U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(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, 2002
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[ ] Transition Report under Section 13 or 15(d)of the Exchange Act For the
Transition Period from ________ to ___________
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Commission File Number: 000-31663
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AMERICAN IR TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 88-0440536
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
330 E. Warm Springs Road,Las Vegas, Nevada 89119
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(Address of principal executive offices) (zip code)
(702) 215-6455 (Telephone)
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Issuer's Telephone Number
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 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 the
past 90 days.
Yes [X] No []
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the Registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court.
Yes [ ] No [ ]
N/A
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 19,984,107
Table of Contents
Page
PART I - FINANCIAL INFORMATION...........................3
Item 1. Financial Statements
Balance Sheet............................................7
Statement of Operations..................................8
Statement of Cash Flows..................................9
Notes to Financial Statements...........................10
Item 2. Management's Discussion and Plan of Operation...18
PART II - OTHER INFORMATION
Item 4. Controls and Procedures.........................21
Item 6. Exhibits........................................21
SIGNATURES..............................................22
CERTIFICATIONS..........................................22
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial reporting and pursuant to the
rules and regulations of the Securities and Exchange Commission
("Commission"). While these statements reflect all normal
recurring adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the interim
period, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. For further information, refer to the
financial statements and footnotes thereto, which are included
in the Company's annual report on Form 10-KSB previously filed
with the Commission on September 3, 2002.
The accompanying notes are an integral part of these consolidated
financial statements.
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INDEPENDENT ACCOUNTANTS REVIEW REPORT
To the Board of Directors of
American IR Technologies, Inc.:
We have reviewed the accompanying consolidated balance sheets of
American IR Technologies, Inc. as of June 30, 2002, and the
related statements of income and accumulated deficit from January
1, 2002 to June 30, 2002, April 1, 2002 to June 30, 2002, and
cash flows for the six months ended June 30, 2002, in accordance
with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
All information included in these financial statements is the
representation of the management of American IR Technologies, Inc.
The Financial Statements of American IR Technology, Inc. as of
June 30, 2001 and December 31, 2001, were reviewed by other
accountants, whose report dated August 2001, stated that they
were not aware of any material modifications that should be made
to those statements in order for them to be in conformity with
generally accepted accounting principles in the United States of
America.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards in the United States of
America, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles in the United States of America.
As discussed in Note 11, certain conditions indicate that the Company
may be unable to continue as a going concern. The accompanying financial
statements do not include any adjustments to the financial statements
that might be necessary should the Company be unable to continue as a
going concern.
CFO Advantage, Inc.
November 20, 2002
Las Vegas, Nevada
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AMERICAN IR TECHNOLOGIES, INC.
BALANCE SHEETS
AS OF JUNE 30, 2002
(UNAUDITED)
ASSETS
6/30/2002 12/31/2001
CURRENT ASSETS
Cash $ 2,696 $ 1,662
Accounts receivable, net
of reserve for bad debt 12,803 3,379
Due from officer - 20,690
Inventory 4,197 -
---------- ----------
Total current assets 19,696 25,731
PROPERTY AND EQUIPMENT, net
of accumulated depreciation 12,269 12,973
OTHER ASSETS
Deposits 1,360 1,360
------ ------
Total other assets 1,360 1,360
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TOTAL ASSETS $33,325 $40,064
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LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $100,590 $176,805
Due to related parties 465,223 532,707
Notes payable 24,000 28,000
Notes payable related party 7,500 12,300
Payroll liability 73,125 -
Other current liabilities 60,749 -
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Total current liabilities 731,187 749,812
TOTAL LIABILITIES 731,187 749,812
STOCKHOLDERS EQUITY (DEFICIT)
Common stock, $.001 par value,
20,000,000 shares authorized,
19,984,107 shares issued and
outstanding as of June 30, 2002
and 13,345,787 as of
December 31, 2001 19,985 13,346
Additional paid in capital
common stock 1,314,040 818,163
Preferred stock, Class A, 6%
cumulative, convertible, $.001
par vale, 5,000,000 shares
authorized, 1,945,680 shares
issued and outstanding as of
June 30, 2002 and no shares
issued and outstanding as of
December 31, 2001 1,947 -
Additional paid in capital
preferred stock 247,101 -
Subscription receivable (88,100) (200,156)
Accumulated deficit (2,192,835) (1,341,101)
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Total stockholders equity (deficit) (697,862) (709,748)
TOTAL LIABILITIES AND ---------- ----------
STOCKHOLDERS EQUITY $33,325 $40,064
========== ==========
The accompanying independent accountants review report
and notes to financial statements should be
read in conjunction with this Balance Sheet.
