Form 10-KSB Amendment No. 1 for Airtrax
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB/A
(Amendment
No. 1)
/X/
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR
FISCAL YEAR ENDED DECEMBER 31, 2005
/
/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR
THE TRANSITION PERIOD FROM __ TO __
001-16237
AIRTRAX,
INC.
(Name
of
small business issuer in its charter)
New
Jersey
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22-3506376
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State
or other jurisdiction of
incorporation
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IRS
Employer Identification
No.
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200
Freeway Drive, Unit One, Blackwood, NJ 08012
(Address
of principal executive offices)
Issuer's
telephone number: (856) 232-3000
Securities
registered under Section 12(b) of the Exchange Act: None.
Securities
registered under Section 12(g) of the Exchange Act: Common
Stock,
no
par value.
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act, during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes [X ] No [
]
Check
if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not
contained in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. [ ].
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
State
the
registrant's revenues for its most recent fiscal year: $714,280 for the year
ended December 31, 2005.
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $25,650,484 as of March 31,
2006.
APPLICABLE
ONLY TO CORPORATE REGISTRANTS
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date. As of April 11 , 2006, the registrant had
22,283,624 shares of common stock, no par value per share,
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
NONE.
Transitional
Small Business Disclosure Format (check one): Yes [_] No [X]
Explanatory
Note
We
have
determined, after consultation with our independent registered public accounting
firm, that a restatement of our financial statements for the year ended December
31, 2005 filed on Form 10-KSB, together with our quarterly reports on Form
10-QSB for the periods ending June 30 and September 30, 2005 and March 31,
June
30, and September 30, 2006, respectively, was necessary due to the
issuance of our preferred stock as payment of dividends in lieu of cash
dividends on April 1, 2005 with respect to previously issued shares of preferred
stock. Our Articles of Incorporation, as amended, do not allow the issuance
of
additional shares of preferred stock as payment of dividends on shares of issued
and outstanding preferred stock. Accordingly, the 100,000 shares of preferred
stock, which were issued to the holder on April 1, 2005, were issued in error.
We determined that we should take this action to prevent future reliance on
previously issued financial statements set forth in our Reports.
We
also
concluded, in light of a review of our accounting for derivatives and based
on
recent interpretations of the accounting for certain financial instruments
under
SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS
133”) and the Emerging Issues Task Force No. 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (“EITF No. 00-19”) [update for 00-19-2 update issued], that the warrants
associated with our November 22, 2004 stock issued to certain accredited and/or
qualified institutional purchasers pursuant to Purchase Agreement dated as
of
November 22, 2004 contained embedded derivatives due to the registration rights
and liquidated damages provisions and conversion privileges contained in the
Notes and Warrants. The embedded derivative provisions provide that we will
pay
liquidated damages in connection with the delay in filing an SB-2 registration
statement. Accordingly,
we determined that we should take this action to prevent future reliance on
previously issued financial statements set forth in our Quarterly Reports on
Form 10-QSB for
the
three months ended March 31, 2005 and the three and six months ended June 30,
2005. In reporting periods subsequent to the issuance of June 30, 2005, the
embedded derivative has been revalued with the change to fair value recorded
as
income/(expense). Such
financial statements should no longer be relied upon.
The
foregoing description of the new financial statements is not a complete summary.
The new financial statements, which should be relied upon, will contain
amendments to the Reports to effect these restatements. You are urged to read
the complete documents on amended Form 10-KSB and Form 10-QSBs after filing
on
the website of the U.S. Securities and Exchange Commission at
www.sec.gov.
We
also
corrected typographical errors. In addition, pursuant to the rules of the SEC,
Item 13 of Part III to the Initial Filing has been amended to contain currently
dated certifications from our Principal Executive Officer and Principal
Financial Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley
Act
of 2002. The certifications of our Principal Executive Officer and Principal
Financial Officer are attached to this Form 10-QSB/A as Exhibits 31.1, 31.2
and
32.1, respectively.
TABLE
OF CONTENTS
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Page
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PART
I
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Item
1. Description of Business
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3
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Item
2. Description of Property
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13
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Item
3. Legal Proceedings
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13
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Item
4. Submission of Matter to Vote of Security
Holders
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13 |
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PART
II
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Item
5. Market for Common Equity and Related Stockholder Matters
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13
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Item
6. Management's Discussion and Analysis or
Plan of Operation
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18
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Item
7. Financial Statements
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F-1
to F-20
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Item
8. Changes in and Disagreements with Accountants on Accounting
and
Financial Disclosure
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29
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Item
8A. Controls and Procedures
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29
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Item
8B. Other Information
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29 |
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PART
III
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Item
9. Directors, Executive Officers, Promoters and Control Persons;
Compliance
with Section 16(a) of the Exchange Act
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30 |
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Item
10. Executive Compensation
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31
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Item
11. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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32
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Item
12. Certain Relationships and Related Transactions
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34
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Item
13. Exhibits
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37
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Item
14. Principal Accountant Fees and Services
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41
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Signatures
and Certifications
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42
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PART
I
NOTE
REGARDING FORWARD LOOKING INFORMATION
Various
statements in this Form 10-KSB and in future filings by us with the Securities
and Exchange Commission, in our press releases and in oral statements made
by or
with the approval of authorized personnel constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act
of 1995. Forward-looking statements are based on current expectations and are
indicated by words or phrases such as "anticipate," "could," "currently
envision," "estimate," "expect," "intend," "may," "project," "seeks," "we
believe," and similar words or phrases and involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance
or
achievements to differ materially from any future results, performance or
achievements expressed or implied by those forward-looking
statements.
These
forward-looking statements are based largely on our expectations and are subject
to a number of risks and uncertainties, many of which are beyond our control.
Actual results could differ materially from these forward-looking statements
as
a result of the facts described in "Risk Factors." We undertake no obligation
to
update publicly or revise any forward-looking statements, whether as a result
of
new information, future events or otherwise. In light of these risks and
uncertainties, we cannot assure you that the forward-looking information
contained in this Form 10-KSB will, in fact, transpire.
Our
fiscal year ends on December 31. References to a fiscal year refer to the
calendar year in which such fiscal year ends.
ITEM
1. DESCRIPTION OF BUSINESS
Company
History
We
were
incorporated in the State of New Jersey on April 17, 1997. On May 19, 1997,
we
entered into a merger agreement with a predecessor company that was incorporated
on May 10, 1995. We were the surviving company in the merger.
Effective
November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and were
the
surviving company in the merger. Pursuant to the Agreement and Plan of Merger,
as amended, each share of common stock of MAS was converted to 0.00674 shares
of
our company. After giving effect to fractional and other reductions, MAS
shareholders received 57,280 of our shares as a result of the
merger.
In
March
2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In October 2004, Mr. Filipov and we agreed to modify
our
agreement in principal so as to increase the number of shares of the capital
stock of Filco GmbH which we would acquire, if we had finalized the acquisition,
from 51% to 75.1%. In April 2003, Filco GmbH acquired substantially all of
the
assets of Clark Material Handling of Europe GmbH which were located at Clark's
facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets consisted
of
all of the tooling, machinery, equipment, inventory, intellectual property,
office furniture and fixtures, and personnel necessary to build the entire
Clark
line of lift trucks, but excluded the building and land, as well as the rights
to the Clark name.
We
have
loaned Filco GmbH an aggregate amount of $6,275,881.10 as of December 31, 2005,
exclusive of interest at 8% per annum, pursuant to a series of secured and
unsecured promissory notes. The loans are to be repaid on or prior to December
31, 2006. Of the $6,275,881.10 in loans to Filco, which approximately $5,400,000
is secured by Filco's plant machinery, equipment and other plant property,
and
intellectual property, including designs and drawings, and approximately
$876,419.10 is unsecured in accord with the loan agreements and certified
equipment appraisal. Interest earned to date in not included in the figures
stated above. The amounts stated herein represent the appraised valuation of
the
machinery and equipment and does not include intellectual property, as no value
has been appraised for intellectual property.
On
January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006.
We
are currently in discussions with the receiver in Germany to determine the
status of our secured and unsecured loans to Filco, as well as to explore the
possibility of purchasing all or a portion of the assets of Filco. This is
dependent upon our ability to secure financing adequate to purchase the assets
of Filco and supply necessary operating capital. We currently have no financing
agreements in place and there can be no assurance that we will obtain financing
on terms that are favorable to us. As a creditor, we have filed liens against
Filco's machinery and equipment and intellectual property. We will seek to
recover on our secured and unsecured loans asset forth above through appropriate
legal channels in the event an asset purchase does not materialize.
INTRODUCTION
Since
1995, substantially all of our resources and operations have directed towards
the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Eighteen commercial
omni-directional lift trucks, including ten carrying the UL Label, have been
sold to customers in the United States, New Zealand, South Africa and Canada
as
of December 31, 2005 and others are ready to ship pending receipt of funds
or
consummation of letters of credit or other credit facilities. 18 units totaling
$714,280 with options have been billed from January 1, through December 31,
2005.
We
have
commenced production and have received the parts required for production of
a
total of 57 trucks, since the beginning of production of our Sidewinder ATX-3000
Omni-Directional Lift Truck. As of December 31, 2005, we did not haveall of
the
parts required from every vendor for completion of the trucks other than those
heretofore noted. The assembly and sale of these trucks is dependent upon
delivery of all of the required parts.
Omni-Directional
means that vehicles designed and built by us can travel in any direction. Our
Omni-directional vehicles are controlled with a joystick. The vehicle will
travel in the direction the joystick is pushed. If the operator pushes the
joystick sideways, the vehicle will travel sideways. If the operator were to
twist the joystick the vehicle will travel in circles. Our omni-directional
vehicles have one motor and one motor controller for each wheel. The
omni-directional movement is caused by coordinating the speed and direction
of
each motor with joystick inputs which are routed to a micro-processor, then
from
the micro-processor to the motor controllers and finally to the motor
itself.
Complete
assembly is conducted by us at our newly leased facilities at 200 Freeway Drive
Unit One, Blackwood, NJ 08012. Approximately 50% of the frames are manufactured
in the USA. These frames are shipped to the Blackwood plant for complete
assembly. Besides the assembly of vehicles at Blackwood, partially assembled
vehicles are shipped to the Blackwood facility from the Filco plant in Germany.
To date, partial assembly of approximately 19 lift trucks have been completed
at
the Filco plant, 14 of which and have been shipped to the USA for final
assembly. To date, a total of approximately 60 lift trucks have been shipped
from Bulgaria to the Filco plant for partial assembly and approximately 30
of
these have been shipped to the Blackwood plant for final assembly during the
fourth quarter of 2005. All assembly or partial assembly from the Filco plant
ceased on January 20, 2006 after Filco filed for insolvency. Additional frames
and other parts totaling some $450,000 remain at Filco awaiting release by
the
receiver to us. Most frames manufactured in Bulgaria had to be re-machined
to be
within the tolerances required for these frames. The re-machining charges will
be back-charged to the frame manufacturer. The frame manufacturer will adjust
tooling to get the tolerances to the required specifications for future
deliveries.
We
have
incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2005 and 2004, we had a
net
loss of $(14,935,478) and $(3,491,950), respectively. We expect to continue
to
incur significant expenses. Our operating expenses have been and are expected
to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our
principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.
OMNI-DIRECTIONAL
TECHNOLOGY
Prior
History
Omni
directional vehicle technology has been the subject of research and development
by universities, the Department of Defense, and industry for over 25 years.
A
Swedish inventor patented an early stage omni-directional wheel. Thereafter,
the
technology was purchased by the United States Navy and was advanced at the
Naval
Surface Warfare Center. The US Navy held the patent until its expiration in
1990. In 1996, the Navy transferred this technology to us for commercialization
through a Cooperative Research and Development Agreement (CRADA).
Technology
Description
Since
the
technology transfer under the CRADA agreement, we have examined and redesigned
many aspects of the system for use in various applications including forklifts
and other material handling equipment. In this regard, we refined control
software and hardware, and tested a variety of drive component features on
our
pilot omni directional lift trucks and scissor-lifts. Extensive demonstrations
of prototype vehicles for commercial and military users in combination with
market research enabled us to direct our initial development efforts towards
the
material handling products, offering the best probability for successful market
entry.
Our
management designed other aspects of our machine to complement the unique
functionality of our omni-directional technology. In so doing, we achieved
a
virtually maintenance free unit which allows the operator free and unrestricted
movement during operation. Each vehicle is powered with AC motors eliminating
brushes and commutators of conventional DC motors. The AC motors also are
lubricated for life thereby eliminating the need for additional greasing and
fittings. The transmission uses a synthetic lubricant, and is sealed for life.
The joystick controls all vehicle movement; therefore conventional drive trains,
steering racks, hydraulic valve levers, and foot petals for braking and
acceleration are all non-existent.
On
a
four-wheel omni-directional vehicle employing our technology, each wheel has
a
separate electric motor, making the vehicle capable of traveling in any
direction. The motion of the vehicle is controlled by coordinating all four
wheels through a microprocessor that receives input from an operator-controlled
joystick. The joystick controls all vehicle movement (starting, steering, and
stopping). The framework of our omni-directional lift truck consists primarily
of a steel frame mobilized with four omni-directional wheels. The AC electric
motor for each wheel turns its own wheel hub. Each wheel hub is encircled with
multiple tapered rollers that are offset 45 degrees. The tapered rollers,
covered with polyurethane, are extremely durable. By independently controlling
the forward or rearward rotation of each wheel, the vehicle has the capability
of traveling in any direction. The technology allows the vehicle to move
forward, laterally, diagonally, or completely rotate within its own footprint,
thereby allowing it to move into confined spaces without difficulty. The
navigational options of an omni-directional vehicle are virtually limitless.
The
omni-directional wheel can be manufactured in almost any size depending upon
the
application. For instance, our management believes the wheel can be used on
miniature vehicles or massive load-carrying vehicles.
EXISTING
AND PROPOSED PRODUCTS
Sidewinder
Omni-Directional Lift Truck. We anticipate that our Sidewinder Omni-Directional
lift truck will be available with rated lift capacities ranging from 3,000
pounds and higher. Our SIDEWINDER ATX-3000 Omni-Directional lift truck, which
is
our 3,000-pound model, features our omni-directional technology. Conventional
steering racks and foot petals are non-existent allowing impediment free ingress
and egress. This lift truck will deliver unequaled maneuverability providing
significantly improved operating efficiencies in the materials handling
industry. The dealer price is expected to retail at prices similar to or
slightly higher than high-end, comparably sized standard forklifts. The "street
prices" of similar rated, standard (non-omni-directional) forklifts range from
$16,000 to $31,000 per unit. Other specialty forklifts, that are
multi-directional sell for $42,000 and greater, and vehicles considered very
narrow aisle (VNA), are priced from $75,000 and higher per unit. We believe
that, due to its unique features, the omni-directional lift truck will support
a
price slightly higher than the average selling price of a conventional
forklift.
AirTrax
Conventional Forklift. In the event of the successful acquisition of Filco
GmbH
assets through the German receiver, we expect to use the Filco plant and
operations to produce and sell a line of conventional forklifts possibly
manufactured under the AirTrax name for distribution in the United States and
other geographical markets. In the event that the purchase of Filco's assets
does not occur, we plan on having conventional trucks privately labeled under
our name or a suitable alternative name for distribution to our
dealers.
Omni-Directional
Aerial Work Platform. In late February 2004, we, in collaboration with MEC
Aerial Platform Sales Corporation of Fresno, California ("MEC"), introduced
a
concept version of a scissor lift at the American Rental Association trade
show
in Atlanta. The scissor lift called the "Cobra(TM)" incorporated our
omni-directional technology along with an MEC platform and lift mechanisms.
The
vehicle contains features presently unavailable on conventional aerial work
platforms. For example, similar to our lift truck, the aerial work platform's
movement is controlled by a joystick. Movement to a particular spot or location
at a job site can be accomplished easily due to the omni-directional technology,
thereby eliminating the back and forth positioning typically associated with
conventional platforms. Our designed control systems allow the operator to
move
at very regulated and easily controlled acceleration and speed, virtually
eliminating operator error. The machine can climb over obstacles that would
impede other machines. Our aerial work platform has the ability to climb over
obstacles up to a height of one-third the overall wheel diameter. The wheel
used
on the aerial work platform has a 17" total diameter. Accordingly, this vehicle
can climb over obstacles more than 5.66" high. The ability to "climb over"
obstacles is an inherent advantage of our omni-directional
technology.
This
is a
feature which we believe no other aerial work platform can perform, or if
another aerial work platform can perform, it is to a very limited degree.
Generally, any "wheeled" vehicle can "climb" over some obstacles, however,
other
"wheeled" vehicles cannot climb over obstacles as high as the one-third of
the
wheel's diameter. We believe that, similar to our lift truck, the improved
functionality of the aerial work platform will result in increased productivity
at the job-site.
On
March
13, 2004, we entered into a draft Product Development, Sales and Representation
Agreement with MEC. The draft agreement calls for the joint development of
a
proto-type and production versions of an omni-directional aerial work platform
called the "Cobra(TM)". During the development stage, each party will provide
the parts, which apply to that party's area of responsibility. We will provide
all of the parts required for the omni-directional traction system and related
control systems, and MEC will provide all of the parts required for the scissor
lift and lifting apparatus and the control systems for the scissor lift
apparatus. After development of the prototype version, the parties will
establish the cost of a commercial product, and if the cost of a commercial
product is considered commercially viable, the parties will jointly develop
a
commercial version of the aerial work platform. If commercial production
results, we will be responsible for product manufacturing, and MEC or its
affiliate will be responsible to promote, market and sell the product to their
network of approximately 200 distributors. Aerial work platform sales made
by
MEC will be subject to a royalty to us and, likewise sales made by us will
be
subject to a royalty to MEC. The amount of the respective royalties will be
subject to agreement by the parties. Orders placed by MEC will be financed
by
MEC subject to agreed production schedules. We also plan to manufacture the
Cobra(TM) using the lifting mechanism as designed by us or procured from MEC
and
vendors other than MEC.
During
2004, MEC was repositioned to perform manufacturing in the United States thus
removing their obligation under the agreement. During the latter part of 2004,
we presented MEC with invoices for payment of tooling and engineering costs
related to development of the Cobra(TM). The invoices were not paid by MEC
who
was, at that time, in the process of realigning their finances. As a result
of
the aforementioned changes, the agreement was modified. The modification stated
that the Cobra(TM) projector and aerial work platform projects would be products
of our company instead of an MEC vehicle. This meant that the project would
be
henceforth designed and built by us. MEC would still have the ability to make
suggestions regarding vehicle design or construction, but the final product
is
and will be our product. In addition, the agreement was revise to provide that
we will build another vehicle product line, the Cobra, which will be marketed
exclusively by our
dealers. The parties expect to enter into a more formal agreement to further
define the relationship of the parties. At this time, we cannot predict whether
a formal agreement will be entered into between the parties, or whether any
sales will result form the aerial work platform to be developed by the
parties.
Military
Products. During 1999, we were awarded a Phase I research contract under the
Department of Defense's Small Business Innovation Research program (SBIR) to
develop an omni-directional Multiple Purpose Mobility Platform (MP2). Under
the
Phase I base contract, we studied the application of the omni-directional
technology for military use and were supervised by the Naval Air Warfare Center
Aircraft Division (NAWC-AD) in Lakehurst, New Jersey. The contemplated use
includes the installation of jet engines on military aircraft and the
transportation of munitions and other military goods. We completed the Phase
I
base contract in 1999 and were subsequently awarded a Phase I option from
NAWC-AD to further define the uses of the MP2. In July 2000, we were awarded
a
Phase II research contract under the SBIR program. Under the Phase II contract,
we are studying the feasibility of the MP2 for military purposes, and will
culminate with the construction of one or more proto-type devices. This contract
(with the option) was extended twice for 6 months each past the 42-month
contract time period. Contract revenues were $749,044. Through December 31,
2004,we have received approximately $749,044 in revenues from the Phase II
contract, and completed the production design of the MP2. A completed proto-type
MP2 was delivered to the US Navy during the end of the first quarter of 2004
for
testing purposes. A second vehicle, an omni-directional jet engine installation
machine is being constructed for the US Navy, pending receipt of additional
funding from the SBIR program. We have been advised by the US Navy that a
non-SBIR sponsor for the MP2 program must be identified before a Phase II option
is exercised. A Phase III contract could be awarded without such a sponsor.
Although our management believes the underlying omni-directional technology
for
the proposed MP2 has significant potential for both commercial and military
applications, we cannot predict whether any sales beyond the Phase II contract
will result from the SBIR program. It is the belief of management that sales
to
the military for products such as the MP2 or the MHU-110 engine handler will
not
materialize until the omni-directional technology achieves commercial
acceptance. We do believe, however, that products such as the ATX-3000 or the
Cobra AWP can and will be sold to the US government, possibly including the
military and made an application with DSCP (Defense Services Contracting,
Philadelphia) in early 2006, which is similar to GSA excepting that DSCP sells
to military only as compared to GSA selling to the entire
government.
In
connection with the MP2, on December 11, 2003, we entered into a Teaming
Agreement with United Defense, L.P., Arlington, Virginia. Under the agreement,
United Defense agreed to provide the exclusive manufacture, marketing and
support for the MP2 and any derivative products in respect to any contracts
awarded to us by U.S. Department of Defense and any international military
customers under the SBIR arrangement.
We
have
also developed a traditional helicopter ground handling machine which has been
marketed by us on a limited basis. This vehicle, Helitrax, was a patented design
using technology that we purchased in 1995 under our predecessor company, Air
Track Inc. The patented device was redesigned by us to include many features
which we believe are needed by industry maintenance crews and by pilots.
Helitrax was sold from 1995 through 2001 in limited amounts, in no more than
approximately 30 units total, and sales were discontinued because of time
constraints required getting the Sidewinder Omni-Directional lift truck to
market.
CURRENT
OPERATIONS
Since
1995, substantially all of our resources and operations have directed towards
the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. Eighteen commercial omni-directional
lift trucks, including ten carrying the UL Label, have been sold to customers
in
the United States, New Zealand, South Africa and Canada as of December 31,
2005
and several others are ready to ship pending receipt of funds or consummation
of
letters of credit or other credit facilities in the beginning of 2006. 18 units
totaling $714,280 with options have been billed from January 1, through December
31, 2005.
ANSI
testing refers to a series of tests including tilt testing the vehicle with
each
of the masts it will use to make certain that it will not fall over with a
raised load at specified tilt angles. In addition, ANSI testing includes drop
testing specified loads on the overhead guard to make certain that the overhead
guard will not fail and crush the operator. These tests require us to turn
the
vehicle over to prove that the battery door lock will contain the battery in
the
event the vehicle is overturned. ANSI testing was performed by us and certified
and documented that the tests have been completed and the vehicle has passed
in
all respects. This testing was required prior to the vehicle being sold to
the
public in the United States.
UL
testing is completed on lift trucks because we believes it is more productive
to
sell vehicles that have passed the extra safety and performance test
requirements mandated by UL. Generally UL testing hinges around electrical
issues that could cause fires to the vehicles and/or property. Most of the
more
prominent lift truck manufacturers complete UL testing on electrically operated
lift trucks. Completion of UL testing is generally considered the mark of
companies who will take extra steps and precautions to protect their customers.
UL approval is a feature that salespersons can use to their advantage when
selling vehicles because many insurers will not insure premises that use lift
trucks that are not UL rated.
