UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Mark One
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2009
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For transition period from _______________ to _______________
Commission File Number: 0-17953
INFRARED SYSTEMS INTERNATIONAL
_________________________________________________________________
(Exact Name of Small Business Issuer as Specified in its Charter)
Nevada 38-3767357
_______________________________ ____________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15 N. Longspur Drive
The Woodlands, TX 77380
________________________________________
(Address of principal executive offices)
(310) 213-2143
___________________________
(Issuer's telephone number)
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.
YES [X] NO [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of June 30, 2009: 1,167,279 of
Common shares outstanding.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
________________________________________________________________________________
INFRARED SYSTEMS INTERNATIONAL
JUNE 30, 2009
CONDENSED FINANCIAL STATEMENTS
TABLE OF CONTENTS
PAGE
Condensed Balance Sheets, June 30, 2009 and September 30, 2008
(unaudited) 2
Condensed Statements of Operations, For the Three and Nine Months
Ended June 30, 2009 and 2008 (unaudited) 3
Condensed Statements of Cash Flows, For the Nine Months Ended
June 30, 2009 and 2008 (unaudited) 4
Notes to the Condensed Financial Statements (unaudited) 5 - 9
-2-
INFRARED SYSTEMS INTERNATIONAL
CONDENSED BALANCE SHEETS
June 30, 2009 September 30, 2008
Unaudited
_________________________________________________________________________________________________
ASSETS
CURRENT ASSETS:
Cash $ 20,446 $ 93,327
Accounts receivable 33,600 13,600
Prepaid expenses 1,774 1,774
_________________________________________________________________________________________________
Total Current Assets 55,820 108,701
PROPERTY AND EQUIPMENT, net 6,521 2,495
DEFINITE-LIFE INTANGIBLE ASSETS 30,970 17,965
_________________________________________________________________________________________________
TOTAL ASSETS $ 93,311 $ 129,161
=================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 28,110 $ 24,450
Customer deposits 76,668 92,665
_________________________________________________________________________________________________
Total Current Liabilities 104,778 117,115
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.001 par value, 50,000,000 - -
shares authorized, no shares issued and
outstanding 1,167 6,000
Common stock, $0.001 par value, 50,000,000 shares
authorized, 1,167,279 and 6,000,000 shares
issued and outstanding, respectively
Capital in excess of par value 1,003,452 998,619
Retained earnings (deficit) (1,016,086) (992,573)
_________________________________________________________________________________________________
Total Stockholders' Equity (Deficit) (11,467) 12,046
_________________________________________________________________________________________________
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 93,311 $ 129,161
=================================================================================================
See accompanying notes.
-3-
INFRARED SYSTEMS INTERNATIONAL
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended June 30, Ended June 30,
_________________________ _________________________
2009 2008 2009 2008
__________ __________ __________ __________
REVENUES:
Royalty $ 33,600 $ 19,200 $ 84,000 $ 37,600
OPERATING EXPENSES:
Professional fees 9,673 36,699 45,151 92,699
Transfer agent fees 25 - 10,629 330
Management fees 2,145 - 17,466 -
Travel, meals, and entertainment 5,603 13,429 15,960 21,200
Research and development 826 8,232 2,596 9,832
Other general and administrative 7,089 669 13,811 8,505
_______________________________________________________
Total Operating Expenses 25,361 59,029 105,613 132,566
_______________________________________________________
INCOME (LOSS) FROM OPERATIONS 8,239 (39,829) (21,613) (94,966)
OTHER INCOME (EXPENSE):
Interest expense (647) - (1,900) (43)
_______________________________________________________
INCOME (LOSS) BEFORE INCOME TAX
PROVISION 7,592 (39,829) (23,513) (95,009)
PROVISION FOR INCOME TAXES - - - 68
_______________________________________________________
NET INCOME (LOSS) $ 7,592 $ (39,829) $ (23,513) $ (94,941)
=======================================================
BASIC AND DILUTED INCOME (LOSS) PER
SHARE $ 0.01 $ (0.01) $ (0.01) $ (0.02)
=======================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 1,167,279 6,000,000 2,636,568 6,000,000
=======================================================
See accompanying notes.