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AMERICAN IR TECHNOLOGIES, INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
FOR THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 2002 AND 2001
(UNAUDITED)
Unaudited Audited
Three months ended Six months ended January 1, 2001
June 30 June 30 to
2002 2001 2002 2001 December 31, 2001
REVENUES $ 28,970 $ 6,692 $ 38,198 $ 28,904 $ 71,303
COST OF REVENUES 1,059 3,607 1,420 21,513 91,828
-------- -------- -------- -------- --------
GROSS PROFIT (LOSS) 27,911 3,085 36,778 7,391 (20,525)
EXPENSES:
General and administrative 146,186 131,419 212,988 263,931 435,563
Depreciation 447 989 889 1,653 2,885
Professional fees 51,877 128,945 228,206 208,537 446,218
Non-cash stock compensation 14,469 - 389,825 - -
-------- -------- -------- -------- --------
Total expenses 212,978 261,353 831,908 474,121 884,666
Operating income (loss) (185,067) (258,268) (795,130) (466,730) (905,191)
OTHER INCOME (EXPENSE)
Interest expense (526) (326) 3,737 (326) (10,536)
Forgiveness of debt 30,076 - 41,077 - -
Legal settlement (100,000) - (100,000) - -
Other income - - - - 725
Other expenses (1,055) (485) (1,153) (1,075) (15,241)
Total other income (expense) (71,505) (811) (56,339) (1,401) (25,052)
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) (256,572) (259,079) (851,469) (468,131) (930,243)
ACCUMULATED DEFICT,
beginning of period (1,936,263) (620,587) (1,341,101) (411,535) (410,858)
ACCUMULATED DEFICT,
end of period $(2,192,835) $(879,666) $(2,192,570) $(879,666) $(1,341,101)
PER SHARE INFORMATION:
Weighted average number
of shares outstanding
(Basic and diluted) 19,984,107 8,139,736 17,974,931 7,640,277 9,196,001
Net (loss) per common share
(basic and diluted) $(0.01) $(0.03) $(0.01) $(0.06) $(0.10)
The accompanying independent accountants review report and notes to
financial statements should be read in conjunction with these
Statements of Income and Accumulated Deficit.
-6-
AMERICAN IR TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
Six months ended
6/30/2002 6/30/2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) from Operations $(851,469) $(468,131)
Adjustments to reconcile net income
to net cash provided
Services Received for Stock 52,114 24,053
Depreciation Expense 889 1,653
(Increase)/Decrease in Accounts Receivable (9,424) (7,919)
(Increase)/Decrease in Other Assets (4,197) (6,287)
(Increase)/Decrease in Inventory - (3,839)
Increase/(Decrease) in Due to Related Party 105,524 138,617
Increase/(Decrease) in Payroll Liability 73,125 -
Increase/(Decrease) in Other Current
Liabilities 60,749 -
Increase/(Decrease) in Accounts Payable (117,292) (26,775)
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Net cash provided by (used in) investing
activities 10,019 (348,628)
CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase)/Sale of Equipment (185) (10,554)
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Net cash provided by (used in)
investing activities (185) (10,554)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Stock - 353,435
Increase/(Decrease) in Short Term Note Payable (4,000) -
Increase/(Decrease) in Short Term Note Payable
Related Party (4,800) -
--------- ---------
Net cash provided by (used in) financing
activities (8,800) 353,435
Balance as at beginning of period 1,662 4,243
Net increase in cash 1,034 (5,747)
Balance at end of period $ 2,696 $ (1,504)
SUPPLEMENTAL INFORMATION:
Interest Paid $3,737 $ (326)
Taxes Paid $- $ -
The accompanying independent accountants review report
and notes to financial statements should be read in
conjunction with these Statements of Cash Flows.
