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Infrared Applications Inc.Infrared Applications Inc.

Market StrategyJuly 2010

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The Security Age: The 21st Century

Opportunity Crucible: Technology, Security, and

User-driven needs• IAI, is a wholly owned subsidiary

corporation of Infrared Systems International. OTC: BB)

• IAI owns all rights to ISSM • Present security systems are plagued

with high false alarm rates that result in high cost requiring operator intervention.

• For the first time: a truly automatic security system is ready for market.Infrared Security System & Method (ISSM)

• Based upon emerging and mature technologies

• Patent protected: Image processing, system architecture, and wireless concept.

• Wireless: connectivity and distributed architecture for command/control

• Latest in “un-cooled” Infrared detector technology

• Applications: Industrial Infrastructure, military, homeland defense, and private sector

• Huge multi-faceted opportunity

• US Patent Number: 7,738,008, June 15, 2010

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The Opportunity

Infrared Applications Inc. was formed in 1992 to develop Infrared Imaging Systems for commercial applications. The benefits from these systems is to enhance Security & Safety in the public sector.

Our initial commercial product, Enhanced Vision System, has produced over 800 systems for Gulfstream aircraft and FedEx operations world wide. The FAA views EVS as a major part of their NexGen vision for aviation.

Our latest technological advancement, an Infrared Security System, has incorporated a powerful blend of wireless technology & Infrared imaging to provide a system that features redundancy, connectivity, independent verification, and seamless operation for a broad spectrum of security applications.

The customer sees for the first time a security system that works as advertised without excessive operator intervention. This is achieved by inherent low false alarms rates, a product of our patented proprietary design and the integration of congruent and complementary technologies.

Our claim of superior performance is supported by our patent protected unique approach, that has been reviewed and verified by experts in many different technical fields.

IAI is a privately held corporation consisting of 40 shares. IAI has profit obligations to approximately 1200 shareholders from Infrared Systems International, March 2010.

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Our Selected Target Markets

Target Market, Small business• Small to medium size manufactures, distributors, and wholesale warehouses• Conservative factoring in the USA: > 10 million systems• Market will grow as concept gains market support

Target Market, Residential homes• > 10,000,000 homes employ “portal’ security • ISSM greatly expands:

– Threat detection– Threat definition– Threat avoidance

Additional Markets (future)• Homeland Defense & Military

– License Corporations who pursue these markets as “core business”• Civilian Authority responsible for security

– Recipients of Homeland defense grants, a core business for many.• Government Agencies

– Specialized protection, dedicated security & response, contracted provider business

• Private Utilities – Petrol-chemical, distribution, transmission, hydro-electric, storage etc.

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ISSM provides physical security defined by the end-user. The secured area is continuously monitored by our ISSM patented system. 99% of false alarms are eliminated at detection. The customer establishes the threat criteria through an Internet set up. Typical criteria employed: time window, human or vehicle intrusion, secured region, and behavioral characteristics. A security alarm is called when the threat criteria has been satisfied. The image that caused the breach is stored in the ISSM system. The image is enhanced for higher definition and clarity. The information is relayed to the command & control. The simplest form is a still frame image of the cause of the security breach (e.g. a man entering the perimeter of the secured property) The simplest command & control is a handset cell-phone with an image displayed in possession of the security authority.

ISSM ConceptIAI

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Infrared Security System & Method

Security Systems are common• All businesses or homes have some form of security.• Effective Security is expensive, dedicated TV monitors and human operators

are the cost drivers. • Affordable Security systems provide limited functionality. Often used for post

mortem analysis, little real time prevention.• ISSM provides an effective capability at an affordable price suitable for a

real time response.

Target MarketsSmall to medium businesses. They cannot afford the expensive systems, but

they have a defined need and the resources to buy.Home Security. Present security systems do not provide adequate warning or

threat definition.

Environmental Issue With conservation a national issue and our dependence on imported oil

increasing, ISSM may find additional support from government and conservation advocates. Energy savings in some applications is significant.

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Marketing - Sales - Support

Marketing and sales ------- a strong retail sales initiative

• Marketing – Execute a sales representation agreement with a wireless carrier to launch the sales campaign. Our back up position would be to use conventional retailers with large nationwide sales base.

• Sales – With the wireless carrier sales will be by leasing of the equipment with cost recovery through the monthly fees. Our financial projections assume leasing.