-4-
INFRARED SYSTEMS INTERNATIONAL
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months
Ended June 30,
__________________________
2009 2008
_________ _________
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (23,513) $ (94,941)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Depreciation 474 245
Net (increase) decrease in operating assets:
Accounts receivable (20,000) (1,800)
Prepaid expenses - 632
Net increase (decrease) in operating liabilities:
Accounts payable 3,660 (1,488)
Customer deposits (15,997) 118,300
Deferred income tax liability - (68)
__________________________
Net Cash Provided (Used) by Operating Activities (55,376) 20,880
__________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for property and equipment (4,500) (1,241)
Payments for definite-life intangible assets (13,005) (1,200)
__________________________
Net Cash Provided (Used) by Investing Activities (17,505) (2,441)
__________________________
CASH FLOWS FROM FINANCING ACTIVITIES - -
__________________________
Net Cash Provided by Financing Activities - -
__________________________
NET INCREASE (DECREASE) IN CASH (72,881) 18,439
CASH AT BEGINNING OF PERIOD 93,327 118,904
__________________________
CASH AT END OF PERIOD $ 20,446 $ 137,343
==========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,900 $ 43
Income taxes $ - $ -
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In December 2008, the Company cancelled 4,832,721 common stock $ 4,833 $ -
shares previously owned by Parent
See accompanying notes
-5-
INFRARED SYSTEMS INTERNATIONAL
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements have been prepared by the Company in
accordance with Article 8 of U.S. Securities and Exchange Commission Regulation
S-X. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at June 30, 2009 and 2008 and for the
periods then ended have been made. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles have been condensed or omitted. It is
suggested that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's September
30, 2008 audited financial statements. The results of operations for the periods
ended June 30, 2009 and 2008 are not necessarily indicative of the operating
results for the full year.
In December 2008, the Company completed its spin-off by dividend to stockholders
of Parent.
NOTE 2 - GOING CONCERN
The Company's financial statements have been presented on the basis that it is a
going concern, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. At June 30, 2009, the Company
had a retained deficit of $1,016,086 and current liabilities in excess of
current assets by $48,958. During the nine months ended June 30, 2009, the
Company incurred a net loss of $23,513 and negative cash flows from operations
of $55,376. These factors create an uncertainty about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
The Company's continuation as a going concern is dependent upon its ability to
increase revenues, decrease or contain costs, and achieve profitable operations.
In this regard, Company management is proposing to develop additional
applications for the Company's technology, specifically in security system
surveillance. Management estimates 6 to 18 months before the Company will start
realizing revenues from security system surveillance applications. Should the
Company's financial resources prove inadequate to meet the Company's needs
before additional revenue sources can be realized, the Company may raise
additional funds through loans or through sales of common stock. There is no
assurance that the Company will be successful in achieving profitable operations
or in raising any additional capital.
NOTE 3 - RELATED PARTY TRANSACTIONS
Management Compensation - During the nine months ended June 30, 2009 and 2008,
respectively, the Company paid or accrued management fees of $17,466 and $0 to
its officer.
Office Space - In April 2009, the Company's monthly rent paid to its officer
increased from $400 to $900 and the Company paid an additional $1,500 for
increased rent attributable to prior months. During the nine months ended June
30, 2009 and 2008, respectively, the Company paid or accrued $6,600 and $3,600
in rent to its officer.
-6-
INFRARED SYSTEMS INTERNATIONAL
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - PROPERTY AND EQUIPMENT
Estimated Useful Lives June 30, 2009
______________________ _____________
Optical equipment 5 years $ 39,386
Office equipment 3 - 10 years 7,622
________
47,008
Less accumulated depreciation (40,487)
________
Net property and equipment $ 6,521
________
Depreciation expense for the nine months ended June 30, 2009 and 2008 was $474
and $245, respectively.
NOTE 5 - DEFINITE-LIFE INTANGIBLE ASSETS
Estimated Useful Lives June 30, 2009
______________________ _____________
Pending patent application Not Applicable $ 30,970
________
30,970
Less accumulated amortization -
________
Net definite-life intangible assets $ 30,970
________
The Company's definite-life intangible assets consist only of a pending patent
application.
NOTE 6 - CUSTOMER DEPOSITS
At June 30, 2009, the Company had received net cash deposits of $76,668 from a
customer in Taiwan to purchase infrared detectors, affix them to cameras
supplied by the customer, and ready them for shipment back to the customer in
accordance with the requirements of the Company's export license. Although the
terms of the arrangement provide that the deposits are not refundable, the
Company has recorded them as a current liability as of June 30, 2009 because the
earnings process was incomplete. The Company plans to pay approximately $88,000
to purchase the infrared detectors in accordance with the customer's
specifications, which will require additional payments by the customer. After
the Company ships the assembled cameras with infrared detectors, the Company
will recognize as revenue the net amount of the deposits related to its
services, which amount is expected to be approximately $6,000.
