SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 2000
Commission File Number
1-15261
IR OPERATING CORPORATION
(Exact name of small business issuer as specified in its Charter)
Delaware 11-2165149
(State or other jurisdiction (IRS employer
of Incorporation) identification number)
112 Main Street
Webster, MA 01570
(888)444-4762
(Address including zip code and telephone
number, of principal executive offices)
Check whether the issuer (1) filed all reports required to be filed by
Section13 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
---------- ----------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Date: August 5, 2000 Class: Common Stock, par value $.01 per share
Shares Outstanding: 5,174,428
<PAGE>
IR OPERATING CORPORATION
FORM 10-QSB
INDEX
Description Page
Part I - Financial Information
Item 1. Consolidated Financial Statements
Balance Sheets-June 30, 2000 and December 31, 1999.............. 3
Statements of Operations-Six months ended June 30, 2000,
Period January 10, 1999 (inception) through June 30, 1999,
three months ended June 30, 2000 and 1999, and cumulative
during development stage........................................ 4
Statements of Cash Flows six months ended June 30, 2000,
and period January 10, 1999 (inception) through June 30, 1999
and cumulative through development stage........................ 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 8
Part II- Other Information
Item 6. Changes in Securities and Proceeds.............................. 9
Item 7. Exhibits and Reports on Form 8-K................................ 9
Signatures............................................................... 9
2
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IR OPERATING CORPORATION
CONSOLIDATED BALANCE SHEETS
(A Development Stage Company)
<TABLE>
<CAPTION>
ASSETS June 30, 2000 December 31, 1999
(Unaudited) (Audited)
------------- -----------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 54,527 $ 4,551
Prepaid expenses and other current assets 38,570 30,057
------------- -----------------
Total Current Assets 93,097 34,608
PROPERTY AND EQUIPMENT, net 43,083 0
OTHER ASSETS
Patents and Trademarks 68,194 67,641
------------- -----------------
Total Assets $ 204,374 $ 102,249
============= =================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 160,347 $ 89,467
Loan Payable Shareholders 360,000 328,000
------------- -----------------
Total Current Liabilities 520,347 417,467
------------- -----------------
SHAREHOLDERS' DEFICIENCY
Common stock, $.001 par value; 50,000,000
shares authorized; issued and
Outstanding: 5,033,128 Shares 5,033
Outstanding: 5,174,428 Shares 5,174
Convertible preferred stock, $.01 par value;
5,000,000 shares; authorized; issued
and outstanding: None Issued
Additional paid-in capital 468,257 312,967
Deficit accumulated during the
development stage (789,404) (633,218)
Total Shareholders' Deficiency (315,973) (315,218)
------------- -----------------
Total Liabilities and Shareholders' Deficiency $ 204,374 $ 102,249
============= =================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
IR OPERATING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(A Development Stage Company)
<TABLE>
<CAPTION>
Cumulative
Period January 10, Three Months Ended During
Six months ended 1999 (Inception) June 30 Developmental
June 30, 2000 Through 2000 1999 Stage
(Unaudited) June 30, 1999 (Unaudited) (Unaudited) (Unaudited)
---------------- ------------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 0 $ 0 $ 0 $ 0 $ 0
Cost of Sales 0 0 0 0 0
---------------- ------------------ ----------- ----------- -------------
Gross Profit 0 0 0 0 0
EXPENSES:
General and Administrative 146,689 1,121 108,572 1,045 301,038
Organization and merger costs 344,534 56,534 347,905
Loss on aborted acquisition 122,114 18,258 122,114
Interest Expense 9,497 4,986 18,347
---------------- ------------------ ----------- ----------- -------------
Net Loss $ (156,186) $ (467,769) $ (113,558) $ (75,837) $ (789,404)
================ ================== =========== =========== =============
Loss per common share
Basic and Diluted $ (.03) $ (0.10) $ (0.02) $ (0.02) $ (0.16)
================ ================== =========== =========== =============
Shares used in computing loss
per common share 5,119,110 4,492,983 5,174,000 5,032,796 4,880,487
================ ================== =========== =========== =============
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
IR OPERATING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(A Development Stage Company)
<TABLE>
<CAPTION>
Cumulative
Period January 10, During
Six months ended 1999 (Inception) Development
June 30, 2000 Through Stage
(Unaudited) June 30, 1999 (Unaudited)
----------------- ------------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Loss $ (156,186) $ (467,769) $ (789,404)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 0
Loss incurred in merger transaction 0 200,000 200,000
