AIRTRAX, INC. Form 10-KSB/A
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________________
FORM
10-KSB/A
(AMENDMENT
NO. 1)
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
THE
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2006
Commission
file number: 001-16237
__________________________________
AIRTRAX,
INC.
(Exact
name of small business issuer as specified in
its
charter)
New
Jersey
|
22-3506376
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
No.)
|
|
08012
|
(Address
of principal
executive
offices)
|
(Zip
Code)
|
__________________________________
Issuer’s
telephone number, including area code: (856) 232-3000
Securities
registered under Section 12(b) of the Exchange Act: None
Securities
registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, no par value.
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. ¨
Check
whether the issuer filed all reports required to be filed by Section 13 or
15(d)
of the Exchange Act during the preceding 12 months (or for such shorter period
that the issuer was required to file such reports), and (2) has been subject
to
the filing requirements for the past 90 days. Yes ¨
No
T
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B and no disclosure will be contained, to the best of the issuer’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
T
The
issuer’s revenues for the fiscal year ended December 31, 2006 were
$1,346,000.
The
aggregate market value of the Common Stock held by non-affiliates of the issuer
as of April
12,
2007
was $13,301,732.
The
number of shares outstanding of the issuer’s Common Stock as of April 12, 2007
was 24,376,887 shares.
DOCUMENTS
INCORPORATED BY REFERENCE: NONE
Transitional
Small Business Disclosure Format (check one): Yes ¨
No
T
AIRTRAX,
INC.
2006
FORM 10-KSB ANNUAL REPORT
TABLE
OF CONTENTS
Page
PART
I
|
|
4
|
Item
1. Description
of Business
|
5
|
Item
2. Description
of Property
|
13
|
Item
3. Legal
Proceedings
|
13
|
Item
4. Submission
of Matters to a Vote of Security Holders.
|
13
|
PART
II
|
|
14
|
Item
5. Market
for Common Equity and Related Stockholder Matters.
|
14
|
Item
6. Management’s
Discussion and Analysis or Plan of Operation.
|
27
|
Item
7. Financial
Statements.
|
29
|
Item
8. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure.
|
23
|
Item
8A. Controls
and Procedures.
|
|
Item
8B. Other Information
|
46
|
PART
III
|
|
24
|
Item
9. Directors, Executive Officers, Promoters and Control
Persons: Compliance with Section 16(a) of the Exchange Act
|
|
Item
10. Executive Compensation
|
|
Item
11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders
|
|
Item
12. Certain Relationships and Related Transactions, and
Director Independence
|
|
Item
13. Exhibits
|
24
|
Item
14. Principal
Accountant Fees and Services.
|
66
|
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, 2006 filed on Form 10-KSB on April 16, 2007, together with our quarterly
report on Form 10-QSB for the period ended September 30, 2006 was necessary
due
to the
issuance of Modification Agreements, 2% Unsecured Convertible Debentures
and
Stock Purchase Warrants, which were not previously recorded in our financial
statements, to the note holders of the October 2005 private placement of
$1,548,000 in full settlement of liquidated damages resulting from our not
filing a registration statement by a certain date registering for resale
shares
of common stock issuable upon conversion of their securities. In July 2006,
we
issued 2% Unsecured Convertible Debentures aggregating $359,549 and Stock
Purchase Warrants to acquire 110,808 shares of our common stock at $1.65
per
share. The conversion price of the shares underlying the note was $1.56.
Both
the conversion price and the warrants purchase price have been adjusted to
$.45
due to the pricing of the February 20, 2007 private
placement.
On
April
30, 2007, we also determined that a restatement of our December 31, 2006
financial statements on Form 10-KSB, together with our quarterly reports
on Form
10-QSB for the quarters ended March 31, 2006, June 30, 2006 and September
30,
2006 was necessary to correct an error in accounting for derivatives associated
with the private placement of 1,640,000 shares of common stock in November
2004,
which was accompanied by warrants to purchase common stock.
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.
For
the
convenience of the reader, this Form 10-KSB/A sets forth the original Form
10-KSB in its entirety. However, this Form 10-KSB/A only amends our financial
statements and the footnotes to our financial statements, along with the
corresponding changes to our Management’s Discussion and Analysis. We also
corrected typographical errors and have revised our controls and procedures
disclosure as a result of these restatements. No other information in the
original Form 10-KSB is amended hereby. 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 10KSB/A
as
Exhibits 31.1, 31.2 and 32.1, respectively.