NOTE 7 - COMMON STOCK
In December 2008, the Company completed its spin-off by distributing 1,167,279
common stock shares to stockholders of Parent. The remaining 4,832,721 common
stock shares previously owned by Parent were returned and cancelled.
NOTE 8 - CONCENTRATIONS
At June 30, 2009, 100% of the Company's accounts receivable was due from a
single licensee. During the nine months ended June 30, 2009 and 2008, 100% of
the Company's royalty revenues were generated through a single licensee.
-7-
INFRARED SYSTEMS INTERNATIONAL
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 9 - INCOME TAXES
At June 30, 2009, the Company has federal net operating loss carryovers of
$178,004 available to offset future taxable income and expiring as follows:
$2,320 in 2026, $12,616 in 2027, $127,675 in 2028, and $35,393 in 2029. At June
30, 2009, the Company had experienced losses since inception and had not yet
generated any taxable income; therefore, the Company established a valuation
allowance to offset the net deferred tax assets.
The income tax provision consists of the following components for the nine
months ended June 30, 2009 and 2008:
2009 2008
____ ____
Current income tax expense (benefit) $ - $ -
Deferred income tax expense (benefit) - (68)
____ ____
Net income tax expense (benefit) charged to operations $ - $(68)
____ ____
The income tax provision differs from the amounts that would be obtained by
applying the federal statutory income tax rate to loss before income tax
provision as follows for the nine months ended June 30, 2009 and 2008:
2009 2008
________ ________
Loss before income tax provision $(23,513) $(95,009)
Expected federal income tax rate 15.0% 15.0%
________ ________
Expected income tax expense
(benefit) at statutory rate $ (3,527) $(14,251)
Tax effect of:
Meals and entertainment 303 379
Change in valuation allowance 3,224 13,804
________ ________
Net income tax expense (benefit) $ - $ (68)
________ ________
The Company's deferred tax assets, deferred tax liabilities, and valuation
allowance are as follows:
June 30, 2009
_____________
Deferred tax assets:
Organization costs $ 105
Net operating loss carryovers 26,701
________
Total deferred tax assets $ 26,806
________
Deferred tax liabilities:
Book basis of patent application $ (4,646)
Tax depreciation in excess of book (226)
________
Total deferred tax liabilities $ (4,872)
________
Total deferred tax assets $ 26,806
Total deferred tax liabilities (4,872)
Valuation allowance (21,934)
________
Net deferred tax asset (liability) $ -
________
-8-
INFRARED SYSTEMS INTERNATIONAL
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
These amounts have been presented in the financial statements as follows:
June 30, 2009
_____________
Current deferred tax asset (liability) $ -
Non-current deferred tax asset (liability) -
_____
$ -
_____
NOTE 10 - SUBSEQUENT EVENTS
The Company evaluated events subsequent to June 30, 2009 through August 7, 2009,
which is the date that the June 30, 2009 financial statements were issued.
Previously, the Company evaluated events subsequent to June 30, 2008 through
August 19, 2008, which is the date that the June 30, 2008 financial statements
were issued.
-9-
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The management discussions contain certain forward-looking statements and
information that are based on the beliefs of management as well as assumptions
made by and information currently available to management. When used in this
document, the words "anticipate," "believe," "estimate," "expect," "intend,"
"will," "plan," "should," "seek," and similar expressions, are intended to
identify forward-looking statements. Such statements reflect the current view of
management regarding future events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual actions or results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended.
The following discussion and analysis should be read in conjunction with the
company's consolidated financial statements and related footnotes for the year
ended September 30, 2008. The discussion of results, causes and trends should
not be construed to imply any conclusion that such results or trends will
necessarily continue in the future.
OVERVIEW
We were formed on April 11, 2006 to pursue the development of a proprietary
infrared security system. Prior to December 22, 2008, we had been a wholly-owned
subsidiary of China Sxan Biotech, Inc. (CSBI). All of our common stock was
distributed to the holders of record of CSBI common stock on December 22, 2008.
The future of Infrared Systems International (ISI) is tied to our success of two
ventures. They are the long-term EVS activity and our latest Infrared Security
System (ISS) project. The Board of Directors of ISI is committed to increasing
the equity value of the corporation. We will continue to investigate potential
opportunities to achieve our goal. We will keep our shareholders apprised of our
efforts as the situation requires.