Non-cash compensation 0 18,000 18,000
Changes in operating assets and liabilities
Prepaid expenses and other current assets (8,513) (38,570)
Accounts payable 70,880 160,347
------------------ ------------------ ------------
Net Cash Used in Operating Activities (93,819) (249,769) (449,626)
------------------ ------------------ ------------
INVESTING ACTIVITIES
Net cash used in business acquisition 0 (200,000) (200,000)
Acquisition of intangible (553) ( 59,780) (68,194)
Purchase of Capital Assets (43,083) 0 (43,083)
------------------ ------------------ ------------
Net Cash Used in Investing Activities (43,636) (259,780) (311,277)
------------------ ------------------ ------------
FINANCING ACTIVITIES
Proceeds from loan payable stockholder 32,000 218,000 360,000
Proceeds from issuance of common stock 155,431 300,000 455,430
------------------ ------------------ ------------
Net Cash Provided by Financing Activities 187,431 518,000 815,430
------------------ ------------------ ------------
NET INCREASE IN CASH AND
CASH EQUIVALENTS 49,976 8,451 54,527
CASH AND CASH EQUIVALENTS
AT THE BEGINNING OF
THE PERIOD 4,551 0 0
------------------ ------------------ ------------
CASH AND CASH EQUIVALENTS AT
THE END OF THE PERIOD $ 54,527 $ 8,451 $ 54,527
================== ================== ============
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
IR OPERATING CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS PERIODS JANUARY 10, 1999
(INCEPTION)
THROUGH JUNE 30, 2000
1. Basis of Presentation
The interim condensed consolidated financial statements furnished reflect
all adjustments which are, in the opinion of management, necessary to present a
fair statement of the financial position, as of June 30, 2000, and the results
of operations and statements of cash flows for the six month period ended June
30, 2000, the period January 10, 1999 (Inception) through June 30, 1999, and
cumulative from inception to date. The balance sheet as of December 31, 1999,
has been derived from the audited balance sheet as of that date. This report
should be read in conjunction with the Company's annual report filed on Form
10-KSB for the period January 10, 1999 (inception) through December 31, 1999.
The results of operations and cash flows for the six month period ended June 30,
2000, are not necessarily indicative of the results to be expected for the full
year.
2. Loan Payable - Stockholder:
As of June 30, 2000, the Company has borrowed an aggregate of $360,000 from
an officer/stockholder and his family. The loans are evidenced by promissory
notes with interest accruing at the rate of 5.5% per annum. The entire amount
must be repaid when the Company receives funding of $1,500,000.
In the event of default, as defined, the unpaid principal balance shall, at
the option of the holder, become immediately due, with the amount then due
accruing interest at a rate of 18% per annum or the highest rate permitted by
law, which ever is less.
3. Stockholders' Deficiency:
a. Capitalization
Pursuant to an amendment of the Company's certificate of incorporation, the
Company has authorized 50,000,000 shares, par value $0.001, of common stock. The
common stock has one vote per share, with no cumulative voting. There are no
pre-emptive rights, no conversion rights, no preferences, no redemption
provision, no sinking fund provisions or any liability for further calls or
assessments. There are no stated liquidation rights other than those that may
exist under Delaware law.
The Company has authorized 5,000,000 shares, par value $0.001 of preferred
stock. Shares of preferred stock may be issued in such classes or series, and
may have such voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights and qualifications, or restrictions thereof, shall be stated and
expressed in the Articles of Incorporation or of any amendment thereto, or in
the resolution or resolutions providing for the issue of such stock adopted by
the Board of Directors pursuant to the authority which is expressly vested in it
by the provisions thereof.
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<PAGE>
b. Net loss per share
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS No. 128) requires dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if stock
options or convertible securities were exercised or converted into common stock.
Contingently issuable and issued shares are excluded from the weighted
average number of shares outstanding until all necessary conditions have been
satisfied at the end of the reporting period. The 3,867,204 shares subject to
reversion to the Company in connection with a business acquisition were excluded
for all periods presented.
Basic and diluted loss per share amounts were equivalent for all periods
presneted.
c. Stock Issuances
During the six months ended June 30, 2000 the Company issued 141,300 shares
of its common stock to one party for cash consideration of $155,430.