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AMERICAN IR TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 2002
(UNAUDITED)
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
American IR Technologies, Inc. (the Company) was incorporated
in the State of Nevada on October 29, 1999. The principal business
objective of the Company is to design and market
consumer electronics that utilize infrared technology.
The Company was in the development stage from its inception
on October 29, 1999 through December 31, 2000. The Company commenced
operations on January 1, 2001.
The Company has previously entered into a license agreement
with an affiliate, American Infrared Technologies, Inc. (Canada),
a Canadian corporation, for exclusive rights to their procedures,
practices, and intellectual property. This agreement is the sole
source of product development for the Company. On May 29, 2002,
the company entered into a settlement with Canada regarding the
license agreement (See Notes 4 and 9).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Companys policy is to prepare the financial statements on the
accrual basis of accounting. The fiscal year end is December 31.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments With
maturities of three months or less when purchased.
Summary of Non-Cash Transactions
There were non-cash transactions that are discussed in Note 3.
Inventory Valuation
Inventories are stated at the lower of cost or market, cost being
determined on the first in, first out (FIFO) basis.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates
and assumptions which affect the reported amounts of assets and
liabilities at the date of the financial statements and revenues and
expenses for the period reported. Actual results may differ from
these estimates.
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Dividend Policy
The Company has not yet adopted any policy regarding payment of
dividends. The Company has authorized 1,945,680 shares of preferred
stock with a par value of $0.001.
Preferred shares carry two votes for every one preferred share and
have priority in the event of company liquidation. Series A shares
have annual dividends of 6% that are payable quarterly. The shares
convertible to common shares on a 1 for 1.6 basis at the holders' option.
Fixed Assets
Fixed assets are stated at cost. Expenditures that materially increase
the life of the assets are capitalized. Ordinary maintenance and repairs
are charged to expense as incurred. When assets are sold or otherwise
disposed of, the cost and the related accumulated depreciation and
amortization are removed from the accounts and any resulting gain or
loss is recognized at that time. Depreciation is computed primarily
on the straight-line method for financial statement purposes over the
following estimated useful lives:
Computer Equipment 5 Years
Furniture & Fixtures 7 Years
Office Equipment 5 Years
Depreciation expense was $889 and $1,653 for the six months ended
June 30, 2002 and 2001, respectively.
Intangible Assets
Under guidance of SFAS 142, net assets of companies acquired in purchase
transactions are recorded at fair value at the date of acquisition, as
such, the historical cost basis of individual assets and liabilities are
adjusted to reflect their fair value. Identified intangibles are amortized
on an accelerated or straight-line basis over the period benefited. Goodwill
is not amortized, but is reviewed for potential impairment on an annual
basis at the reporting unit level. The impairment test is performed in two
phases. The first step of the goodwill impairment test, used to identify
potential impairment, compares the fair value of the reporting unit with
its carrying amount, including goodwill. If the fair value of the reporting
unit exceeds its carrying amount, goodwill of the reporting unit is
considered not impaired; however, if the carrying amount of the reporting
unit exceeds its fair value, an additional procedure must be performed.
That additional procedure compares the implied fair value of the reporting
units goodwill (as defined in SFAS 142) with the carrying amount of that
goodwill. An impairment loss is recorded to the extent that the carrying
amount of goodwill exceeds its
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NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Intangible Assets (cont.)
implied fair value. Other intangible assets are evaluated for impairment
if events and circumstances indicate a possible impairment. Such
evaluation of other intangible assets is based on undiscounted cash
flow projections.
