Document is copied.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 2000 Commission File No.33-30476-D
CRYOCON, INC.
(Exact name of registrant as specified in its charter)
COLORADO
(State or other jurisdiction of
incorporation or organization)
2250 North 1500 West
Ogden, Utah 84401
(Address of Principal's Executive Offices)
84-1O26503
(I.R.S. Employer Identification No.)
(801) 395-2796
(Registrant's Telephone No. Incl. area code)
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter
period that the registrant was required to file such
reports), and (2) Has been subject to
such filing requirements for at least the past: 90 days.
Yes _X_ No ___
The number of shares outstanding of each of the
Registrant's classes of common equity, as of
November 1, 2000, are as follows:
Class of Securities Shares Outstanding
------------------- ------------------
Common Stock, no par value 18, 061,811
<PAGE>
INDEX
Page of
Report
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
(September 30, 2000 and March 31, 2000........................ 3
Consolidated Statement of Operations.......................... 4
Consolidated Statement of Stockholder's Equity................ 5
Consolidated Statement of Cash Flows ......................... 7
Notes to Unaudited Financial Statements....................... 8
Item 2. Management's Discussion and Analysis and
Plan of Operation............................................. 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 18
Item 2. Changes in Securities and Use of Proceeds..................... 18
Item 3. Defaults Upon Senior Securities............................... 19
Item 4. Submission of Matters to a Vote of Security Holders. ......... 19
Item 5. Other Information............................................. 19
Item 6. Exhibits and Reports on Form 8-K.............................. 19
Signatures.................................................... 20
2
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and March 31, 2000
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
------------- ---------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ 124,257 $ 71,771
Accounts receivable, net 33,245 12,611
Prepaid expenses 5,144 -
------------------ -----------------
Total Current Assets 162,646 84,382
------------------ -----------------
PROPERTY AND EQUIPMENT, NET (Note 2) 2,380,246 2,260,585
------------------ -----------------
OTHER ASSETS
Other assets 9,133 -
Patents, trademarks and licenses, net (Note 1) 404,100 419,067
------------------ -----------------
Total Other Assets 413,233 419,067
------------------ -----------------
TOTAL ASSETS $ 2,956,125 $ 2,764,034
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 157,261 $ 75,705
Accrued expenses 267,405 80,320
Current portion long-term debt (Note 4) 2,900,000 2,863,149
------------------ -----------------
Total Current Liabilities 3,324,666 3,019,174
------------------ -----------------
LONG-TERM LIABILITIES
Note payable, related party (Note 3) 50,000 50,000
Long-term debt (Note 4) 1,636,727 187,291
------------------ -----------------
Total Long-Term Liabilities 1,686,727 237,291
------------------ -----------------
TOTAL LIABILITIES 5,011,393 3,256,465
------------------ -----------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 50,000,000 shares authorized of no
par value, 12,263,974 and 11,000,000 shares issued
and outstanding, respectively 513,708 577,500
Deficit accumulated during the development stage (2,568,976) (1,069,931)
------------------ -----------------
Total Stockholders' Equity (Deficit) (2,055,268) (492,431)
------------------ -----------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 2,956,125 $ 2,764,034
================== =================
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
Consolidated Statement of Operations
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the October 20,
Six Months Ended Three Months Ended 1999 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales $ 81,411 $ - $ 40,996 $ - $ 103,916
---------------- --------------- -------------- -------------- ----------------
COST OF SALES
Supplies and materials 14,641 - 7,300 - 21,620
---------------- --------------- -------------- -------------- ----------------
GROSS MARGIN 66,770 - 33,696 - 82,296
---------------- --------------- -------------- -------------- ----------------
EXPENSES
Advertising 199,547 - 133,691 - 253,071
Depreciation and amortization 76,085 - 37,159 - 118,384
General and administrative 1,075,050 - 705,933 - 2,038,540
---------------- --------------- -------------- -------------- ----------------
Total Expenses 1,350,682 - 876,783 - 2,409,995
---------------- --------------- -------------- -------------- ----------------
OPERATING LOSS (1,283,912) - (843,087) - (2,327,699)
---------------- --------------- -------------- -------------- ----------------
OTHER (EXPENSE)
Interest expense (215,133) - (107,566) - (241,277)
---------------- --------------- -------------- -------------- ----------------
Total Other (Expense) (215,133) - (107,566) - (241,277)
---------------- --------------- -------------- -------------- ----------------
NET LOSS $ (1,499,045) $ - $ (950,653) $ - $ (2,568,976)
================ =============== ============== ============== ================
BASIC LOSS PER SHARE $ (0.14) $ - $ (0.09) $ -
================ =============== ============== ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 11,035,110 - 11,070,221 -
================ =============== ============== ==============
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