4. Commitments:
a. Employment agreement
In April 1999 the Company entered into a five year employment agreement
with an officer which provides for a minimum annual salary of $100,000. The
officer is also entitled to options to acquire 50,000 shares of the Company's
stock at an exercise price to be determined by the Board.
b. Consulting agreement
The Company is party to a five year agreement with an outside consultant
which becomes effective April 5, 2000. The agreement provides for minimum annual
compensation of $100,000 in the first year, with annual 10% increases
thereafter. Additional increases will be earned in the event the Company meets
certain operating thresholds. In the event the Company generates annual revenues
from the its plastic processing technology, in excess of $1 million, the
consultant shall be granted options to acquire 10,000 shares of common stock at
an exercise price equal to the current market value.
In consideration for a covenant not to compete with the Company, the
consultant will be entitled to receive 25,000 shares of common stock upon the
Company's commencement of operations.
5. Supplemental Information - Statement of Cash Flows:
No cash payments for interest or income taxes were made during the period
January 10, 1999 (inception) through June 30, 2000.
7
<PAGE>
IR OPERATING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
QUARTER ENDED June 30, 2000
Capital Resources and Plan of Operations
During the quarter ended September 30, 1999, the Company acquired ownership
of two patents through the acquisition of a debt owed by the former owner of the
patents, and then foreclosing on the debt, for a process known as the I-ROCK
Process. This process is a cold extrusion process for converting waste plastic
into profile shapes that can be used for a variety of applications. The Company
has signed a lease for an existing plant site which is located in Bradley, IL.
The Company was able to negotiate favorable terms for leasing the plant site.
The Company is currently negotiating with the State of Illinois and the County
of Kankakee, IL, to lease the equipment, that is installed in the leased plant
site and designed for the I-ROCK Process, which is owned by the state and the
county. The Company believes that it will be able to negotiate a favorable lease
for the equipment with both the state and the county. The Company is installing
additional equipment at its plant site and plans to begin test runs beginning in
late August 2000. It is expected that the Company will not generate any revenues
until the fourth quarter of 2000. The Company is trying to raise additional
working capital to fund the starting up of operations but there can be no
assurance that it will be able to obtain the necessary working capital. Other
than these activities the Company generally has been inactive. The Company is
seeking to acquire other suitable business opportunities or technologies within
the recycling field.
The Company's statement of cash flows for the six months ended June 30,
2000, reflects cash used in operations of $93,819, reflecting the net loss of
$156,186. The statement also reflects cash used in investing activities of
$43,636, reflecting the purchase of capital assets of $43,083, and cash provided
from financing activities of $187,431, reflecting loans from stockholders
($36,999) and the proceeds from the issuance of common stock ($155,431).
Results of Operations
The Company has generated no revenues to date. Operating expenses for the
six and three month periods ended June 30, 2000, consisting of general and
administrative expenses and interest, totaled $156,186 and $113,558,
respectively. Expenses for the period January 10, 1999, (inception) through June
30, 1999, totaled $467,769, including organization and merger costs of $288,000
and loss on an aborted acquisition of $104,000. Expenses for the three months
ended June 30, 1999 totaled $75,837, including general and administrative
expenses of $56, 534.
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<PAGE>
Part II-Other Information
Item 6. Changes in Securities and Proceeds
In April of 2000 the Company sold shares of its common stock to one entity.
There was a total of 5,000 shares of common stock sold at a price of $1.10 per
share for a total aggregate price of $5,500. These Securities were sold as a
private placement pursuant to Section 4(2) of the Securities Act of 1933.
Item 7. Exhibits and Reports on Form 8-K
(a) Exhibits.
All exhibits required by Item 601 of Regulation SB and required hereunder,
as filed with the Securities and Exchange Commission on Form 10-SB on August 26,
1999, Form 10Q-SB on November 12, 1999, Form 10Q-SB on May 14, 2000, Form 8-K on
July 10, 2000 and Form 10K-SB filed on March 27, 2000, are incorporated herein
by reference.
Number Exhibit
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27 Financial Data Schedule
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
IR OPERATING CORPORATION
Dated: August 11, 2000 /s/Murray Fox
----------------------------
Murray Fox
Chief Executive officer and
Chief Financial Officer
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