ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL BUSINESS
PowerCold is a solution provider of energy efficient products for users of
industrial and commercial refrigeration systems world-wide. The Company
operates across many market sectors from large industrial food processors to
small commercial air conditioning systems. The firm's focus is to give
customers products and systems that allow them to benefit from current changes
occurring in the natural gas and electrical utility marketplace. Refrigeration
is the most energy intensive operation most business operators face. PowerCold
has the opportunity to provide products and systems, that customers require 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.
Currently there are three wholly owned operating subsidiaries of PowerCold;
RealCold Products, Inc., Nauticon, Inc. and Technicold Services, Inc. These
subsidiaries manufacture, market and provide consulting services for commercial
refrigeration and freezing systems for use world-wide. Nauticon manufactures
and markets a unique product line of patented evaporative heat exchange systems
for the HVAC and refrigeration industry. These companies offer unique and
innovative products, which compliment and secure PowerCold's position in the
refrigeration and air conditioning industry.
RealCold Products, Inc., a wholly owned subsidiary of the Company, located in
Cibolo, Texas, designs and produces unique products and commercial
refrigeration packaged systems for the refrigeration industry. RealCold
Products was reorganized with its new name in March 1997, replacing RealCold
Systems Inc. and RealCold Maintenance Systems, Inc. RealCold Products supports
all engineering and manufacturing of commercial refrigeration packages and
freezer systems.
RealCold Products Packaging - There are proposed alliances with other
refrigeration companies, whereas RealCold Products packages various components
adding value for a total turnkey refrigeration system. Management believes the
Company should improve income and profits as this entity provides the industry
expertise for its custom packaged products.
The Company originally developed and patented the most advanced, cost-effective
and environmentally safe "IQF - Individual Quick Freeze" systems in the
industry. RealCold Products now supports the "Quick Freeze" systems, and plans
to develop the product for the rapidly growing frozen food industry in the
Sequential Page 8 of 14<PAGE>
emerging markets of Asia and Latin America where electrical power is expensive
and often not reliable.
WittCold Systems, Inc., a Wittemann Company and wholly owned subsidiary of
Dover Corporation acquired RealCold Systems Inc., (a former wholly owned
subsidiary of PowerCold), whereas the Company receives a long term royalty
payment. The two combined companies provide world wide market support for
industrial refrigeration systems and merchant CO2 plants. Wittemann is the
world's leading manufacturer of carbon dioxide systems and refrigeration
accessories employed by brewers and other fermentation processors. The
acquisition culminated after a successful (50/50) joint venture between the two
companies for the manufacture and marketing of Merchant Carbon Dioxide Plants
and Refrigeration System Packages. The venture has produced over $8M in sales
revenue. Only the per cent of sales royalty is booked and consolidated by the
Company.
It is management's belief that revenue from the royalty alliance with WittCold
Systems may not be as high as previously projected for 1998, because of the
overseas exchange rate versus the strong US dollar. WittCold relies mainly on
the international market for sales and revenue from its Merchant CO2 systems.
Todate there are over $30M in proposals for new CO2 and industrial
refrigeration systems world wide.
Nauticon, Inc., a wholly owned subsidiary of the Company, manufactures and
markets a product line of patented evaporative heat exchange systems for the
air conditioning and refrigeration industry, which significantly reduces
electric power consumption during peak electrical rate periods for most air
conditioning and refrigeration users. The patented products are innovative and
unique in design, use new material technology, are simple to manufacture, and
have low operating costs. They are used for condensers, fluid coolers, booster
coolers, and cooling towers. Nauticon products may revolutionize the air
conditioning and refrigeration industry; an industry that faces serious changes
for the first time in years due to energy and environmental concerns worldwide.
The product is operating to specifications after delays in product development,
and Nauticon management is excited about the prospects for substantial growth
in revenues for 1998. There are over 130 systems installed to date, and the
Company expects to double growth annually over the next three years. Nauticon
recently installed 35 condensers at a new shopping center in California. There
is the potential for an additional 50 systems for other shopping centers. The
initial order was very competitive, whereas the application test ran on site
for four weeks. Todate there are over $1M of proposals out for new system
orders projected over the next few months. Nauticon now has 16 distributors
throughout the US, and is in negotiations with some of the largest OEM
refrigeration manufactures for product manufacturing and marketing alliances.
The prospects for these alliances, if negotiated successfully, should support a
revenue growth that will far exceed current and future revenue projections.
Primary sales targets are the large OEM refrigeration manufacturers that could
produce and distribute product under their own private label. Besides marketing
direct through agents in the US, other market outlets will be through major
distributors worldwide.
Technicold Services, Inc. (TSI) offers consulting engineering services,
including process safety management compliance and ammonia refrigeration and
carbon dioxide system design. TSI also provides operation, maintenance and
safety seminars for ammonia refrigeration technicians and supervisors. TSI also
publishes a quarterly newsletter, COLD TALK, which reaches over (2000)
refrigeration supervisors and technicians.