Although
we anticipated that the initial production run of the Sidewinder Lift Truck
would be completed during the second quarter of 2004, we did not complete our
initial production run until the first quarter of 2005. We encountered several
unforeseen delays in getting this product to market. Wheels, manufactured for
us
by The Timken Corporation with a promised delivery of May 2004, proved to be
a
more challenging operation than Timken first anticipated. In addition to meeting
the high standards we require from the wheel manufacturer, Timken was obligated
to manufacture the wheels within specified cost parameters. This required
certain "manufacturing design" changes that insured both wheel integrity and
cost savings. The first limited "production" wheels were shipped to us in August
2004 with final deliveries in March 2005.
These
wheels were considered "production" wheels by us but considered "pilot" wheels
by Timken, the primary difference being that while Timken delivered wheels
in
accordance with our production requirements, Timken did not produce the first
56
wheels from their "production" facility but rather their "research" facility.
As
a result, the first wheels coming from a Timken "production" facility were
not
delivered until August 2005.
During
the past two years, in anticipation of commercial production, we solicited
interest from targeted dealers nationwide, and in certain instances, received
contracts from a number of these dealers. Due to the delay in establishing
commercial production, the contracts were not fulfilled. In 2004, we began
soliciting dealers for distribution and during the first quarter of 2004 have
reached an agreement with certain dealers. Principal terms of the agreement
reached is that these dealers will purchase our products which include the
ATX-3000, the Cobra AWP (scissor lift) and conventional lift trucks and
thereafter sell these products to their clients. Certain of the dealers were
given "exclusive" territories, such as AirTrax Canada (AirTrax Canada is not
owned or operated by us but we have authorized their use of the AirTrax name.)
AirTrax Canada is required to purchase a minimum of 250 units of our Sidewinder
or Cobra AWP or Filco trucks to maintain the "exclusivity" portion of the
agreement between firms. They cannot lose their exclusivity because we cannot
meet their sales requirements. This same type arrangement was reached with
Lakeland in New Zealand for 125 vehicles each year, AirTrax Africa for 125
units
each year, Omnilink in Greece and the Balkans for 125 units each year and
others. Most dealers in the US have not been given exclusive territorial rights,
though some have. They are required to purchase one or more vehicles, however,
to become a dealer. Credit is not authorized to any dealers or foreign
representatives at this time, but this no credit policy will change as required
and as we advance our credit facilities. Currently all sales are paid in
advance, under terms of an irrevocable letter of credit or cash on demand.
Not
all dealers have agreed to represent the conventional lift trucks line as some
are established with other lift truck manufacturers and representing a competing
product could be a violation of their existing agreement(s). Targeted dealers
will consist of selected premier forklift dealers, currently selling other
forklift products. It is our goal to have only a dealer network that consists
of
dealers who have substantial market share in the US, with a history of being
able to sell and repair forklifts and/or related material handling solutions.
Several of the targeted dealers are significant sized entities, having annual
sales in excess of $100 million. We expect to provide a sales incentive to
dealers through an aggressive pricing structure. Typically, a dealer will earn
a
commission ranging from $500 to $1,000 on the sale of a competitive forklift.
Our pricing structure will enable the dealer to receive commissions from $3,500
to $4,000 per sale of the SIDEWINDER ATX-3000.
Eighteen
commercial omni-directional lift trucks, including ten carrying the UL Label,
have been sold to customers in the United States, New Zealand, South Africa
and
Canada as of December 31, 2005 and several others are ready to ship pending
receipt of funds or consummation of letters of credit or other credit facilities
in the beginning of 2006. 18 units totaling $714,280 with options have been
billed from January 1, through December 31, 2005.
We
have a
current backlog as shown above and have potential orders with DSCP and other
US
Government agencies, though no orders are yet placed by the DSCP or Government
agencies to date.
Transaction
with Filco GmbH
In
March
2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all
of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well
as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase
the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH
has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expired on December
31, 2005.
In
October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so
as to increase the number of shares of the capital stock of Filco GmbH which
we
would acquire, if we had finalized the acquisition, from 51% to 75.1%. The
purpose of this change was to give us control of Filco GmbH in accordance with
USGAAP and German law considerations regarding consolidation and capitalization.
Further, this change was offered and accepted in consideration of our agreeing
to advance Filco additional funds, in the form of a loan, to fund the start
up
of the Filco operation prior to the consummation of the transaction. All other
conditions and terms of the agreement between the parties shall remain the
same.
The
consideration for the proposed acquisition consisted of the issuance of options
to Mr. Filipov to purchase 900,000 shares of our common stock at an exercise
price of $0.01. No more than 12.5% of such options can be exercised during
any
one year. Accordingly, Mr. Filipov cannot exercise the options to receive more
than an aggregate of 112,500 shares of our common stock per year. Any increase
on this exercise limit is subject to the approval of our board of directors.
In
addition, we agreed to loan Filco GmbH approximately $1,300,000, which, if
the
acquisition was completed, will be converted into equity of Filco GmbH along
with approximately 1,300,000 Euros, plus interest, currently owed to Fil Filipov
by Filco GmbH. Finally, the agreement in principal provided for Mr. Filipov
to
be appointed a director of our company and to receive an additional 100,000
options of our common stock for serving as a director. In December 2004, Mr.
Filipov was appointed as a director of our company. Although the proposed
acquisition with Filco was not completed and we are still in the process of
negotiating with the German receiver to purchase the Filco assets, we appointed
Mr. Filipov a director of our company because management believes that his
credentials are extremely viable and valuable to our credibility in the
investment and materials handling communities, particularly in Europe. Mr.
Filipov has been employed in the materials handling industry virtually all
of
his life. We believe that his associations and relations in this industry can
and will aid us as we pursue our business objectives.
Prior
to
our termination of the agreement in February 2006 (as further described below),
it provided that we would register with the Securities and Exchange Commission
all of the shares issuable to Mr. Filipov, including those underlying the
described stock options.
We
have
loaned Filco GmbH an aggregate principal amount of $6,275,881.10 as of December
31, 2005, exclusive of interest at 8% per annum, pursuant to a series of secured
and unsecured promissory notes. The loans are to be repaid on or prior to
December 31, 2006. Of the $6,275,881.10 in loans to Filco, which approximately
$5,400,000 is secured by Filco's plant machinery, equipment and other plant
property, and intellectual property, including designs and drawings, and
approximately $876,419.10 is unsecured in accord with the loan agreements and
certified equipment appraisal. Interest earned to date in not included in the
figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.
On
January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006.
As
a result of the receivership, there area several options available to us as
the
largest creditor of Filco. A possibility exists for us to potentially write
off
the loans in total or in part, providing that we are successful in purchasing
the entire assets of Filco from the German receiver. In the event that we cannot
successfully finance the purchase of assets, then we will file a legal action
in
Germany for the recovery of our loans by enforcing our liens against Filco's
machinery and equipment, as well as the intellectual property that is the
subject of our secured interest. There can be no assurance that we would be
able
to recover all or a portion of our secured and unsecured loans to Filco. We
maintain security interests in Filco's plant machinery, equipment and other
plant property, and intellectual property, including designs and drawings for
over 100 models of Clark lift trucks. An appraisal made by an independent
appraiser in July 2005 which establishes equipment and machinery value as of
April 2003 valued this machinery and equipment at 4,500,000 Euros (US
$5,400,000). Such appraisal did not include the valuation of Filco's
intellectual property, which we believe has significant value. We have used
proceeds from the private placement offerings that we completed during 2004
and
2005 to fund such loans. To purchase all of the assets of Filco from the
receiver, it is has been negotiated that 1.4 million Euros would be needed
for
all machinery and equipment, intellectual property and inventory and another
3
million Euros for the purchase of the building and property. In addition, we
have determined that an additional $3.5 million will be required for operating
capital for Filco. Our analysis shows that additional estimated working capital
needs during the 2nd year will be another $5,000,000 to achieve profitable
and
expanded operations. It should be noted that the operations we are describing
are different than previously discussed by management. Significant differences
exist in operations that could take place in the event of our proposed purchase
of Filco assets from the German receiver. First, we would own all of the assets,
have no debt (excepting that incurred to finance the asset purchase and would
have no union employees. Should we complete the purchase of Filco assets, we
will need to raise additional capital through equity or proper lines of
credit in order to fund the working capital needs. We
intend
to provide additional funds, after year one, either in the form of guaranteed
credit lines or through additional sales our securities. We have contacted
several financial institutions attempting to secure credit lines necessary
for
successful operations.
The
funds
which we loaned to Filco during the time when its plant was closed for much
of
2004 and through 2005 was used to assist the company in reopening its plant
prior to Filco filing for insolvency. Loans provided by us were used by Filco
to
purchase inventory, pay some debt, to pay employee payroll at a 20% short work
rate (employees have been working 20% of the time and unemployment has
compensated the balance of their payroll), to pay current heating, lighting
and
power, telephones, leases and to order parts to get into
production.
The
amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is
our
primary goal. During the second quarter of 2005, we realized limited revenues
f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
We
have
not yet completed the purchase of Filco's assets from the German receiver
because we have not raised sufficient funding. We want to ensure that this
operation, should we purchase the assets of Filco, has the necessary capital
to
achieve profitable and full operations. Filco had a cash burn rate of
approximately $300,000 per month. Over the past 9 months, Filco has burned
approximately $3 million with limited operations awaiting parts and funding
from
us to properly function.
History
of Filco GmbH and History of Our Relationship with Filco
Clark
Material Handling Co. was the largest forklift manufacturer in the world in
the
1980's. Clark Material Handling Co. of Europe owned approximately 50% of the
assets and completed an estimated 50% of the sales of Clark forklifts. Clark
was
bought by Terex in 1994 and sold for $140 million in 1996. During that period
it
was managed by Fil Filipov, who was responsible for finding and completing
acquisitions for Terex. Clark declared bankruptcy in 2003. Filco GmbH was formed
by Fil Filipov in May of 2003 and Filco GmbH thereafter purchased the assets
of
Clark Europe. The "assets" of Clark Europe included intellectual property,
inventory, machinery and equipment, existing cliental and a trained workforce.
The transaction by Mr. Filipov to acquire the Clark assets was a purchase
through the bankruptcy administrator which left all assets under his control
and
ownership. Mr. Filipov paid approximately 500,000 Euros and had to advance
other
fees to guarantee lease and other payments. This resulted in a total purchase
by
Mr. Filipov in the amount of approximately 1,300,000 Euros.
Since
that time, Filco has operated with very limited operating capital, and had
unresolved union issues. As a result, Filco has not operated profitably, or
at
all. It was not until 2005 that Filco has commenced manufacturing after
receiving operating capital from us in the form of unsecured loans, then secured
loans. In addition, in 2005 Filco resolved its worker's union issues (as further
described in Management's Discussion and Analysis of Financial Condition and
Results of Operations"). During 2005, Filco has manufactured and or
reconditioned no more than 14 lift trucks. Filco has manufactured (assembled)
several prototype tractors for a Russian company which has signed agreements
with Filco to continue the assembly at its plant. Due to Filco's filing for
receivership on January 20, 2006, this contract has been terminated and the
prototype tractors were removed from the facility.
The
intellectual property of Filco is generally not considered "state of the art."
The intellectual property generally consists of drawings for 103 model lift
trucks, masts and various other material handling parts and supplies. The LPG
or
diesel lift trucks are generally very up to date and need little in the way
of
updates or re-engineering to make them sellable in the current market. However,
our management believes that the electric trucks offered by Filco are outdated
and need to be re-engineered to be sellable in the modern marketplace. For
the
most part, the changes would be from DC to AC electric motors and controllers.
These vehicles, whether gas, diesel or electric, are not convertible to our
products nor would this be considered. They offer us a complete product line
in
the event a dealer or consumer needs a product other than our omni-directional
product.
Our
President, Peter Amico, has maintained a working relationship with Mr. Filipov
since 2002. The working relationship between Messrs. Filipov and Amico has
been
centered on Mr. Filipov informing Mr. Amico where to buy parts and access better
supply chain vendors in Eastern European Countries. This has lead to us being
able to purchase frames in Bulgaria at prices about 70% less than the frames
would cost in the US. Messrs. Filipov and Amico have shared information
regarding the unions in Germany and how to best run the Filco's business once
it
is acquired. There has been no personal relationship other than the friendship
that the parties have enjoyed in their working relationship.
Business
Purposes of the Proposed Asset Purchase of Filco GmbH
In
general, the Filco proposed asset purchase from the German receiver could
provide us access to strategic partnerships in personnel and successful business
ventures, sales and market exposure in Europe.
The
proposed purchase of Filco assets may include a leased manufacturing facility,
with an experienced workforce, inventory, intellectual property, and machinery
sufficient to fill 200,000 square feet of assembly and manufacturing. Filco's
assets could provide us with cliental throughout Europe and the Middle East.
This could provide us with the ability to sell a complete line of lift trucks
beyond the limited sized Sidewinder Omni-Directional Lift Truck. It would
provide manufacturing or assembly for our products, including, but not limited
to, the aerial work platforms or any other products we develop or can contract
to assemble with other companies.
In
addition, if the asset purchase from the German receiver is completed, we
anticipate that we will establish manufacturing capability in Europe, to
complement our manufacturing in the United States. We currently purchase a
high
percentage of our parts in Europe, including, but not limited to, the frames
from Bulgaria, motors and controllers manufactured in the Czech Republic and
Sweden, and transmissions, brakes and seats manufactured in Germany. The mast
could be manufactured, the frames could be powder coated (painted), and European
parts could be assembled at the Filco plant. Partially assembled vehicles would
be shipped to the United States for final assembly. Wheels and other parts
for
the vehicles may be shipped from the United States for the completion of
manufacturing at Filco. We believe we could cut manufacturing costs because
our
material handling equipment could be manufactured in the continent in which
it
is sold, i.e., Europe. With our manufacturing capabilities in the United States,
this potential asset purchase would allow a portion of the Sidewinder becoming
assembled and manufactured in each of the two continents that purchase and use
about 70% of all material handling equipment worldwide. We recently sold two
Sidewinders to our dealer in Spain. The parts mentioned above were shipped
to
the US for assembly at an approximate cost of $700 per truck. The finished
Sidewinders were shipped to Spain at a cost of $1,750 per truck. Therefore,
shipping in both directions cost almost $2,500 per truck. This dealer expects
to
order 75 more trucks. If such order is made, we will spend over $200,000 in
shipping cost alone under present conditions.
The
primary objective that must be achieved to reach the aforementioned goal(s)
is
to secure the necessary financing required to fund the asset purchase from
the
German receiver and manufacturing objectives. There can be no assurance that
we
will be able to raise sufficient capital necessary to complete the asset
purchase and fund the manufacturing objectives.
MANUFACTURING
AND SUPPLIERS
The
initial production of our lift trucks was completed by us at the Warminster
PA
facility with all further production moved to the newly leased 30,000 square
foot facility at Blackwood, NJ. The frames and overhead guards for the first
production run were manufactured in Bulgaria in accord with our specifications.
We presently receive frames and overhead guards from a US manufacturer as well
as from Bulgaria. The parties operate under the terms of written purchase
orders. Parts and assemblies for commercial models are ordered and/or procured
from other vendors. The initial production run was completed with wheels
manufactured for us by The Timken Corporation and components from other
suppliers. Frank Cooper, former plant manager for GM, is our plant manager.
Mr.
Cooper has established the production assembly process and procedure for our
vehicle assembly. His processes have helped to develop procedures, and to
incorporate inventory control and quality assurance programs. We plan to create
the framework for rapidly scalable production capacity at the Blackwood facility
and initially this plant will be sized for nominal monthly production but
capable of ramping up for anticipated demand before year's end. We also plan
to
manufacture the omni-directional lift truck at the Filco facility for European
and Middle Eastern sales should we complete the asset purchase of Filco from
the
German receiver.
Components
for our forklifts consist of over the counter products and proprietary products
that have been specially designed and manufactured by various suppliers in
collaboration with us. We believe that continual refinements of certain
components will occur during the first six months of initial production in
response to user feedback and additional product testing. We will strive to
improve product functionality which may require additional refinements in the
future. The need for additional refinements on a continuing basis may slow
projected product sales.
We
consider the specially designed and manufactured products proprietary, and
have
entered into exclusive contractual agreements with certain suppliers to protect
the proprietary nature of these products. These arrangements prohibit the
supplier from producing the same or similar products for other companies. In
addition, while we maintain single sources for some of the over the counter
components, we believes that other sources are available if necessary and are
working to insure that we have secondary suppliers.
DISTRIBUTION
AND PRODUCT MARKETING
We
intend
to establish a national and international dealer network to sell our forklift
product line to existing equipment dealers. However, we may sell directly to
select national and international accounts and retailers. National and
international accounts or retailers include, but are not limited to, nationally
recognized businesses with national or international locations having facilities
in numerous states or countries.
During
the past two years, in anticipation of commercial production, we solicited
interest from targeted dealers nationwide, and in certain instances, received
contracts from a number of these dealers. Due to the delay in establishing
commercial production, the contracts were not fulfilled. In 2004, we began
soliciting dealers for distribution and during the first quarter of 2004 have
reached an agreement with a number of dealers nationwide, as well as in several
foreign countries. Principal terms of the agreement reached is that these
dealers will purchase our products which include the ATX-3000, the Cobra AWP
(scissor lift) and conventional lift trucks and thereafter sell these products
to their clients. Certain of the dealers were given "exclusive" territories,
such as AirTrax Canada (AirTrax Canada is not owned or operated by us but we
have authorized their use of the AirTrax Name.) AirTrax Canada is required
to
purchase a minimum of 250 units of the AirTrax Sidewinder or Cobra AWP or Filco
trucks, or private labeled AirTrax conventional trucks, to maintain the
"exclusivity" portion of the agreement between firms. They cannot lose their
exclusivity because we cannot meet their sales requirements. This same type
arrangement was reached with Lakeland in New Zealand for 125 vehicles each
year,
AirTrax Africa for 125 units each year, Omnilink in Greece and the Balkans
for
125 units each year and others. The dealers in the US generally have not been
given exclusive territorial rights, but that has occurred in some areas. They
are required to purchase one or more vehicles, however, to become a dealer.
Credit terms are now available to approved dealers while foreign dealers are
only sold under the terms of letters of credit All sales are paid in advance,
under terms of an irrevocable letter of credit or approved credit terms. Not
all
dealers have agreed to represent the conventional lift trucks line as some
are
established with other lift truck manufacturers and representing a competing
product could be a violation of their existing agreement(s). Targeted dealers
will consist of selected premier forklift dealers, currently selling other
forklift products. The dealer network will consist of dealers who have
substantial market share in the US, with a history of being able to sell and
repair forklifts and/or related material handling solutions. Several of the
targeted dealers are significant sized entities, having annual sales in excess
of $100 million. We expect to provide a sales incentive to dealers through
an
aggressive pricing structure. Typically, a dealer will earn a commission ranging
from $500 to $1,000 on the sale of a competitive forklift. Our pricing structure
will enable the dealer to receive commissions from $3,500 to $4,000 per sale
of
the SIDEWINDER ATX-3000.
In
the
materials handling industry, distributors of products like ours finance their
respective inventories in several different ways. The arrangement for
distributor financing varies, depending upon the credit worthiness, financial
capability and size of the distributor. Floor planning, which is arranged by
the
dealer or by the manufacturer, usually consists of financing from 6 to 12 months
whereby the distributor pays interest only during the finance period. If at
any
time during the finance period the distributor sells the product, or if the
finance period expires, the distributor is required to pay the principal. Many
dealers buy vehicles to lease or rent to consumers and finance the vehicle
much
the same manner as a standard consumer. Under certain arrangements, the dealer
applies receipts against principal and interest.
We
have
recently formed a leasing company, AirTrax Financial Services, Inc. ("AFS"),
wherein we own a 48.5% interest but enjoy a 51% voting interest. As of the
date
hereof, financing arrangements have been made whereby Commerce Bank or other
banks will provide funding for dealers or individual non-recourse loans. None
of
our funds have yet been allocated to AFS. It has been agreed to use no more
than
$50,000 worth of common stock to fund AFS, as funding is required.
In
addition to establishing our own dealer network, we will attempt to capitalize
on the existing distribution network of MEC if we are able to reach a formal
agreement with MEC and successfully develop the omni-directional work platform
discussed above. We would seek to include our omni-directional forklift into
the
distribution network of MEC, which consist of approximately 200 dealers. We
cannot predict whether a formal agreement will be entered into between the
parties, or whether any sales will result form the aerial work platform to
be
developed by the parties.
We
also
intend to use trade shows and print and television media to advertise and
promote our omni-directional products. Print media will include advertisements
in national and international publications such as major material handling
equipment magazines, and direct mailings to targeted distributors and end-users.
Heavy equipment is rarely, if at all, advertised on television. However, we
believe that television will provide an effective media for our product, due
to
its unique attributes. We believe that due to the current economic conditions,
we will be able to capitalize on favorable advertising pricing. We also expect
to be an exhibitor at industry trade shows from time to time, including the
bi-annual ProMat show located in Chicago, Illinois.
Product
Warranty Policies
Our
product warranty policy is similar to the warranty policies of other major
manufacturers, i.e., one-year warranties on all parts and labor, and two years
on major parts. However, our vehicles have very few parts to warranty. In
addition, manufacturers of our parts and vehicles have their own warranty
policies that, in effect, take the financial exposure from our company. There
are exceptions to this rule, such as the frame and significantly, the motors
and
controllers. These parts have an eighteen-month guarantee or warranty, but
the
coverage begins when the product is shipped to us and not when the product
is
purchased. As a result of this policy, Danaher has increased the warranty from
12 to 18 months for us.
FACILITIES
We
maintain our administrative offices and assembly facilities at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square
feet with 3,000 square feet allocated to offices and cost a monthly rental
fee
of $12,750. H&R Industries of Warminster PA provides contract manufacturing
and assembly services to us, including, but not limited to, manufacturing of
our
prototype machines, and testing prototypes. Up until June of 2005, H&R
Industries was also used for the storage of production-readied parts. In
addition, H&R has provided rental space to assemble our first "production"
vehicles. Through December 31, 2002, the arrangement between the parties has
been rent-free. Effective January 1, 2003, we agreed to pay H&R Industries a
rental fee of $3,000 per month and have the option to pay in cash or in the
form
of common stock. The arrangement was on a month-to-month basis. We left the
facility at H&R Industries and moved to our own facility in Blackwood NJ in
June 2005.
MARKETS
Forklifts
Our
initial market focus will be directed to the forklift market. We believe the
commercial version of the omni-directional forklift will revolutionize the
materials handling and warehousing industries creating potential markets
globally. Industry data shows that during 2003 approximately 174,000 and 550,000
units were sold in the United States and worldwide, respectively (Modern
Materials Handling). Based upon an average per unit sale price of $28,500
(Modern Materials Handling estimate), the total market in the United States
would approximate $5 billion in 2003. This amount represents sales of a broad
range of vehicles with price ranges from $18,000 to $31,000 for a standard
3000-pound rated vehicle to $75,000 or greater for specialty narrow aisle or
side loader vehicles. Of the total market, management expects to compete with
mid-range electrical and gas powered riders, and some specialty narrow aisle
or
side loader vehicles.
Aerial
Work Platforms
Aerial
Work Platforms are used in the construction and warehousing industries, and
are
ideally suited for omni directional technology. According to data provided
by
the United States Department of Commerce, this market consists of approximately
$1.2 billion in annual sales. Aerial Work Platforms and man lifts range in
size
from single user lifts to large off road machines. Of the total market, we
expect to compete with a range of indoor man lifts.