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
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 could acquire, if we had finalized the acquisition,
from 51% to 75.1%. Through December 31, 2005, we had loaned Filco GmbH an
aggregate principal amount of $6,275,881 with no loans made by us in 2006,
exclusive of interest at 8% per annum, pursuant to a series of secured
promissory notes. Security for these loans consisted of Filco's plant machinery,
equipment and other plant property, and intellectual property, including designs
and drawings. We used proceeds from the private placement offerings that we
completed during 2004 and 2005 to fund the Filco loans.
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.
An
auction sale of Filco’s assets occurred on May 10, 2006. Due to the uncertainty
of our position under German bankruptcy law, $4,275,881 of the Filco advances
was written off in 2005, and the remaining $2,000,000 was written off in 2006.
Accordingly, any inventory, equipment or outstanding advances to Filco have
been
written off during 2006
and
there is no indication that the proceeds of any inventory or equipment at the
Filco plant will be returned to us.
In
connection with the Acquisition Agreement, Mr. Filipov was to receive options
to
purchase 900,000 shares of our common stock at an exercise price of $0.01.
We
did not issue such options because the Acquisition Agreement was terminated
and
we believe that the conditions for such issuance were never fulfilled. Mr.
Filipov has indicated to us that he believes that the conditions were fulfilled
and that we owe him the options. We and Mr. Filipov are endeavoring to reach
a
mutually acceptable settlement.
Introduction
Since
1995, substantially all of our resources and operations have been directed
towards the development of the Omni-Directional wheel, related components,
Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
components, including the unique shaped wheels, motors, and frames, have been
designed by Airtrax and are specially manufactured for us.
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.
During
the year ended December 31, 2006, we continued development of the COBRA and
KING
COBRA scissor lifts and the Omni-Directional power chair. We anticipate
incurring more costs on these products and plan to begin production of the
first
COBRA model and the KING COBRA in 2007. The growth and development of our
business will require a significant amount of additional working capital. We
currently have limited financial resources and based on our current operating
plan, we will need to raise additional capital in order to continue operations.
However, we are in discussions with lenders to raise capital in order to
continue operating, although we have no contracts or commitments for additional
capital at this time. We currently do not have adequate cash to meet our short
or long term objectives. In the event additional capital is raised, it may
have
a dilutive effect on our existing stockholders. However, there can be no
assurance that additional financing will be available at terms that are suitable
to us.
The
assembly of our products is conducted at our executive offices. Currently 100%
of our vehicle frames are being manufactured in the USA. These frames are
shipped to the Blackwood plant for final assembly. Previously, partially
assembled vehicles were shipped to the Blackwood facility from the Filco plant
in Germany. Fourteen were shipped to the USA for final assembly. A total of
approximately sixty frames were shipped from Bulgaria to the Filco plant for
partial assembly. None of the frames shipped from Bulgaria were within
specification. The twenty-seven frames shipped to the United States required
re-machining in order to make them useable. The balance were rejected and
abandoned with other parts inventory that was stored in the Filco plant.
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 lift trucks
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, scissor-lifts, and multi-purpose mobility
platforms. Extensive demonstrations of prototype vehicles for commercial and
military users in combination with market research have enabled us to direct
our
development efforts towards the products offering the best probability of
success in the market.
Our
engineers have 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 drive system which allows the vehicle free and
unrestricted movement during operation. Each vehicle is powered with electric
motors that eliminate brushes and commutators of conventional DC motors. The
motors also are lubricated for life thereby eliminating the need for additional
greasing and fittings. The ATX-3000 transmission uses a synthetic lubricant,
and
is sealed for life. The joysticks control all vehicle movement. Conventional
drive trains, steering racks, hydraulic valve levers, and foot petals for
braking and acceleration are all non-existent.
On
vehicles employing our Omni-Directional Technology, each wheel powered 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 powered
wheels through a microprocessor that receives input from an operator-controlled
joystick(s). The joystick(s) control all vehicle movement (starting, steering,
and stopping). The frame of our ATX-3000 Omni-Directional Lift Truck consists
of
a steel main frame and attached articulating axle, 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 specially shaped rollers
that are offset 45 degrees. 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.
EXISTING
AND PROPOSED PRODUCTS
SIDEWINDER
Omni-Directional Lift Trucks.
