
(Social Security number or
other identifying number of
assignee) __________________ _________________________________________________
(name and address of assignee.)
of the shares represented by the within certificate and do hereby irrevocably
constitute and appoint ___________________________ Attorney to transfer the said
shares on the books of the within named Company with full power of substitution
in the premises.
Dated:_____________________________ Signed:___________________________________
Note: the signature to this assignment must correspond with the name as written
upon the face of the certificate in every particular, without alteration or
enlargement, or any change whatever. Signature must be guaranteed.