COMPETITION
We
expect
to confront competition from existing products, such as standard and "very
narrow aisle" forklifts, and from competing technologies. Competition with
standard forklifts, which retails from $16,000 to $31,000, will be on the basis
of utility, price, and reliability. We believe that we will compete favorably
with a standard forklift for reliability, and that a purchase decision will
be
based upon weighing the operational advantages of our products against its
higher purchase price. VNA and sideloader forklifts retail at $75,000 or
greater. While our SIDEWINDER omni-directional lift truck cannot be considered
"very narrow aisle", it can perform "narrow aisle" functions at a significantly
less cost. We also are aware of multi-directional forklifts now being offered
by
other manufacturers that retail from $42,000 and higher for the standard
version. These newer products have improved operational features, however,
they
are unable to travel in all directions, and hence are not omni-directional.
These machines have to stop, turn all four wheels, and then proceed to drive
in
the sideward direction. Despite these improved operational features, management
believes these manufacturers have adhered to older conventional methods and
have
added a substantial amount of parts to their forklifts to achieve improved
functionality, which contrasts with the design and features of our product
as
discussed previously herein. Therefore, to that extent, we believe that we
maintain a competitive advantage to these newer products.
We
recognize that many of these manufacturers are subsidiaries of major national
and international equipment companies, and have significantly greater financial,
engineering, marketing, distribution, and other resources than us. In addition,
the patent on omni-directional technology expired in 1990. Although we have
received patent protection for certain aspects of our technology, no assurances
can be given that such patent protection will effectively thwart
competition.
PATENTS
AND PROPRIETARY RIGHTS
On
January 22, 2002, we received US patent #6,340,065 relating to our low
vibrations wheels. On May 28, 2002, we received US patent #6,394,203
encompassing certain aspects of the omni-directional wheel with some features
specific to the forklift, and in April 15, 2003 we received US patent #6,394,203
relating to methods for designing low-vibration wheels. We also have several
patent applications pending relating to other aspects of our technology. We
expect to make future patent applications relating to various other aspects
of
our omni-directional technology. We also have filed a patent application for
our
power module. At this time, no foreign patents have been issued for any of
our
technology. In December 1997, we were awarded a patent for an omni-directional
helicopter ground-handling device.
We
also
seek to protect our proprietary technology through exclusive supply contracts
with manufacturers for specially designed and manufactured
components.
PRODUCT
LIABILITY
Due
to
nature of our business, we may face claims for product liability resulting
from
the use or operation of our forklifts or other products.
Presently,
we maintain product liability insurance in the amount of $1 million. This amount
will be increased to $10 million in the future, as we deem necessary to do
so.
We obtained said insurance commensurate with the initial shipment of our
omni-directional forklifts.
EMPLOYEES
As
of
April 11, 2006, we have nine full time employees which includes our President,
and 10 contract employees, and engage consultants from time to time. We have
no
collective bargaining agreements with our employees and believe our relations
with our employees are good.
ITEM
2. DESCRIPTION OF PROPERTY
We
maintain our administrative offices and assembly facilities at 200 Freeway
Drive, Unit One, Blackwood, NJ 08012. This facility is a total of 30,000 square
feet with 3,000 square feet allocated to offices and cost a monthly rental
fee
of $12,750. H&R Industries of Warminster PA provides contract manufacturing
and assembly services to us, including, but not limited to, manufacturing of
our
prototype machines, and testing prototypes. Up until June of 2005, H&R
Industries was also used for the storage of production-readied parts. In
addition, H&R has provided rental space to assemble our first "production"
vehicles. Through December 31, 2002, the arrangement between the parties has
been rent-free. Effective January 1, 2003, we agreed to pay H&R Industries a
rental fee of $3,000 per month and have the option to pay in cash or in the
form
of common stock. The arrangement was on a month-to-month basis. We left the
facility at H&R Industries and moved to our own facility in Blackwood NJ in
June 2005.
ITEM
3. LEGAL PROCEEDINGS.
We
are
not currently a party to, nor is any of our property currently the subject
of,
any pending legal proceeding. None of our directors, officers or affiliates
is
involved in a proceeding adverse to our business or has a material interest
adverse to our business.
ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
MARKET
FOR OUR COMMON SHARES
Our
common stock has been traded on the Over-The-Counter Bulletin Board under the
symbol "AITX". The table below sets forth, for the periods indicated, the high
and low closing prices per share of the common stock as reported on the
Over-The-Counter Bulletin Board. These quotations reflect prices between
dealers, do not include retail mark-ups, markdowns, and commissions and may
not
necessarily represent actual transactions. The prices are adjusted to reflect
all stock splits.
|
|
$High
|
|
$Low
|
|
|
|
|
|
|
|
2006
First Quarter
|
|
|
2.39
|
|
|
1.08
|
|
|
|
|
|
|
|
|
|
2005
First Quarter
|
|
|
3.07
|
|
|
1.83
|
|
Second
Quarter
|
|
|
2.95
|
|
|
1.85
|
|
Third
Quarter
|
|
|
4.70
|
|
|
2.07
|
|
Fourth
Quarter
|
|
|
3.40
|
|
|
2.20
|
|
|
|
|
|
|
|
|
|
2004
First Quarter
|
|
|
1.60
|
|
|
0.65
|
|
Second
Quarter
|
|
|
1.45
|
|
|
0.75
|
|
Third
Quarter
|
|
|
1.15
|
|
|
0.61
|
|
Fourth
Quarter
|
|
|
3.35
|
|
|
0.81
|
|
As
of
April 11, 2006, there were 22,283,624 shares of common stock
outstanding.
As
of
April 11, 2006, there were approximately 935 stockholders of record of our
common stock, respectively. This does not reflect those shares held beneficially
or those shares held in "street" name.
We
have
not paid cash dividends in the past, nor do we expect to pay cash dividends
for
the foreseeable future. We anticipate that earnings, if any, will be retained
for the development of our business.
EQUITY
COMPENSATION PLAN INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
Number
of securities to
|
|
|
|
|
|
|
|
be
issued upon exercise
|
|
|
|
|
|
|
|
of
outstanding options,
|
|
|
|
|
|
|
|
warrants
and rights
|
|
|
|
Number
of securities
|
|
|
|
(excluding
securities
|
|
warrants
and rights under equity
|
|
remaining
available
|
|
|
|
reflected
in column (a))
|
|
compensation
plans
|
|
for
future issuance
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
plans
approved by
|
|
|
|
|
|
|
|
|
|
|
security
holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
plans
not approved
|
|
|
|
|
|
|
|
|
|
|
by
security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
We
currently do not have an equity compensation plan for our officers, directors,
employees or consultants. However, certain of our officers are compensated
with
stock options to purchase shares of our common stock. A description of these
options can be found in this annual report under the heading "Item 10",
"Executive Compensation".
RECENT
SALES OF UNREGISTERED EQUITY SECURITIES
On
March
1, 2006, we issued an aggregate principal amount $150,000 of our 4% Unsecured
Convertible Debentures and 5 year warrants to purchase an aggregate of 48,077
shares of our common stock to two of the investors in our November 2004 private
placement. The debentures mature on March 1, 2008, pay simple interest at a
rate
of 4% per annum and are convertible into shares of our common stock at a price
equal to 1.56 per share. The warrants are exercisable into shares of our common
stock at a price equal to $1.65 per share. Our issuance of the aforementioned
securities were in settlement of accrued liquidated damages which we owed to
these investors for our inability to have the SEC declare our registration
statement on Form SB-2 effective within the specified timeframe as set forth
in
the Registration Rights Agreement dated November 22, 2004. In addition, the
investors agreed to forego any future accrual and payment of such liquidated
damages.
On
February 13, 2006, we completed a private placement of our 8% Series D Unsecured
Convertible Debentures and Stock Purchase Warrants to certain accredited
investors pursuant to that certain Subscription Agreement dated as of February
13, 2006 under which we sold an aggregate of $391,200 principal amount
Debentures convertible into shares of our common stock, no par value, and
warrants to purchase 250,769 shares of our Common Stock to certain accredited
investors who are parties to the Subscription Agreement for an aggregate
purchase price of $391,200.
The
Debentures mature on February 13, 2007. Provided there then exists no event
of
default by us under the Debentures, the principal of and any accrued but unpaid
interest due under the Debentures on the maturity date shall automatically
be
converted into shares of Common Stock on the maturity date at the then
applicable conversion price. The Debentures pay simple interest quarterly
accruing at the annual rate of 8%, either in the form cash or shares of our
Common Stock, at our election, which shall be valued and computed based upon
the
conversion price of the Debentures. The Debentures are convertible into shares
of our Common Stock at a conversion price equal to $1.56. We may in our
discretion require, after 90 days from the closing date, that the Investors
convert all or a portion of the Debentures at a price equal to$1.56 per
share.
In
addition, we issued 250,769 Warrants to the Investors, representing an amount
of
Warrants equal to 100% of the quotient of (i) the principal amount of the
Debentures issued at the closing date divided by (ii) the conversion price
of
the Debentures. The Warrants are exercisable at a price equal to $2.50, from
the
date of issuance until 5 years after the closing date.
On
October 18, 2005, we entered into a 8% Series C Unsecured Convertible Debenture
and Warrants Purchase Agreement with certain accredited investors pursuant
to
which we sold an aggregate of $1,000,000 principal amount unsecured convertible
debentures convertible into shares of our common stock, no par value, at a
conversion price of $2.00 per share, and an aggregate of 500,000 stock purchase
warrants to purchase shares of our Common Stock at $3.25 per share to certain
accredited investors who are parties to the Purchase Agreement for an aggregate
purchase price of $1,000,000. Further, we issued 50,000 Warrants to the
placement agent, a registered broker dealer firm, exercisable at $3.25 per
share, as consideration for services performed in connection with the issuance
of the Debentures and Warrants to the Investors pursuant to the Purchase
Agreement.
On
October 28, 2005, we held our second and final closing with certain accredited
investors pursuant to a right of participation which was granted to such
investors under that certain securities purchase agreement dated as of November
23 and 24, 2004 and the subscription agreement dated as of February 11,2005.
In
connection with the second closing, we sold an aggregate of $548,000 principle
amount of Debentures convertible into shares of our common stock, no par value,
at a conversion price of $2.00 per share, and issued 275,000 warrants
exercisable at $3.25 per share for an aggregate purchase price of $
548,000.
First
Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the first and second closings of the Offering in which an
aggregate amount of $1,548,000 of Debentures and Warrants were sold. Pursuant
to
the second closing, we paid commissions of $54,800, a non-accountable expense
allowance of $16,440, and issued 27,400 Warrants to the placement agent, a
registered broker dealer firm, exercisable at $3.25 per share, each as
consideration for services performed in connection with the issuance of the
Debenture and Warrants to the Investor pursuant to the Purchase
Agreement.
On
August
25, 2005, we issued an aggregate of 187,939 shares of common stock to a certain
creditor of Filco GmbH pursuant to a certain Assignment and Purchase Agreement
which we entered into with the creditor.
On
July
1, 2005 we issued options to purchase an aggregate of 750,000 shares of our
common stock at an exercise price of $.85 per share to certain of our employees
and consultants as compensation for services performed on our
behalf.
In
April
and July of 2005, we issued an aggregate of 30,000 shares of common stock to
a
certain investor relations consulting firm as compensation for services
performed on our behalf.
On
May
31, 2005, we entered into a 8% Series B Unsecured Convertible Debenture and
Warrants Purchase Agreement with one accredited investor pursuant to which
we
sold a $500,000 principal amount unsecured convertible debenture (the
"Debenture") convertible into shares of our common stock, no par value, at
a
conversion price equal to $1.30 per share, and stock purchase warrants to
purchase 384,615 shares of our common stock at an exercise price equal to $3.25
per share, to a certain investor who is a party to the Purchase Agreement for
an
aggregate purchase price of $500,000. First Montauk Securities Corp. acted
as
selling agent in connection with the offering. We issued a total of 38,462
warrants on May 31, 2005 to the selling agent as partial consideration for
services performed in connection with the offering. The warrants are exercisable
at a price equal to $2.11 for a period of 5 years from the closing
date.
On
April
7, 2005, we issued an aggregate of 28,453 shares of our common stock to the
holders of our convertible promissory notes at a conversion price of $1.30
per
share which we issued pursuant to our February 11, 2005 Subscription Agreement,
as payment, in lieu of cash, of accrued interest due to the holders under such
notes. The closing price for our common stock on the date the conversion, March
29, 2005, was $2.35 per share.
In
February and May of 2005, 30,000 shares of common stock to two public relations
consulting firm as compensation for services performed on our
behalf.
On
February 11, 2005, we entered into a Subscription Agreement pursuant to which
we
sold an aggregate of $5,000,000 of principal amount promissory notes convertible
into shares of our common stock, no par value, at a conversion price equal
to
$1.30 per share, and an aggregate of 2,884,615 Class A and Class B share
purchase warrants to purchase shares of our common stock to certain purchasers
who are a party to the Subscription Agreement. First Montauk Securities Corp.
acted as selling agent in connection with the offering. We issued a total of
384,616 warrants on February 11, 2005 to the selling agent as partial
consideration for services performed in connection with the offering. The Class
A warrants are exercisable at a price equal to $1.85 from the date of issuance
until 5 years after the closing date. The Class B warrants are exercisable
at a
price equal to $2.11, representing 101% of the 3 day average closing bid prices
of our common stock on the trading day immediately preceding the closing date,
from the date of issuance until 5 years after the closing date. The Class A
and
Class B warrants both have a cashless feature.
On
November 22, 2004, we entered into a Purchase Agreement (the "Purchase
Agreement") pursuant to which we sold and issued 1,125,000 shares of common
stock, no par value, and common stock purchase warrants to purchase 562,500
shares of our common stock to several accredited investors who are a party
to
the Purchase Agreement for an aggregate purchase price of $900,000. Thereafter,
on November 23, 2004, we entered into Joinders to the Purchase Agreement
pursuant to which we sold and issued an additional 515,000 shares of common
stock and warrants to purchase an additional 257,500 shares of our common stock
to several accredited investors who are a party to the Joinders to the Purchase
Agreement for an aggregate purchase price of $412,000. The closing price for
our
common stock on November 22 and November 23, 2004 was $1.56 and $1.40 per share,
respectively. The stock had a per share purchase price equal to $.80. First
Montauk Securities Corp. acted as placement agent in connection with the
offering. We issued 125,000 warrants on November 22, 2004 and 51,500 warrants
on
November 23, 2004 to the placement agent and to certain partners of the
placement agent as partial consideration for services performed in connection
with the issuance of common stock and warrants to the purchasers pursuant to
the
Purchase Agreement to purchase 62,500 and 25,750 shares of our Common Stock,
respectively. The warrants are exercisable from November 22, 2004 until November
22, 2009 and from November 23, 2004 until November 23, 2009, each at an exercise
price of $1.25 per share.
In
October 2004, we issued an aggregate of 114,324 shares of common stock to 6
of
our directors as compensation for services performed on our behalf in each
of
their capacities as directors of our company. The closing price for our common
stock on October 15, 2004 was $1.04 per share, resulting in an aggregate value
of $118,897 for this compensation.
In
October 2004, we issued an aggregate of 86,050 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price for our common stock on October
15,
2004 was $1.04 per share, resulting in an aggregate value of $89,492 for this
compensation.
In
October 2004, we issued an aggregate of 24,000 shares of common stock to a
certain public relations consulting firm as compensation for services performed
on our behalf. The closing price for our common stock on October 15, 2004 was
$1.04 per share, resulting in an aggregate value of $24,960 for this
compensation.
Between
September 8, 2004 and December 20, 2004, we received subscriptions for an
aggregate of 1,812,403 shares of our common stock and an aggregate of 906,200
shares of common stock issuable upon exercise of common stock purchase warrants
to 33 accredited investors pursuant to a private placement offering. The stock
was sold at $.80 per share. The closing price of our common stock between
September 8, 2004 and December 20, 2004 ranged from a low of $.80 to a high
of
$1.58 per share. The warrants are exercisable at a price equal to $1.25 for
a
period of 5 years from the date of issuance.
In
June
and October 2004, we issued an aggregate of 47,850 shares of common stock to
a
certain vendor as compensation for dealer account solicitation services
performed on our behalf. The closing price of our common stock on June 15,
2004
and October 15, 2004 was $1.05 and $1.04 per share, respectively, resulting
in
an aggregate value of $50,003.25 for this compensation.
In
May
2004, we and several accredited investors entered into a Subscription Agreement
whereby the investors agreed to purchase an aggregate of 3,600,125 shares of
common stock at a price of $0.80 per share for an aggregate purchase price
of
$2,855,100. In addition, the investors received warrants, exercisable at $1.25
per share, to purchase 50% of the shares issued. The closing price of our common
stock on May 13, 2004, the closing date for this private placement, was $.99
per
share.
On
April
15, 2004, we issued an aggregate of 10,767 shares of common stock to Basile
& Testa, PA, as compensation for legal services performed on our behalf. One
of our former directors, Mr. Frank Basile, was a partner at this firm. This
represented payment of $7,866.54 at $.73 per share for services performed from
February 28, 2002 through April 14, 2004. The share price on April 15, 2004
was
$.99 per share.
On
March
31, 2004, we issued an aggregate of 14,529 shares of common stock to a certain
engineering firm as compensation for electrical engineering services performed
on our behalf. The closing price of our common stock on March 28, 2004 was
$1.04
per share, resulting in an aggregate value of $15,010.16 for this
compensation.
In
October 2003, we issued an aggregate of 345,000 shares of common stock to a
certain consulting firm as compensation for services performed on our behalf.
The closing price of our common stock on October 15, 2003 was $.99, resulting
in
an aggregate value of $341,550 for this compensation.
In
August
2003 and February 2004, we issued an aggregate of 12,500 shares of common stock
to an employee as compensation for services performed on our behalf. The closing
price of our common stock was $1.05 and $.67, resulting in an aggregate value
of
$10,750 for this compensation.
From
July
to September 2003, we issued an aggregate of 91,020 shares of common stock
to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The average closing price of our common stock between
July and September of 2003 was $.99, resulting in an aggregate value of
$90,109.80 for this compensation.
In
June
and September 2004, we issued an aggregate of 6,174 shares of common stock
to
certain consultants for computer programming services performed on our behalf.
The closing price of our common stock on September 15, 2004 was $.82, resulting
in an aggregate value of $5,062.68 for this compensation.
On
June
10, 2003, we issued an aggregate of 30,000 shares of common stock to a certain
investor relations consulting firm as compensation for services performed on
our
behalf. The closing price of our common stock on June 10, 2003 was $1.45,
resulting in an aggregate value of $43,500 for this compensation.
On
May 8,
2003, we issued an aggregate of 350,000 shares of common stock to third parties
pursuant to certain sales agreements. The closing price of our common stock
on
May 8, 2003 was $1.50, resulting in an aggregate value of $525,000 for this
compensation.
In
April
and November of 2003, we issued an aggregate of 57,139 shares of common stock
to
a certain financial consultant as compensation for services performed on our
behalf. The closing price of our common stock was $1.05 and $.85, resulting
in
an aggregate value of $54,282.05 for this compensation.
In
April
and June of 2003, we issued an aggregate of 60,000 shares of common stock to
6
of our directors as compensation for services performed on our behalf in each
of
their capacities as directors of our company. The closing price of our common
stock was $1.01 and $1.45, resulting in an aggregate value of $73,800 for this
compensation.
On
January 20, 2003, we issued options to purchase an aggregate of 180,000 shares
of common stock to our President, Peter Amico, as compensation for services
performed on our behalf under Mr. Amico's Original Employment Agreement. Of
the
options, 1/5 of the options were exercisable for a total consideration of a
$1.00, 1/2 of the options were exercisable at 30% of the lowest price paid
for
the stock in the 30 day period preceding exercise for each year of the contract,
and the remaining options were exercisable at 15% of the lowest price paid
for
the stock in the 30 day period preceding exercise. The closing price of our
common stock on July 1, 2002 was $2.20 share.
From
October 2002 through April 2005, we issued an aggregate of 137,500 shares of
common stock to three of our employees as compensation for services performed
on
our behalf, and as employee incentive bonuses.
In
August
2002, we issued an aggregate of 25,000 shares of common stock to one of our
directors, and options to purchase 5,000 shares of common stock to our
Secretary, each as compensation for services performed on our behalf in their
respective capacities. The closing price of our common stock on August 15,
2002
was $1.86 share.
On
July
23, 2002, we issued an aggregate of 160,000 shares of common stock to a certain
investor relations consulting firm as compensation for services performed on
our
behalf. The closing price of our common stock on July 23, 2002 was $1.50,
resulting in an aggregate value of $240,000 for this compensation.
In
April
2002, we issued an aggregate of 1,930 shares of common stock to a certain
engineering firm as compensation for electrical engineering services performed
on our behalf. The closing price of our common stock on April 15, 2002 was
$1.01, resulting in an aggregate value of $1,949.30 for this
compensation.
From
January 2002 through April 2005, we issued an aggregate of 60,200 shares of
our
common stock to Harry Schmidt Associates, PA as rental payments under certain
leases which we entered into with said firm. These stock payments represented
lease payments of $3,000.00 per month from January 2002 through April 2005,
or
40 months, totaling $120,000.00.
*
All of
the above offerings and sales were deemed to be exempt under rule 506 of
Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities.
The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of AirTrax or executive officers
of
AirTrax, and transfer was restricted by AirTrax in accordance with the
requirements of the Securities Act of 1933. In addition to representations
by
the above-referenced persons, we have made independent determinations that
all
of the above-referenced persons were accredited or sophisticated investors,
and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access
to
our Securities and Exchange Commission filings.
ITEM
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Some
of
the information in this annual report contains forward-looking statements that
involve substantial risks and uncertainties. You can identify these statements
by forward-looking words such as "may", "will", "expect", "anticipate",
"believe", "estimate" and "continue", or similar words. You should read
statements that contain these words carefully because they:
o
discuss
our future expectations;
o
contain
projections of our future results of operations or of our financial condition;
and
o
state
other "forward-looking" information.
We
believe it is important to communicate our expectations. However, there may
be
events in the future that we are not able to accurately predict or over which
we
have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements
as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
RESTATEMENT
We
determined, after consultation with our independent registered public accounting
firm, that a restatement of our financial statements for the year ended December
31, 2005 filed on Form 10-KSB, together with our quarterly reports on Form
10-QSB for the periods ending June 30 and September 30, 2005, and March 31,
June
30, and September 30, 2006, respectively , was necessary due to the
issuance of our preferred stock as payment of dividends in lieu of cash
dividends on April 1, 2005 with respect to previously issued shares of preferred
stock. Our Articles of Incorporation, as amended, do not allow the issuance
of
additional shares of preferred stock as payment of dividends on shares of issued
and outstanding preferred stock. Accordingly, the 100,000 shares of preferred
stock, which were issued to the holder on April 1, 2005, were issued in error.
We determined that we should take this action to prevent future reliance on
previously issued financial statements set forth in our Reports.
We
also
concluded, in light of a review of our accounting for derivatives and based
on
recent interpretations of the accounting for certain financial instruments
under
SFAS 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS
133”) and the Emerging Issues Task Force No. 00-19 “Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock” (“EITF No. 00-19”) [update for 00-19-2 update issued], that the warrants
associated with our November 22, 2004 stock issued to certain accredited and/or
qualified institutional purchasers pursuant to Purchase Agreement dated as
of
November 22, 2004 contained embedded derivatives due to the registration rights
and liquidated damages provisions and conversion privileges contained in the
Notes and Warrants. The embedded derivative provisions provide that we will
pay
liquidated damages in connection with the delay in filing an SB-2 registration
statement. Accordingly,
we determined that we should take this action to prevent future reliance on
previously issued financial statements set forth in our Quarterly Reports on
Form 10-QSB for
the
three and six months ended June 30, 2005 and the three months ended March 31,
2005. In reporting periods subsequent to the issuance of June 30, 2005, the
embedded derivative has been revalued with the change to fair value recorded
as
income/(expense). Such
financial statements should no longer be relied upon.