We
anticipate that we will add additional models of lift trucks to the SIDEWINDER
line, including a Reach truck and an Order Picker truck..
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 "PHOENIX(TM)",
incorporated our Omni-Directional technology along with an MEC platform and
lift
mechanisms.
On
March
13, 2004, we entered into a draft Product Development, Sales and Representation
Agreement with MEC. The draft agreement called for the joint development of
a
proto-type and production versions of an Omni-Directional aerial work platform
called the "3068ODS". During the development stage, each party was to provide
the parts, which apply to that party's area of responsibility. We would provide
all of the parts required for the Omni-Directional traction system and related
control systems, and MEC would 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 were to
establish the cost of a commercial product, and if the cost of a commercial
product was considered commercially viable, the parties would jointly develop
a
commercial version of the aerial work platform. If commercial production
resulted, we would have been responsible for product manufacturing, and MEC
or
its affiliate would have been responsible to promote, market and sell the
product to their network of approximately 200 distributors. Aerial work platform
sales made by MEC would be subject to a royalty to us and, likewise sales made
by us would be subject to a royalty to MEC. The amount of the respective
royalties would be subject to agreement by the parties. Orders placed by MEC
would be financed by MEC subject to agreed production schedules. We also planned
to manufacture the COBRA(TM) AWP 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 PHOENIX(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 3068ODS aerial work platform project would be products of our company
instead of an MEC designed or built 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
would be our product. In addition, the agreement was revised to provide that
we
would build another vehicle product line, the COBRA, which will be marketed
exclusively by our dealers. The parties mutually agreed to the dissolution
of
the agreement and Airtrax has decided to design, build and market the AWP’s
under the COBRA brand exclusively. Discussions with MEC regarding ways that
they
can make Omni-Directional AWP’s available to their customers are on
going.
Omni-Directional
Personal Mobility Devices.
We have
begun the development of new technologies which will enable us in the future,
to
develop Omni-Directional Personal Mobility Devices such as Power Chairs,
Scooters, and patient beds or lifts. We have had discussions with several
equipment manufacturers who may be interested in developing and marketing such
products using these technologies. No agreements have been made. We will require
additional funds to complete structural and ergonomic designs and proto-type
vehicles, for further evaluation and testing. We cannot predict whether we
will
be able to successfully develop these products.
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 studied the
feasibility of the MP2 for military purposes, and constructed two proto-type
devices. This contract (with the option) was extended twice for 6 months each
past the 42-month contract time period.. 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 design, an Omni-Directional Jet Engine
Handler conversion
kit was constructed, and demonstrated as proof of concept of the modularity
of
the design. 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 US military for products such as the MP2 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, through a GSA Multiple Awards Contract. We
have
begun the application process and hope it will be awarded by mid-2007. We cannot
predict whether we will be successful in our application.
On
September 7, 2006, we were awarded a $415,000 contract to design and build
a
customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract
includes an option to build 5 additional units at $95,000 each upon the
acceptance of the first unit. It is estimated that the follow on orders that
could result from this contract would be from 29 to 100 units over the next
one
to three years. The Critical Design Review was completed in November 2006,
the
design was approved and initial deliverables were provided. As a result, we
received a first process payment of $170,000 on December 12, 2006. We expect
to
begin the Acceptance Test Procedure in mid-April 2007 and upon successful
completion, will receive a second payment of $162,000. We cannot predict whether
we will be able to successfully pass all of the acceptance tests and complete
the contract, or that if we do so, that any subsequent orders will result.
CURRENT
OPERATIONS
Since
1995, substantially all of our resources and operations have been directed
towards the development of the Omni-Directional wheel, related components,
Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
components, including the unique shaped wheels, motors, and frames, have been
designed by Airtrax and are specially manufactured for us. 29 ATX-3000
Omni-Directional lift trucks, carrying ANSI certification and the UL Label,
have
been shipped to customers in 2006, and nine others are ready to ship pending
receipt of orders in the beginning of 2007.
ANSI
testing refers to a series of tests including tilt testing the vehicle with
masts it will use to make certain that it will not tip over in normal use.
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 on its side to prove that
the battery door lock will retain the battery in the event the vehicle is
overturned. ANSI testing was performed and documented by us and we have
certified 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 to certify that is free of hazards with
respect to fire and electrical shock. Completion of UL testing is generally
considered the mark of companies who will take extra steps and precautions
to
protect their customers.