• Retail outlets will provide training and demonstrations for walk up customers. • Support – The leased agreement includes installation and internet command and

control for set-up and monitoring. The internet provides the user a menu of options including threat criterion.

• Response Option - A contract for security response is included as an option in the lease agreement.

The Retail Sales outlet needs to provide a full, one stop service. At a single location

the customer can purchase all of their security needs. Satellite TV providers are potential candidates to perform installation and set-ups for ISSM. Similar technology and installations.

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Wireless Operator view of Target Market Opportunity

Must Justify the Risk• Supports core business• Builds new core markets• Fits retail operations &

merchandising strategy• Captures lead role from

Security Response Providers• Expands into Server

OperationsBenefits Accrued

• Major sales• Cash flow• Lease model used and

understood• Accessibility to capital markets• OEM opportunities• Good citizen image

Valu

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100%

0%

Benefits Delivered

Full

Potential

•Validate market size

•Add value elements

•Pursue foreign market growth

•Security Response

Provider role

•Control of the business through License agreement

•Strong enough to capture full market

•Can defend market

•Let IAI take the risk

•Limit investment•Seed Investment•Demonstration & Proof of Principle

Revenue & Control• Installations• Internet C&C• Security Response• Server Operator• OEM relationship

Market for small business alone is estimated at 10 million system units.

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Buy Out • Buyers needs control• The buyers may be either a Security Response provider or a wireless/server operator• Leasing is a common practice for both• Cash plus equity is desired. • IAI may segment as major markets evolve.

IAI “Pull Through” Strategy(Investor Group Perspective)

Needs proof & Don’t sell to soon!• Technology is unique and patented• Ride the bow wave of wireless

growth• Vertical growth options (wireless) • Retailers market infrastructure• Value added services

Innovator

Plan from Demo to Market

Early Majority Late Majority Laggards

Th

e

Ch

asm

Creating Market Value The Vehicle to Liquidity

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The not so Obvious

There is room at the Top for only one• Exploit the competition between industries

(wireless & Response Providers), and within the preferred Wireless industry.

• Retain Value after licensing• Exclude niche markets for value

enhancement

Business Model: IAI does not sell segments, We license market applications for our IP.• Private business license market• Home security Compete the major players

– Mature with strong competition– Be the market “discriminator”

• OEM field units– Manufacture and sell as OEM (retained)

• Niche applications – Aviation Security business, (retained)– Sport sea craft docking security, (retained)

• Homeland Defense (retained)

The complexity of ISSM serves our self-interests.

• Licensees lack over-all expertise

• Majors have core businesses and little interest in “others”

• “Others” are billion dollar businesses, timely exclusions.

• IAI intends to make ISSM a success and IAI an even bigger success.

Valu

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Benefits Delivered/Retain

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Retail Total

Mr’kt

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Competition for Licensing

• Majors – Our future are with the major corporations in the wireless

industry. They have the most to gain in their saturating markets. • Home Market – Develop competition, Five year exclusive, DOJ

constraints. • Unwanted Interest will come from the existing security response

providers. This group controls the security business in the small business and home sector. They guard their market, and litigation is far to common.

• Market Inertia – The existing Security Response group have the most to lose by our success. Half of our target market has little or no security now, no threat. This lucrative market can be used to jump start our sales without serious competition

• Threat from Innovators – How strong is our patent? Very strong. Can the competition circumvent? Yes, we don’t know how, but they will. The solution is to engage the market at full speed, dominate a segment, and use this position to protect and defend our rights.

• Long Term Solution – Link up with a Major for a full market exploitation and to defend the business segments as required.

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IAI Options - Investor Benefit

Licensing is IAI first choice Microsoft, Goggle, channel providers

• Sprint, Verizon, T-Mobile, SBC, cingular, potential bidders • Product leasing and monthly service provider is core business to the major carrier• These companies are expanding into niche businesses searching for new markets • Early discussions with Sprint in 2008 were preliminary and confidential.

IPO• An IPO does not satisfy the need for an in-place strong partner, but could be the

way to attract competition.• If an retail agreement can be signed with a major retailer, Best Buy, Sears, Radio

Shack, Wal-Mart, etc., the IPO would gain legs.• If no acceptable offers are available, the IPO could be a good way to create value,

buy time, and protect our position, deferring the long term. With the Patent, time is in our favor.