In
particular, we will
restate our financial statements contained in the Reports to reflect
the reduction in preferred stock outstanding, the preferred stock dividend
expense and deemed dividend expenses recorded in the quarters ended June
30,
2005 and September 30, 2005,
and a
liability in connection with issuance of the warrants that contained an embedded
derivative and conversion privileges, for the quarters ended March
31,
2005, June 30, 2005.
OVERVIEW
Since
1995, substantially all of our resources and operations have directed towards
the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Eighteen commercial
omni-directional lift trucks, including ten carrying the UL Label, have been
sold to customers in the United States, New Zealand, South Africa and Canada
as
of December 31, 2005 and others are ready to ship pending receipt of funds
or
consummation of letters of credit or other credit facilities. 18 units totaling
$714,280 with options have been billed from January 1, through December 31,
2005.
We
have
commenced production and have received the parts required for production of
a
total of 57 trucks of our Sidewinder ATX-3000 Omni-Directional Lift Truck.
As of
December 31, 2005, we did not have all of the parts required from every vendor
for completion of the trucks other than those heretofore noted. The assembly
and
sale is dependent upon delivery of all of the required parts.
Omni-Directional
means that vehicles designed and built by us can travel in any direction. Our
Omni-directional vehicles are controlled with a joystick. The vehicle will
travel in the direction the joystick is pushed. If the operator pushes the
joystick sideways, the vehicle will travel sideways. If the operator were to
twist the joystick the vehicle will travel in circles. Our omni-directional
vehicles have one motor and one motor controller for each wheel. The
omni-directional movement is caused by coordinating the speed and direction
of
each motor with joystick inputs which are routed to a micro-processor, then
from
the micro-processor to the motor controllers and finally to the motor
itself.
Complete
assembly is conducted by us at our newly leased facilities at 200 Freeway Drive
Unit One, Blackwood, NJ 08012. Approximately 50% of the frames are manufactured
in the USA. These frames are shipped to the Blackwood plant for complete
assembly. Besides the assembly of vehicles at Blackwood, partially assembled
vehicles are shipped to the Blackwood facility from the Filco plant in Germany.
To date, partial assembly of approximately 19 lift trucks have been completed
at
the Filco plant, 14 of which and have been shipped to the USA for final
assembly. To date, a total of approximately 60 lift trucks have been shipped
from Bulgaria to the Filco plant for partial assembly and approximately 30
of
these have been shipped to the Blackwood plant for final assembly during the
fourth quarter of 2005. All assembly or partial assembly from the Filco plant
ceased on January 20, 2006 after Filco filed for insolvency. Additional frames
and other parts totaling some $450,000 remain at Filco awaiting release by
the
receiver to us. Most frames manufactured in Bulgaria had to be re-machined
to be
within the tolerances required for these frames. The re-machining charges will
be back-charged to the frame manufacturer. The frame manufacturer will adjust
tooling to get the tolerances to the required specifications for future
deliveries.
We
have
incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2005 and 2004, we had a
net
loss of $(14,935,478) and $(3,491,950), respectively. We expect to continue
to
incur significant expenses. Our operating expenses have been and are expected
to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our
principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.
COMPANY
HISTORY
We
were
incorporated in the State of New Jersey on April 17, 1997. On May 19, 1997,
we
entered into a merger agreement with a predecessor company that was incorporated
on May 10, 1995. We were the surviving company in the merger.
Effective
November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and were
the
surviving company in the merger. Pursuant to the Agreement and Plan of Merger,
as amended, each share of common stock of MAS was converted to 0.00674 shares
of
our company. After giving effect to fractional and other reductions, MAS
shareholders received 57,280 of our shares as a result of the
merger.
In
March
2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all
of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well
as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase
the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH
has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expires on December
31, 2005.
In
October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so
as to increase the number of shares of the capital stock of Filco GmbH which
we
will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of
this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the
Filco
operation prior to the consummation of the transaction. All other conditions
and
terms of the agreement between the parties shall remain the same.
We
have
loaned Filco GmbH an aggregate principal amount of $6,275,881.10 as of December
31, 2005, exclusive of interest at 8% per annum, pursuant to a series of secured
and unsecured promissory notes. The loans are to be repaid on or prior to
December 31, 2006. Of the $6,275,881.10 in loans to Filco, which approximately
$5,400,000 is secured by Filco's plant machinery, equipment and other plant
property, and intellectual property, including designs and drawings, and
approximately $876,419.10is unsecured in accord with the loan agreements and
certified equipment appraisal. Interest earned to date in not included in the
figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.
On
January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006.
We
are currently in discussions with the receiver in Germany to determine the
status of our secured and unsecured loans to Filco, as well as to explore the
possibility of purchasing all or a portion of the assets of Filco. This is
dependent upon our ability to secure financing adequate to purchase the assets
of Filco and supply necessary operating capital. We currently have no financing
agreements in place and there can be no assurance that we will obtain financing
on terms that are favorable to us. As a creditor, we have filed liens against
Filco's machinery and equipment and intellectual property. We will seek to
recover on our secured and unsecured loans asset forth above through appropriate
legal channels in the event an asset purchase does not materialize.
We
have
not yet completed the purchase of Filco's assets from the German receiver
because we have not raised sufficient funding. We want to ensure that this
operation, should we purchase the assets of Filco, has the necessary capital
to
achieve profitable and full operations. Filco had a cash burn rate of
approximately $300,000 per month. Over the past 9 months, Filco has burned
approximately $3 million with limited operations awaiting parts and funding
from
us to properly function.
The
funds
which we loaned to Filco during the time when its plant was closed for much
of
2004 and through 2005 was used to assist the company in reopening its plant
prior to Filco filing for insolvency. Loans provided by us were used by Filco
to
purchase inventory, pay some debt, to pay employee payroll at a 20% short work
rate (employees have been working 20% of the time and unemployment has
compensated the balance of their payroll), to pay current heating, lighting
and
power, telephones, leases and to order parts to get into
production.
Loans
to Filco GmbH
We
loaned
Filco GmbH an aggregate principal amount of $6,255,462 as of March 31, 2006,
exclusive of interest at 8% per annum, pursuant to a series of secured and
unsecured promissory notes. The loans are to be repaid on or prior to December
31, 2006. Of the $6,255,462 in loans to Filco, approximately $5,400,000 is
secured liens against Filco's plant machinery, equipment and other plant
property, and intellectual property, including designs and drawings, and
approximately $856,000 is unsecured in accord with the loan agreements and
certified equipment appraisal. Interest earned to date in not included in the
figures stated above. The amounts stated herein represent the appraised
valuation of the machinery and equipment and does not include intellectual
property, as no value has been appraised for intellectual property.
The
loans
are to be repaid on or prior to December 31, 2006. On January 20, 2006, Filco
filed for insolvency in Germany. As a result of the filing by Filco, we
terminated the Acquisition Agreement on February 7, 2006. As a result of the
receivership, there area several options available to us as the largest creditor
of Filco. A possibility exists for us to potentially write off the loans in
total or in part, providing that we are successful in purchasing the entire
assets of Filco from the German receiver. In the event that we cannot
successfully finance the purchase of assets, then we will file a legal action
in
Germany for the recovery of our loans by enforcing our liens against Filco's
machinery and equipment, as well as the intellectual property, that is the
subject of our secured interest. There can be no assurance that we would be
able
to recover all or a portion of our secured and unsecured loans to Filco. We
maintain security interests in Filco's plant machinery, equipment and other
plant property, and intellectual property, including designs and drawings for
over 100 models of Clark lift trucks. An appraisal made by an
independent appraiser in July 2005 which establishes equipment and machinery
value as of April 2003 valued this machinery and equipment at 4,500,000 Euros
(US $5,400,000). Such appraisal did not include the valuation of Filco's
intellectual property, which we believe has significant value. We have used
proceeds from the private placement offerings that we completed during 2004
and
2005 to fund such loans. To
purchase
all of the assets of Filco from the receiver, it is has been negotiated that
1.4
million Euros would be needed for all machinery and equipment, intellectual
property and inventory and another 3 million Euros for the purchase of the
building and property. In addition, we
have
determined that an additional $3.5 million will be required for operating
capital for Filco. Our analysis shows that additional estimated working capital
needs during the 2nd year will be another $5,000,000 to achieve profitable
and
expanded operations. It should be noted that the operations we are describing
are different than previously discussed by management. Significant differences
exist in operations that could take place in the event of our proposed purchase
of Filco assets from the German receiver. First, we could own all of the assets,
have no debt (excepting that incurred to finance the asset purchase and would
have no union employees). Should we complete the purchase of Filco assets,
we
will need to raise additional capital through equity or proper lines of credit
in order to fund the working capital needs. We intend to provide additional
funds, after year one, either in the form of guaranteed credit lines or through
additional sales our securities. We have contacted several financial
institutions attempting to secure credit lines necessary for successful
operations.
CRITICAL
ACCOUNTING POLICIES
The
Securities and Exchange Commission defines "critical accounting policies" as
those that require application of management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods.
Not
all
of the accounting policies require management to make difficult, subjective
or
complex judgments or estimates. However, the following policies could be deemed
to be critical within the SEC definition.
REVENUE
RECOGNITION
Revenue
on product sales is recognized when persuasive evidence of an arrangement
exists, such as when a purchase order or contract is received from the customer,
the price is fixed, title to the goods has changed and there is a reasonable
assurance of collection of the sales proceeds. We obtain written purchase
authorizations from our customers for a specified amount of product at a
specified price and consider delivery to have occurred at the time of shipment.
Revenue is recognized at shipment and we record a reserve for estimated sales
returns, which is reflected as a reduction of revenue at the time of revenue
recognition.
Revenues
from research and development activities relating to firm fixed-price contracts
are generally recognized as billing occurs. Revenues from research and
development activities relating to cost-plus-fee contracts include costs
incurred plus a portion of estimated fees or profits based on the relationship
of costs incurred to total estimated costs. Contract costs include all direct
material and labor costs and an allocation of allowable indirect costs as
defined by each contract, as periodically adjusted to reflect revised agreed
upon rates. These rates are subject to audit by the other party. Amounts can
be
billed on a bi-monthly basis. Billing is based on subjective cost investment
factors.
YEAR
ENDED DECEMBER 31, 2005 COMPARED TO YEAR ENDED DECEMBER 31,
2004
RESULTS
OF OPERATIONS
We
have
been a development stage company for much of 2005 and all of 2004 periods and
have not engaged in full-scale operations for the periods indicated. The limited
revenues for the periods in 2005 have been derived from the sales of
omni-directional lift trucks. The available dollar limits of contracts with
the
United States Navy were substantially completed during 2002, and we recognized
limited revenues from the United States Navy contract during 2003. During 2006,
we hope to commence full production. Consequently, management believes that
the
year-to-year comparisons described below are not indicative of future
year-to-year comparative results.
There
was
no billing for the Navy MP2 project in 2004. The MP2 munitions carrier was
delivered to the Navy on/or about April 1, 2004 for their evaluation and
testing. An Omni-Direction engine handler developed for and with the Navy is
expected to be "loaned" to the Navy during 2005 for an evaluation. An ETU-110
engine handler was delivered to us by the Navy and is US government property.
The ETU-110 was cleaned, re-painted, and placed in working condition by us.
We
provided all required parts, labor and technology to make this vehicle
omni-directional. The cost for the parts and labor was allocated to "Cost Of
Goods Sold" in our financial statements for fiscal 2003. Since these funds
exceeded the amount contracted with the Navy, and an option for additional
services was not agreed upon, the labor and materials provided to the Navy
for
building the ETU-110 engine handler remains our property. This piece of
equipment is therefore owned jointly by the US Navy and us and will be used
to
demonstrate this technology to the US government and other military
services.
We
believe that the joint cooperation between us and the Navy with the MP2
contract, including the building of the ETU-110 omni-directional engine handler,
has bolstered the potential use of our technology within the military. We do
not
intend to incur additional costs with the US Navy unless we incur potential
expenses in demonstrating the ETU-110 omni-directional engine handler, or other
omni-directional vehicles.
REVENUES
Revenues
for fiscal 2005 were $781,202, representing a increase of $781,202 from revenues
of $0 for the 2004 period. This increase is revenue can be attributed to our
realized revenues from the first sales of the Sidewinder Omni-Directional Lift
Truck in 2005.
COST
OF GOODS SOLD
Cost
of
sales for 2005 was $729,080 which reflects a $729,080 increase from $0 in fiscal
2004. This increase in cost of goods sold can be attributed to our realized
revenues from the first sales of the Sidewinder Omni-Directional Lift Truck
in
2005.
OPERATING
AND ADMINISTRATIVE EXPENSES
Operating
and administrative expenses which includes administrative salaries, depreciation
and overhead for the 2005 period totaled $9,758,435 which represents an increase
of $7,228,660 from $2,529,775 incurred in 2004. The increase is due primarily
to
(i) the impairment adjustment due to Filco in the amount of approximately
$4,700,839; (ii) approximately $195,876 in Filco audit fees; (iii) increased
options for services in the amount of approximately $861,550; (iv) liquidated
damages in the amount of approximately $281,281, and
(v)
approximately $153,911 in payroll. Interest expense payable to third party
suppliers totaled $97,115 for the 2005 period, representing a $66,221 increase
from $30,894 for the 2004 period. In 2005, we posted $15,247 in other income
from interest payments due from Filco GmbH, which contrasts with $86,667 for
the
prior year-end. Net loss before taxes in 2005 was $15,802,891 which reflects
an
increase of $12,112,118 from $3,690,773 in net loss before taxes for the 2004
period.
In
2005,
we realized $114,525 on the sale of our net operating losses and tax credits
under a New Jersey program described further in Liquidity and Capital Resources
below. This amount contrasts with $175,413 recorded during 2004.
Loss
attributable to shareholders for 2005 was $15,210,456, which represents a
increase of $11,718,506 from $3,491,950 during the 2004 period. During 2005,
we
paid dividends on our preferred stock to a controlling shareholder of our
company in the amount of $51,563. For the year ended December 31, 2004, we
paid
dividends on our preferred stock to a controlling shareholder of our company
in
the amount of $131,771. Deficit accumulated during development stage during
2005
was $15,262,019 (or a loss per share of $0.71 for common stockholders), which
represents an increase of $11,638,298 from $3,623,721 (or a loss per share
of
$0.29 for common stockholders) for the 2004 period.
RESEARCH
AND DEVELOPMENT
We
incurred $544,933 and $519,804 in research and development expenses during
the
year ended December 31, 2005 and 2004, respectively. Research and development
activities during fiscal 2005 primarily involved continued testing and
evaluation of omni-directional components and preparing these components for
production in 2005. Our wheel design was changed from the "concept" to
"production" phase. This was and is an ongoing process between our and Timken's
engineers to insure manufacturability. The motors and controllers were designed
and/or changed in design in order to meet ANSI (American National Standards
Institute) and UL (Underwriters Laboratories) testing requirements. Danaher
and
us revised the algorithms used in the motor controllers as well the
microprocessor that runs the machines. Research and development activities
also
included further changes to existing designs and new designs that were patented
or for those patents with pending applications. Portions of the costs we
incurred due to testing and research and development were charged to the US
Navy
contract as provided therein.
LIQUIDITY
AND CAPITAL RESOURCES
Since
our
inception, we have financed our operations through the private placement of
our
common stock and from loans from our President. During 2005 and 2004 we raised
net of offering costs $5,991,638 and $5,103,103, respectively, from the private
placement of our securities.
During
2000, we were approved by the State of New Jersey for our technology tax
transfer program pursuant to which we could sell our net operating losses and
research and development credits as calculated under state law. During 2005
and
2004, we recorded credits of $867,413 and $198,823, respectively from the sale
of our losses and credits (see Note 9 to financial statements).
We
have
experienced negative cash flows from operations of $3,701,875 during 2005 and
$1,614,687 during 2004. These negative results stem primarily from losses
attributable to common shareholders of $15,416,456 in 2005 and $3,491,950 in
2004. These results are not unusual for a company in the development state;
it
is noteworthy that significant portions of the losses in 2004 result from non
cash charges, primarily from equity securities issued for services. In 2005,
significant portions of the losses result from non-cash charges, from the
impairment adjustment due to Filco, conversion expense and equity securities
issued for services.
We
have
consistently demonstrated our ability to meet our cash requirements through
private placements of its common stock. We have continued to similarly satisfy
those requirements during the year ended December 31, 2005.
We
anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, product production, and advertising in anticipation of the rollout
of
its omni-directional forklift.
We
will
require additional funds to continue our operations beyond the initial
production run. We anticipate that operating capital in the amount of $3 million
will be required during calendar year 2006 to sufficiently fund operations.
Of
the total amount, approximately 80% is projected for parts and component
inventory costs, with the balance projected as general operating expenditures,
which includes overhead and salaries. We expect to recognize lower per unit
manufacturing and part costs in the future due to volume discounts, as well
as
lower per unit shipping costs as we transition from the initial production
run
to full-scale production.
We
partially funded these additional cash requirements through the issuance of
equity and/or debt securities which may be similar to the offering described
above. We cannot predict whether we will be successful in obtaining sufficient
capital to fund continuing operations. If we are unable to obtain sufficient
funds in the near future, such event will delay the rollout of its product
and
likely will have a material adverse impact on us and our business
prospects.
As
of
December 31, 2005, our working capital deficit was $(2,926,787). Fixed assets,
net of accumulated depreciation, and total assets, as of December 31, 2005,
were
$190,893 and $5,993,216, respectively. Current liabilities as of December 31,
2005 were $6,186,390.
Liquidated
Damages
On
May
31, 2005 we entered into a Letter Agreement (the "Letter Agreement") with the
accredited investors who participated in our November 2004 private placement
(the "November 2004 Investors") pursuant to which we agreed to pay to the
November 2004 Investors an aggregate amount of $120,429.33, representing an
amount equal to 2% of the aggregate amount invested by the November 2004
Investors for each 30-day period or pro rata for any portion thereof, as
liquidated damages for our failure to file the registration statement within
45
days of November 22, 2004 and for our failure to have such registration
statement declared effective by the SEC within 90 days of November 22, 2004.
The
amount paid to the November 2004 Investors pursuant to the Letter Agreement
represents a default of 36 days with respect to filing the registration
statement and a default of 100 days with respect to having the registration
statement declared effective by the SEC. Under the Letter Agreement, the
liquidated damages paid to the November 2004 Investors satisfies our obligations
until June 30, 2005.
From
July
1, 2005 through January 6, 2006, an aggregate amount of approximately $271,146
has accrued in liquidated damages payable to the November 2004 Investors.
Further liquidated damages will continue to accrue since we withdrew the
registration statement which registered the shares underlying the securities
issued in the November 2004 private placement. As of the date hereof, the
November 2004 Investors have not demanded payment of the aforementioned unpaid
and accrued liquidated damages from us.
SUBSEQUENT
EVENTS
On
March
1, 2006, we issued an aggregate principal amount $150,000 of our 4% Unsecured
Convertible Debentures and 5 year warrants to purchase an aggregate of 48,077
shares of our common stock to two of the investors in our November 2004 private
placement. The debentures mature on March 1, 2008, pay simple interest at a
rate
of 4% per annum and are convertible into shares of our common stock at a price
equal to 1.56 per share. The warrants are exercisable into shares of our common
stock at a price equal to $1.65 per share. Our issuance of the aforementioned
securities were in settlement of accrued liquidated damages which we owed to
these investors for our inability to have the SEC declare our registration
statement on Form SB-2 effective within the specified timeframe as set forth
in
the Registration Rights Agreement dated November 22, 2004. In addition, the
investors agreed to forego any future accrual and payment of such liquidated
damages. We are currently negotiating with the remaining two investors of the
November 2004 private placement to settle the liquidated damages which we
currently, and in the future will, owe.
Liquidated
Damages
On
March
17, 2006, we began to accrue liquidated damages to the investors of the first
and second closings of our October 2005 private placement because we did not
register shares of our common stock underlying the Series C Unsecured
Convertible Debentures and common stock purchase warrants within 150 days from
the initial closing date of October 18, 2005. We have begun discussions with
the
lead investor of the October 2005 private placement, and intend to engage in
negotiations with the remaining investors, to settle the liquidated damages
which we currently, and in the future will, owe.
RISK
FACTORS
In
addition to other information contained in this Form 10-KSB/A, the following
Risk Factors should be considered when evaluating the forward-looking statements
contained in this Form 10-KSB/A:
RISKS
RELATED TO OUR FINANCIAL CONDITION AND BUSINESS
WE
MAY NEVER BECOME PROFITABLE AND CONTINUE AS A GOING CONCERN BECAUSE WE HAVE
HAD
LOSSES SINCE OUR INCEPTION.
We
may
never become profitable and continue as a going concern because we have incurred
losses and experienced negative operating cash flow since our formation. For
our
fiscal years ended December 31, 2005 and 2004, we had a net loss of
$(14,935,478) and $(3,491,950), respectively. We expect to continue to incur
significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing. If such financing is available you may
experience significant additional dilution.
WE
HAVE A LIMITED OPERATING HISTORY
We
have
been in operation since 1995. However, since 1995, our operations have been
limited to the development of our omni-directional products, and limited revenue
has been generated during this period. Consequently, our business may be subject
to the many risks and pitfalls commonly experienced by companies with limited
operations.
OUR
BUSINESS OPERATIONS WILL BE HARMED IF WE ARE UNABLE TO OBTAIN ADDITIONAL
FUNDING.
Our
business operations will be harmed if we are unable to obtain additional
funding. We do not know if additional financing will be available when needed,
or if it is available, if it will be available on acceptable terms. Insufficient
funds may prevent us from implementing our business strategy or may require
us
to delay, scale back or eliminate certain opportunities for the provision of
our
technology and products. As of December 31, 2005, we have loaned $6,275,881.10
to Filco. On, January 20, 2006, Filco filed for insolvency in Germany. As a
result of the filing by Filco, we terminated the Acquisition Agreement on
February 7, 2006. We are currently in discussions with the receiver in Germany
to determine the status of our secured and unsecured loans to Filco, as well
as
to explore the possibility of purchasing all or a portion of the assets of
Filco. This is dependent upon our ability to secure financing adequate to
purchase the assets of Filco and supply necessary operating capital. We
currently have no financing agreements in place and there can be no assurance
that we will obtain financing on terms that are favorable to us. As a creditor,
we have filed liens against Filco's machinery and equipment and intellectual
property. We will seek to recover on our secured and unsecured loans asset
forth
above through appropriate legal channels in the event an asset purchase does
not
materialize.
THE
PRICING POLICY FOR OUR FORKLIFTS MAY BE SUBJECT TO CHANGE, AND ACTUAL SALES
OR
OPERATING MARGINS MAY BE LESS THAN PROJECTED.