MANUFACTURING
AND SUPPLIERS
There
was
limited production in the second through fourth quarters of 2006. All of
the
units shipped in 2006 and our current inventory were assembled in the last
quarter of 2005 and the first quarter 2006. Our General Manager for plant
production, a former plant manager for GM, has established the production
assembly process and procedure for our vehicle assembly. His efforts have
helped
to develop procedures, and to incorporate inventory control and quality
assurance programs so that we stand ready to rapidly scale production capacity
at the Blackwood facility. Initially this plant was equipped for nominal
monthly
production but is capable of ramping up for anticipated demand before year's
end. We also plan to manufacture the KING COBRA Omni-Directional AWP in the
Blackwood plant beginning in the third quarter of 2007.
Components
for our products 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 KING COBRA
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. 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 who would want to compete directly with us in the
omni-directional vehicle market. In addition, while we maintain single sources
for some of the over the counter components, we are engaged in qualifying and
securing agreements with second sources for all possible components
DISTRIBUTION
AND PRODUCT MARKETING
We
intend
to establish a national and international network of distributors and dealers
to
sell our SIDEWINDER and COBRA lines to users, 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
2004 and 2005, 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 nationwide and distributors in several foreign countries. Principal
terms of the agreement reached is that these dealers will purchase our products
which include the SIDEWINDER or the COBRA AWP (scissor lift), or both and sell
these products to their clients. Certain of the distributors 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 was required to purchase a minimum number of SIDEWINDER units to maintain
the "exclusivity" portion of the agreement between firms. Airtrax Canada lost
their exclusivity in 2006, as they did not meet the minimum requirements of
the
agreement. Presently, we are unable to distribute quantities of vehicles in
Europe due to our inability to be certified compliant (“CE”) with Europe. We
expect to be CE compliant and able to distribute vehicles in 2007, although
no
assurances can be given. 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 distributors are
only
sold under the terms of letters of credit. All foreign sales are paid in
advance, under terms of an irrevocable letter of credit or approved credit
terms. Targeted dealers for the SIDEWINDER brand will consist of selected
premier equipment dealers, currently selling other lift truck 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 lift trucks 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 lift truck. Our pricing structure will
enable the dealer to receive much higher commissions from the sale of the
SIDEWINDER products.
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 web based ads, 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 fewer 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
the one year rule, such as the frame and significantly, the motors and
controllers. These parts have an eighteen-month warranty, because the coverage
begins when the product is shipped to us and not when the product is purchased.
MARKETS
Lift
Trucks
Our
initial market focus was directed to the lift truck market. We believe that
commercial versions of Omni-Directional Lift Trucks will improve 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 3,000-pound
rated vehicle to $75,000 or greater for specialty narrow aisle or side loader
vehicles. We expect to continue to make inroads into this market with the
introduction of additional SIDEWINDER brand material handling vehicles in the
future.
Aerial
Work Platforms
Aerial
Work Platforms are used in the construction and warehousing industries, and
are
ideally suited for our 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. Great strides
were made in our development of our AWP products during 2006, and we now plan
to
introduce two models under the COBRA brand in 2007, and additional units in
2008.
We
expect
to confront competition from existing products, such as standard and "Narrow
Aisle or NA" lift trucks, and from competing technologies. Competition with
standard lift trucks, which retail 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 lift truck for reliability, and that a purchase decision will
be
based upon weighing the operational advantages of our products against its
higher purchase price. NA and sideloader lift trucks retail at $45,000 or
greater. While our SIDEWINDER Omni-Directional Lift Truck cannot be classified
as "narrow aisle", it can perform "narrow aisle" functions at a significantly
less cost. We also are aware of multi-directional lift trucks 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 lift trucks 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 the first omni-directional wheels expired in 1990. Although we
have received patent protection for certain aspects of our advanced technology,
no assurances can be given that such patent protection will effectively thwart
competition.
PATENTS
AND PROPRIETARY RIGHTS
In
December 1997, we were awarded a patent for an omni-directional helicopter
ground-handling device. 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 lift truck, 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 hybrid power module concepts. At this time, no foreign patents have been
issued for any of our technology.
On
September 8, 2003, we entered an exclusive license agreement with Excalibur
Design Services, Inc. and Nicholas Fenelli (Inventor), to secure and use certain
proprietary intellectual properties known collectively as “Omni-Directional
Vehicle Control Algorithms”. Mr. Fenelli is also our Chief Operating Officer.