Earnings Per Share Calculations
Basic earnings per common share (EPS) is computed by dividing income
available to common stockholders by the weighed-average number of common
shares outstanding for the period. The weighed-average number of common
shares outstanding for computing basic EPS was 17,974,931 and 7,640,277
for the six-month period ended June 30, 2002, and 2001, respectively.
Diluted EPS reflects the potential dilution that could occur if securities
or other contracts to issue common stock were exercised or converted into
common stock. The weighed-average number of common shares outstanding for
computing diluted EPS was equal to the basic earnings per share for the
period ended June 30, 2002, and 2001.
Warranty
The Company sells the majority of its product with a limited repair and
replacement warranty. The accompanying financial statements do not include
a provision for estimated warranty claims based on the Company's experience
that no material claims have been made.
Income Taxes
The Company experienced losses during the previous fiscal tax year reported.
The Company will review its need for a provision for federal income tax after
each operating quarter. The Company has adopted FASB 109, as discussed
in Note 7.
Advertising
Advertising costs are expensed when incurred. There was no advertising expense
for the three months ended June 30, 2002 and the year ended December 31, 2001,
respectively.
Research and Development
The Company expenses its research and development in the periods incurred.
-10-
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Stock Based Compensation
The Company accounts for stock based compensation in accordance with SFAS 123,
Accounting for Stock-Based Compensation. The provisions of SFAS 123 allow
companies to either expense the estimated fair value of stock options or to
continue to follow the intrinsic value method set forth in APB Opinion 25,
Accounting for Stock Issued to Employees (APB 25) but disclose the pro forma
effects on net income (loss) had the fair value of the options been expensed.
The Company has elected to continue to apply APB 25 in accounting for its stock
option incentive plans.
The Company has issued its common stock as compensation to non-employees. The
Company measures the amount of stock-based compensation based on the fair value
of the equity instrument issued or the services or goods provided as of the
earlier of (1) the date at which an agreement is reached with the non-employee
as to the number of shares to be issued for performance, or (2) the date
at whichthe non-employees' performance is complete.
NOTE 3 - SUMMARY OF NON-CASH TRANSACTIONS
During the three month period ended June 30, 2002, vendors forgave
$41,077 of debt.
During the six month period ended June 30, 2002, the company utilized
$112,056 of services. The services were in exchange for common stock
during 2001.
NOTE 4 - LICENSE AGREEMENT
On December 22, 1999, the Company entered into a five-year technology
license agreement with Canada. Certain officers and directors of Canada
are also officers and directorsof the Company. The license agreement
provides the Company with the exclusive rights to all procedures, practices
and intellectual property related to Canada's technologies and applications.
According to the agreement, the Company has agreed to pay Canada a royalty
of 3% of all revenues derived from the use of the technologies licensed from
Canada. The royalty is payable monthly. Additionally, the Company has a
30-day right of first refusal to license additional technologies developed
by Canada.
The Company does not intend to assign a value to the technology received
from Canada because there appears to be no discernable value. See Note 9
(Contingencies and Commitments) regarding the companys litigation related
to the license agreement.
-11-
NOTE 5 - NOTES PAYABLE
Notes payable at June 30, 2002 consists of the following:
10% related party note payable, principal and accrued
interest delinquent as of the date of the review report,
secured by 500,000 shares of the Company's stock owned
by the President $7,500
12.5% notes payable, unsecured, principal and accrued
interest delinquent as of the date of the review report 24,000
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Total $31,500
NOTE 6 - STOCKHOLDERS EQUITY
On February 8, 2002, the Company issued 1,945,680 shares of Series A
Preferred Stock to two executives. This stock is cumulative, with an
annual dividend of 6%, carrying two (2) votes per preferred share.
These shares become convertible on July 1, 2002 into 1.6 common shares
for every 1 preferred share. They are convertible at the option of the owner.
During 2001, the Company issued 6,210,520 shares of common stock to various
consultants.
During July 2000, The Company sold 317,000 shares of its common stock
at a price of $0.20 per share. The Company received cash in the amount
of $63,400, net of expenses of $1,900.
