UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2004
( ) Transition report pursuant of Section 13 or 15(d) of the Securities
Exchange Act of 1939 for the transition period ____ to______
COMMISSION FILE NUMBER 000-25973
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
California 68-0406331
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
5 Whatney, Irvine, California 92618, telephone (949) 837-8101
-------------------------------------------------------------------------------
(Address of Principal Executive Offices, including Registrant's zip code
and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [ ]
The number of shares of the registrant's common stock as of March 31, 2004:
21,124,277 shares.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
(a) Consolidated Balance Sheets 3
(b) Consolidated Statements of Operations 4
(c) Consolidated Statement of Shareholders' Equity (deficit) 5
(d) Consolidated Statements of Cash Flows 6
(e) Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
Item 3. Controls and Procedures 9
PART II. OTHER INFORMATION 10
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults On Senior Securities
Item 4. Submission of Items to a Vote
Item 5. Other Information
Item 6.
(a) Exhibits
(b) Reports on Form 8K
SIGNATURES AND CERTIFICATES 11
2
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND MARCH 31, 2004
----------------------------------------------------------------------------------------------
ASSETS
DECEMBER 31, MARCH 31,
2003 2004
(UNAUDITED)
------------ ------------
Current assets:
Cash $ 136,319 $ --
Other receivables 2,000 1,000
Prepaid expenses 8,042 3,000
------------ ------------
Total current assets 146,361 4,000
------------ ------------
Property and equipment, net 22,690 35,064
------------ ------------
Total assets $ 169,051 $ 39,064
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Bank overdraft $ -- $ 28,320
Accounts payable 132,198 149,878
Accrued salaries and payroll taxes 198,474 240,428
Accrued rent 35,000 35,466
Loans from shareholder 83,795 500
------------ ------------
Total current liabilities 449,467 454,592
------------ ------------
Stockholders' equity:
Preferred stock (no par value) 10,000,000 shares authorized;
none issued -- --
Common Stock, no par value, 50,000,000 shares authorized;
21,051,277 and 21,124,277 shares issued and outstanding at
December 31, 2004 and March 31, 2004, respectively 1,895,241 2,078,741
Stock issued for deferred compensation (894,250) (826,000)
Stock subscribed not issued, 118,667 and 321,990 shares
issued at December 31, 2003 and March 31, 2004,
respectively 176,800 462,779
Deficit accumulated during development stage (1,458,207) (2,131,048)
------------ ------------
Total stockholders' (deficit) (280,416) (415,528)
------------ ------------
Total liabilities and stockholders' equity $ 169,051 $ 39,064
============ ============
The accompanying notes are an integral part of these financial statements
3
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
AND FOR THE PERIOD FROM INCEPTION (MAY 23, 2001) TO MARCH 31, 2004
(UN-AUDITED)
---------------------------------------------------------------------------------------------------
CUMULATIVE AMOUNTS
FROM INCEPTION
FOR THE THREE FOR THE THREE (MAY 23, 2001)
MONTHS ENDED MONTHS ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004
-------------- -------------- --------------
Income:
Travel agent program $ 31,244 $ 21,279 $ 80,677
-------------- -------------- --------------
Operating expenses:
General and administrative 363,135 99,982 1,225,903
Marketing and sales 340,950 26,605 864,236
-------------- -------------- --------------
Total operating expenses 704,085 126,587 2,090,139
-------------- -------------- --------------
Loss from operations before interest and taxes (672,841) (105,308) (2,009,462)
-------------- -------------- --------------
Interest expense -- -- 5,644
Provision for taxes -- -- --
-------------- -------------- --------------
Net loss $ (672,841) $ (105,308) $ (2,015,106)
============== ============== ==============
Loss per share $ (0.03) $ (0.01)
============== ==============
Weighted average number of common
shares outstanding 21,086,332 13,785,667
============== ==============
The accompanying notes are an integral part of these financial statements
4