------ ------ ------------
<S> <C> <C> <C>
Balance at inception on
October 20, 1999 - $ - $ -
October 30, 1999, issuance of common
stock to founders for services at $0.00
per share 1,000 - -
November 10, 1999, issuance of common
stock to founders for services at $0.00
per share 524,000 - -
December 10, 1999, issuance of common
stock to founders for services and
intangible assets at $0.00 per share 9,700,000 - -
November 10, 1999, issuance of common
stock for services at $0.75 per share 100,000 75,000 -
November 10, 1999, issuance of common
stock for cash at $0.50 per share 10,000 5,000 -
November 10, 1999, issuance of common
stock for services at $0.50 per share 5,000 2,500 -
November 10, 1999, issuance of common
stock for cash at $0.50 per share 10,000 5,000 -
November 10, 1999, issuance of common
stock for cash at $0.50 per share 4,000 2,000 -
November 10, 1999, issuance of common
stock for services at $0.50 per share 16,000 8,000 -
November 10, 1999, issuance of common
stock for services at $0.75 per share 100,000 75,000 -
November 10, 1999, issuance of common
stock for services at $0.75 per share 500,000 375,000 -
November 10, 1999, Issuance of common
stock for cash at $1.00 per share 10,000 10,000 -
------------------ ------------------ -----------------
Balance forward 10,980,000 $ 557,500 $ -
------------------ ------------------ -----------------
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit) (Continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
During the
Common Stock Development
Shares Amount Stage
------ ------ ------------
<S> <C> <C> <C>
Balance forward 10,980,000 $ 557,500 $ -
November 11, 1999, issuance of common
stock for cash at $1.00 per share 10,000 10,000 -
November 10, 1999, issuance of common
stock for cash at $1.00 per share 10,000 10,000 -
Net loss from inception on
October 20, 1999 through
March 31, 2000 - - (1,069,931)
------------------ ------------------ -----------------
Balance, March 31, 2000 11,000,000 577,500 (1,069,931)
September 21, 2000, recapitalization
(unaudited) 1,248,974 (71,292) -
September 21, 2000, common stock
issued for cast at $0.50 per share
(unaudited) 15,000 7,500 -
Net loss for the six months ended
September 30, 2000 (unaudited) - - (1,499,045)
------------------ ------------------ -----------------
Balance, September 30, 2000 (unaudited) 12,263,974 $ 513,708 $ (2,568,976)
================== ================== =================
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Consolidated Statement of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the October 20,
Six Months Ended Three Months Ended 1999 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) $ (1,499,045) $ - $ (950,653) $ - $ (2,568,976)
Adjustments to reconcile net loss to
net cash used by operating activities:
(Increase) decrease in accounts
receivable (20,635) - (5,718) - (33,246
Amortization and depreciation 76,085 - 37,159 - 118,584
(Increase) decrease in other assets (14,277) - 21,677 - (14,277)
Common stock issued for service - - - - 535,500
Changes in operating assets and liabilities:
Increase (decrease) in accounts
Payable and accrued expenses 197,349 - 167,557 - 353,374
---------------- --------------- -------------- -------------- ----------------
Net Cash Used by Operating
Activities (1,260,523) - (729,978) - (1,609,241)
---------------- --------------- -------------- -------------- ----------------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase or development of
intangibles - - - - (449,000)
Equipment purchases (180,778) - (21,436) - (403,729)
Purchase of building - - - - (2,050,000)
---------------- --------------- -------------- -------------- ----------------
Net Cash (Used) by Investing
Activities (180,778) - (21,436) - (2,902,729)
---------------- --------------- -------------- -------------- ----------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of common stock for cash 7,500 - 7,500 - 49,500
Issuance of notes payable 1,848,626 - 853,640 - 4,954,472
Payments made on notes payable (362,339) - (106,824) - (367,745)
---------------- --------------- -------------- -------------- ----------------
Net Cash Provided by Financing
Activities 1,493,787 - 754,316 - 4,636,227
---------------- --------------- -------------- -------------- ----------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 52,486 - 2,902 - 124,257
CASH AT BEGINNING OF PERIOD 71,771 - 121,355 - -
---------------- --------------- -------------- -------------- ----------------
CASH AT END OF PERIOD $ 124,257 $ - $ 124,257 $ - $ 124,257
================ =============== ============== ============== ================
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Consolidated Statement of Cash Flows (Continued)
(Unaudited)
<TABLE>
<CAPTION>
From
Inception on
For the For the October 20,
Six Months Ended Three Months Ended 1999 Through
September 30, September 30, September 30,
2000 1999 2000 1999 2000
---------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
CASH PAID FOR:
Interest $ 55,832 $ - $ 16,002 $ - $ 59,776
Income taxes $ - $ - $ - $ - $ -
Schedule of Non-Cash Financing Activities:
Common stock issued for services $ - $ - $ - $ - $ 535,500
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General Information
-------------------
Cryocon, Inc. (the Company) is a privately held corporation
organized under the laws of the State of Utah in October 1999. The
Company is engaged in the study of extremely low temperatures and
how materials react to those temperatures and treating various
materials with those temperatures to improve their
characteristics.