Sequential Page 9 of 14<PAGE>
Rotary Power International, Inc. (RPI) - The worlds only manufacturer of
stratified charge rotary engines and large rotary engines. PowerCold currently
owns 30% of RPI and was to acquire 100% of RPI, but the merger between the two
companies was not successful. PowerCold's prime interest is the Industrial
Natural Gas engine business with its compact packaged screw compressor
refrigeration system.
Deregulation of gas and electric utilities is creating major changes in energy
use and costs. RPI's natural gas engines enhance the customers' economic
benefits by reducing energy costs while supporting the environment with a clean
burning energy source. Supermarkets, as the initial target market, have been
estimated to save a minimum of 15% energy savings with one engine per store.
The market includes over 30,000 supermarkets, which consume 4% of the
electrical energy used in the US. Also, through associated overseas markets
there is a complementary demand and need for low cost energy for similar
refrigeration systems in remote areas of the world.
New Acquisitions - The Company is continually seeking related acquisitions and
joint venture partners with synergistic energy efficient products; to enhance
and support its growth plans and goals, and to become a comprehensive industry
wide solution provider for the refrigeration and air conditioning industry.
Over the last ninety days, the Company has signed Letter's of Intent to Acquire
the following two businesses. Formal Agreements are being prepared and will be
consummated when both parties accept the terms and conditions of the final
agreements.
Channel Ice Technologies - The Company plans to acquire, through a newly formed
subsidiary company, Channel Freeze Technologies, Inc., eighty percent (80%) of
the related assets and business of Channel Ice Technologies from Los Angeles,
CA. based Sir Worldwide, LLC for cash, royalties and stock options.
Channel Ice Technologies has a proprietary, patented (8 patents and 3 pending)
multi purpose freezing system that is highly efficient. It can be employed for
freezing virtually any liquid or semi liquid product in a variety of industries
including: ice plants, fish, meat and produce food products, fruit and juice
products, food by-products, recreational snow for theme parks and ski resorts,
plus many other applications. The Channel Ice System was introduced to the
market in 1995, todate there are ten (10) systems produced. Installations are
in Mexico, Japan, the Philippines and the United States. A system is presently
being installed in Singapore and another to be installed in Haiti.
A major new application for the Channel Ice System is in municipal water
systems, pulp and paper plants, refineries and utilities where solids are
economically separated from industrial waste by the freeze/thaw method. The
water in the frozen sludge drains off during thaw and the remaining materials
are then disposed of and recycled at a greatly reduced cost.
Rotary Power Enterprise, Inc. - The Company has agreed to acquire 100% of
Rotary Power Enterprise, Inc. for stock. Rotary Power Enterprise, Inc.
recently signed an Agreement to acquire the Natural Gas Engine Business assets
of Rotary Power International, Inc. (RPI) (OTC BB: RPII). The entire right,
title and interest in and to RPI's Rotary Power Natural Gas and Propane Engine
Business includes the intellectual property, licenses, contracts, inventory and
manufacturing capability for the 65 Series Natural Gas and Propane Fueled
Engines. Included are exclusive agreements with Mazda Motor Corporation and
Hussmann International, Inc). PowerCold owns approximately thirty per cent
(30%) equity interest in RPI, which manufactures and markets rotary engines.
Rotary Power Enterprise will have the exclusive right to sell Mazda rotor
Sequential Page 10 of 14<PAGE>
engines in North America, modified for natural gas and propane applications
except for passenger automobiles and minivan applications. The Company also
plans to have the exclusive right to distribute, market and sell the Series 580
and 40 natural gas/propane engine for stationary industrial/ commercial
applications and oil and gas field applications. Hussmann has the exclusive
right to purchase rotary engines for supermarket rack systems for operation of
refrigeration equipment in North America.
Jack Kazmar will remain as President of Rotary Power Enterprise. Prior to
establishing Rotary Power Enterprise, Mr. Kazmar was a Marketing Consultant
with Rotary Power International from 1993 - 1997. His background and
experience includes over 30 years in the commercial heating, ventilation and
air conditioning equipment industry: Vice President of Sales and Marketing,
ICC, a manufacturer of Desiccant based dehumidification equipment; President
and Co-Founder, Skil-Aire Corporation, a manufacturer of standardized
commercial heating, ventilation and air conditioning products; General Manager,
Fedders Corporation, Residential and Commercial Products Division, Climatrol
and Airtemp Applied; and direct sales and field management with Worthington
Corporation. Mr. Kasmar holds a Bachelor of Science - Mechanical Engineering
from Lafayette College.
The Company's mission is to be a solution provider of energy efficient products
for the multi-billion dollar refrigeration, air condition and power industry.
The Company's goal is to achieve profitable growth and increase shareholder
value - providing superior products and services through related acquisitions
and joint ventures.
Management intends to continue to utilize and develop the remaining intangible
assets of the Company. It is Management's opinion that the Company's cash flow
generated from such intangible assets will not be impaired, and that recovery
of its intangible assets, upon which profitable operations will be based, will
occur.
|