The EVS License Agreement represents a significant long-term source of revenue
to ISI. ISI has initiated a study to determine if the divesting of the EVS
Agreement for immediate long-term capital gain distribution would be in the best
interests of the shareholders. Different concepts are being explored; no
conclusions or recommendations have been reached.
ISI has been in discussions with different stock brokerage firms to obtain a
sponsor to begin OTC BB electronic bid/ask trading. This has been far more
difficult than in the past because of the severe financial pressure on the
brokerage firms. We have narrowed our search to a single firm, and have been
working for several months to complete this effort. As of June 30, 2009, this
task is still open and on-going. We are hopeful that this will be complete soon,
but no guarantees of success can be presented at this time.
ENHANCED VISION SYSTEM
Our revenue primarily comes from royalties derived through licensing our
technology to a single customer, Kollsman. The licensing agreement with Kollsman
grants to Kollsman a worldwide, exclusive license under ISI proprietary data to
make, sell, maintain and repair products utilizing such data or patents for use
on any aircraft licensed to operate by the Federal Aviation Administration or by
equivalent foreign regulatory agencies. Royalty payments are required for each
Enhanced Vision System (EVS) unit sold utilizing a licensed product, based upon
the number of units sold. Pursuant to the license agreement, the royalty
currently is $800 per unit. The license continues until terminated by the mutual
consent of the parties, or at the written election of a party in the event of an
uncured default by the other party, or by us if Kollsman fails to sell an EVS
system containing our licensed rights for 24 months.
-10-
We realize our royalty revenues when Kollsman sells an aircraft system that
includes our technology. At that time, in accordance with the license agreement,
the royalty fee has been earned by us, there is an agreed upon amount for the
royalty fee, and collection of the royalty is reasonably assured because the
customer has timely made all payments required under the license agreement since
it was signed in July 1997.
In October 2008 at the National Business Aviation Association convention,
Gulfstream announced that EVS II has been selected for their G 150 and G 250
aircraft. EVS II has already been in production for Gulfstream, G 650, G 550,
G-V, & G-IV. The European aviation authority EASA has approved the Kollsman EVS
II for landing in reduced visibility conditions down to decision heights of 100
feet. This "operational" certification opens up the EVS market in Europe by
making available additional operators and aircraft manufacturers. This was a
significant event, which was highly publicized by Kollsman's parent company
Elbit, Haifa, Israel in corporate press releases.
Other Elbit announcements included Embraer; the Brazilian aircraft manufacturer
announced it has selected the Kollsman Enhanced Vision System (EVS II) for the
Lineage 1000 jet. FedEx announced that the Enhanced Vision System (EVS II) has
been fully certified on the FedEx MD 11 aircraft. This event marks the next
milestone in airline safety and is the world's first certification of an
Enhanced Flight Vision System (EFVS) on a Part 121 air transport wide body
platform. JetCraft Avionics announced its first installation of Kollsman's
Enhanced Vision System II (EVS II) to improve situational awareness and make
flights safer. United Technology's Flight Department announced that General
Aviation Vision System (GAViS(TM)) has been selected and is undergoing
installation and certification activities on the Sikorsky Helicopter for United
Technology's Flight Department. And, Piaggio Aero selected Elbit Systems of
America Kollsman General Aviation Vision System (GAViS(TM)), which is undergoing
installation and certification activities on Piaggio Aero Avanti II aircraft.
INFRARED SECURITY SYSTEM
ISS is at a critical stage. On March 10, 2009, the US Patent Office rejected as
final our patent application in the fourth review. The basis of the reject was
patent claim was "obvious", citing several references including prior art. We
strongly disagree with the newly cited "prior art" and the assessment of
"obvious".
A response was filed on June 6, 2009 challenging the applicability of the cited
references, noting major differences and lack of completeness of prior art
references. We included as "new information" results obtained from our test
demonstration system operating at 15 N. Longspur Dr., The Woodlands Texas, which
is the site of our home office. We are awaiting a response to our submittal. Our
patent attorney believes our position is strong, but neither our attorney nor
ISI management can guarantee a positive outcome.
At this time we have received a response from the US Patent Office accepting our
rebuttal, but issuing another challenge stating a new prior art reference. This
new referenced prior art like the last one is from a totally different field of
application, i.e. not the security field. We find the US Patent Office seems to
be stretching into areas totally diverse from the security field with
questionable applicability. We have prepared our response, and it was filed July
22, 2009.
We are guardedly optimistic, and believe the US Patent Office has failed to make
their case. We have reduced all business activity since September 2008 on ISS
and will suspend any future activity until the patent application is resolved.