The financial statements presented are those of Cryocon, Inc.
(Company). The company was incorporated in the State of Utah on
October 20, 1999. On September 21, 2000, ISO Block Products, USA,
Inc. (ISO) changed its name to Cryocon, Inc. in conjunction with
the merger with Cryocon, Inc. Prior to the acquisition of the
Company, ISO had been seeking to merge with an existing, operating
company.
On August 16, 2000, ISO and the Company completed an Agreement
and Plan of Reorganization whereby ISO issued 11,000,000 shares of
its common stock in exchange for all of the outstanding common
stock of Cryocon. Immediately prior to the Agreement and Plan or
Reorganization, the Company had 1,248,974 shares of common stock
issued and outstanding.
The acquisition was accounted for as a recapitalization of Cryocon
because the shareholders of Cryocon controlled the Company after
the acquisition. Therefore, Cryocon is treated as the acquiring
entity. There was no adjustment to the carrying value of the
assets or liabilities of Cryocon in the exchange. ISO is the
acquiring entity for legal purposes and Cryocon is the surviving
entity for accounting purposes. On September 21, 2000, the
shareholders of the Company authorized a reverse stock split of
1-for-4. All references to shares of common stock have been
retroactively restated.
Revenue Recognition
-------------------
Revenue is recognized on an accrual basis when the product is
shipped.
Property and Equipment
----------------------
Property and equipment are stated at cost with depreciation and
amortization computed on the straight-line method. Property and
equipment are depreciated over the following estimated useful
lives:
Years
-----
Office furniture 5-10
Machinery and equipment 5
Building 39.5
Shop equipment 10
Patents, Trademarks and Licenses
--------------------------------
<TABLE>
<CAPTION>
Net Book
Value
Term Cost Amortization 2000
---------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Product rights 5 years $ 100,000 $ 16,666 $ 83,334
Customer lists, patents
and trademarks 5 years 349,000 28,234 320,766
---------------- ------------------ --------------- ----------------
$ 449,000 $ 44,900 $ 404,100
================== =============== ================
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Patents, Trademarks and Licenses (Continued)
--------------------------------------------
Product rights, customer lists, patents and trademarks have been
capitalized and amortized over five years using a straight line
method. The total amortization of production costs for the six
months ended September 30, 2000 amounted to $44,900
The Company evaluates the recoverability of intangibles and
reviews the amortization period on an annual basis. Several
factors are used to evaluate intangibles, including, but not
limited to, management's plans for future operations, recent
operating results and projected, undiscounted cash flows.
Basic Loss Per Share
--------------------
<TABLE>
<CAPTION>
For the For the
Three Months Six Months
Ended Ended
September 30, September 30,
2000 2000
------------------ ------------------
<S> <C> <C>
Numerator - loss $ (950,653) $ (1,499,045)
Denominator - weighted
average number of
shares outstanding 11,070,221 11,035,110
------------------ ------------------
Loss per share $ (0.09) $ (0.14)
================== ==================
</TABLE>
Cash Flows
----------
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand and cash on deposit with banks.
Income Taxes
------------
The Company's tax basis is the same as the Company's financial
statement basis. The Company has net operating loss carryforwards
of approximately $2,568,976 available to offset future federal and
state income tax through 2021. The Company has not recorded a tax
benefit attributable to the carryforwards because realization of
such has been offset by a valuation allowance for the same amount.
Production Costs
----------------
The Company classifies the costs of planning, designing and
establishing the technological feasibility of development costs
and charges those costs to expense when incurred. Costs of
maintenance and customer support are charged to expense when costs
are incurred.
Advertising
-----------
The Company follows the policy of charging the costs of
advertising to expense as incurred.
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Unaudited Financial Statements
------------------------------
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for
a fair presentation. Such adjustments are of a normal recurring
nature.