We
are
assessing present and projected component pricing in order to establish a
pricing policy for the SIDEWINDER Lift Truck. We have not finalized our
assessment as current prices for certain forklift components reflect special
development charges which are expected to be reduced as order volume for such
components increase and as manufacturing efficiencies improve. We intend to
price our forklifts so as to maximize sales yet provide sufficient operating
margins. Given the uniqueness of our product, we have not yet established final
pricing sensitivity in the market. Consequently, the pricing policy for its
forklifts may be subject to change, and actual sales or operating margins may
be
less than projected.
WE
HAVE RECEIVED LIMITED INDICATIONS OF THE COMMERCIAL ACCEPTABILITY OF OUR
OMNI-DIRECTIONAL FORKLIFT. ACCORDINGLY, WE CANNOT PREDICT WHETHER OUR
OMNI-DIRECTIONAL PRODUCTS CAN BE MARKETED AND SOLD IN A COMMERCIAL
MANNER.
Our
success will be dependent upon our ability to sell omni-directional products
in
quantities sufficient to yield profitable results. To date, we have received
limited indications of the commercial acceptability of our omni-directional
forklift. Accordingly, we cannot predict whether the omni-directional product
can be marketed and sold in a commercial manner.
WE
CANNOT ASSURE THAT WE WILL HAVE IN PLACE PATENT PROTECTION AND CONFIDENTIALITY
AGREEMENTS FOR OUR PROPRIETARY TECHNOLOGY. IF WE DO NOT ADEQUATELY PROTECT
OUR
INTELLECTUAL PROPERTY RIGHTS, THERE IS A RISK THAT THEY WILL BE INFRINGED UPON
OR THAT OUR TECHNOLOGY INFRINGES UPON ONE OF OUR COMPETITOR'S PATENTS. AS A
RESULT, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR OPERATIONS MAY BE MATERIALLY
HARMED.
Our
success will be dependent, in part, upon the protection of our proprietary
omni-directional technology from competitive use. A form of our omni-directional
technology was originally patented in 1973 and was sold to the US Navy. We
secured a transfer of this technology from the Navy in 1996 under the terms
of a
CRADA agreement (Cooperative Research and Development Agreement) and we have
worked since that time to commercialize omni-directional products. We received
3
patents regarding the "redesign" of the wheel. In addition, we have received
patent protection regarding the algorithms used to control vehicular movement.
Further, we have applied for patents for a movable operator's control station
and a munitions handler. Notwithstanding the foregoing, we believe our lack
of
patent protection is a material competitive risk. Our competitors could reverse
engineer our technology to build similar products. Also, certain variations
to
the technology could be made whereby our competitors may use the technology
without infringing upon our intellectual property. The patent for the
omni-directional wheel expired in 1990. We, however, have received patent
protection of certain other aspects of its omni-directional wheel, and for
features specific to our forklift. In addition to the patent applications,
we
rely on a combination of trade secrets, nondisclosure agreements and other
contractual provisions to protect our intellectual property rights.
Nevertheless, these measures may be inadequate to safeguard our underlying
technology. If these measures do not protect the intellectual property rights,
third parties could use our technology, and our ability to compete in the market
would be reduced significantly. In addition, if the sale of our product extends
to foreign countries, we may not be able to effectively protect its intellectual
property rights in such foreign countries.
In
the
future, we may be required to protect or enforce our patents and patent rights
through patent litigation against third parties, such as infringement suits
or
interference proceedings. These lawsuits could be expensive, take significant
time, and could divert management's attention from other business concerns.
These actions could put our patents at risk of being invalidated or interpreted
narrowly, and any patent applications at risk of not issuing. In defense of
any
such action, these third parties may assert claims against us. We cannot provide
any assurance that we will have sufficient funds to vigorously prosecute any
patent litigation, that we will prevail in any of these suits, or that the
damages or other remedies awarded, if any, will be commercially valuable. During
the course of these suits, there may be public announcements of the results
of
hearings, motions and other interim proceedings or developments in the
litigation. If securities analysts or investors perceive any of these results
to
be negative, it could cause the price of our common stock to
decline.
WE
CURRENTLY LACK ESTABLISHED DISTRIBUTION CHANNELS FOR OUR FORKLIFT PRODUCT
LINE.
We
do not
have an established channel of distribution for our forklift product line.
We
have initiated efforts to establish a network of designated dealers throughout
the United States. Although we have received indications of interest from a
number of equipment distributors, to date, such indications have been limited.
We cannot predict whether we will be successful in establishing our intended
dealer network.
IF
WE ARE UNABLE TO RETAIN THE SERVICES OF MR. PETER AMICO, OR IF WE ARE UNABLE
TO
SUCCESSFULLY RECRUIT QUALIFIED PERSONNEL, WE MAY NOT BE ABLE TO CONTINUE
OPERATIONS.
Our
ability to successfully conduct our business affairs will be dependent upon
the
capabilities and business acumen of current management including Peter Amico,
our President. Accordingly, shareholders must be willing to entrust all aspects
of our business affairs to our current management. Further, the loss of any
one
of our management team could have a material adverse impact on our continued
operation.
OUR
INDUSTRY AND PRODUCTS ARE CONSIDERED TO BE HIGH-RISK WITH A HIGH INCIDENCE
OF
SERIES PERSONAL INJURY OR PROPERTY LOSS WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS.
The
manufacture, sale and use of omni-directional forklifts and other mobility
or
material handling equipment is generally considered to be an industry of a
high
risk with a high incidence of serious personal injury or property loss. In
addition, although we intend to provide on-site safety demonstrations, the
unique, sideways movement of the forklift may heighten potential safety risks.
Despite the fact that we intend to maintain sufficient liability insurance
for
the manufacture and use of our products, one or more incidents of personal
injury or property loss resulting from the operation of our products could
have
a material adverse impact on our business.
IF
WE DO NOT SUCCESSFULLY DISTINGUISH AND COMMERCIALIZE OUR DEVELOPED PROPRIETARY
PRODUCTS AND SERVICES, WE WILL NOT ATTRACT A SUFFICIENT NUMBER OF CUSTOMERS.
ACCORDINGLY, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WITH OUR COMPETITORS
OR TO
GENERATE REVENUE SIGNIFICANT TO SUSTAIN OUR OPERATIONS.
Although
management believes our product will have significant competitive advantages
to
conventional forklifts, we are competing in an industry populated by some of
the
foremost equipment and vehicle manufacturers in the world. All of these
companies have greater financial, engineering and other resources than us.
No
assurances can be given that any advances or developments made by such companies
will not supersede the competitive advantages of our omni-directional forklift.
In addition, many of our competitors have long-standing arrangements with
equipment distributors and carry one or more of competitive products in addition
to forklifts. These distributors are prospective dealers for our company. It
therefore is conceivable that some distributors may be loath to enter into
any
relationships with us for fear of jeopardizing existing relationships with
one
or more competitors.
DUE
TO THE RECENT INSOLVENCY OF FILCO GMBH, THERE CAN BE NO ASSURANCE THAT WE WILL
PURCHASE TH ASSETS OF FILCO OR RECOVER OUR LOANS IN THE AGGREGATE AMOUNT OF
$6,275,881.10 MADE TO FILCO AND THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE
TO DO SO.
In
March
of 2004, a tentative agreement was negotiated with the principals of Filco
in
connection with the proposed acquisition. Our management determined to provide
Filco limited funding in the form of loans, until financing could be obtained
which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide $1.3 million to be allocated
in
the form of equity in Filco and Filipov would also capitalize 1.3 million Euros
that he had loaned Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. Further, once we complete the acquisition, we are responsible
to provide adequate operating capital to insure a successful business. A later
addendum to the tentative agreement stated that we would acquire 75.1%
controlling ownership interest in Filco.
On
January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the Acquisition Agreement on February 7, 2006.
We
are currently in discussions with the receiver in Germany to determine the
status of our secured and unsecured loans to Filco, as well as to explore the
possibility of purchasing all or a portion of the assets of Filco. There can
be
no assurance that we will be able to purchase the assets of Filco on terms
which
are favorable to us, or at all. Due to the insolvency filing by Filco, we are
attempting to recover our loans in the aggregate amount of $6,275,881.10,
exclusive of principal and interest at 8% per annum in accord with the loan
agreements made to Filco and there can be no assurance that we will be able
to
do so. If we are unable to recover our loans, we may have to curtail our
operations or seek additional financing.
RISKS
RELATING TO OUR COMMON STOCK
WE
HAVE ISSUED COMMON STOCK, WARRANTS, AND CONVERTIBLE NOTES TO INVESTORS AND
IN
EXCHANGE FOR FEES AND SERVICES AT A DISCOUNT TO THE MARKET PRICE OF OUR COMMON
STOCK AT THE TIME OF SUCH ISSUANCE. THIS RESULTS IN A LARGE NUMBER OF SHARES
WHICH HAVE BEEN ISSUED AND A LARGE NUMBER OF SHARES UNDERLYING OUR WARRANTS
AND
OTHER CONVERTIBLE SECURITIES THAT ARE OR MAY BE AVAILABLE FOR FUTURE SALE AND
THE SALE OF THESE SHARES MAY DEPRESS THE MARKET PRICE OF OUR COMMON
STOCK.
We
had
22,283,624 shares of common stock outstanding as of April 11, 2006, including
an
aggregate of 3,874,605 shares issued upon a conversion of our convertible notes
in March 2005 pursuant to our February 2005 private placement, and we had
convertible notes which require the issuance of 1,158,615 additional shares
of
common stock pursuant to our May and October 2005 private placements, and
warrants which require the issuance of 4,864,230 additional shares of common
stock pursuant to our November 2004, and February, May, and October 2005 private
placements, each of which have been issued or which are to be issued upon
conversion or exercise to investors of our company at a discount to the market
price of our common stock at the time of such issuance. In addition, we have
an
aggregate of 250,769 and 250,769 shares underlying our convertible debentures
and warrants, respectively, which we issued pursuant to our February 2006
private placement and an aggregate of 96,154 and 48,077 shares underlying our
convertible debentures and warrants, respectively, which we issued on March
1,
2006 in settlement of non-registration liquidated damages to two of our
investors in our November 2004 private placement. Further, we often issue common
stock and warrants in exchange for fees and services at a discount to the market
price of our common stock at the time of such issuance. This results in a large
number of shares which have been issued, a large number of shares underlying
our
warrants and other convertible securities that are or may be available for
future sale, and may create an overhang of securities for sale. The sale of
these shares which were or will be issued upon exercise or conversion of our
securities at a discount to the market price of our common stock at the time
of
issuance may depress the market price of our common stock and is dilutive to
shareholder value.
THE
MARKET PRICE OF OUR COMMON STOCK MAY DECLINE BECAUSE THERE ARE SHARES OF COMMON
STOCK WARRANTS WHICH WE ARE OBLIGATED TO REGISTER THAT MAY BE AVAILABLE FOR
FUTURE SALE, AND WE ARE OBLIGATED TO REGISTER SHARES OF OUR COMMON STOCK
UNDERLYING CONVERTIBLE NOTES PURSUANT TO OUR PRIVATE PLACEMENTS, AND THE SALE
OF
THESE SHARES MAY DEPRESS THE MARKET PRICE.
We
had
22,283,624 shares of common stock outstanding as of April 11, 2006. The market
price of our common stock may decline because there are a large number of shares
of our common stock underlying warrants that may be available for future sale,
and we are obligated to register 1,158,615 shares underlying convertible notes
pursuant to our May and October 2005 private placements. In addition, we are
obligated to register, pursuant to our November 2004 and February, May and
October 2005 private placements, an aggregate of 4,864,230 additional shares
of
common stock underlying warrants. Further, we have an aggregate of 250,769
and
250,769 shares underlying our convertible debentures and warrants, respectively,
which we issued pursuant to our February 2006 private placement and an aggregate
of 96,154 and 48,077 shares underlying our convertible debentures and warrants,
respectively, which we issued on March 1, 2006 in settlement of non-registration
liquidated damages to two of our investors in our November 2004 private
placement, all of which we are obligated to register for resale. The sale of
these shares by the investors may depress the market price. All of the shares
we
are obligated to register, may or will be sold without restriction. The sale
of
these shares may adversely affect the market price of our common
stock.
OUR
COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING
MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR
STOCK.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, the rules
require:
o
that a
broker or dealer approve a person's account for transactions in penny stocks;
and
o
the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be
purchased.
In
order
to approve a person's account for transactions in penny stocks, the broker
or
dealer must:
o
obtain
financial information and investment experience objectives of the person;
and
o
make a
reasonable determination that the transactions in penny stocks are suitable
for
that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny
stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
o
sets
forth the basis on which the broker or dealer made the suitability
determination; and
o
that
the broker or dealer received a signed, written agreement from the investor
prior to the transaction.
Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our common stock and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
ITEM
7. FINANCIAL STATEMENTS
AIRTRAX,
INC.
FINANCIAL
STATEMENTS
DECEMBER
31, 2005
CONTENTS
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Page
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|
Accountant's
Audit Report
|
|
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F-1
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|
|
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|
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Balance
Sheet
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F-2
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|
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|
|
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Statements
of Operations
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F-3
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|
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Statements
of Changes in Stockholder's Equity
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|
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F-4
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Statements
of Cash Flows
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|
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F-5
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Notes
to Financial Statements
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|
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F-6
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REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board of Directors and Shareholders of AirTrax, Inc.
I
have
audited the accompanying balance sheet of AirTrax, Inc. as of December 31,
2005,
and the related statements of operations, changes in stockholders' equity,
and
cash flows for the years ended December 31, 2005 and 2004. These financial
statements are the responsibility of the Company management. My responsibility
is to express an opinion on these financial statements based on my
audit.
I
conducted the audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor was I engaged to perform, and audit of its internal control over
financial reporting. My audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate under the circumstances, but not for the purpose of expressing
an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audit provides
a
reasonable basis for my opinion.
In
my
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AirTrax, Inc. as of December 31,
2005, and the results of its operations and its cash flows for the years ended
December 31, 2005 and 2004, in conformity with U.S. generally accepted
accounting principles.
|
|
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|
By: |
/s/ Robert
G.
Jeffrey |
|
Robert
G. Jeffrey
Certified
Public Accountant
|
|
Wayne,
New Jersey
April
23, 2007
|
AIRTRAX,
INC.
BALANCE
SHEETS
December
31, 2005
ASSETS
Current
Assets
|
|
|
|
Cash
|
|
$
|
19,288
|
|
Accounts
receivable
|
|
|
94,357
|
|
Inventory
|
|
|
2,005,139
|
|
Vendor
advance
|
|
|
163,517
|
|
Deferred
tax asset
|
|
|
977,302
|
|
Total
current assets
|
|
|
3,259,603
|
|
Fixed
Assets
|
|
|
|
|
Office
furniture and equipment
|
|
|
157,521
|
|
Automotive
equipment
|
|
|
21,221
|
|
Shop
equipment
|
|
|
43,349
|
|
Casts
and tooling
|
|
|
270,688
|
|
|
|
|
492,779
|
|
Less,
accumulated depreciation
|
|
|
301,886
|
|
Net
fixed assets
|
|
|
190,893
|
|
Other
Assets
|
|
|
|
|
Advances
to Filco Gmbh
|
|
|
2,000,000
|
|
Patents
- net
|
|
|
154,263
|
|
Deferred
Charges
|
|
|
388,392
|
|
Utility
deposits
|
|
|
65
|
|
Total
other assets
|
|
|
2,542,720
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
5,993,216
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
Accounts
payable
|
|
$
|
885,463
|
|
Accrued
liabilities
|
|
|
266,556
|
|
Obligation
for outstanding options
|
|
|
1,330,948
|
|
Warrants
and conversion option liability
|
|
|
3,516,462
|
|
Shareholder
notes payable
|
|
|
186,961
|
|
Total
current liabilities
|
|
|
6,186,390
|
|
Long
Term Convertible Debt
|
|
|
2,048,000
|
|
TOTAL
LIABILITIES
|
|
|
8,234,390
|
|
|
|
|
|
|
Stockholders'
Deficit
|
|
|
|
|
Common
stock - authorized, 100,000,000
|
|
|
|
|
shares
without par value; issued and
|
|
|
|
|
outstanding
- 21,939,360 and 15,089,342,
|
|
|
|
|
respectively
|
|
|
21,712,179
|
|
Paid
in capital - warrants
|
|
|
1,042,400
|
|
Preferred
stock - authorized, 5,000,000
|
|
|
|
|
shares
without par value; 275,000 issued and outstanding
|
|
|
|
|
Retained
deficit
|
|
|
(25,008,703
|
)
|
Total
stockholders' deficit
|
|
|
(2,241,174
|
)
|
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
5,993,216
|
|
The
accompanying notes are an integral part of these financial statements.
AIRTRAX,
INC.
STATEMENTS
OF OPERATIONS
For
the
Year 2005
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
SALES
|
|
$
|
718,842
|
|
|
-
|
|
COST
OF GOODS SOLD
|
|
|
729,080
|
|
|
-
|
|
Gross
Profit
|
|
|
(10,238
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
OPERATING
AND ADMINISTRATIVE EXPENSES
|
|
|
9,758,435
|
|
|
2,529,775
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(9,768,673
|
)
|
|
(2,529,775
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME AND EXPENSE
|
|
|
|
|
|
|
|
Conversion
Expense
|
|
|
(6,571,454
|
)
|
|
|
|
Interest
expense and amortization expense
|
|
|
(488,342
|
)
|
|
(386,364
|
)
|
Revaluation
income (expense)
|
|
|
993,837
|
|
|
(864,280
|
)
|
Interest
income
|
|
|
15,247
|
|
|
86,667
|
|
Other
income
|
|
|
16,494
|
|
|
2,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE INCOME TAXES
|
|
|
(15,802,891
|
)
|
|
(3,690,773
|
)
|
|
|
|
|
|
|
|
|
INCOME
TAX BENEFIT (STATE):
|
|
|
|
|
|
|
|
Current
|
|
|
867,413
|
|
|
198,823
|
|
Prior
years
|
|
|
-
|
|
|
-
|
|
Total
Benefit
|
|
|
867,413
|
|
|
(198,823
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS BEFORE DIVIDENDS
|
|
|
(14,935,478
|
)
|
|
(3,491,950
|
)
|
|
|
|
|
|
|
|
|
DEEMED
DIVIDENDS ON PREFERRED STOCK
|
|
|
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
|
(15,210,456
|
)
|
|
(3,491,950
|
)
|
|
|
|
|
|
|
|
|
PREFERRED
STOCK DIVIDEND
|
|
|
(51,563
|
)
|
|
(131,771
|
)
|
|
|
|
|
|
|
|
|
DEFICIT
ACCUMULATED
|
|
$
|
(15,262,019
|
)
|
$
|
(3,623,721
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE:
|
|
|
|
|
|
|
|
NET
LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS
|
|
$
|
(14,935,478
|
)
|
$
|
(3,491,950
|
)
|
|
|
|
|
|
|
|
|
ADJUSTMENT
FOR PREFERRED SHARE DIVIDENDS ACCUMULATED BUT UNPAID
|
|
|
68,750
|
|
|
68,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
ALLOCABLE TO COMMON SHAREHOLDERS
|
|
$
|
(15,004,228
|
)
|
$
|
(3,560,700
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE - Basic and Diluted
|
|
$
|
(.71
|
)
|
$
|
(.29
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
|
|
20,951,187
|
|
|
12,075,448
|
|
The
accompanying notes are an integral part of these financial
statements.
AIRTRAX,
INC.
STATEMENT
OF CHANGES IN EQUITY
TWO
YEARS
|
|
STOCK
|
|
PREFERRED
|
|
|
|
|
|
|
|
|
|
SHARES
|
|
AMOUNT
|
|
SHARES
|
|
AMOUNT
|
|
WARRANTS
|
|
DEFICIT
|
|
TOTAL
|
|
Balance,
December 31, 2003
|
|
|
8,696,552
|
|
$
|
6,209,996
|
|
|
275,000
|
|
$
|
12,950
|
|
$
|
-
|
|
|
(6,122,963 |
) |
$ |
99,983 |
|
Issuance
of shares sold in prior year
|
|
|
130,000
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130,000
|
|
Shares
sold in private placement offerings
|
|
|
5,500,125
|
|
|
2,685,402
|
|
|
|
|
|
|
|
|
1,042,400
|
|
|
|
|
|
3,727,802 |
|
Warrants
exercised
|
|
|
75,000
|
|
|
93,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
93,750
|
|
Shares
issued for services
|
|
|
687,665
|
|
|
661,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
661,306
|
|
Dividends
on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(131,771
|
)
|
|
(131,771
|
)
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,491,950
|
)
|
|
(3,491,950
|
)
|
Balance,
December 31, 2004
|
|
|
15,089,342
|
|
|
9,780,454
|
|
|
275,000
|
|
|
12,950
|
|
|
1,042,400
|
|
|
(9,746,684
|
)
|
|
1,089,120
|
|
Shares
issued in private placements
|
|
|
68,750
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000 |
|
Warrants
exercised
|
|
|
593,000
|
|
|
718,486
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
718,486 |
|
Options
exercised
|
|
|
45,000
|
|
|
19,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,619 |
|
Shares
issued for services
|
|
|
291,695
|
|
|
735,387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
735,387 |
|
Employee
stock awards
|
|
|
20,000
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,000 |
|
Shares
issued in lieu of rent
|
|
|
19,200
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,000 |
|
Issuance
of shares sold in prior year
|
|
|
1,749,827
|
|
|
1,401,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,401,172 |
|
Shares
issued in settlement of interest
|
|
|
28,453
|
|
|
66,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66,295 |
|
Transfer
from liability on exercise
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
warrants
|
|
|
181,000
|
|
|
181,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of convertible debt
|
|
|
3,846,154
|
|
|
4,277,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,277,500 |
|
Conversion
benefit capitalized
|
|
|
3,596,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,596,154 |
|
-
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for Filco investment
|
|
|
187,939
|
|
|
458,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
458,571 |
|
Dividends
on preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(51,563 |
) |
|
(51,563 |
) |
Preferred
stock dividend
|
|
|
326,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
326,541 |
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,210,456
|
)
|
|
(15,210,456
|
)
|
Balance,
December 31, 2005
|
|
|
21,939,360
|
|
$
|
21,712,179
|
|
|
275,000
|
|
$
|
12,950
|
|
$
|
1,042,400
|
|
|
|
|
$
|
(2,241,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
AIRTRAX,
INC.