Due to severe cash flow restrictions in 2006, we were unable to fulfill our
obligations under the terms of the agreement and Excalibur rescinded the
exclusivity portion of the agreement. As of December 31, 2006, no other party
was granted rights to use the property. On February 19,2007, we negotiated
an
amendment with Excalibur to reinstate our exclusive rights to the
“Omni-Directional Vehicle Control Algorithms”. We expect to resolve all issues
to the mutual benefit of the two companies during 2007.
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 lift trucks or other products.
Presently,
we maintain product liability insurance in the amount of $1 million. We
anticipate increasing this amount $10 million in the future, as we deem
necessary to do so. We obtained our insurance commensurate with the initial
shipment of our Omni-Directional Lift Trucks.
EMPLOYEES
As
of
March 31, 2007, we have 13 full time employees, and one contract employee,
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.
Item
3. Legal
Proceedings
We
are
not currently a party to any legal proceedings. There has been no bankruptcy,
receivership or similar proceedings.
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.
PART
II
Item
5. Market
for Common Equity and Related Stockholder Matters.
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
|
|
2007
First Quarter
|
|
|
0.97
|
|
|
0.48
|
|
|
|
|
|
|
|
|
|
2006
First Quarter
|
|
|
2.39
|
|
|
1.08
|
|
Second
Quarter
|
|
|
2.17
|
|
|
1.15
|
|
Third
Quarter
|
|
|
2.03
|
|
|
0.92
|
|
Fourth
Quarter
|
|
|
1.01
|
|
|
0.42
|
|
|
|
|
|
|
|
|
|
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
|
|
Common
Stock
Our
Amended Articles of Incorporation authorize the issuance of 100,000,000 shares
of common stock, no par value per share. Holders of shares of common stock
are
entitled to one vote for each share on all matters to be voted on by the
stockholders. Holders of common stock have cumulative voting rights. Holders
of
shares of common stock are entitled to share ratably in dividends, if any,
as
may be declared, from time to time by the Board of Directors in its discretion,
from funds legally available therefore. In the event of a liquidation,
dissolution, or winding up of our company, the holders of shares of common
stock are entitled to share pro rata all assets remaining after payment in
full
of all liabilities. Holders of common stock have no preemptive or other
subscription rights, and there are no conversion rights or redemption or sinking
fund provisions with respect to such shares.
As
of
April 12, 2007, there were 24,379,887 shares of common stock
outstanding.
As
of
April 12, 2007, there were approximately 878 stockholders of record of our
common stock, respectively. This does not reflect those shares held beneficially
or those shares held in "street" name.
Dividend
Policy
We
have
never declared or paid any cash dividends on our common stock. We do not
anticipate paying any cash dividends to stockholders in the foreseeable future.
In addition, any future determination to pay cash dividends will be at the
discretion of the board of directors and will be dependent upon our financial
condition, results of operations, capital requirements, and such other factors
as the Board of Directors deem relevant. There are no restrictions in our
articles of incorporation or bylaws that restrict us from declaring dividends
on
our common stock.
Preferred
Stock
As
of
April 12, 2007, there were 275,000 shares of Preferred stock outstanding. We
held a special meeting of our shareholders on March 28, 2005 pursuant to which
a
majority of our shareholders approved an amendment to our certificate of
incorporation to increase our authorized preferred stock from 500,000 to
5,000,000 shares. Accordingly, we are authorized to issue up to 5,000,000 shares
of preferred stock.
In
addition, pursuant to said meeting, a majority of our shareholders approved
an
amendment to our certificate of incorporation to provide that the shares of
preferred stock may be issued in series, and shall have such voting powers,
full
or limited, or no voting powers, and such designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof, as shall be stated and expressed in the resolution
or
resolutions providing for the issuance of such stock adopted from time to time
by the board of directors. Accordingly, our board of directors is expressly
vested with the authority to determine and fix in the resolution or resolutions
providing for the issuances of preferred stock the voting powers, designations,
preferences and rights, and the qualifications, limitations or restrictions
thereof, of each such series to the full extent now or hereafter permitted
by
the laws of the State of New Jersey.