Change in Accounting Principles
-------------------------------
The Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, "Earnings Per Share" during the year ended March
31, 2000. In accordance with SFAS No. 128, diluted earnings per
share must be calculated when an entity has convertible
securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted
earnings (loss) per share is to show (on a proforma basis) per
share earnings or losses assuming the exercise or conversion of
all securities that are exercisable or convertible into common
stock and that would either dilute or not affect basis of EPS.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 2000 are detailed in
the following summary:
<TABLE>
<CAPTION>
Net Book
Accumulated Value
Cost Depreciation 2000
----------- ------------ -----------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Office furniture and fixtures $ 200,718 $ 10,140 $ 190,578
Machinery and equipment 177,872 11,463 166,409
Building improvements 25,139 367 24,772
Building 2,050,000 51,514 1,998,486
------------------ ------------------ ------------------
Total $ 2,453,729 $ 73,484 $ 2,380,245
================== ================== ==================
</TABLE>
Depreciation expense is computed principally on the straight-line
method in amounts sufficient to write off the cost of depreciable
assets over their estimated useful lives. Depreciation expense for
the six months ended September 30, 2000 and 1999, amounted to
$61,118 and $-0-, respectively.
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 3 - NOTE PAYABLE - RELATED PARTY
Note payable to a related party as of September 30, 2000 is
detailed in the following summary:
<TABLE>
<CAPTION>
2000
-----------
(Unaudited)
<S> <C>
Note payable to CEO; with an interest rate of 10%;
unsecured; is due January 3, 2003. $ 50,000
Total related party notes payable -
Less: current portion -
------------------
Long-term portion $ 50,000
==================
Maturities of the related party debenture payable are as follows:
Period ending March 31, 2001 $ -
2002 -
2003 50,000
------------------
Total $ 50,000
==================
</TABLE>
NOTE 4 - LONG-TERM DEBT
Notes payable as of September 30, 2000 are detailed in the
following summary:
<TABLE>
<CAPTION>
2000
----
<S> <C>
Note payable to a company; which includes
interest at 9.5%; due September 2004, secured by vehicle. $ 21,717
Note payable to a company; which includes
interest at 21%; due March 2005, secured by vehicle. 39,555
Notes payable to a company; due
December 2006, which includes interest at 8%. 182,455
Convertible debentures to a company; due
on demand, which includes interest at 10%. 2,843,000
Note payable to a company due September 9, 2000,
interest at 8%, secured by property. 1,450,000
------------------
Total long-term debt 4,536,727
Less: current portion 2,900,000
------------------
Long-term portion $ 1,636,727
==================
</TABLE>
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 4 - LONG-TERM DEBT (Continued)
Maturities of long-term debt are summarized below:
Period ending March 31, 2001 $ 2,900,000
2002 327,000
2003 327,000
2004 327,000
2005 327,000
2006 328,727
------------------
Total $ 4,536,727
==================
NOTE 5 - COMMON STOCK
On October 30, 1999, the Company issued 1,000 shares of its common
stock, valued at $0.00 per share for cash of $-0-.
On November 10, 1999, the Company issued 524,000 shares of its
common stock, valued at $0.00 per share for services of $-0-.
On December 10, 1999, the Company issued 9,700,000 shares of its
common stock, valued at $0.00 per share for services and
intangible assets of $-0-.
On November 10, 1999, the Company issued 100,000 shares of its
common stock, valued at $0.75 per share for services of $75,000.
On November 10, 1999, the Company issued 10,000 shares of its
common stock, valued at $0.50 per share for cash of $5,000.
On November 10, 1999, the Company issued 5,000 shares of its
common stock, valued at $0.50 per share for services of $2,500.
On November 10, 1999, the Company issued 10,000 shares of its
common stock, valued at $0.50 per share for cash of $5,000.
On November 10, 1999, the Company issued 4,000 shares of its
common stock, valued at $0500 per share for cash of $2,000.
On November 10, 1999, the Company issued 16,000 shares of its
common stock, valued at $0.50 per share for services of $8,000.
On November 10, 1999, the Company issued 100,000 shares of its
common stock, valued at $0.75 per share for services of $75,000.
On November 10, 1999, the Company issued 500,000 shares of its
common stock, valued at $0.75 per share for services of $375,000.
On November 10, 1999, the Company issued 10,000 shares of its
common stock, valued at $1.00 per share for cash of $10,000.
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 5 - COMMON STOCK (Continued)
On November 11, 1999, the Company issued 10,000 shares of its
common stock, valued at $1.00 per share for cash of $10,000.
On November 10, 1999, the Company issued 10,000 shares of its
common stock, valued at $1.00 per share for cash of $10,000.
On September 21, 2000, the Company issued 1,248,974 shares of its
common stock for recapitalization.
On September 21, 2000, the Company issued 15,000 shares of its
common stock, valued at $0.50 per share for cash of $7,500.
NOTE 6 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, the Company
does not have significant cash or other material assets, nor does
it have an established source of revenues sufficient to cover its
operating costs and to allow it to continue as a going concern. It
is the intent of the Company to used the acquired publicly traded
shell to facilitate the raising of equity capital. Until that
time, the stockholders have committed to covering the operating
costs of the Company.