STATEMENT
OF CASHFLOWS
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
2005
|
|
2004
|
|
Net
loss
|
|
$
|
(15,210,456
|
)
|
$
|
(3,491,950
|
)
|
Charges
not requiring the outlay of cash:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
59,500
|
|
|
100,507
|
|
Cost
of conversion
|
|
|
7,068,174
|
|
|
355,470
|
|
Value
of equity securities issued for services
|
|
|
1,918,750
|
|
|
1,033,343
|
|
Interest
accrued on shareholder advances
|
|
|
4,015
|
|
|
4,566
|
|
Excess
value of shares issued to settle liabilities
|
|
|
149,589
|
|
|
-
|
|
Deemed
dividend on preferred stock
|
|
|
274,978
|
|
|
-
|
|
Increase
in accrual of deferred tax benefit
|
|
|
(752,888
|
)
|
|
(23,409
|
)
|
Revaluation
of warrant liabilities
|
|
|
(992,757
|
)
|
|
864,280
|
|
Impairment
of Filco investment
|
|
|
4,700,839
|
|
|
-
|
|
Changes
in assets (liabilities):
|
|
|
|
|
|
|
|
Increase
in accounts receivable
|
|
|
(205,858
|
)
|
|
(138,684
|
)
|
Increase
in inventory
|
|
|
(1,295,858
|
)
|
|
(324,527
|
)
|
Increase
in accounts payable
|
|
|
490,504
|
|
|
5,717
|
|
Increase
in accrued expenses
|
|
|
89,592
|
|
|
-
|
|
Net
cash consumed by operating activities
|
|
|
(3,701,875
|
)
|
|
(1,614,687
|
)
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Acquisitions
of equipment
|
|
|
(150,806
|
)
|
|
(49,306
|
)
|
Additions
to patent cost
|
|
|
(42,861
|
)
|
|
(80,939
|
)
|
Advances
to FiLCO
|
|
|
(3,605,881
|
)
|
|
(2,670,000
|
)
|
Net
cash consumed in investment activities
|
|
|
(3,799,548
|
)
|
|
(2,800,245
|
)
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
of converted debt
|
|
|
4,277,500
|
|
|
-
|
|
Proceeds
of common stock sales
|
|
|
55,000
|
|
|
5,103,103
|
|
Proceeds
of convertible loans
|
|
|
1,659,138
|
|
|
-
|
|
Proceeds
of stockholder advances
|
|
|
151,493
|
|
|
- |
|
Repayments
of stockholder advances
|
|
|
(2,002
|
)
|
|
(52,005
|
)
|
Proceeds
of exercises of warrants
|
|
|
718,486
|
|
|
93,750
|
|
Proceeds
of exercises of options
|
|
|
19,619
|
|
|
5,944
|
|
Preferred
stock dividends paid in cash
|
|
|
|
|
|
(131,771
|
)
|
Net
cash Provided By Financing Activities
|
|
|
6,879,234
|
|
|
5,019,021
|
|
Net
change in cash
|
|
|
(622,189
|
)
|
|
604,089
|
|
Cash
balance beginning of period
|
|
|
641,477
|
|
|
37,388
|
|
Cash
balance end of period
|
|
$
|
19,288
|
|
$
|
641,477
|
|
The
accompanying notes are an integral part of these financial
statements.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The
Company was formed April 17, 1997. It has designed a forklift vehicle using
omni-directional technology obtained under a contract with the United States
Navy Surface Warfare Center in Panama City, Florida. The right to exploit this
technology grew out of a Cooperative Research and Development Agreement with
the
Navy. Significant resources have been devoted during prior years to the
construction of a prototype of this omni-directional forklift vehicle. The
Company recognized its first revenues from sales of this product during the
year
2005.
Development
Stage Accounting
In
prior
periods the Company was a development stage company, as defined in Statement
of
Financial Accounting Standards (FASB) No. 7. The Company is no longer considered
a development stage company.
The
Company has incurred losses from inception to December 31, 2005, of $25,214,703.
Until the end of 2004, these losses were financed by private placements of
equity securities. During 2005, the Company obtained financing almost
exclusively from the issuance of convertible debentures. The Company may need
to
raise additional capital through the issuance of debt or equity securities
to
fund operations.
Cash
For
purposes of the statements of cash flows, the Company considers all short-term
debt securities purchased with a maturity of three months or less to be cash
equivalents.
Inventory
Inventory
consists principally of component parts and supplies which will be used to
assemble forklift vehicles. Inventories are stated at the lower of cost
(determined on a first in-first out basis) or market.
Fixed
Assets
Fixed
assets are recorded at cost. Depreciation is computed by using accelerated
methods, with useful lives of seven years for furniture and shop equipment
and
five years for computers and automobiles.
Income
Taxes
Deferred
income taxes are recorded to reflect the tax consequences or benefits to future
years of temporary differences between the tax bases of assets and liabilities,
and of net operating loss carryforwards.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible
Assets
Patents
The
Company incurred costs to acquire certain patent rights. These costs were
capitalized and are being amortized over a period of fifteen years on a
straight-line basis.
Prototype
Equipment
The
cost
of developing and constructing the prototype omni-directional helicopter
handling vehicle and the omni-directional forklift vehicle is expensed as
incurred.
Use
of
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect certain reported amounts and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reporting periods. Actual results could differ
from those estimated.
Fair
Value of Financial Instruments
The
carrying amounts of the Company's financial instruments, which include cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate their fair values at December 31, 2005.
Research
and Development Cost
The
Company expenses all research and development cost unless the criteria required
by FASB No. 2 are met. To date there have been no research and development
costs
capitalized. During the years 2005 and 2004 a total of $544,933 and $519,804,
respectively, was spent on development activity.
Advertising
Costs
The
Company expenses advertising costs when the advertisement occurs. There were
no
advertising costs incurred during 2005 and 2004.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock
Options
Stock
options are occasionally awarded to employees, directors and outside parties
as
compensation for services. Such awards have been immediately exercisable. The
Company accounts for stock-based compensation under the intrinsic method
permitted by Accounting Principles Board Opinion No. 25. The following
represents information about net loss and loss per share as if the Company
had
applied the provisions of Statement of Financial Accounting Standards
("SFAS")123. Accounting for Stock Based Compensation, to all options
granted.
|
|
Year
Ended December 31,
|
|
|
|
|
|
2004
|
|
Net
loss as reported
|
|
$
|
(15,416
|
)
|
$
|
(3,492
|
)
|
Less:
Stock-based employee compensation
|
|
|
|
|
|
|
|
determined
under the Intrinsic Method
|
|
|
1,082
|
|
|
223
|
|
Add:
Stock bases compensation determined
|
|
|
|
|
|
|
|
under
the Fair Value Method
|
|
|
(1,105
|
)
|
|
(260
|
)
|
Pro
forma net loss
|
|
$
|
(15,439
|
)
|
$
|
(3,529
|
)
|
Loss
per share:
|
|
|
|
|
|
|
|
Basic
and diluted as reported
|
|
$
|
(.72
|
)
|
$
|
(.29
|
)
|
Basic
and diluted-pro forma
|
|
$
|
(.72
|
)
|
$
|
(.29
|
)
|
Pursuant
to the requirements of SFAS 123, the weighted average fair value of options
granted during 2004 and 2003 were $1.37 and $.49, respectively, on the dates
of
grant. The fair values were determined using a Black Scholes option-pricing
model, using the following major assumptions:
|
2005
|
2004
|
Volatility
|
90.10%
|
91.45%
|
Risk-free
interest rate
|
3.71%
|
3.63%
|
Expected
Life - years
|
4.52
|
4.33
|
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
In
December 2004, the FAB issued SFAS 123 (revise 2004), Share-Based Payment ("SFAS
123R"), which revised SFAS 123, Accounting for Stock-Based Compensation. SFAS
123R also supersedes APB 25, Accounting for Stock Issued to Employees, and
amends SFAS 95, Statements of Cash Flows. In general, the accounting required
by
AFAS 123R is similar to that of SFAS 123. However, SFAS 123 gave companies
a
choice to either recognize the fair value of stock options in their income
statements or to disclose the pro forma income statement effect of the fair
value stock options in the notes to the financial statements. SFAS 123R
eliminates that choice and requires the fair value of all share-based payment
to
employees, including the fair value of grants of employee stock options, be
recognized in the income statement, generally over the option vesting period.
SFAS 123R must be adopted no later than the fiscal year commencing after July
1,
2005.
SFAS
123R
permits adoption of its requirements using one of two transition
methods:
1.
A
modified prospective transition ("MPT") method in which compensation cost is
recognized beginning with the effective date (a) for all share-based payments
granted after the effective date and (b) for all awards granted to employees
prior to the effective date that remain unvested on the effective
date.
2.
A
modified retrospective transition ("MRT") method which includes the requirements
of the MPT method described above, but also permits restatement of financial
statements based on the amounts previously disclosed under SFAS 123's pro forma
disclosure requirements either for
(a)
all
prior periods presented or (b) prior interim periods of the year of
adoption.
The
Corporation plans to adopt SFAS #123R as of January 1, 2006.
As
permitted by SFAS 123, the Corporation currently accounts for share-based
payments to employees using APB 25's intrinsic value method and, as such, has
recognized no compensation cost for employee stock options. Accordingly,
adoption of SFAS 123R's fair value method will have a slight effect on results
of operations, although it will have no impact on overall financial position.
The impact of adoption of SFAS 123R cannot be predicted at this time because
it
will depend on levels of share-based payments granted in the
future.
Segment
Reporting
Management
treats the operations of the Company as one segment.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
Revenue
Recognition
Revenue
will be realized from product sales. Recognition will occur upon shipment to
customers, and where the following criteria are met; persuasive evidence of
an
arrangement exists; delivery has occurred; the sales price is fixed or
determinable; and collectability is reasonably assured. Some revenue has been
realized from performing services. Revenue from services is recognized when
the
service is performed and where the following criteria are met:
persuasive
evidence of an arrangement exists; the contract price is fixed or determinable;
and collectability is reasonably assured.
Common
Stock
Common
stock is often issued in return for product, services, and as dividends on
the
preferred stock. These issuances are assigned values equal to the value of
the
common stock on the dates of issuance.
2.
RESTATEMENTS
Certain
adjustments affecting the 2005 financial statements have been discovered during
an internal review. Correcting these errors resulted in changes in the loss
attributable to common shareholders with a resultant change in stockholders
equity, and certain changes in the statement of cash flows, as of December
31,
2005. The 2005 financial statements have, therefore, been restated to correct
these errors. The restated amounts are compared with the amounts previously
reported, in the following table.
STATEMENT
OF OPERATIONS
|
|
As
Originally
|
|
|
|
|
|
|
|
Presented
|
|
Adjustments
|
|
As
Restated
|
|
Net
loss before dividends
|
|
$
|
(14,935,478
|
)
|
$
|
-
|
|
$
|
(14,935,478
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend on preferred
stock
|
|
|
(480,978
|
)
|
|
206,000(A
|
)
|
|
(274,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Accumulated
|
|
$
|
(15,468,019
|
)
|
$
|
206,000
|
|
$
|
(15,262,019
|
)
|
STATEMENT
OF CASH FLOWS
|
|
As
Originally
|
|
|
|
|
|
|
|
Presented
|
|
Adjustments
|
|
As
Restated
|
|
Operating
Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(15,416,456
|
)
|
$
|
206,000
(A
|
)
|
$
|
(15,210,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend expense
|
|
|
480,978
|
|
|
(206,000)(A
|
)
|
|
274,978
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Cash Consumed By Operating Activities
|
|
$
|
(3,701,875
|
)
|
$
|
-
|
|
$
|
(3,701,875
|
)
|
(A) Decrease in Deemed Dividend Expense.
STATEMENT
OF CASH FLOWS
|
|
As
Originally
|
|
|
|
|
|
|
|
Presented
|
|
Adjustments
|
|
As
Restated
|
|
Cash
Flow from Operating Activities
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,272,200
|
)
|
$
|
(1,219,750
|
)
|
$
|
(3,491,950
|
)
|
Revaluation
expense
|
|
|
-
|
|
|
|
|
$
|
864,280
|
|
Conversion
expense
|
|
|
-
|
|
|
|
|
$
|
355,470
|
|
Net
Cash Consumed By Operating Activities
|
|
$
|
(1,614,687
|
)
|
$
|
-
|
|
$ |
(1,614,687 |
) |
(A)
Revaluation entry required because of reclassification of certain
warrants.
Certain
adjustments affecting the 2004 financial statements have been discovered during
an internal review. Correcting these errors resulted in changes in the loss
attributable to common shareholders with a resultant increase in the deficit
accumulated , and certain changes in the statement of cash flows, as of December
31, 2004 and for the year then ended. The 2004 financial statements have,
therefore, been restated to correct these errors. The restated amounts are
compared with the amounts previously reported, in the following table.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
2.
RESTATEMENTS (Continued)
These
corrections caused changes in the opening balances of the deficit accumulated
during development stage, as follows:
Retained
Deficit At Beginning of Year:
|
|
2004
|
|
As
previously reported
|
|
$
|
(5,916,011
|
)
|
Deficit
prior to development stage
|
|
|
(206,952
|
)
|
Net
loss, as restated
|
|
|
(3,491,950
|
)
|
Dividends
on preferred stock
|
|
|
(131,771
|
)
|
Retained
Deficit at End of Year
|
|
$
|
(9,746,684
|
)
|
3.
RELATED PARTY TRANSACTIONS
The
Majority shareholder corporation and the Company president make loans to the
Company from time to time. The related notes accrue interest at 12% and are
due
on demand. The combined unpaid balance of principal and interest on these notes
was $186,961 at December 31, 2005.
During
2004, each member of the Board of Directors received 10,000 shares for services
as directors; these were valued at $50,500, reflecting the stock price at time
of award.
In
2004,
the president of the Company was granted 550,000 options, valued at $187,500.
In
2005 he was granted 750,000 options, valued at $975,000.
Three
employees were previously entitled under their employment contracts to 25,000
options each for each year of their contracts. One of these employees retired
during 2004, exercising his remaining options. Another employee exercised his
prior options and his 2004 options, for a total cost of $5,943. The last
employee has outstanding options granted during 2002, 2003, and 2004. These
options have been assigned during 2005 to a third party.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
4.
STOCK
OPTIONS
The
Company awards options under employment contracts with three employees. These
options entitle the employees to purchase company stock at discounted prices.
These options were immediately exercisable; there are no expiration dates to
these options, and none was forfeited during either year. A summary of option
activity is presented below.
|
|
|
|
2004
|
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
|
|
Exercised
|
|
|
|
Exercised
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
Options
outstanding at beginning of
|
|
|
|
|
|
|
|
|
|
year
|
|
|
620,000
|
|
$
|
.73
|
|
|
115,000
|
|
$
|
.38
|
|
Options
granted during year
|
|
|
800,000
|
|
|
.83
|
|
|
600,000
|
|
|
.74
|
|
Options
exercised during year
|
|
|
|
|
|
|
|
|
(95,000
|
)
|
|
|
|
|
|
|
(45,000
|
)
|
|
.44
|
|
|
|
|
|
.39
|
|
Options
outstanding at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,375,000
|
|
$
|
.80
|
|
|
620,000
|
|
$
|
.73
|
|
Weighted
average Fair Value of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
options
granted
|
|
|
|
|
$
|
1.37
|
|
|
|
|
$
|
.47
|
|
Weighted
average remaining life of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
outstanding
options - years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.52
|
|
|
|
|
|
4.33
|
|
5.
PRIVATE PLACEMENT OFFERINGS (Continued)
During
2005, the Company sold 68,750 shares in private placements, yielding proceeds
of
$55,000. It also issued three convertible debt issues. Each of these issues
included detachable warrants.
One
of
these debt issues ($5,000,000) yielded proceeds of $4,277,500 and has already
been converted into 3,846,154 shares of common stock; this issue was sold with
warrants to purchase 2,884,616 shares of common stock. The remaining issues
have
not yet been converted to stock; they bear interest at 8% and have two year
conversion terms. They arc further described below:
|
|
|
5-Year
Warrants
|
|
|
|
|
Exercise
|
Issuance
|
Proceeds
|
Debt
Conversion Price
|
Number
|
Price
|
$
500,000
|
$
409,913
|
$1.30
|
384,615
|
$2.11
|
1,548,000
|
1,249,225
|
$2.00
|
774,000
|
3.25
|
$
2,048,000
|
$
1,659,138
|
|
|
|
The
options not yet converted, and the outstanding warrants, have been classified
as
liabilities, as required by Emerging Issues Task Force (EITF) 00-19, having
met
the definitions of embedded derivatives.
Included
in the funds raised during 2004 through stock sales was $1,312,000 raised
through the sale of 1,640,000 shares under a Purchase Agreement dated November
22, 2004, That agreement required, among other things, that a registration
statement be filed with the SEC and that the registration statement be declared
effective by the SEC within a prescribed time. The Company did not fulfill
these
obligations. As a result, it is subject to penalties equal to 2% of the amount
invested for each 30 day period following the default date. On May 31, 2005,
the
Company entered into a letter agreement with a representative of this
shareholder group under which $120,429 was paid to settle the penalties which
had accrued. These penalties were charged to expense during 2005. Under the
May
31, 2005 agreement, no further penalties would accrue until after June 30,
2005.
The obligation concerning effectiveness of the registration statement has not
been satisfied and penalties have accrued since June 30, 2005 at the rate of
approximately $26,240 per month. The penalties paid thus far, and penalties
that
accrued subsequently, were charged to expense during the periods in which they
accrued. As of December 31, 2005 an additional $160,851 of liquidated damages
had been accrued.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
5.
PRIVATE PLACEMENT OFFERINGS (Continued)
There
have been three private placement offerings during 2005. Under the provisions
of
the first of these offerings, penalties will not accrue as the registration
requirements of that offering have been satisfied. Under the second such
offering, there is no provision for penalties. Under the third such offering,
penalties will accrue beginning 150 days after October 18, 2005. Such penalties
will accrue at the rate of 2% per month of the amount raised in that offering,
which was $1,000,000. These penalties will start to accrue on March 18, 2006
and
will accrue for no more than nine months.
6.
PREFERRED STOCK
The
Company is authorized to issue 5,000,000 shares of preferred stock, without
par
value. At December 31, 2005, 275,000 of these shares had been issued. Each
of
these shares entitles the holder to a 5% cumulative dividend based on a $5
per
share stated value. If sufficient cash is not available, or at the option of
the
shareholder, these dividends may be paid in common stock. This issue of
preferred stock also provides the shareholder with 10 votes for each share
of
preferred stock. The holder of this preferred stock is a corporation wholly
owned by the Company president and chairman.
Dividends
of $68,750 accrued on the preferred stock during each of the years 2002 through
2005. Cash dividends of $131,771 were paid during 2004. A stock dividend of
136,041 common shares will be paid in 2007, satisfying $51,563 of the unpaid
dividends. The balance of unpaid dividends at of December 31, 2005 was
$91,667.
At
December 31, 2005, the majority shareholder had the right, if elected, to
acquire 147,296 shares of common stock for accrued and unpaid dividends,
amounting to $78, 125, under the features of the preferred stock issue. Under
this election, preferred dividends in cash of $13,542 were unpaid in 2005.
See”
Note
2” for a description of restatements affected by the preferred
shares.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
7.
SHARES
ISSUED FOR SERVICES
Stock
options were granted to two Company employees during 2005 and 2004. In addition,
there were shares awarded as compensation for other services. These issuances
arc detailed below by type of service performed.
|
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services
Rendered
|
|
|
|
|
|
Price
at
Date
|
|
|
Grant Date
|
|
|
Value
at Grant Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising
|
|
|
5,000
|
|
|
2/24
|
|
|
2.50
|
|
|
12,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lega1
services
|
|
|
11,000
|
|
|
5/2
|
|
|
2.78
|
|
|
30,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
consulting
|
|
|
100,000
|
|
|
5/6
|
|
|
2.60
|
|
|
260,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Legal
services
|
|
|
50,000
|
|
|
5/6
|
|
|
2.60
|
|
|
130,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
15,000
|
|
|
4/1
|
|
|
2.40
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
relations
|
|
|
20,000
|
|
|
5/1
|
|
|
2.55
|
|
|
51,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facility
search
|
|
|
5,000
|
|
|
5/1
|
|
|
2.55
|
|
|
12,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
services
|
|
|
9,009
|
|
|
7/29
|
|
|
2.25
|
|
|
20,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
15,000
|
|
|
9/6
|
|
|
2.25
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
services
|
|
|
2,500
|
|
|
12/1
|
|
|
2.60
|
|
|
6,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
21,186
|
|
|
12/9
|
|
|
2.35
|
|
|
49,787
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public
relations
|
|
|
18,000
|
|
|
12/9
|
|
|
2.35
|
|
|
42,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
15,000
|
|
|
12/9
|
|
|
2.35
|
|
|
35,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shares issued to consultants
|
|
|
286,695
|
|
|
|
|
|
|
|
|
720
687
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
awards
|
|
|
20,000
|
|
|
2.40
|
|
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in lieu of rent
|
|
|
19,200
|
|
|
various
|
|
|
|
|
|
48,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued as partial
|
|
|
5,000
|
|
|
various
|
|
|
|
|
|
14,700
|
|
compensation
of financing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of cost of grants made
|
|
|
|
|
|
|
|
|
|
|
|
5,113
|
|
in
prior periods
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Value of stock issued for services
|
|
|
330,895
|
|
|
|
|
|
|
|
|
836,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of options granted for services
|
|
|
-
|
|
|
|
|
|
|
|
|
1,082,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of equity items issued for services
|
|
|
330,895
|
|
|
|
|
|
|
|
|
1,918,750
|
|
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
7.
SHARES
ISSUED FOR SERVICES (continued) 2004
|
|
Number
|
|
|
|
Grant
|
|
|
|
Services
Rendered
|
|
of
Shares
|
|
Date
|
|
Price
|
|
Share
Value
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
services
|
|
|
10,000
|
|
|
1
/2
|
|
|
1.29
|
|
|
12,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
services
|
|
|
15,000
|
|
|
6/14
|
|
|
1.12
|
|
|
16,800
|
|
122,680(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
26,020
|
|
|
6/14
|
|
|
1.12
|
|
|
29,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
services
|
|
|
24,075
|
|
|
6/14
|
|
|
1.12
|
|
|
26,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
5,000
|
|
|
6/14
|
|
|
1.12
|
|
|
5,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
services
|
|
|
40,000
|
|
|
9/8
|
|
|
0.89
|
|
|
34,000
|
|
(5,113)(l)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
50,000
|
|
|
8/9
|
|
|
0.8/6
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
services
|
|
|
165,500
|
|
|
3/15
|
|
|
1.05
|
|
|
173,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor
relations
|
|
|
15,000
|
|
|
2/2
|
|
|
0.68
|
|
|
10,200
|
|
145,110(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
relations and
|
|
|
69,550
|
|
|
1/0
|
|
|
1.01
|
|
|
70,245 |
|
marketing
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
services
|
|
|
23,775
|
|
|
10/1
|
|
|
0.82
|
|
|
19,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing
Services
|
|
|
24,000
|
|
|
10/30
|
|
|
0.90
|
|
|
21,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial
relations and
|
|
|
16,500
|
|
|
10/14
|
|
|
1.05
|
|
|
17,325
|
|
marketing
services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
of shares issued to
|
|
|
483,920
|
|
|
|
|
|
|
|
|
742,961
|
|
consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued to settle
|
|
|
37,421
|
|
|
|
|
|
|
|
|
-
|
|
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
value of stock issued
|
|
|
104,324
|
|
|
|
|
|
|
|
|
10,182(3
|
)
|
to
settle liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
issued in lieu of rent
|
|
|
12,000
|
|
|
various
|
|
|
.75
|
|
|
9,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
awards
|
|
|
50,000
|
|
|
10/20
|
|
|
1.01
|
|
|
50,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stock issued
for services |
|
|
687,665 |
|
|
|
|
|
|
|
|
812,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
granted for services
|
|
|
-
|
|
|
|
|
|
|
|
|
220,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value
of equity items issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
services
|
|
|
687,665
|
|
|
|
|
|
|
|
$
|
1,033,343
|
|
(1)
Grants were issued in return for commitments for future service; this is the
expense allocated to future periods.
(2)
Amortization of the cost of grants issued in prior period.
(3)
Some
issuances were made to satisfy liabilities owed to the optionee; if the value
of
the issuance exceeded the liability, the excess was charged to
expense.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
8.
WARRANTS
The
following is a schedule of changes in warrants outstanding during the years
2005
and 2004. Each of these warrants are exercisable over five year periods from
dates of issuance at prices ranging from $1.00-$3.25 per share. They were
recorded at fair values determined by a Black Scholes valuation
model.