We believe that the process with the US Patent Office could last until late
2009, with the outcome uncertain. We continue to press for a positive out come
with the US Patent Office.
-11-
UIS MEDICAL ACTIVITY
In the past our role with UIS has been limited to the securing of an US
Department of Commerce export license and performing a series of tasks to
execute the export in compliance with US Government ITAR. We expect to take on a
greater role with UIS in the future. This proposed change in our role was caused
by the phasing out of the previous third party infrared detector that we used
for the export license. The new replacement detector requires that ISI perform
certain development tasks to permit the export of the new detector to UIS. To
accomplish this work a software support station using Qurantus II software
support package has been installed at our Longspur corporate office. We have
secured the necessary export license, and a new effort will be necessary to be
in compliance with new requirements. However, our expanded role is not expected
to result in any material revenues to us as we complete our current contract.
UIS has approached ISI to become the export agent for a new IR Medical
Instrument that is used for the diagnosis and treatment of "dry eye". With the
new software support station we are in a position to provide greater support in
the preparation of the electronic assemblies for export.
In the next quarter ISI will be investigating the merits of our involvement.
Like our previous activities with UIS we will not accept any liability on
product or financial risk on performance. All contractual binding commitments
are on a best efforts basis.
OVERVIEW OF OPERATIONS
The spin-off was a lengthy and resource-consuming enterprise. The corporate
reserves have been seriously depleted, as we wait for our long expected EVS
sales to start to increase with the addition of new customers. The serious crash
of the world's financial markets and credit institutions are of a major concern
to us. Our existing EVS market appears to be unaffected as the large backlog
seems to provide a stabilizing element.
The new emerging EVS markets will undoubtedly be affected. The small low end Biz
jet market has been undercut by a surplus of aircraft as operators cut back,
sell-off, and cancellation of orders. This cut-back could have a serious effect
on Gulfstream's newly offered G-150 & G-250 models. First sales of EVS for these
models will be in 2010.
Likewise we see the Physical Security Market will suffer as corporations review
their budgets looking for areas to reduce or eliminate costs. Security is often
viewed as a non-essential function making it a target for budget cuts. We have
eliminated all discretionary spending for 2009 as we assess the impact on our
sales. The primary effect of the market conditions will be to delay any venture
activity until conditions improve.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2009 COMPARED
WITH THE THREE AND NINE MONTHS ENDED JUNE 30, 2008.
REVENUES
The revenues for the three months ending June 30, 2009 were $33,600 as compared
to $19,200 in the quarter ending June 30, 2008. Revenues were $84,000 for the
nine months ended June 30, 2009, as compared to $37,600 for the nine months
ended June 30, 2008. The increase in revenues during the nine month period
$46,400 (an increase of 123%) was due to the final phase out of EVS I. A total
of 105 EVS II units were sold by Kollsman during the nine months ended June 30,
2009 as compared to 47 units in the nine months ended June 30, 2008. We
attribute this substantial increase to the more desirable EVS II and new markets
for the EVS II.
-12-
OPERATING EXPENSES
The operating expenses for the three months ended June 30, 2009 were $25,361 as
compared to $59,029 for the three months ended June 30, 2008. The substantial
decrease of 57% was due to a deduction in professional fees from $36,699 to
$9,673. This sharp decrease was related to the completion of the work and the
resulting costs associated with the preparation of the registration statement
relating to the spin-off. Operating expenses were $105,613 for the nine months
ended June 30, 2009, as compared to $ 132,566 for the nine months ended June 30,
2008. The decrease of $26,953 was the result a reduction in professional fees
($47,548) being partially offset by increases in management fees ($17,466), cost
of stock certificate print and distribution ($10,299), and a modest decrease in
R&D associate with the Patent application of $7,236. The balance of the
increases ($66) was the result of increases in G&A ($5,306) being offset with
reductions in Travel Costs of $5,240. These fluctuations we consider normal, and
we attributed them to our more cautious investment strategy in the Infrared
Security System and a small step up in our activity with UIS coming from the
installation of the new software support station.
OTHER INCOME AND EXPENSE
The interest expense for the three months ended June 30, 2009 was $647 as
compared to $0 for the three months ended June 30, 2008. It was $1,900 for the
nine months ending June 30, 2009 compared to $43 for the same nine months ending
June 30, 2008.