NOTE 7 - OPTIONS
On July 17, 2000, the Corporate officers of the Company registered
shares available under an Options which were part of the Agreement
and Plan of Reorganization, executed on April 25, 2000. Egin
Bresnig, Edward Dean Wicker and John D. Brasher each received
under the Agreement options of 500,000 shares of the common stock.
All the terms and conditions precedent under the Agreement and
Plan of Reorganization were fulfilled and closing occurred on
August 16, 2000. The Exercise price of the shares on August 16,
2000 was $0.125. The market value of said shares on that date was
$0.875. Between August 16, 2000, and the date of the four to one
reverse split on September 21, 2000, 15,000 shares were issued to
Edward Dean Wicker. After the reverse split on September 21, 2000,
the total number of shares available under these options were
reduced to 125,000 shares each (less 3,750 to Mr. Wicker) at $0.50
a share. Since September 21, 2000, Mr. Wicker has exercised his
options for a total of 6,500 shares of common stock and John
Brasher has not exercised his options.
On May 31, 2000, the Board of Directors of the Company voted to
authorize the issuance of 1,000,000 shares of common stock for use
as compensation to consultants, advisors, and various parties our
market makers believed could provide a value to the establishment
of and generation of funds for the corporation. On August 15,
2000, the authorized shares were extended to Mr. Todd Moore as an
option for use in the manner anticipated by the Board of
Directors. The exercise price of said shares was set at $0.10 per
share. On August 15, 2000, the closing price of ISO Block's common
stock was $0.875 per share. No shares have been issued under this
option as of the date of this statement.
<PAGE>
CRYOCON, INC.
(Formerly ISO Block Products USA, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
September 30, 2000
NOTE 8 - SUBSEQUENT EVENTS
On October 27, 2000, Paragon provided Notices of Conversion for
Paragon Venture Funds I-IV. Notice was subsequently provided to
the Company's transfer agent to issue four certificates to Paragon
Venture Funds I-IV in the amounts of 2,880,000; 1,294,000;
1,355,437; and, 237,500, respectively. The certificates have been
issued and Paragon is in the process of dividing the current
shares among the various investors in the Venture Funds.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FORWARD LOOKING STATEMENTS:
This Management's Discussion and Analysis of Financial Condition and Plan of
Operation and the documents incorporated in this document by reference include
forward-looking statements under the Securities Act. In addition, from time to
time, we have made or may make forward-looking statements orally or in writing.
The words "may," "will," "expect," "anticipate," "believe," "estimate," "plan,"
"intend" and similar expressions have been used in this document and the
documents incorporated in this prospectus by reference to identify
forward-looking statements. We have based these forward-looking statements on
our current views with respect to future events and financial performance.
Actual results could differ materially from those projected in the
forward-looking statements. These forward-looking statements are subject to
risks, uncertainties and assumptions, including,
- risks associated with managing and maintaining internal growth
- competition, including market competition,
- changes in coverage or reimbursement practices of health maintenance
organizations and private insurers
- adverse results in regulatory matters, the adoption of adverse
legislation or regulations, more aggressive enforcement of existing
legislation or regulations or a change in the interpretation of existing
legislation or regulations
- dependence on key members of management
- other risks described in this "Risk Factors" section
- other risks described from time to time in our filings with the SEC
We are not obligated to update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. All subsequent
written and oral forward-looking statements attributable to us or persons acting
on our behalf are expressly qualified in their entirety by the cautionary
statements contained throughout this document and the documents incorporated in
this document by reference. Because of these risks, uncertainties and
assumptions, you should not place undue reliance on these forward-looking
statements.
Overview
ISO Block Products USA, Inc. ("Company") was incorporated in the State
of Colorado, on April 28, 1986, under the name Champion Computer Rentals, Inc.
The Company obtained funding from a public offering in order to engage in the
sale and leasing of computers and related equipment. The Company's principal
business operations through March 31, 1992 consisted of leasing out computers,
peripheral products and software. The Company realized only nominal revenues
through March 31, 1992. As March 31, 1992, the Company ceased its computer sale
and leasing operation.
On March 28, 1994, the Company entered into an Agreement and Plan of
Reorganization with R-S Iso-Block Produktions GmbH, a German limited liability
company ("Iso-Block GmbH"), Josef Ratey, an individual ("Ratey"), Helge Seidel,
an individual ("Seidel"), and R-S Plus Investment Corp., a Florida corporation
("R-S PLUS"). Pursuant to the Reorganization Agreement, on March 31, 1995 the
Company purchased from Ratey and Seidel all of the equity interest in Iso-Block
GmbH, and purchased from R-S Plus all of its right, title and interest in and to
Iso-Block GmbH, including all R-S Plus property heretofore contributed to
Iso-Block GmbH and all R-S Plus's rights to Iso-Block profits, in exchange for
the issuance of an aggregate of 2,000,000 shares of the Company's authorized but
heretofore unissued common stock, no par value. In 1995, Iso-Block GmbH changed
its name to R-S ISO-Block Produktions und Bautrager GmbH, which permitted it to
engage in the business of constructing buildings as well as manufacture and
production of building materials.