Balance
December 31, 2003
|
|
|
|
845,000
|
|
Issuances
in 2004:
|
|
|
|
|
|
|
|
|
|
|
|
In
conjunction with stock placements
|
|
|
|
|
|
through
investment banker:
|
|
|
|
|
|
|
|
|
|
|
|
March
|
|
|
1,800,063
|
|
|
|
|
September
|
|
|
171,875
|
|
|
|
|
November
|
|
|
820,000
|
|
|
2,791,938
|
|
Awarded
as partial fees to brokers:
|
|
|
|
|
|
|
|
March
|
|
|
460,000
|
|
|
|
|
September
|
|
|
34,375
|
|
|
|
|
November
|
|
|
264,000
|
|
|
758,375
|
|
Warrants
issued in private stock sales
|
|
|
|
|
|
832,450
|
|
Warrants
exercised during 2004
|
|
|
|
|
|
(75,000
|
)
|
Warrants
issued for services (partially
|
|
|
|
|
|
385,000
|
|
voided
during 2005)
|
|
|
|
|
|
|
|
Balance
December 31, 2004
|
|
|
|
|
|
|
|
Warrants
issued in conjunction
|
|
|
|
|
|
|
|
with
issuances of convertible debt:
|
|
|
|
|
|
|
|
February
issue
|
|
|
2,884,615
|
|
|
|
|
May
issue
|
|
|
384,615
|
|
|
|
|
October
issue
|
|
|
774,000
|
|
|
4,043,230
|
|
Awarded
as partial fees to brokers:
|
|
|
|
|
|
|
|
February
issue
|
|
|
484,615
|
|
|
|
|
May
issue
|
|
|
38,462
|
|
|
|
|
October
issue
|
|
|
154,800
|
|
|
677,877
|
|
Warrants
exercised during 2005
|
|
|
|
|
|
(593,000
|
)
|
Warrants
voided during 2005
|
|
|
|
|
|
(200,000
|
)
|
Warrants
issued for services
|
|
|
|
|
|
37,688
|
|
Balance
December 31 2005
|
|
|
|
|
|
9,503,558
|
|
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
9.
EXPENSES
Major
items included in operating and administration expenses are detailed
below:
|
|
|
|
|
|
|
|
2005
|
|
2004
|
|
Insurance
|
|
$
|
179,739
|
|
$
|
69,883
|
|
Marketing
|
|
|
272,879
|
|
|
205,321
|
|
Payroll
|
|
|
556,454
|
|
|
402,543
|
|
Consulting
|
|
|
610,550
|
|
|
721,361
|
|
Officer
options
|
|
|
975,000
|
|
|
187,500
|
|
Other
compensation
|
|
|
120,280
|
|
|
-
|
|
Other
options awarded
|
|
|
107,250
|
|
|
39,600
|
|
Professional
fees
|
|
|
385,285
|
|
|
74,059
|
|
Office
expenses
|
|
|
147,521
|
|
|
36,005
|
|
Filco
Impairment
|
|
|
4,700,839
|
|
|
-
|
|
FILCO
audit fees
|
|
|
195,676
|
|
|
-
|
|
Penalties
|
|
|
281,281
|
|
|
-
|
|
Rent
|
|
|
87,627
|
|
|
58,800
|
|
Travel
and entertainment
|
|
|
76,714
|
|
|
30,656
|
|
Depreciation
and amortization
|
|
|
-
|
|
|
100,507
|
|
Product
development
|
|
|
496,902
|
|
|
369,666
|
|
Director
awards
|
|
|
-
|
|
|
50,500
|
|
Shipping
|
|
|
172,840
|
|
|
-
|
|
Payroll
taxes
|
|
|
69,996
|
|
|
40,959
|
|
Other
expenses
|
|
|
331,652
|
|
|
140,411
|
|
|
|
$
|
9,758,435
|
|
$
|
2,529,775
|
|
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
10.
INCOME TAXES
The
Company has experienced losses each year since its inception. As a result,
it
has incurred no Federal income tax. The Internal Revenue Code allows net
operating losses (NOL's) to be carried forward and applied against future
profits for a period of twenty years. At December 31, 2005 the Company had
NOL
carryforwards of $18,409,274 available for Federal taxes and $10,309,634 for
New
Jersey taxes. The potential tax benefit of the state NOL's has been recognized
on the books of the Company; the potential benefit of the Federal NOL's has
been
offset by a valuation allowance. If not used, these Federal carryforwards will
expire as follows:
2011
|
|
$
|
206,952
|
|
2012
|
|
|
129,092
|
|
2018
|
|
|
486,799
|
|
2019
|
|
|
682,589
|
|
2020
|
|
|
501,169
|
|
2021
|
|
|
775,403
|
|
2022
|
|
|
590,764
|
|
2023
|
|
|
2,233,386
|
|
2024
|
|
|
2,493,486
|
|
2025
|
|
|
10,309,634
|
|
During
the year 2005, the Company realized $114,525 from the sale, as permitted by
New
Jersey law, of its rights to use the New Jersey NOL's and research and
development credits that had accrued during 2004. These potential New Jersey
offsets for periods prior to 2004 are, thus, no longer available to the
Company.
Under
Statement of Financial Accounting Standards No. 109, recognition of deferred
tax
assets is permitted unless it is more likely than not that the assets will
not
be realized. The Company has recorded deferred tax assets as
follows:
|
|
Current
|
|
Non-current
|
|
Total
|
|
Deferred
Tax Assets
|
|
$
|
4,117,668
|
|
$
|
2,653,960
|
|
$
|
6,771,628
|
|
Valuation
Allowance
|
|
|
3,189,801
|
|
|
2,653,960
|
|
|
5,843,761
|
|
Balance
Recognized
|
|
$
|
927,867
|
|
$
|
-
|
|
$
|
927,867
|
|
The
entire balance of the valuation allowance relates to Federal taxes. Since state
tax benefits for years prior to 2004 have been realized, no reserve is deemed
necessary for the benefit of state tax losses of 2005.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
11.
RENTALS UNDER OPERATING LEASES
At
present, the Company is not obligated under any operating lease.
Rent
expense amount to $74,500 in 2005 and $49,500 in 2004.
12.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash
paid
for interest and income taxes is presented below:
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Interest
|
|
$
|
9,741
|
|
$
|
26,239
|
|
Income
taxes
|
|
|
0
|
|
|
500
|
|
There
were no noncash investing activities during either 2005 or 2004. The following
noncash financing activities occurred:
a.
Shares
of common stock were issued for services during 2005 and 2004; these totaled
31,895 and 687,665 shares, respectively. b. During 2004, 130,000 shares were
issued in settlement of stock sales which took place during 2003. c. During
2005, the Company issued 1,749,827 shares in settlement of stock sales which
took place during 2004. d. During 2005, the Company issued 28,453 shares in
settlement of interest due to investors. e. During 2005, the Company issued
187,939 shares to purchase third party debt of FiLCO, a German corporation
in
which the Company had an investment - see Note 12.
AIRTRAX,
INC.
NOTES
TO FINANCIAL STATEMENTS
December
31, 2005
13.
PROPOSED ACQUISITION
On
February 19, 2004, the Company reached a tentative agreement to purchase capital
stock of FiLCO GmgH., a German manufacturer of fork trucks (formerly Clark
Material Handling Company of Europe) with a manufacturing facility in Mulheim,
Germany (FiLCO). It was expected that the Company would acquire 75.1% of FiLCO.
While negotiations were continuing, the Company agreed to make advances to
FiLCO. Through December 31, 2005 advances totaling $6,255,462 had thus been
made.
On
January 20, 2006, Filco filed for insolvency in Germany and a receiver was
appointed. As a result, on February 7, 2006 the Company terminated the tentative
agreement to acquired Filco stock and began negotiations with the receiver
to
acquire some or all of the Filco assets. The $6,255,462 of advances to Filco
that were outstanding at December 31, 2005, are secured by the machinery and
equipment owned by Filco which in 2003 was appraised at $5,400,000, and by
its
intellectual property, which has not been appraised. Due to the uncertainty
of
the Company position under German bankruptcy law, the Filco advances have been
written down to $2,000,000.
During
May 2002, the Company signed an agreement with a broker-dealer to provide
investment banking and financial advisory services, which included the raising
of funds. Under the agreement, the broker-dealer was entitled to receive stock
warrants which if exercised would produce 450,000 shares of common stock of
the
Company during a four year term at an exercise price or approximately $1.75
per
share. A dispute arose between the parties regarding the agreement and its
performance. The Company has asserted that the broker-dealer induced the Company
to enter into the agreement through material misstatements and has not otherwise
performed its services under the agreement. The Company believes the
broker-dealer is not entitled to the stated compensation, and has not issued
the
stock warrants.
14.
RECENT ACCOUNTING PRONOUNCEMENTS
Except
for the impending change to adopt FASB 123R which is described in Note 1 under
Stock Options, the Company does not expect adoption of recently issued
accounting pronouncements to have a significant effect on the Company's results
of operations, financial position or cash flows.
ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
ITEM
8A. CONTROLS AND PROCEDURES
As
of the
end of the period covered by this report, we conducted an evaluation, under
the
supervision and with the participation of our chief executive officer/chief
financial officer of our disclosure controls and procedures (as defined in
Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our chief executive officer/chief financial officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under
the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Commission's rules and forms. There was no change
in
our internal controls or in other factors that could affect these controls
during our last fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
ITEM
8B. OTHER INFORMATION
None.
ITEM
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH
SECTION 16(A) OF THE EXCHANGE ACT.
Directors
are elected at each meeting of stockholders and hold office until the next
annual meeting of stockholders and the election and qualifications of their
successors. Executive officers are elected by and serve at the discretion of
the
board of directors.
Our
executive officers and directors are as follows:
Name
|
Age
|
Position
|
|
|
|
Peter
Amico
|
61
|
President
and Chairman of the Board of Directors
|
|
|
|
D.
Barney Harris
|
43
|
Executive
Vice President and Director
|
|
|
|
Nicholas
E. Fenelli*
|
51
|
Chief
Operations Officer
|
|
|
|
James
Hudson
|
61
|
Director
|
|
|
|
William
Hungerville
|
68
|
Director
|
|
|
|
Fil
Filipov
|
58
|
Director
|
|
|
|
Andrew
G. Guzzetti*
|
58
|
Director
|
*Appointment
effective April 1, 2006.
Peter
Amico - Mr. Amico is the founder of the Company and has been President and
Chairman of the Company and its predecessor since their inception in April
1995.
Prior to 1995, Mr. Amico was president and majority shareholder of Titan
Aviation and Helicopter Services, Inc. ("Titan"). He has an extensive background
in sales and in structural steel design. His career in sales has spanned over
thirty years and he has held sales positions at Firestone Tire & Rubber and
Union Steel Products, Inc. As a consequence of separate helicopter and airplane
accidents involving Titan, Mr. Amico filed for bankruptcy protection in
1996.
D.
Barney
Harris** - Mr. Harris has been a Director of the Company since December 1998
and
a Vice President since July 1999. From 1997 to July 1999, Mr. Harris was
employed by UTD, Inc. Manassas, Virginia. Prior to 1997, Mr. Harris was employed
by EG&G WASC, Inc., Gaithersburg, Maryland, as a Senior Engineer and Manager
of the Ocean Systems Department where he was responsible for the activities
of
45 scientists, engineers and technicians. During this period while performing
contract services for the US Navy, he was principally responsible for the design
of the omni-directional wheel presently used by the Company. Mr. Harris received
his B.S.M.E. from the United States Merchants Marine Academy in
1982.
Nicholas
E. Fenelli** - Nicholas E. Fenelli has been with our company since 2001 serving
first as Project Engineer, and as Vice President of Concept Development. From
1996 to 1998, Mr. Fenelli served as Project Engineer NACCO Materials Handling
Group, Inc, where his work included the ergonomic improvement project for the
Hyster/Yale order picker trucks, and work on the development of the three
wheeled sit down rider truck. From 1990 to 1995, Mr. Fenelli was Plant Manager
for Cammerzell Machinery Company, a manufacturer of powder compaction and
robotic conveying equipment for the Ceramic, Refractory, and Pharmaceutical
industries. Between 1988 and 2002, Mr. Fenelli served as Treasurer and as a
member of the Board of Directors of the Engineers Club of Trenton. He received
a
BS in Mechanical Engineering from Lehigh University in 1978.
Fil
Filipov - Mr. Filipov is the Chairman of Supervisory Board of Tatra, a Czech
Company, which is producing off highway trucks. He is the former President
&
CEO of Terex Cranes, a Division of Terex Corp. From 1994 through 1996, Mr.
Filipov served as Executive Vice President of the Terex Corp., where he was
responsible for strategic acquisitions and was the Managing Director of Clark
Material Handling Company in Germany (Filco GmbH). If the acquisition of Filco
GmbH is completed Mr. Filipov will retain 24.9% of Filco GmbH.
James
Hudson - Mr. Hudson has been a Director of the Company since May 1998. From
1980
to present, he has been President of Grammer, Dempsey & Hudson, Inc., a
steel distributor located in Newark, New Jersey.
William
Hungerville - Mr. Hungerville has been a director since February 2002. Since
1998, Mr. Hungerville has been retired from full time employment. From 1974
to
1998, he was the sole owner of a pension administrative service firm. Mr.
Hungerville is a graduate of Boston College, and attended an MBA program at
Harvard University for 2 years.
Andrew
G.
Guzzetti - From September 2004 to the present, Andrew G. Guzzetti has served
as
Managing Director of the Private Client Group of McGinn Smith and Co., Inc.,
an
investment banking and retail brokerage firm, where he is responsible
for
building the wealth management private client group through recruitment and
training. From February 2004 through September 2004, Mr. Guzzetti served as
Managing Director of the Private Client Division of The Keystone Equities Group
in which he was responsible for building the retail brokerage arm of this
company. From February 2002 through February 2004, Mr. Guzzetti was a private
investor consultant in which he assisted start-up public and private companies
in raising funds. From November 1995 through February 2002, Mr. Guzzetti served
as Senior Vice President and Branch Manager of Salomon Smith Barney where he
was
responsible for increasing the financial consultant population through
recruitment and training. Mr. Guzzetti received his BA in Economics from Utica
College in 1969.
**Our
engineers including the team initially lead by D. Barney Harris, Nicholas
Fenelli and Robert Mullowney designed and tested the "AirTrax" wheel which
corrected the "bumpy" ride in the technology as received from the US Navy at
speeds of 11 m.p.h. or more and alleviated it to the point wherein it was
considered acceptable in the materials handling industry. This design and
methods to achieve the design were patented by us as follows: (i) 6,340,065
-
low vibration omni-directional wheel on January 22, 2002, (ii) 6,394,203 -
method for designing low-vibration omni-directional wheels on May 28, 2002,
and
(iii)
6,547,340 - low vibration omni-directional wheel on April 15, 2003.
CODE
OF ETHICS
We
have
not adopted a Code of Ethics that applies to all of our directors, officers
and
employees, including our principal executive officer, principal financial
officer and principal accounting officer.
Executive
Officers of the Company
Officers
are appointed to serve at the discretion of the Board of Directors. None of
our
executive officers or directors has a family relationship with any other of
our
executive officers or directors.
COMMITTEES
OF THE BOARD OF DIRECTORS
As
of
December 31, 2005, we have an audit committee of our board of directors, which
was formed on November 30, 2004. The audit committee's charter was adopted
on
April 13, 2005.
COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT, AS AMENDED.
Based
solely upon our review of copies of Forms 3, 4 and 5, and any subsequent
amendments thereto, furnished to the Company by our directors, officers and
beneficial owners of more than ten percent of our common stock, we are not
aware
of any Forms 3, 4 and/or 5 which certain of our directors, officers or
beneficial owners of more than ten percent of our common stock that, during
our
fiscal year ended December 31, 2005, failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934
ITEM
10. EXECUTIVE COMPENSATION.
The
following table sets forth for the fiscal year indicated the compensation paid
by our company to our Chief Executive Officer and other executive officers
with
annual compensation exceeding $100,000:
Summary
Compensation Table:
SUMMARY
COMPENSATION TABLE
ANNUAL
COMPENSATION
|
|
Other
|
|
|
|
|
|
|
Annual
Restricted Options LTIP
|
|
|
|
|
Name
& Principal
|
|
|
|
All
Other
|
|
|
Payouts
|
All
Other
|
|
|
|
|
|
Awards
($)
|
(#)
|
($)
|
Compensation
|
Peter
Amico
|
2005
|
303,751(1)
|
0
|
-
|
-
|
-
|
-
|
-
|
President
and
|
|
|
|
|
|
|
|
|
Chairman
|
2004
|
185,000(1)
|
0
|
187,500(3)
|
-
|
-
|
-
|
-
|
of
the Board
|
|
|
|
|
|
|
|
|
of
Directors
|
2003
|
100,000(1)
|
0
|
1,000(2)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
(1)
During 2004, Mr. Amico was entitled to receive a salary of $185,000, of which
$116,825.62 was paid and the balance was deferred for future payment. During
2003, Mr. Amico was entitled to receive a salary of $100,000, of which
$88,461.68 was paid and the balance was deferred for future payment. In 2002,
Mr. Amico was entitled to receive a salary of $87,500, of which $84,135 was
paid
as salary to Mr. Amico and the balance was deferred for future payment. In
2002
and 2003, Mr. Amico received the use of a company automobile which we valued
at
$1,000. During 2005, Mr. Amico received payment of accrued salary which was
unpaid from 2003 of $29,038.32 and $50,674.48 from 2004.
(2)
Pursuant to his employment agreement for the year 2004 through 2005, Mr. Amico
had outstanding options to acquire a total of 500,000 shares at a total price
of
$0.85 per share. The fair market value of the underlying common stock was $1.14
per share (which was the closing price of our common stock on the date of grant,
July 1, 2004). Pursuant to his employment agreement for the year 2003 through
2004, Mr. Amico had outstanding options to acquire a total of 50,000 shares
at a
total price of $0.01. The fair market value of the underlying common stock
was
$.85 per share (which was the closing price of our common stock on the date
of
grant, June 30, 2004). The amount for 2002 represents the number of options
(50,000) multiplied by the fair market ($2.20) less his exercise costs of
$12,601. The fair market value of the underlying common stock was $2.20 per
share which was the closing price of our common stock on July 1, 2002, the
date
of grant. The amount for 2003 represents the number of options (50,000)
multiplied by the fair market ($.85) less his exercise costs of $0.01. In
addition, for 2002 and 2003, the amounts include $1,000 for the value of an
automobile usage.
(3)
The
value for the year 2004 is based upon the intrinsic value of the options granted
in 2004 which were calculated in accordance with APB #25.
OPTION
GRANTS IN LAST FISCAL YEAR
The
following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 2005:
Individual
Grants
|
Number
of
|
|
|
|
|
Securities
|
%
of Total Options
|
|
|
|
Underlying
|
Granted
to
|
|
|
|
Options
Granted
|
Employees
in Fiscal
|
Exercise
|
|
Name
|
(#)
|
Year
|
Price
($/sh)
|
Expiration
Date |
|
|
|
|
|
Peter
Amico
|
50,000
|
8%(1)
|
$
-(1)
|
None(1)
|
President
and Chairman
|
500,000
|
83%(1)
|
|
None(1)
|
|
|
|
|
|
(1)
Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico
has
outstanding options to acquire a total of 500,000 shares at a total price
of
$0.85 per share. Pursuant to his employment agreement for the year 2003
through
2004, Mr. Amico has outstanding options to acquire a total of 50,000
shares
at
a total price of $0.01.
OPTION
EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The
following table contains information concerning the number and value, at
December
31, 2005, of unexercised options held by executive officers named in
the
Summary Compensation Table:
|
|
|
|
|
|
|
Underlying
Unexercised
Options
at
|
Value
of Unexercised
Options
at
|
In-the-Money
|
Name
|
FY-End
(#)
|
(Exercisable/Unexercisable)
|
(Exercisable/Unexercisable)
|
FY-End
($)
|
|
|
|
|
|
Peter
Amico President
and
|
50,000
|
50,000
|
.85
|
$42,500
|
Chairman
|
500,000
|
500,000
|
.39
|
$195,000
|
Individual
Grants
(1)
Pursuant to his employment agreement for the year 2004 through 2005, Mr. Amico
has outstanding options to acquire a total of 500,000 shares at a total price
of
$0.85 per share. Pursuant to his employment agreement for the year 2003 through
2004, Mr. Amico has outstanding options to acquire a total of 50,000 shares
at a
total price of $0.01.
DIRECTORS'
COMPENSATION
The
Company's directors are compensated at the rate of $250 per meeting and are
reimbursed for expenses incurred by them in connection with the Company's
business. During 2003, each director received a stock grant of 10,000 shares
of
the Company's common stock. During 2004, each director received a stock grant
of
10,000 shares of the Company's common stock. The Company's board of directors
approved a stock grant in the amount of 20,000 shares of common stock for its
board of directors for 2005, conditional upon the Company having
revenues.
Other
than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table. The Company will approve compensation to Board
members serving on the Audit Committee of the Company during the next scheduled
Board meeting.
STOCK
OPTION PLANS
The
Company provided a stock grant for its board of directors for 2004, as described
above under the heading entitled "Directors Compensation". For 2005 the Company
provided a stock grant for its board of directors of 20,000 shares per year
scheduled to start after the Company began sales and deliveries of lift trucks.
Consequently, directors will be issued 15,000 shares each, with the exception
of
Mr. Filipov, for the fiscal year ended December 31, 2005.
Other
than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table.
EMPLOYMENT
AGREEMENTS
The
Company and Peter Amico have entered into written employment agreements for
Mr.
Amico's role as President of the Company. The parties entered into an agreement
covering the period from April 1997 to June 30, 2002 ("Original Employment
Agreement"). Effective July 1, 2002, the parties entered into a second
employment agreement for a one year term ("Second Employment Agreement").
Agreements for the year 2003 through 2004 and 2004 through 2006 were agreed
to
on November 30, 2004.
Under
the
Original Employment Agreement, Mr. Amico received an annual salary of $75,000
per year, and received stock options to acquire up to 50,000 shares per annum.
Of the options, 10,000 shares were exercisable for a total consideration of
a
$1.00 beginning in April 2000, 25,000 shares were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding such exercise
for
each year of the contract, and 15,000 shares were exercisable at 15% of the
lowest price paid for the stock in the 30 day period preceding such exercise
beginning in April 2000.
Under
the
Second Employment Agreement, Mr. Amico was entitled to receive an annual salary
of $100,000, and receive an option to acquire 50,000 shares of common stock
of
the Company for a total exercise price of $0.01. The Company may terminate
the
agreement without cause upon 14 days' written notice to the Employee. The
Company and Mr. Amico entered into new employment agreements as further
described below.
Under
a
one year Employment Agreement, ratified by the Board of Directors on November
30, 2004 for the period of July, 1 2003 through June 30, 2004, Mr. Amico was
entitled to receive an annual salary of $135,000, and receive an option to
acquire 50,000 shares of our common stock for a total exercise price of $0.01.
We may terminate the agreement without cause upon 14 days' written notice to
the
Mr. Amico.