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FROM INCEPTION (MAY 23, 2001) TO MARCH 31, 2004
----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
---------------------------
Deficit
Stock issued Stock Accumulated Total
for Subscribed During the Stockholders'
Number of Deferred not Development Equity
Shares Amount Compensation Issued Stage (Deficit)
------------ ------------ ------------ ------------ ------------ ------------
Balance at inception - May 23, 2001 -- $ -- $ -- $ -- $ -- $ --
Stock issued for services 16,715,000 16,715 -- -- -- 16,715
Net loss -- -- -- -- (16,715) (16,715)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2001 16,715,000 16,715 -- -- (16,715) --
Stock issued various dates for cash
at $1.50 per share 70,667 105,998 -- -- -- 105,998
Net loss -- -- -- -- (306,673) (306,673)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2002 16,785,667 122,713 -- -- (323,388) (200,675)
Shares canceled by majority
shareholder (3,000,000) -- -- -- -- --
Stock issued various dates
for cash at $1.50 per share 94,932 142,300 -- -- -- 142,300
------------ ------------ ------------ ------------ ------------ ------------
Balance June 11, 2003 date of
acquisition of Joystar, Inc. shares
in a reverse merger 13,880,599 265,013 -- -- (323,388) (58,375)
Cancel Joystar shares (13,880,599) -- -- -- -- --
Advanced Refrigeration shares
outstanding at June 11, 2003 3,322,840 -- -- -- -- --
Issue Advanced Refrigeration
Technologies, Inc. shares 13,880,599 -- -- -- (115,942) (115,942)
Stock issued pursuant to the stock
option plan June 11, 2003 at
market value of stock $0.03 per
share 810,000 24,300 -- -- -- 24,300
Stock issued for services 215,000 15,000 -- -- -- 15,000
Stock issued for past and future
compensation 2,400,000 1,008,000 -- -- -- 1,008,000
Future compensation deferred until earned -- -- (894,250) -- -- (894,250)
Stock issued various dates for cash
at between $0.50 and $1.50 per share 394,267 531,500 -- -- -- 531,500
Stock issued for services 28,571 51,428 -- -- -- 51,428
Stock subscribed not issued 118,667 shares -- -- -- 176,800 -- 176,800
Net loss -- -- -- -- (1,018,877) (1,018,877)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 2003 21,051,277 1,895,241 (894,250) 176,800 (1,458,207) (280,416)
Stock issued for services 65,000 171,500 -- -- -- 171,500
Stock issued for cash 8,000 12,000 -- -- -- 12,000
Deferred compensation earned -- -- 68,250 -- -- 68,250
Stock subscribed not issued 203,233 shares -- -- -- 285,979 -- 285,979
Net loss -- -- -- -- (672,841) (672,841)
------------ ------------ ------------ ------------ ------------ -----------
Balance March 31, 2004 (Unaudited) 21,124,277 $ 2,078,741 $ (826,000) $ 462,779 $(2,131,048) $ (415,528)
============ ============ ============ ============ ============ ===========
The accompanying notes are an integral part of these financial statements
5
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
AND CUMULATIVE FROM INCEPTION (MAY 23, 2001) TO MARCH 31, 2004
(UN-AUDITED)
-----------------------------------------------------------------------------------------------------
CUMULATIVE
AMOUNTS FROM
INCEPTION
FOR THE THREE FOR THE THREE (MAY 23, 2001)
MONTHS ENDED MONTHS ENDED THROUGH
MARCH 31, MARCH 31, MARCH 31,
2004 2003 2004
------------ ------------ ------------
Cash flows from operating activities:
Net loss $ (672,841) $ (105,308) $(2,015,106)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization and depreciation 1,540 166 4,148
Stock issued\subscribed for services 239,750 -- 460,943
Changes in assets and liabilities:
Increase in bank overdraft 28,320 -- 28,320
(Increase) decrease in prepaid expenses 5,042 -- (3,000)
(Increase) decrease in other receivables 1,000 (6,000) (1,000)
Increase in accounts payable 17,680 27,516 149,878
Increase in accrued salaries and payroll taxes 41,954 42,205 240,428
Increase in rent accrual 466 -- 35,466
------------ ------------ ------------
Net cash used in operations (337,089) (41,421) (1,099,923)
------------ ------------ ------------
Cash flows used by investing activities:
Acquisition of fixed assets (13,914) (670) (39,212)
------------ ------------ ------------
Net cash used by investing activities (13,914) (670) (39,212)
------------ ------------ ------------
Cash flows from financing activities:
Issuance of common stock 12,000 29,400 791,798
Reduction of shareholders loan, subscribed