In fiscal years ended 1995 and 1996, Iso-Block GmbH had certain
operations in Germany. The Company wound down such operations in the closing
months of 1996. Beginning 1996, the Company functioned entirely as a US company
engaged in the business of residential home construction as general contractor.
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On January 24, 1997, the Company acquired 100% of the stock of
Franchise Connection, Inc. and its wholly owned subsidiary Brilliant Marketing,
Inc., ("Franchise Connection") a strategic conglomerate of new and emerging
franchise companies and a team of franchise experts that work together to match
the aspirations of entrepreneurs with viable analogous franchise concepts.
Franchise Connection, Inc. was incorporated in Colorado in 1996 with
headquarters in Denver, Colorado. The Company attempted to form strategic
partnerships with prospective or existing franchise operations ("Franchisers")
under which the Company planned to provide marketing and sales services plus
business and legal services in return for an equity interest in, and/or a
portion of their royalties. The Company targeted private companies that sought
to franchise expertise or financial capacity to successfully engage in
franchising. The Company offered comprehensive franchise marketing and
consulting services to its franchisers companies including operations,
personnel, management, training, legal and financial advice. In addition,
Franchise Connection assumed total responsibility for the recruitment of
franchisees, including national media advertising, trade show attendance, and
other forms of promotion supported by a commissioned sales staff.
Franchise Connection, Inc. developed Magna Dry LLC. Franchise
Connection, Inc. formed a Colorado Limited Liability Company "Magna-Dry USA,
LLC" of which was the sole member. Magna -Dry USA purchased the exclusive
license to operate and franchise the Magna-Dry concept in total cleaning
throughout the United States. Franchise Connections, Inc. executed a five-year
license agreement with renewal options and paid a master franchise fee. The
principal business was manufacturing, re-packaging, distribution and licensing
of leading edge environmentally safe-cleaning services developed by an
Australian formulator Charles C. Borg. Franchise Connection, Inc. had exclusive
territorial rights to manufacture and distribute Magna-Dry products in the
United States.
On August 31, 1999 the Company, Franchise Connection, Magna Dry,
Brilliant Marketing and certain individuals entered into a Unwinding Agreement
due to the lack of cash on hand and lack of operating income. The discontinued
operations resulted in $86,232 of liabilities that are no longer a
responsibility of the Company.
The Company entered into an Agreement and Plan of Reorganization, dated
July 20, 1999, with MedScan Technologies, Inc., an Oklahoma corporation
("MedScan"), and the shareholders of MedScan (the "MedScan Holders"). In that
agreement, the Company agreed to issue, at closing, 10 million shares of its
common stock in exchange for all of the outstanding common stock of MedScan, all
of the issued Class A common stock of American Capital Corporation, a Nevada
corporation ("AMCAP"), and all of the common stock of Star Insurance Company,
Ltd., an insurance company domiciled and licensed in the Federation of St. Kitts
and Nevis, British West Indies ("STAR"). The Company terminated the agreement,
based on failure of the closing to take place by the time required in the
agreement, based on the fact that the selling holder of the STAR common stock
repudiated the Exchange Agreement and announced its refusal to consummate the
Exchange, and based on the failure or untruth of certain representations and
warranties of MedScan made in the Exchange Agreement. The Company, by letter
faxed to MedScan , notified MedScan of the termination. No person associated
with MedScan, AMCAP or STAR ever become an officer or director of the Company.
Until December 31, 1999, the Company's principal operations consisted
of residential home construction as general contractor.
Current Business of the Company
On August 16, 2000, the Company acquired 100% of the stock of Cryocon,
Inc., a Utah Corporation (Hereinafter, "Cryocon"). Cryocon is the only operation
subsidiary of the Company. Cryocon, was organized to provide deep cryogenic
tempering of materials to relieve stress and enhance durability and wear. Deep
<PAGE>
cryogenic tempering is a process that includes the application of extremely low
temperatures (approximately, -300F) utilizing a computer controlled process. On
November 10, 1999, Mr. Brunson executed an agreement to purchase Cryo-Accurizing
Division and the Tri-Lax Process from 300 Below Inc. for approximately $449,000
in cash, of which a portion was paid as a down payment and the balance evidenced
by a promissory note. On December 10, 1999, Cryocon acquired Cryo-Accurizing
Division and the Tri-Lax Process from Robert W. Brunson along with Mr. Brunson's
interests in a patent on the Cryo-Accurizing Division, for a combination of cash
and a debenture for Cryocon stock, and Cryocon also assumed the obligation to
pay the remaining balance of approximately $180,000.00 under the note to 300
Below Inc. Mr. Brunson developed both the Cryo-Accurizing Division and the
Tri-Lax Process while president of 300 Below, Inc. and was a co-holder of the
patent on the Cryo-Accurizing Division, which was awarded on February 2, 1999.