Early Investor’s Risk/Reward Opportunity• Do we need or want Angel investment? High risk, very high reward

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Experienced Staff

IAI Development Team for IPOInternal Leadership• Former President of Infrared Systems International. (ISI)• Legal, CPA, and staff support available

Strategy Partners, ISS core technologies• Wireless/Chip manufacturer TBD• Software, tentative selection• Infrared Camera Supplier, multiple candidates

Consultants• Marketing, IP, Scientific

Associate Suppliers, Vendors* (if not Strategic Partner, vendors for IR Camera supplier)

Board of Directors IAI• Gary Ball, & 3 carry over Board members from ISI• Additional open positions available for Investor, wireless & OEMs

External Affiliates• On-going discussions with major wireless transporters and equipment

suppliers.

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Risk Assessment & Mitigation

•Technical Issues (over-all low)• Security System Algorithm risk low, coding• Wireless connectivity issues low, mitigation• System Architecture options low - medium

•Business Issues (medium)• Can we maintain control with partners? medium• Can we protect our position? medium• Deep pocket attacks? medium

•Regulatory Issues• ITAR and FCC compliance low

•Capital requirements• Up front capital, who for what? unknown• Expansion Capital, (if needed) medium-low, Capital

Market•Competition• From existing companies very low

•Patent Protection, Infringement low, nothing on the market

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ISS Value-Added Inventory

R&D• Product technologies exist• Integration of existing elementsProprietary Technology• Protected by patent ISSM:

7,738,008• Patent will be augmented &

expanded• System architecture & connectivity• Need to protect foreign markets?Proprietary Process• Patent granted, from 2006 file to

2026• NDA used to cover business

concepts and non-patentable ideas• Management has used need-to-

know partitioning of IP for protection

• Competitive systems cannot avoid infringement.

Manufacturing Capability• 90% of components in production

at modest production rates.• OEM custom design to drive the

cost for a 1,000,000 units a year market (future)

Market Presence• Our retail solution through licensing is the first

step• Competition within the wireless industry• Augment short falls

Market Themes• Wireless operators have great Madison Avenue

skills• Government & Homeland security PR• Energy Conservation Initiatives

Distribution• E.g., SPRINT has 1800 retail outlets, many

other candidates.Sales

• Major media campaign• Sales force will need training

Installation Service• Provided at POS

Support Service • Security Specialist to assist end-user in set-up• Provide full alert options• Commission Sales of Security Response

Providers

ISI Intellectual Property & Development Team Value

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Long Term The Future for IAIOur Philosophy

“Riding the Bull”The rider knows the out come.

The longer he stays on top of the bull, the greater the reward

Strengths• A patent protected unique product, very difficult to circumvent.• A strong but thin development team• A clear definition of success, and a flexible strategy for an evolving market• Leasing, retained value, retain control, alternate strategies and contingencies.

Limitations• We need a strong retailer (Core Strategy)• We need a major corporate partner to protect our position.

IPO/Buyout• IAI is positioned for a private buyout or go the IPO route

Development status, no unanswered technical issues• ISS is fabricated from current in production modern hardware• Software algorithms have been reduced to scientific equations• Algorithms coding is the long pole in the tent• Demonstration System, nine (9) months from full turn on

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Forward-Looking Statements

This summary contains forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Statements that are not historical facts, including statements about strategies, plans and expectations about new and existing products, services, technologies, opportunities, industry growth, demand for and acceptance of new and existing products, and returns on investments in products and markets, are forward-looking statements that involve risks and uncertainties that could significantly impact the company. These risks include, but are not limited to, the projected market for IAI’s products and potential return. Factors which could cause actual expectations to differ materially from these projections include the actual market acceptance of the product, the cost of the product, unforeseen difficulties in the construction of the product, and the competitive environment within the industry. When infrared systems international uses words such as “believe,” “expect,” “anticipate” or similar words, it is making forward-looking statements. Certain articles, studies and reports that management relied on in preparing the projections also make forward-looking statements. These articles, studies and reports base their forward-looking statements on a number of different factors and assumptions, all of which are beyond management’s control. All of these assumptions are subject to a high degree of uncertainty. One or more of these assumptions may turn out to be incorrect. Accordingly, actual developments may differ materially from the projections contained in these articles, studies and reports. For all of the above reasons, you should not rely on these forward-looking statements in deciding whether to invest in infrared Applications Inc.

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