During 2000, the Company issued 818,267 shares of its common stock in
exchange for services valued at $163,653. These shares were valued at
their fair market value on the date the Company agreed to issue the
shares. As of December 31, 2000 the Company had recorded $44,134 as
deferred compensation for services to be received during 2001.
During 2001, the Company issued 6,210,520 shares of its common stock
in exchange for services valued at $569,456. These shares were valued
at their fair market value on the date the Company agreed to issue
the shares. As of December 31, 2001 the Company had recorded $200,156
as deferred compensation for services to be received during 2002.
The Company has an informal arrangement with two of its officers
whereby their annual salary of $35,000 may be paid in the Companys
common stock. As of December 31,2001 the Company has accrued officers
salary of $140,000, which
-12-
NOTE 6 - STOCKHOLDERS EQUITY (CONT.)
is included in due to related parties. The accrued officers salary
would be convertible into approximately 1,085,000 shares of common
stock.
NOTE 7 - WARRANTS AND OPTIONS
There are no options and warrants outstanding as of June 30, 2002.
NOTE 8 - INCOME TAXES
American IR Technologies, Inc.s available net operating loss carry forwards
to offset future federal taxable income of approximately $1,200,000. The
carry forwards begin to expire in 2019. The Company has deemed it less than
likely that this benefit will be utilized. Therefore, the Company recognized
no income tax benefit from the losses generated during the years ended
December 31, 2000 and 2001.
The Company has adopted the Statement of Financial Accounting Standards
No. 109 - Accounting for Income Taxes. The tax effects of temporary
differences and net operating losses that give rise to significant
portions of deferred tax assets and liabilities consisted of the following:
Deferred tax asset
Net operating loss carry forwards $ 408,000
Valuation allowance (408,000)
----------
Net deferred tax asset - 0 -
NOTE 9 - CONTINGENCIES AND COMMITMENTS
Subscriptions Receivable
The Company has received common stock subscriptions in the amount of $88,100.
The Company is reporting this as part of shareholder's equity. The Company
issued stock for services and is periodically expensing these services as the
work is performed. It is anticipated that the stock subscriptions will be
fully expensed before the end of 2002.
-13-
NOTE 9 - CONTINGENCIES AND COMMITMENTS (CONT.)
Litigation
On May 29, 2002 the Company entered into a settlement agreement with American
Infrared Technologies, Inc. (Canada) whereby the Company would retain the rights
to utilize, market, and distribute the technology underlying their license
agreement with Canada upon the ownership transfer of the technology to the
President of the Company. Canada, in return, will receive $350,000, of
which $250,555 was owed to Canada as of December 31, 2001. Canada has
agreed to refrain from calling upon any of the Companys customers or
disclose any information regarding the Company for a period of six months.
Officers of Canada have also agreed to forgive all monies owed to them as
of May 29, 2002 as well as return all of their holdings
in the Companys stock to the Company.
Payments will be made to Canada through collections on accounts receivable
from a specified customer. Collections from the customer will be placed
into a designated bank account and distribution will be made in the following
manner: 70% to the Company, 30% to Canada. If sufficient collections have not
been received to satisfy the $350,000 liability by November 29, 2003, then
the Company has the option of paying the unpaid amount at that date or
converting this amount into a promissory note bearing interest at 5%,
payable in 48 monthly payments.
The Company is a defendant in several lawsuits related to unpaid vendor
invoices. The total amount of asserted claims have been included in
accounts payable as of December 31, 2001.
Leases
During November 2001, the Company entered into a two-year non-cancelable
operating lease for office space. The lease calls for monthly payments of
$1,360. The Company was evicted from their previous office space, which
called for monthly payments of $3,264 through December 31, 2002, due to
non-payment of rent. Rent expense for the period ended June 30, 2002 and
December 31, 2001 was $8,160 and $40,528,respectively.
Minimum annual future rent payments through the year ended December 31, 2003
related to the operating lease are $24,480.