The Cryo-Accurizing is the patented process that Cryocon uses to
perform deep cryogenic tempering, material stabilization and stress relief to
firearms to improve accuracy, longevity and increase ease of cleaning. The
Tri-Lax Process is a combination of cryogenic, electromagnetic and sonic
treatment. The Cryo-Accurizing Division is one of many projects and divisions of
Cryocon.
Cryocon currently has the capability to provide its customers with Deep
Cryogenic Processing in its facilities in Utah. The process can be used for
treating tooling (drill bits, dies, and punches), wear parts (forming dies,
extrusion equipment, and hammer mills), and many other items including motor
parts, razor blades, firearms, pantyhose, musical instruments, and softball
bats. Cryocon's process has numerous applications in the aerospace, mining,
energy, electronic, medical and manufacturing industries.
In addition, Cryocon intends to manufacture cryogenic processors, which
are machines used to cryogenically treat materials. The cryogenic processors can
be custom designed to the purchasers' specifications. Cryocon also intends to
manufacture a tabletop cryogenic processor.
Plan of Operations
Cryocon's plan of operation is to develop it's research and development
program while focusing on sales and strategic alliances. There are many testing
programs ongoing with major manufacturers in the mining, aerospace, automotive,
military/weapons, and electronics industries. It is anticipated that these
testing programs and strategic alliances will result in contracts which will
generate significant revenues in the future.
Specific research and development goals include extensive analytical
testing of deep cryogenic effects on synthetic materials and electronics in
addition to obtaining specific data concerning the beneficial effects of
Cryocon's proprietary Deep Cryogenic Tempering process on various metals and
alloys.
Cryocon has also begun the development of proto-types of Cryogenic
Processors that it is anticipated will find wide acceptance in a broad variety
of professions and industries. It is anticipated that at least one proto-type
will be unveiled at a major trade show early in 2001.
Cryocon has also begun and plans to continue in a program of obtaining
patent protection for it's proprietary process as well as specific applications.
Cryocon anticipates having several patent grants, and/or applications pending
prior to the end of the fiscal year 2000.
Liquidity and Capital Resources.
Cryocon Inc., a Utah Corporation, commenced operations On January 3,
2000. As noted above, Cryocon was organized to provide Deep Cryogenic Tempering
services and equipment to various industries. Also as noted above, Cryocon Inc,
a Utah Corporation, was acquired by the Company on August 16, 2000. All
discussions concerning finances, business operations, revenues and forward
looking statements are referencing the business operations of Cryocon, Inc., a
Utah Corporation which has been merged into the Company and provides the only
basis of business for the Company.
<PAGE>
Since inception on October 20, 1999, Cryocon (Utah) realized $103,916
in gross sales and had $33,245 in accounts receivable. Since inception,
Cryocon's cumulative operating loss through September 30, 2000 is $2,568,976.
The loss is attributable to pre-organizational, start-up and operating costs,
and costs incurred in financing efforts.
Cryocon's operation to date consumed substantial amounts of cash. The
negative cash flow from operations is expected to continue and may accelerate in
the foreseeable future. The rate at which the Company expends its resources is
variable and may accelerate, depending on many factors, many of which are
outside the control of the Company, including the continued progress of the
Company's research and development of new process applications; the cost, the
timing, and outcome of further regulatory approvals; the expenses of
establishing a sales and marketing force, the timing and cost of establishing or
procuring additional requisite production and other manufacturing capacities,
the cost; if any, the cost of preparing, filing, prosecuting, maintaining,
defending and enforcing patent claims; and the status of competitive products
and the availability of other financing.
Because Cryocon is still in the development stage, it has limited
working capital and limited internal financial resources. Cryocon's limited cash
flows have prevented the company from borrowing funds from conventional lending
institutions. Since the Cryocon has not been able to secure funding from
commercial lenders, Cryocon has relied on private investments from
third-parties, including the Company's management, to meet its current
obligations. As of November 14, 2000, Cryocon will have sufficient cash on hand
to fund approximately an additional two months of operations at the current run
rate; however, Management is confident of being able to obtain operational funds
through various means. Management believes that it should obtain profitability
by the end of fiscal year 2001.