NET PROFIT (LOSS) BEFORE PROVISIONS FOR INCOME TAXES
For the three months ended June 30, 2009 the net income was $7,592 as compared
to a net loss of $39,829 for the three months ended June 30, 2008. The
improvement of $47,421 from a loss to a profit position was the result of
increase sales of the new EVS II and the completion of the costly spin off
effort. The net loss for the nine months ended June 30, 2009 was $23,513 as
compared to a net loss for the nine months ended June 30, 2008 of $94,941. The
decrease in net loss for the nine month period from last year of $71,428 is
attributed to the completion of the spin off and increases in the sales of EVS.
GOING CONCERN
We have limited working capital and limited revenues from sales of products or
licenses. During 2008, all of our revenues were generated from a single
licensee. Our licensee has announced his original customer has expanded the EVS
into new A/C models with sufficient sales potential. Our licensee has also
announced new customers in several new markets. These developments will require
several years to impact our revenues due to the long development time associated
with introducing a new product. These factors have caused our accountants to
express doubt about our ability to continue as a going concern. The accompanying
financial statements do not include any adjustment that might be necessary if we
are unable to continue as a going concern.
Our ability to continue as a going concern is dependent on our attaining future
profitable operations. Management's plans include restrictions on the cost of
ongoing operations, such as providing minimal compensation to management, and
limiting professional, travel and other operating expenses in order to remain
within our budget of approximately $55,000 to $75,000 per year. Operating
expenses were slightly more than $80,000 in each of fiscal years 2006 and 2007,
but such costs included professional and other expenses related to merger and
spin-off activities. 2008 showed a slight improvement, but 2009 has shown a
substantial improvement There can be no assurance that our cost containment will
be successful and the need for new capital to pursue markets beyond our EVS
business could place drains on our reserves. There can be no assurances that all
of these objects and goals will be successful.
-13-
OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet arrangements.
LIQUIDITY AND CAPITAL RESOURCES
The company's primary source of revenues is from royalties from our EVS licensee
Kollsman. Our Royalties reported as revenues are net royalties. Our royalty is
$800 per unit until total sales reach 2000 units. At that time our unit royalty
will increase to $1,400 per unit.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, under the supervision and
with the participation of our principal executive/financial officer, we
conducted an evaluation of our disclosure controls and procedures, as such term
is defined under Rule 13a-14(c) promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Based on this evaluation, our principal
executive/financial officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
our Securities and Exchange Commission ("SEC") reports is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms
and that the controls and procedures were effective in ensuring that information
required to be disclosed in our SEC reports is accumulated and communicated to
our management, including our principal executive/financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
In addition, there were no changes in our internal controls or in other factors
that could materially affect these controls subsequent to the Evaluation Date.
We have not identified any significant deficiencies or material weaknesses in
our internal controls, and therefore there were no corrective actions taken.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There were no legal proceedings.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
There were no sales or issuing of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
There were no matters submitted to shareholders.
ITEM 5. OTHER INFORMATION
OTHER ACTIONS OF ISI BOARD OF DIRECTORS
The Board of Directors has extended an offer to Wendy S. Ball to rejoin
ISI's Board of Directors as the Secretary/Treasurer. Ms. Ball held this similar
position from 1993 to 2001. We are pleased that Ms. Ball has been able to reduce
her outside commitments, giving her time to resume her past duties. Ms. Ball
assignment to the Board will be effective June 1, 2009 upon her acceptance.
Wendy S. Ball has joined the Board of Directors effective June 1, 2009. Ms.
Ball will act as Secretary for the Corporation, and be responsible for
promotional activities in the conduct of corporate business.
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ITEM 6. EXHIBITS
3.1 Articles of Incorporation (1)
3.2 Amendments & Bylaws (2)
10 Material Contracts (3)
31 Rule 13a-14(a)/15d-14a (a) certifications
32 Section 1350 certifications
(1) Incorporated by reference to the exhibits to Registrant's Registration
Statement on Form SB-2 filed November 14, 2007, file Number 333-147367.
(2) Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q filed September 2, 2008.
(3) Incorporated by reference to the exhibits to Registrant's Registration
Statement on Form SB-2 filed November 14, 2007, file Number 333-147367 and
the amendments thereto on Form SB-2 and on Form S-1 dated January 25, 2008,
March 26, 2008, and May 8, 2008.
31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934.
32.1 CERTIFICATION OF PRESIDENT, CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL
OFFICER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
302 OF THE SARBANES-OXLEY ACT OF 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 7, 2009
INFRARED SYSTEMS INTERNATIONAL
(Registrant)
By: /s/ GARY E. BALL
_______________________________
Gary E. Ball
Chief Executive Officer and
Chief Financial Officer
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