-14-
NOTE 10 - RELATED PARTY TRANSACTIONS
Mr. Ronald A. Ryan and Mr. Randy A. Moss owners called Versus SMS, Inc. that
provides certain duties and services to the Company. As of June 30, 2002,
there is $102,395 due to the corporation.
Canada provides the Company with operating advances and inventory and pays
expenses on behalf of the Company. At June 30, 2002, the Company owed $379,555
to Canada.
An officer of the Company provides the Company with operating advances and pays
expenses on behalf of the Company. At December 31, 2001, the Company owed
$103,736to the officer, which is included in due to related parties.
Shareholders of the Company provided professional services to the Company.
During 2001, the shareholders earned $38,416, all of which is included in
due to related parties.
During 2001, an officer of Canada entered into an agreement to provide
consulting services to the Company in exchange for 300,000 shares of
common stock. The Company recorded expense of $16,000 related to this
agreement in 2001. These shares were valued at their fair market value
on the date the Company agreed to issue the shares.
NOTE 11 - GOING CONCERN
The Companys financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which assumes the
realization of assets and liquidation of liabilities in the normal course
of business. However, the Company's expenses have significantly exceeded
its source of revenue. Without realization of additional capital, it would
be unlikely for the Company to continue as a going concern. It is managements
plan to seek additional capital through the expansion of the business operations
to utilize the in-house expertise to develop product/technologies and
coordinate manufacturing processes for outside companies as a service, which
can contribute to increased revenues while eliminating our need for capital
expenditure. Management has also taken measures to significantly reduce
expenses.
NOTE 12 - PRIOR PERIOD ADJUSTMENT
For the period ended June 30, 2002 the Company recorded a prior period
adjustment of $1,861 due to an error in depreciating some property over 3-years
rather than 5-years and in depreciating some property over 5-years rather than
7-years.
-15-
NOTE 13 - RECENT PRONOUNCEMENTS
In April 2002, the Financial Accounting Standards Board released SFAS 145
which is to be applied starting with fiscal years beginning after SFAS 145
eliminate SFAS 4 Reporting Gains and Losses from Extinguishments of Debt
and thus allows for only those gains or losses on the extinguishments of
debt that meet the criteria of extraordinary items to be treated as such
in the financial statements. SFAS No. 145 also amends SFAS 13, Accounting
for Leases to require sale-leaseback accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
The adoption of SFAS No. 145 had no effect on the Companys reported financial
positions, results of operations or cash flows.
In June 2002, the Financial Accounting Standards Board released SFAS 146
which is to be applied starting with fiscal years beginning after
December 31, 2002. SFAS 146 addresses significant issues regarding the
recognition, measurement and reporting of costs that are associated with
exit and disposal activities, including restructuring activities that are
currently accounted for pursuant to the guidance set forth in EITF Issue
No. 94-3, Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity. The Company will adopt this standard
as required on January 1, 2003. Adoption of the standard is not expected
to have a material financial statement impact on the Company.
In October 2002, the Financial Accounting Standards Board released SFAS
147 which is to be applied starting with transactions occurring on or
after October 1, 2002. SFAS 147 addresses Acquisitions of Certain
Financial Institutions, along with amending previous SFAS issuances.
The provisions of this Statement that relate to the application of the
purchase method of accounting applies to all acquisitions of financial
institutions, except transactions between two or more mutual enterprises.
The provisions of this Statement that relate to the application of Statement
144 apply to certain long-term customer-relationship intangible assets
recognized in an acquisition of a financial institution, including those
acquired in transactions between mutual enterprises. The Company has
adopted this standard as required. Adoption of this standard is not
expected to have a material financial statement impact on the Company.
-16-
Item 2. Management's Discussion and Plan of Operation
Forward-Looking Statements
This Quarterly Report contains forward-looking statements about American
I R Technolgies, Inc.s business, financial condition and prospects that
reflect managements assumptions and beliefs based on information currently
available. We can give no assurance that the expectations indicated by such
forward-looking statements will be realized. If any of our managements
assumptions should prove incorrect, or if any of the risks and uncertainties
underlying such expectations should materialize, ATLIs actual results may
differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct
bearing on operating results include, but are not limited to, acceptance
of our services, our ability to expand our customer base, managements ability
to raise capital in the future, the retention of key employees and changes
in the regulation of our industry.