60,000 shares of common stock (83,295) -- --
Increase in shareholder loans -- 11,900 500
Subscribed stock not issued 285,979 -- 462,779
Payment of debt assumed in reverse acquisition -- -- (115,942)
------------ ------------ ------------
Net cash from financing activities 214,684 41,300 1,139,135
------------ ------------ ------------
Net decrease in cash (136,319) (791) --
Cash, beginning of period 136,319 5,025 --
------------ ------------ ------------
Cash, end of period $ -- $ 4,234 $ --
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Issuance of stock for services $ 239,750 $ -- $ 460,943
Issuance of stock for future services -- -- 1,008,000
============ ============ ============
The accompanying notes are an integral part of these financial statements
6
ADVANCED REFRIGERATION TECHNOLOGIES, INC. & SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
AND CUMULATIVE FROM INCEPTION (MAY 23, 2001) TO MARCH 31, 2004
(UN-AUDITED)
--------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
---------------------
On June 11, 2003, Advanced Refrigeration Technologies, Inc. a California
corporation (" the Company") acquired all of the issued and outstanding common
stock of Joystar, Inc., a Nevada corporation ("Joystar") in exchange for the
issuance by the Company of a total of 13,880,599 newly issued restricted shares
of common voting stock to the Joystar shareholders pursuant the Agreement and
Plan of Reorganization dated as if June 10, 2003. Prior to the issuance of the
shares, the Company had 3,322,840 shares of common stock issued and outstanding.
Subsequent to the exchange there were 17,203,439 shares issued and outstanding.
The shareholders of Joystar own 81% of the common stock outstanding of the
Company after the issuance of the 13,880,599 shares.
The acquisition of Joystar by the Company on June 11, 2003 has been accounted
for as a purchase and treated as a reverse acquisition since the former owners
of Joystar controlled 81% of the total shares of Common Stock of the Company
outstanding immediately following the acquisition.
On this basis, the historical financial statements prior to June 11, 2003 have
been restated to be those of the accounting acquirer Joystar. The historical
stockholders' equity prior to the reverse acquisition has been retroactively
restated (a recapitalization) for the equivalent number of shares received in
the acquisition after giving effect to any difference in par value of the
issuer's and acquirer's stock. The original 3,322,840 shares of common stock
outstanding prior to the exchange reorganization have been reflected as an
addition in the stockholders' equity account of the Company on June 11, 2003.
The Company has been in the development stage since its inception May 23, 2001.
2. INTERIM FINANCIAL INFORMATION
-----------------------------
The financial statements of Advanced Refrigeration Technologies, Inc. (the
"Company") and its wholly-owned subsidiary Joystar, Inc., as of March 31, 2004
and for the three months ended March 31, 2004 and 2003 and related footnote
information are un-audited. All adjustments (consisting only of normal recurring
adjustments) have been made which, in the opinion of management, are necessary
for a fair presentation. Results of operations for the three months ended March
31, 2004 and 2003 are not necessarily indicative of the results that may be
expected for any future period. The balance sheet at December 31, 2003 was
derived from audited financial statements.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America, have been omitted.
These financial statements should be read in conjunction with the
financial statements and notes for the year ended December 31, 2003
3. COMMON STOCK TRANSACTIONS
-------------------------
During the quarter ended March 31, 2004, the Company sold in its private
placement a total of 8,000 shares of its common stock at a purchase price of
$1.50 per share, for the total purchase price of $12,000 and received
subscriptions to purchase 203,233 shares at an average purchase price of $1.41.
On February 9, 2004 the Company issued 20,000 shares of common stock for
services valued at the market price of the Company's stock on that date $2.50,
$50,000 and on February 18,2004 issued 45,000 shares of common stock for
services valued at the market price of the Company's stock on that date $2.70,
$121,500.