Cryocon's administrative offices and facilities are located at 2250
North 1500 West Ogden, Utah 84404 and consist of 39,828 square feet. On March 9,
2000, Cryocon entered into a purchase agreement for this building for a price of
$2,050,296.00. As of March 31, 2000, $250,000 was placed down on the building
with an additional payment of $244,740.14 being made in June of 2000. An
additional payment on the principal of $100,000 being made on September 29, 2000
reducing the total outstanding principal on the building to $1,455,556.
Permanent financing is being arranged and closing on the building is set for on
or before November 30, 2000.
While there is no anticipated significant changes in the number of
employees, Management anticipates that it will need to hire additional sales and
administrative staff and personnel specifically in the research and development
program.
Cryocon's financial information is prepared using generally accepted
accounting principles applicable to a going concern that contemplates the
realization of assets and liquidation of liabilities in the normal course of
business.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
<PAGE>
A Special Shareholder's Meeting was properly noticed and held on September 21,
2000. The purpose of the meeting was to obtain shareholder approval on four
proposed Resolutions of the Board of Directors. The purpose of the resolutions
was to complete the final steps necessary to fully execute those matter agreed
to in the Agreement and Plan of Reorganization, which was executed on April 25,
2000.
At the meeting, sufficient affirmative votes were obtained to approve all the
proposed Resolutions: (1) approval of the four to one reverse split of the
shares of the Corporation: for: 42,140,000; against: 10,000; abstain: 6,845,732;
(2) Increase the capital stock of the Corporation to 50,000,000 shares of Common
Stock: for: 42,140,000; against 25,000; abstain: 6,830,732; (3) Amending the
name of the Corporation from ISO Block Products USA, Inc. to Cryocon, Inc.: for:
42,140,000; against: 19,000; abstain: 6,826,732; (4) Ratification of the change
of Auditor to HJ & Associates of Salt Lake City: for: 42,140,000; against 4375;
abstained: 6,851,357.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed with this report, except
those indicated as having previously been filed with the Securities and Exchange
Commission and which are incorporated by reference to another report,
registration statement or form. The Company will furnish any exhibit indicated
in the list below as filed with this report (not incorporated by reference) upon
payment to the Company of its expenses in furnishing the information upon the
request of any Shareholder of Record.
2.0 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
2.1 Agreement and Plan of Reorganization dated April 25, 2000
(incorporated by reference to Exhibit
2.1 to Form 8-K dated August 18, 2000
3.0 Articles and Bylaws
3.1 Articles of Incorporation of the Company (incorporated by
reference to Exhibit 3.1 to registration statement on Form S-8
of Champion Computer Rentals, Inc., file no. 33-23257-D)
3.3 Bylaws of the Company (incorporated by reference to Exhibit on
Form 10-KSB for fiscal year ended 1993).
3.4 Certificate of Amendment and Restatement to Articles of
Incorporation (incorporated by reference to Exhibit 3.4 to Form
8-K dated February 10, 1994)
3.5 Certificate of Amendment to Articles of Incorporation, changing
the Company's name to Iso-Block Products USA, Inc.
(incorporated by reference to Exhibit 2(c) to registration
statement on Form 8-A, file no. 0-25810)
3.6 Certificate of Amendment to Articles of Incorporation, changing
the Company's name to Cryocon, Inc., authorizing a four to one
reverse split, authorizing the increase of capital stock to
50,000,000 shares of Common Stock, and ratifying the change of
auditors to HJ & Associates of Salt Lake City, Utah........ 21
<PAGE>
27. Financial Data Schedule ......................................... 23
(b) Reports on Form 8-K.
The following 8-Ks were filed between June 30, 2000 and September 30, 2000:
(1) 8-K filed August 18, 2000, reporting on the closing of the
Agreement and Plan of Reorganization, the Changes in Control of
the Registrant and the Acquisition or Disposition of Assets.
(2) 8-K filed September 25, 2000, reporting on the Special
Shareholder's Meeting resulting in the Company Name Change,
four to one reverse split, increase in capital stock to
50,000,000 and the ratification of the new auditor, HJ &
Associates of Salt Lake City, Utah. Also reported on the change
of trading symbol from ISOB to CRYQ.
(3) 8-K filed September 25, 2000, reporting on the Change of the
Registrant's certifying accountant.
(4) 8-K/A filed September 29, 2000, providing the pro forma
required under the 8-K filed August 18, 2000.
SIGNATURES
--------------------------------------------------------------------------------
In accordance with the requirements of the Exchange Act, the Registrant caused
this Report on Form 10-QSB to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: November 13, 2000
CRYOCON, INC.
By: ____________/s/________________________
Robert W. Brunson,
President/Chief Executive Officer
By: ___________/s/_________________________
Robert W. Brunson
Acting Chief Financial Officer