Under
a
two year employment agreement (covering July 1, 2004 through June 30, 2006)
ratified by the Board of Directors on November 30, 2004 for the period of July
1, 2004 through June 30, 2005, Mr. Amico is entitled to receive an annual salary
of $200,000, and receives options to purchase up to 500,000 shares of our common
stock at a rate equal to the "bid" price of the stock per share on the beginning
date of the employment agreement. accordingly, the bid price of our common
stock
on July 1, 2004, the beginning date of the employment agreement, was $0.80
per
share and all options, if exercised, will be at an exercise price $0.80 per
share. All options have a cashless exercise. We may terminate the agreement
without cause upon 14 days' written notice to Mr. Amico. under the second year
of this employment agreement, for the period of July 1, 2005 through June
30,2006, Mr. Amico is entitled to receive an annual salary of $250,000, and
options to purchase up to 750,000 shares of our common stock at the rate equal
to the "bid" price of the stock per share on the beginning date of the
employment agreement. Accordingly, the bid price of our common stock on July
1,
2004, the beginning date of the employment agreement, was $0.80 per share and
all options, if exercised, will be at an exercise price $0.80 per share. All
options have a cashless exercise. We may terminate the agreement without cause
upon 14 days' written notice to Mr. Amico.
Two
of
our employees maintain annual stock options for 25,000 shares for each year
of
employment during the term of their respective employment agreements. The
employment agreements may be terminated by either party with 14 days prior
notice, and do not contain a fixed term. Accordingly, the amount of stock
options issuable to such employees is 77,500 shares as of September 30,
2005.
The
stock
options for the 25,000 shares of our common stock are exercisable as follows;
2,500 shares are exercisable for a total consideration of $1.00, 10,000 shares
are exercisable at 35% of the lowest price paid for the stock in the 30 day
period preceding exercise, and 12,500 shares are exercisable at 17.5% of the
lowest price paid for the stock in the 30 day period preceding exercise.
Accordingly, the amount of stock options issuable to such employees is 112,500
as of December 31, 2004 and 97,500 as of June 30, 2005.The 112,500 options
had
not been exercised as of December 31, 2004
ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND
MANAGEMENT.
The
following table identifies as of April 14, 2006 information regarding the
current directors and executive officers of the Company and those persons or
entities who beneficially own more than 5% of its common stock and Preferred
Stock of the Company, the number of and percent of the Company's common stock
beneficially owned by:
o
all
directors and nominees, naming them,
o
our
executive officers,
o
our
directors and executive officers as a group, without naming them, and o persons
or groups known by us to own beneficially 5% or more of our common stock:
The
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A
person
is deemed to be the beneficial owner of securities that can be acquired by
him
within 60 days from April 14, 2006 upon the exercise of options, warrants or
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that
are
held by him, but not those held by any other person, and which are exercisable
within 60 days of April 14, 2006 have been exercised and converted.
Peter
Amico(1)
|
Common
Stock
|
3,038,846
(6)
|
13.64%
(2)
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
2,750,000
(3)(5)
|
100%
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Nicholas
Fenelli
|
Common
Stock
|
135,500
|
*
|
200
Freeway Drive, Unit 1 Preferred Stock
|
|
|
0%
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
D.
Barney Harris(1)
|
Common
Stock
|
151,301
(7)
|
*
(2)
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
0
|
0%
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Frank
Basile(1)
|
Common
Stock 137,046 (8)
|
|
*
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
0
|
0%
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
James
Hudson(1)
|
Common
Stock
|
75,800
(9)
|
*
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
0
|
0%
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
William
Hungerville(1)
|
Common
Stock
|
157,650
(10)
|
*(2)
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
0
|
0%
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Andrew
Guzzetti
|
Common
Stock
|
0
|
0%
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
0
|
0%
|
Blackwood,
NJ 08012
|
|
|
|
All
Officers and Directors
|
Common
Stock
|
3,560,643
(11)
|
15.98%
(2)
|
As
a Group (7 persons) Preferred Stock
|
|
|
100%
|
|
|
|
|
Arcon
Corp.
|
Common
Stock
|
1,916,702
(4)
|
8.60%
(2)
|
200
Freeway Drive, Unit 1
|
Preferred
Stock
|
2,750,000
(3)(5)
|
100%
|
Blackwood,
NJ 08012
|
|
|
|
*Less
than 1%
(1)
The
address of each beneficial owner is the address of the Company.
(2)
Based
on 22,283,624 shares of common stock outstanding as of April 11, 2006, except
that shares of common stock underlying options or warrants exercisable within
60
days of the date hereof are deemed to be outstanding for purposes of calculating
the beneficial ownership of securities of the holder of such options or
warrants.
(3)
Based
upon 275,000 outstanding shares of preferred stock after giving effect to the
10
for 1 voting rights (4) Represents 1,781,202 shares held by Arcon Corp., a
corporation wholly owned by Mr. Amico ("Arcon"), and however, excludes common
stock that may be issued to Arcon as a dividend on the preferred
stock.
(5)
Represents shares held by Arcon.
(6)
Represents 1,781,202 shares of common stock held by Arcon as stated in footnote
(4) above, and 1,257,644 shares of common stock held individually by Mr.
Amico.
(7)
Represents shares of common stock held individually.
(8)
Represents 115,000 shares held individually, 12,046 shares held by an affiliate,
and 10,000 shares held by his spouse. The amount excludes shares of common
stock
to the Company's that may be granted to directors during 2005.
(9)
Represents 44,500 shares of common stock held by an affiliate. The amount
excludes shares of common stock to the Company's that may be granted to
directors during 2005.
(10)
Represents 107,650 shares of common stock held individually, 40,000 shares
held
by an affiliate and 10,000 shares held by a family trust. The amount excludes
shares of common stock to the Company's that may be granted to directors during
2005.
(11)
Includes (4), (6), (7), (8), (9), and (10).
ITEM
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Arcon
Corp., a corporation wholly owned by our chairman and president Peter Amico,
owns 275,000 shares of our preferred stock. Each share of Preferred Stock is
entitled to 10 votes per share on all matters on which shareholders are entitled
to vote. The holders of our common stock and preferred stock vote as one single
class. Mr. Amico and Arcon Corp. together have 1,870,623 shares of common stock,
representing 1,870,623 votes, plus 275,000 shares of preferred stock with 10
votes per share, or a total of 2,750,000 voting shares. The aforementioned
equals a total of 4,620,623 voting shares of capital stock by Mr. Amico and
Arcon. The preferred stock has a stated value per share of $5.00 and an annual
dividend per share equal to 5% of the stated value. The annual cash dividend
as
of December 31, 2004 was $68,750. Dividends are cumulative and the holder has
a
right during any quarter to waive any cash dividend and receive the dividend
in
the form of common stock at a price per share equal to 30% of the trading price
of the common stock on the last day of the dividend period. The preferred stock
is not convertible into common stock, however, has a preference over common
stockholders upon liquidation equal to the stated value per share.
The
consideration paid by Mr. Amico and Arcon for the initial issuance of 275,000
shares of our preferred stock is as follows: Air Tracks, Inc. was incorporated
in May 1995. Peter Amico, our President and the largest shareholder of Air
Tracks, Inc., capitalized Air Tracks, Inc. with $20,000. In exchange, Mr. Amico
was issued 3.5 million shares of common stock of Air Tracks, Inc. We were formed
in April 1997 by Louis Perosi and Albert Walla. In April 1997, it was agreed
to
merge our company with Air Tracks, Inc. Pursuant to the merger, Mr. Amico
exchanged 3.5 million shares of Air Tracks, Inc. stock for 1 million shares
of
our common stock, plus 275,000 shares of preferred stock. It was determined
by
the parties that the voting shares that would be held by Mr. Amico/Arcon would
be essentially the same. Since the preferred shares are not convertible and
thus
held no exit method it was determined to provide a dividend. The $5.00 per
share
was the price used to satisfy the issue.
For
fiscal year 2001, Arcon received 246,731 shares of our common stock in lieu
of
the cash dividend which was deemed to have a fair market value of $188.412.
For
explanatory purposes, in 2001 the $188,412 fair market value of the stock
represents the $68,750 yearly dividend due for 275,000 shares owned in 2001,
valued at $5.00 per share, which is used to purchase common stock at a 30%
discount. This equates to $188,412 divided by 30% ($56,524) minus the difference
of the actual stock price which varied during the purchase period. For fiscal
year 2002, Arcon received a cash dividend of $17,187.50. and was due 136,041
shares of our common stock in lieu of the cash payment for the balance of the
dividend. The136,041 shares of common stock payable to Arcon were valued based
upon date obligation was settled (deemed to be April 1, 2005). The value of
those shares was $326,540, 136,041 multiplied by $2.40 per share and represents
the value of the additional shares of common stock. This value ($326,540) was
compared to dividends being settled in order to determine the deemed dividend
($274,978). For fiscal year 2003, Arcon expects to receive 19,097 shares of
common stock in lieu of the cash payment of the dividend. In 2004, Arcon
received payments of $17,187.50 for dividends due in 2002, $63,020.86 for
dividends due in 2003 and $51,562.52 for dividends due in 2004, of which
$17,187.50 remains payable in accrued dividends to Arcon.
From
time
to time, we issue options to purchase shares of our common stock to our
President, Peter Amico, as compensation for services performed on behalf of
our
company under Mr. Amico's employment agreements. For a further description
of
such options, and the terms and valuations related thereto, see the section
of
this annual report entitled "Executive Compensation".
Arcon
Corp. and our President have made loans from time to time to us in varying
amounts. The loan is due on demand and bears interest at 12%. As of December
31,
2004, the loan balance was $33,455.
Mrs.
Patricia Amico, the wife of our President, performed services to us during
2004,
2003, 2002, and 2001 for which she received $13,030, $11,579, $9,930, and
$9,126, respectively.
Mr.
Frank
Basile, a former director of our company, was a partner of a law firm that
performed legal services to us during fiscal 2004, 2003 and 2002. The billing
amount for such services for each year was less than $10,000.
During
2002 and 2001, each director of our company, other than Mr. Amico, received
a
stock option to acquire 5,000 shares of common stock at a price per share of
$0.50, and in 2003, each director, other than Mr. Amico, received a grant from
us of 10,000 shares of common stock, and in 2004, each director received a
grant
from us in the amount of 10,000 shares of common stock.
From
May
5, 2003 through September 2, 2003, we loaned Filco GmbH $365,435 to acquire
our
initial interest in Filco. Such funds were provided in the form of a loan
because we were not able to come up with sufficient funding to acquire our
initial interest. Filco repaid principal and interest under this loan to us.
In
March
of 2004, a tentative agreement was negotiated with the principals of Filco
in
connection with the proposed acquisition. Our management determined to provide
Filco limited funding in the form of loans, until financing could be obtained
which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide sufficient funding, which
the
parties estimated would be approximately $1.3 million to be allocated in the
form of equity in Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. A later addendum to the tentative agreement stated that
we
would acquire 75.1% controlling ownership interest in Filco.
The
amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is
our
primary goal. During the second quarter of 2005, we realized limited revenues
f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
We
believe that our unsecured loans to Filco are recoverable if the proposed
acquisition is not completed. Should Filco default with loan repayment, if
such
payment were due and requested, it would be much easier to put Filco into
bankruptcy in Germany than it would be in the United States. Should Filco be
put
into bankruptcy, we, as the largest creditor, would be in position to do a
legal
takeover through bankruptcy administrators.
We
loaned
Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines
or
through additional sales our securities.
Fil
Filipov is to be issued options to purchase 100,000 shares of our common stock
at an exercise price of $.0001 as compensation for services performed as our
director. If the proposed acquisition of Filco GmbH is completed, the tentative
agreement provides that Mr. Filipov will receive options to purchase an
additional 900,000 shares of our common stock at an exercise price of $.0001.
Accordingly, Mr. Filipov cannot exercise the options to receive more than an
aggregate of 112,500 shares of our common stock per year. Any increase on this
exercise limit is subject to the approval of our board of
directors.
ITEM
13. EXHIBITS.
(a)
Exhibits.
The
following exhibits are included as part of this Form 10-KSB. References to
"the
Company" in this Exhibit List mean AirTrax, Inc., a New Jersey
corporation.
|
3.1 |
Certificate
of Incorporation of AirTrax, Inc. dated April 11, 1997. (Filed as
an
exhibit to the Company's Form 8-K filed with the Securities and Exchange
Commission on November 19, 1999).
|
|
3.2 |
Certificate
of Correction of the Company dated April 30, 2000 (Filed as an exhibit
to
Company's Form 8-K filed with the Securities and Exchange Commission
on
November 17, 1999).
|
|
3.3 |
Certificate
of Amendment of Certificate of Incorporation dated March 19, 2001
(Filed
as an exhibit to Company's Form 8-K filed with the Securities and
Exchange
Commission on November 17, 1999).
|
|
3.4 |
Amended
and Restated By-Laws of the Company. (Filed as an exhibit to the
Company's
Form 8-K filed with the Securities and Exchange Commission on November
19,
1999).
|
|
4.1 |
Form
of Common Stock Purchase Warrant issued to investors pursuant to
the May
2004 private placement.
|
|
4.2 |
Form
of Common Stock Purchase Warrant dated as of November 22, 2004 and
November 23, 2004. (Filed as an exhibit to the Company's Form 8-K
filed
with the Securities and Exchange Commission on November 30,
2004).
|
|
4.3 |
Form
of Series A Convertible Note dated as of February 11, 2005 (Filed
as an
exhibit to the Company's Form 8-K filed on February 11,
2005).
|
|
4.4 |
Form
of Class A Common Stock Purchase Warrant dated as of February 11,
2005
(Filed as an exhibit to the Company's Form 8-K filed on February
11,
2005).
|
|
4.5 |
Form
of Class B Common Stock Purchase Warrant dated as of February 11,
2005
(Filed as an exhibit to the Company's Form 8-K filed on February
11,
2005).
|
|
4.6 |
Form
of Broker's Common Stock Purchase Warrant dated as of February
11,
2005
(Filed as an exhibit to the Company's Form 8-K filed on February
11,
2005).
|
|
10.1 |
Agreement
and Plan of Merger by and between MAS Acquisition IX Corp. and
AirTrax
, Inc. dated November 5, 1999. (Filed as an exhibit to the Company's
Form 8-K filed with the Securities and Exchange Commission on January
13,
2000).
|
|
10.2 |
Employment
agreement dated April 1, 1997 by and between the Company and Peter
Amico. (Filed as an exhibit to the Company's Form 8-K/A filed with
the
Securities and Exchange Commission on January 13,
2000).
|
|
10.3 |
Employment
agreement dated July 12, 1999, by and between the Company and D.
Barney Harris. (Filed as an exhibit to the Company's Form 8-K/A
filed
with
the Securities and Exchange Commission on January 13,
2000).
|
|
10.4 |
Consulting
Agreement by and between MAS Financial Corp. and AirTrax, Inc.
dated October 26, 1999. (Filed as exhibit to the Company's Form
8-K
filed
with the Securities and Exchange Commission on November 19,
1999).
|
|
10.5 |
Employment
Agreement effective July 1, 2002 by and between the Company and
Peter Amico (filed as an exhibit to the Company's Form 10-KSB for
the
period ended December 31, 2002)
|
|
10.6 |
Agreement
dated July 15, 2002 by and between the Company and Swingbridge
Capital
LLC and Brian Klanica. (Filed as an exhibit to the Company's Form
8-K filed on August 7, 2002).
|
|
10.7 |
Product
Development, Sales and Manufacturing Representation Agreement dated
March 13, 2004 by and between AirTrax, Inc., and MEC Aerial Platform
Sales Corporation. (Filed as an exhibit to the Company's Form 8-K
filed on March 15, 2004).
|
|
10.8 |
General
Sales Contract and Amendment dated March 10, 2004 by and between
AirTrax
, Inc with Incomex Saigon. (Filed as an exhibit to the Company's
Form
8-K filed on March 22, 2004).
|
|
10.9 |
Purchase
Agreement, dated November 22, 2004, by and among AirTrax, Inc.
and
Excalibur Limited Partnership, Stonestreet Limited Partnership,
Whalehaven
Capital Fund. (Filed as an exhibit to the Company's Form 8-K filed
on November 30, 2004).
|
|
10.10 |
Joinder
to the Purchase Agreement, dated November 23, 2004, by and among
AirTrax,
Inc. and Excalibur Limited Partnership, Stonestreet Limited Partnership
and Linda Hechter. (Filed as an exhibit to the Company's Form
8-K filed on November 30,
2004).
|
|
10.11 |
Registration
Rights Agreement, dated November 22, 2004, by and among AirTrax,
Inc. and Excalibur Limited Partnership, Stonestreet Limited Partnership,
Whalehaven Capital Fund and First Montauk Securities Corp. (Filed as
an exhibit to the Company's Form 8-K filed on November 30, 2004).
|
|
10.12 |
Joinder
to the Registration Rights Agreement, dated November 23, 2004,
by
and among AirTrax, Inc. and Excalibur Limited Partnership, Stonestreet
Limited Partnership, Linda Hechter and First Montauk Securities
Corp. (Filed as an exhibit to the Company's Form 8-K filed on November
30, 2004).
|
|
10.13 |
Subscription
Agreement dated February 11, 2005 by and among AirTrax, Inc.
and the investors named in the signature pages thereto (Filed as
an
exhibit
to the Company's Form 8-K filed on February 11,
2005).
|
|
10.14 |
Series
B Unsecured Convertible Debenture and Warrants Purchase Agreement,
dated May 31, 2005, by and between AirTrax, Inc. and the investor
named on the signature page thereto (Filed as an exhibit to the Company's
Form 8-K filed on June 6, 2005).
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|
10.15 |
Registration
Rights Agreement dated May 31, 2005, by and between AirTrax,
Inc. and the investor named on the signature page thereto (Filed
as an exhibit to the Company's Form 8-K filed on June 6,
2005).
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|
10.16 |
Series
B Unsecured Convertible Debenture of AirTrax, Inc. (Filed as an
exhibit
to the Company's Form 8-K filed on June 6,
2005).
|
|
10.17 |
Form
of Stock Purchase Warrant of AirTrax, Inc. (Filed as an exhibit to
the
Company's Form 8-K filed on June 6,
2005).
|
|
10.18 |
Letter
Agreement dated May 31, 2005 by and among AirTrax, Inc. and the
investors
named on the signature page thereto (Filed as an exhibit to the
Company's Form 8-K filed on June 6,
2005).
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|
10.19 |
Series
C Unsecured Convertible Debenture and Warrants Purchase Agreement,
dated October 18, 2005 by and between AirTrax, Inc. and the investor
named on the signature page thereto (Filed as an exhibit to the
Company's
Form 8-K filed on October 24,
2005).
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|
10.20 |
Registration
Rights Agreement dated October 18, 2005, by and between AirTrax,
Inc. and the investor named on the signature page thereto (Filed
as an exhibit to the Company's Form 8-K filed on October 24, 2005).
|
|
10.21 |
Series
C Unsecured Convertible Debenture of AirTrax, Inc. (Filed as an
exhibit
to the Company's Form 8-K filed on October 24,
2005).
|
|
10.22 |
Form
of Stock Purchase Warrant of AirTrax, Inc. (Filed as an exhibit to
the
Company's Form 8-K filed on October 24,
2005).
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|
10.23 |
Amended
and Restated Stock Acquisition Agreement effective as of as of
February
19, 2004 by and between AirTrax, Inc. and Fil Filipov (Filed as
an
exhibit to the Company's Form SB-2 filed on January 11,
2006).
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|
10.24 |
Promissory
Note of Filco GmbH dated as of January 15, 2005 issued to AirTrax,
Inc. (Filed as an exhibit to the Company's Form SB-2 filed
on January
11, 2006).
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|
10.25 |
Promissory
Note of Filco GmbH dated as of June 5, 2005 issued to AirTrax,
Inc. (Filed as an exhibit to the Company's Form SB-2 filed on January
11, 2006).
|
|
10.26 |
Assignment
and Purchase Agreement dated as of August 25, 2005 by and
between
Werner Faenger and AirTrax, Inc. (Filed as an exhibit to the Company's
Form SB-2 filed on January 11,
2006).
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|
10.27 |
Promissory
Note of Filco GmbH with Guarantees dated as of November 25, 2005
issued to AirTrax, Inc. (Filed as an exhibit to the Company's Form
SB-2
filed on January 11, 2006).
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|
10.28 |
Form
of Subscription Agreement of AirTrax, Inc. dated as of February 13,
2006.
(Filed as an exhibit to the Company's Form 8-K filed on February
27,
2006).
|
|
10.29 |
Series
D Unsecured Convertible Debenture of AirTrax, Inc. (Filed as an
exhibit
to the Company's Form 8-K filed on February 27,
2006).
|
|
10.30 |
Form
of Stock Purchase Warrant of AirTrax, Inc. (Filed as an exhibit
to
the
Company's Form 8-K filed on February 27,
2006).
|
|
31.1 |
Certification
by Chief Executive Officer and Chief Financial Officer pursuant
to Sarbanes-Oxley Section 302 (filed
herewith).
|
|
32.1 |
Certification
by Chief Executive Officer and Chief Financial Officer pursuant
to 18 U.S.C. Section 1350 (filed
herewith).
|
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT
FEES
The
aggregate fees billed for professional services rendered by our principal
accountants for the audit of our financial statements and for the reviews of
the
financial statements included in our annual report on Form 10-KSB and 10-QSBs
respectively, and for other services normally provided in connection with
statutory filings were $23,000 and $21,012, respectively, for the years ended
December 31, 2005 and December 31, 2004.
AUDIT-RELATED
FEES
We
incurred fees of $15,000 and $12,000, respectively, for the years ended December
31, 2005 and December 31, 2004 for professional services rendered by our
independent auditors that are reasonably related to the performance of the
audit
or review of our financial statements and not included in "Audit Fees." We
did
incur accounting (audit) fees of $75,000 for accounting fees to audit Filco
GmbH.
TAX
FEES
The
aggregate fees billed by our auditors for tax compliance matters were $750
and
$780 respectively, for the fiscal years ended December 31, 2005 and December
31,
2004.
ALL
OTHER FEES
We
did
not incur any fees for other professional services rendered by our independent
auditors during the years ended December 31, 2005 and December 31,
2004.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
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|
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|
AIRTRAX, INC., A NEW JERSEY
CORPORATION |
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|
|
Date:
April
25, 2007 |
By: |
/s/ Robert
M.
Watson |
|
Robert
M. Watson, President,
Chief
Executive Officer,
Director,
and Acting
Chief
Financial Officer
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|
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the
dates indicated.
SIGNATURE
|
|
|
TITLE
|
|
|
DATE
|
|
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|
|
|
|
|
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|
|
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|
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|
|
By: /s/ Robert M. Watson
Robert
M. Watson
|
|
|
President,
Chief Executive
Officer,
Acting
Chief
Financial Officer and
Director
|
|
|
April
25, 2007
|
|
|
|
|
|
|
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|
|
By:
/s/ D. Barney Harris
D.
Barney Harris
|
|
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Director
|
|
|
April
25, 2007
|
|
|
|
|
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|
|
By:
/s/ James Hudson
James
Hudson
|
|
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Director
|
|
|
April
25, 2007
|
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|
|
|
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|
|
|
By:
/s/ William Hungerville
William
Hungerville
|
|
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Director
|
|
|
April
25, 2007
|
|
|
|
|
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|
|
|
|
By:
Fil Filipov
|
|
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Director
|
|
|
April
25, 2007
|
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|
|
|
|
By: /s/Andrew Guzzetti
Andrew
Guzzetti |
|
|
Director
|
|
|
April
25, 2007
|
|
|
|
|
|
|
|
|
|
By: /s/ Peter Amico
Peter
Amico, Jr.
|
|
|
Director
|
|
|
April
25, 2007
|
|
|
|
|
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|
|
Robert Borski, Jr. |
|
|
Director
|
|
|
April
25, 2007
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42