There may be other risks and circumstances that management may be unable to
predict. When used in this Quarterly Report, words such as, believes,
expects, intends, plans, anticipates, estimates and similar expressions
are intended to identify forward-looking statements, as defined in Section
21E of the Securities Exchange Act of 1934, although there may be certain
forward-looking statements not accompanied by such expressions.
The safe harbors of forward-looking statements provided by Section 21E of
the Exchange Act are unavailable to issuers of penny stock. As we issued
securities at a price below $5.00 per share, our shares are considered penny
stock and such safe harbors set forth under the Reform Act are unavailable
to us.
Overview
The following discussion and analysis covers material changes in the financial
condition of American IR Technologies, Inc. since year end December 31, 2001
and a comparison of the results of operations for the three and six months
ended June 30, 2002 to the same period in 2001. This discussion and analysis
should be read in conjunction with Management's Discussion and Analysis or Plan
of Operation included in our Form 10-KSB for the year ended December 31, 2001.
We are an operating Company. Our principal business objective is to design,
manufacture and market consumer electronic products that target the home health
and safety, and the quality of life and leisure markets. Initially, we
developed and introduced to the market a portable, dedicated-beam, Infra
Red sensor security/monitoring system (Safety Beam(TM)).
Results of Operations
For the three months ended June 30, 2002, generated revenues of $28,970. This
represents an increase of $22,278, or 333%, from the year ago period where we
generated $6,692 in sales. The increase in sales revenues was due to increased
catalog sales. During the six months ended June 30, 2002, we generated $38,198
in revenues, compared to $28,904 for the six months ended June 30, 2001.
Cost of goods sold for the three months ended June 30, 2002 and 2001 were
$1,059 and $3,607, respectively. The cost of sales for the three months
ended June 30, 2002 is relatively low because we sold inventory during
the quarter which was written down due to impairment as of
December 31, 2001. As of June 30, 2002, we experienced a gross profit
of $27,911, compared to a gross profit of $3,085 for the second quarter
of 2001.
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We incurred $212,978 in total operating expenses for the three months
ended June 30, 2002 compared to $261,353 for the same quarter in 2001.
General and administrative expenses were increased to $146,185 for three months
ended June 30, 2002 compared to $131,419 for the same quarter in 2001.
The increase in general and administrative expenses is due to some outside of
operational activities due to a lack of working capital. We anticipate
continuing in this manner until such time that we receive a major purchase
order or sufficient financing to expand operations. Our primary expenses
for the three months ended June 30, 2002 were contract salaries of $99,708,
rent of $4,356, and telephone of $2,761. After deducting expenses, we
incurred an operating loss of $185,067 and $258,268 for the periods ended
June 30, 2002 and 2001, respectively.
During the three months ended June 30, 2002, we incurred other expenses in
the aggregate of $71,505, mainly due to a legal settlement in the amount of
$100,000, thereby adversely affecting our net income during such same period,
resulting in a net loss of $256,572, or $.01 per share. This compares to a
loss of $259,079 on revenue of $6,692 for the second quarter of 2001.
Liquidity and Capital Resources
Our capital and liquidity position at June 30, 2002 continued to be poor
from the year ended December 31, 2001. Our working capital deficit at
June 30, 2002 was $711,491 as compared to $724,081 at December 31, 2001.
This decrease in working capital is largely attributed to the conversion
of accrued officers salary into common and preferred stock during the three
months ended March 31, 2002.
As at June 30, 2002, we had cash of $2,696 and no current source of capital.
We also reported a negative shareholders' equity, which means that our total
assets were less than our total liabilities and our shareholders would receive
nothing in the event of liquidation. Our current assets of $19,696 are not
sufficient to meet our current liabilities of $731,187 at this time.