7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
ALL FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE DEEMED BY THE COMPANY TO BE
COVERED BY AND TO QUALIFY FOR THE SAFE HARBOR PROTECTION PROVIDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. PROSPECTIVE SHAREHOLDERS SHOULD
UNDERSTAND THAT SEVERAL FACTORS GOVERN WHETHER ANY FORWARD - LOOKING STATEMENT
CONTAINED HEREIN WILL BE OR CAN BE ACHIEVED. ANY ONE OF THOSE FACTORS COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE PROJECTED HEREIN. THESE
FORWARD - LOOKING STATEMENTS INCLUDE PLANS AND OBJECTIVES OF MANAGEMENT FOR
FUTURE OPERATIONS, INCLUDING PLANS AND OBJECTIVES RELATING TO THE PRODUCTS AND
THE FUTURE ECONOMIC PERFORMANCE OF THE COMPANY. ASSUMPTIONS RELATING TO THE
FOREGOING INVOLVE JUDGMENTS WITH RESPECT TO, AMONG OTHER THINGS, FUTURE
ECONOMIC, COMPETITIVE AND MARKET CONDITIONS, FUTURE BUSINESS DECISIONS, AND THE
TIME AND MONEY REQUIRED TO SUCCESSFULLY COMPLETE DEVELOPMENT PROJECTS, ALL OF
WHICH ARE DIFFICULT OR IMPOSSIBLE TO PREDICT ACCURATELY AND MANY OF WHICH ARE
BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE COMPANY BELIEVES THAT THE
ASSUMPTIONS UNDERLYING THE FORWARD - LOOKING STATEMENTS CONTAINED HEREIN ARE
REASONABLE, ANY OF THOSE ASSUMPTIONS COULD PROVE INACCURATE AND, THEREFORE,
THERE CAN BE NO ASSURANCE THAT THE RESULTS CONTEMPLATED IN ANY OF THE FORWARD -
LOOKING STATEMENTS CONTAINED HEREIN WILL BE REALIZED. BASED ON ACTUAL EXPERIENCE
AND BUSINESS DEVELOPMENT, THE COMPANY MAY ALTER ITS MARKETING, CAPITAL
EXPENDITURE PLANS OR OTHER BUDGETS, WHICH MAY IN TURN AFFECT THE COMPANY'S
RESULTS OF OPERATIONS. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD - LOOKING STATEMENTS INCLUDED THEREIN, THE INCLUSION OF ANY SUCH
STATEMENT SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER
PERSON THAT THE OBJECTIVES OR PLANS OF THE COMPANY WILL BE ACHIEVED.
General
Advanced Refrigeration Technologies, Inc. (the "Company") was
incorporated in the state of California on February 5, 1998. It designed,
manufactured and marketed an energy efficiency evaporator fan motor controller
for walk-in refrigerators and freezers until June 11, 2003 when it acquired all
of the issued and outstanding common stock of Joystar, Inc., a Nevada
corporation ("Joystar") in exchange for the issuance by the Company of a total
of 13,880,599 newly issued restricted shares of common voting stock to the
Joystar shareholders pursuant the Agreement an Plan of Reorganization dated as
if June 10, 2003. Prior to the issuance of the shares, the Company had 3,322,840
shares of common stock issued and outstanding. Subsequent to the exchange there
were 17,203,439 shares issued and outstanding. The shareholders of Joystar own
81% of the common stock outstanding of the Company after the issuance of the
13,880,598 shares. Concurrent with the acquisition of Joystar the Company
disposed of the fan control business extinguishing approximately $125,000 of
debt for $105,000 of fan control assets.
Joystar was incorporated on May 23, 2001. Joystar is a provider of
online and offline travel services for the leisure and small business traveler.
Joystar has been in the development stage since its inception, May 23,2001.
The restructuring and re-capitalization has been treated as a reverse
acquisition with Joystar becoming the accounting acquirer.
The following discussion should be read in conjunction with selected
financial data and the financial statements and notes to financial statements.