Our current liabilities of $731,187 consist mainly of accounts payable to our
vendors, due to related parties, and notes payable and notes payable to a
related party. We believe that our continued existence is dependent on our
ability to raise additional capital and to achieve profitable operations.
Our operations used $10,019 of cash during the quarter ended June 30, 2002.
This cash was spent primarily on payment of vendor invoices. We also repaid
$8,800 in principal on loans from 2001 during the quarter.
During the three months ended June 30, 2002, we relied on cash advances to
conserve our remaining cash and sustain operations. For at least the next
twelve months we will be reliant on such advances to sustain operations.
In the future, we hope to obtain funding based on sales, although no firm
commitments have been made. We believe that the success of any future
financings will depend in part on our success in building a business model
which is attractive to third parties based on sales to major national retailers.
In addition, in order to become profitable, we may still need to secure
additional debt or equity funding. We hope to be able to raise additional
funds from an offering of our stock in the future. However, this offering
may not occur, or if it occurs, may not raise the required funding. There
are no preliminary or definitiveagreements or understandings with any party
for such financing.
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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. Controls and Procedures
Within 90 days prior to the date of filing of this report, we carried out
an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer (who also effectively
serves as the Chief Financial Officer), of the design and operation of
our disclosure controls and procedures. Based on this evaluation, our
Chief Executive Officer concluded that our disclosure controls and procedures
are effective for gathering, analyzing and disclosing the information we
are required to disclose in the reports we file under the Securities
Exchange Act of 1934, within the time periods specified in the SECs rules
and forms. There have been no significant changes in our internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of this evaluation.
ITEM 5. Other Information
None
Item 6. Exhibits
Exhibit 99.1 Certification Pursuant to Section 906 of the Sarbanes
- -Oxley Act of 2002
Incorporated by reference to the exhibits to the Companys
General Form for Registration of Securities of Small Business
Issuers on Form 10-SB, and amendments thereto, previously
filed with the Commission.
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
American I R Technologies, Inc.
(Registrant)
By: /s/ Ron Allen Ryan
Ron Allen Ryan
President
EX-99.1
Certification of Financial Statements
EXHIBIT 99.1
CERTIFICATIONS
I, Ronald A. Ryan, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of American IR
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact, or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial position, results of operations, and cash flows of the
issuer as of, and for, the periods presented in this quarterly report.
4. I am responsible for establishing and maintaining disclosure controls
and procedures for the issuer and have:
(i) Designed such disclosure controls and procedures to ensure that material
information relating to the issuer is made known to me, particularly during the
period in which the periodic reports are being prepared;
(ii) Evaluated the effectiveness of the issuers disclosure controls and
procedures as of September 30, 2002; and
(iii) Presented in the report our conclusions about the effectiveness of the
disclosure controls and procedures based on my evaluation as of the Evaluation
Date;
5. I have disclosed, based on my most recent evaluation, to the issuers
auditors and the audit committee of the board of directors (or persons
fulfilling the equivalent function):
(i) All significant deficiencies in the design or operation of internal
controls which could adversely affect the issuers ability to record, process,
summarize and report financial data and have identified for the issuers
auditors any material weaknesses in internal controls (none were so noted);
and
(ii) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the issuers internal controls (none
were so noted); and
6. I have indicated in the report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: November 25, 2002
/s/ Ron Allen Ryan
President and CEO
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CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly report of American I R Technologies, Inc.
(the "Company") on Form 10-QSB for the period ending June 30, 2002, as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), we, Ron Allen Ryan, acting in the capacity as the Chief Executive
Officer, and R. A. Moss, acting in the capacity of Chief Financial Officer
of the Company, certify to the best of our knowledge, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d)
of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations
of the Company.
/s/ Ron Allen Ryan
Ron Allen Ryan
Chief Executive Officer
November 25, 2002
/s/ R. A. Moss
R. A. Moss
Chief Financial Officer
November 25, 2002
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