RESULTS OF OPERATIONS
---------------------
The Company had sales of $31,244 for the three months ended March 31,
2004 as compared to $21,279 for the three months ended March 31, 2003. Income
was generated by sales of travel services on which the Company earned
commissions. Sales from inception total $80,677 and the Company is accounted for
as a development stage company.
8
General and administrative expenses for the three months ended March
31, 2004 were $363,000 as compared to $100,000 for the three months ended March
31, 2003, an increase of $263,000 due primarily to the increases in salaries of
$168,000, professional fees of $31,000, rent $13,000, dues and subscriptions of
$14,000 and a general increase in other expenses due to increased activity.
Marketing and sales expenses for the three months ended March 31, 2004
were $341,000 as compared to $27,000 for the three months ended March 31, 2003,
an increase of $314,000. This was due to increases in independent contractor
marketing expenses $262,000, sales and marketing expense $42,000 and travel
expenses 15,000.
LIQUIDITY AND SOURCES OF CAPITAL
---------------------------------
At March 31, 2004 our cash position required that we actively seek additional
sources of capital. At March 31, 2004 the Company had an overdraft of $28,320 as
compared to a cash balance of $136,319 at December 31, 2003.
Loans payable at December 31, 2003, $83,295 were converted to 60,000 shares of
subscribed stock during the quarter ended March 31, 2004.
The Company had negative working capital at March 31, 2004. To date the Company
has financed operations by issuance of shares of common stock in private
placements.
During the quarter ended March 31, 2004, the Company sold in a private
placement a total of 8,000 shares of its common stock at a purchase price of
$1.50 per share, for the total purchase price of $12,000 and received additional
subscriptions to purchase 143,233 shares at an average purchase price of $1.42
($202,684).
ITEM 3. Controls and Procedures
Our President and Treasurer/Chief Financial Officer (the "Certifying Officer")
is responsible for establishing and maintaining disclosure controls and
procedures and internal controls and procedures for financial reporting for the
Company. The Certifying Officer has designed such disclosure controls and
procedures and internal controls and procedures for financial reporting to
ensure that material information is made known to him, particularly during the
period in which this report was prepared. The Certifying Officer has evaluated
the effectiveness of the Company's disclosure controls and procedures and
internal controls and procedures for financial reporting as of March 31, 2004
and believes that the Company's disclosure controls and procedures and internal
controls and procedures for financial reporting are effective based on the
required evaluation. There have been no significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
9
PART II. OTHER INFORMATION
Item 1. Legal proceedings
In March, 2004 a former employee of the Company who was terminated prior to the
acquisition of Joystar, filed a lawsuit in Orange County Superior Court
for breach of contract and specific performance relating to the exercise of
options, among other causes of action. The Company considers the basis of
the lawsuit without merit and intends to vigorously defend itself.
Item 2. Changes in securities and use of proceeds
During the quarter ended March 31, 2004, the Company sold in its private
placement a total of 8,000 shares of its common stock at a purchase price of
$1.50 per share, for the total purchase price of $12,000 and received
subscriptions to purchase 203,233 shares at an average purchase price of $1.41
($285,979). The shares of the Company's common stock were issued and sold in
reliance upon the exemption provided by Section 4(2) and Section 506 of
Regulation D of the Securities Act of 1933. The offers and sales in the
Company's private placement were made to accredited investors only.
On February 9, 2004 the Company issued 20,000 shares of common stock for
services valued at the market price of the Company's stock on that date $2.50,
$50,000 and on February 18,2004 issued 45,000 shares of common stock for
services valued at the market price of the Company's stock on that date $2.70,
$121,500.
Item 3. Defaults on senior securities NONE
Item 4. Submission of items to a vote NONE
Item 5. Other information NONE
Item 6.
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
Exhibit 31 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT
Exhibit 32 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT
b) Reports on 8K during the quarter: There were no 8K filings in the quarter
ended March 31, 2004
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ADVANCED REFRIGERATION TECHNOLOGIES, INC.
Date: May 17, 2004
By /s/ William M. Alverson
----------------------------------
President, Chief Executive Officer
and Chief Financial Officer
11