The
holders of the preferred stock are entitled to receive, when, as, and if
declared by our board of directors, out of funds legally available therefore,
cash dividends on each share of preferred stock at the rate of 5% per annum,
or
if cash is not legally available, in additional shares of common stock. The
preferred stock, in respect of dividends and distributions upon our liquidation,
winding-up, and dissolution, shall rank senior to all classes of our common
stock and each other class of capital stock or series of preferred stock created
that does not expressly provide that it ranks senior to, or on a parity with,
the preferred stock. The holders of preferred stock are entitled to cast 10
votes for each share held of the preferred Stock on all matters presented to
our
shareholders for shareholder vote.
On
April
1, 2005, we issued 100,000 shares of preferred stock to the sole holder of
the
preferred stock as payment of dividends in lieu of cash dividends with respect
to previously issued shares of preferred stock. Our original Articles of
Incorporation, as amended, including on April 30, 2000, do not support 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.
Our
Articles of Incorporation, as amended, including on April 30, 2000, similarly
do
not support the calculation we used in determining the number of shares of
common stock used to pay preferred stock dividends. The difference being the
date used in determining the stock price at the end of each preferred dividend
period, as opposed to the lowest common stock price during the preferred
dividend period, subject to a 70% discount, for calculating the number of common
shares issued as payment of the period’s preferred stock dividend. Accordingly,
the number of shares was greater than the number of shares required,., and
were
issued in error.
Our
financial statements at December 31, 2004 reflect 275,000 shares of preferred
stock outstanding and disclosed that an additional 100,000 shares of preferred
stock were deemed the equivalent of 221,892 shares of common stock that would
have been required to settle an equivalent amount of preferred dividends. We
have determined that the number of shares deemed the equivalent of the preferred
stock dividend has been recalculated based on our Articles of Incorporation,
as
amended, including on April 30, 2000. Accordingly, we will issue 136,041 shares
of common stock to the sole holder of the preferred stock as payment of $51,561
of preferred stock dividends less other adjustments resulting from the
recalculation of the number of common shares required to pay preferred stock
dividends, subsequently approved. During the period January 1, 2003 through
June
30, 2006, 200,238 shares of common stock were issued in excess of the amount
required.
The
following table shows information with respect to each equity compensation
plan
under which our common stock is authorized for issuance as of December 31,
2006.
EQUITY
COMPENSATION PLAN INFORMATION
Plan
category
|
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
|
Number
of securities
remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a)
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Equity
compensation plans approved by security holders
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans not approved by security
holders
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
-0-
|
|
|
-0-
|
|
|
-0-
|
|
Currently,
we do not have a
formalized equity compensation plan under which our common stock is authorized
for issuance.
Unregistered
Sales of Equity Securities
|
·
|
194,000
shares of common stock were issued for professional services valued
at
$141,919.
|
|
·
|
184,000
shares of common stock were issued in connection with a settlement
of a
default on a convertible promissory note. These shares were valued
at
$93,490.
|
|
·
|
41,666shares
of common stock were issued in exchange of a $65,000 of convertible
note.
|
|
·
|
5,000
shares were issued as an Employee bonus valued at
$3,570.
|
|
·
|
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.
|
Special
Note on Forward-Looking Statements.
Certain
statements in “Management’s Discussion and Analysis or Plan of Operation” below,
and elsewhere in this annual report, are not related to historical results,
and
are forward-looking statements. Forward-looking statements present our
expectations or forecasts of future events. You can identify these statements
by
the fact that they do not relate strictly to historical or current facts. These
statements involve known and unknown risks, uncertainties and other factors
that
may cause our actual results, levels of activity, performance or achievements
to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements.
Forward-looking statements frequently are accompanied by such words such as
“may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative
of such terms or other words and terms of similar meaning. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
achievements, or timeliness of such results. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
forward-looking statements. We are under no duty to update any of the
forward-looking statements after the date of this annual report. Subsequent
written and oral forward looking statements attributable to us or to persons
acting in our behalf are expressly qualified in their entirety by the cautionary
statements and risk factors set forth below and elsewhere in this annual report,
and in other reports filed by us with the SEC.
You
should read the following description of our financial condition and results
of
operations in conjunction with the financial statements and accompanying notes
included in this report beginning on page F-1.
Overview
Since
1995, substantially all of our resources and operations have been directed
towards the development of the Omni-Directional wheel, related components,
Omni-Directional Lift Trucks and other Omni-Directional Vehicles. Many of the
components, including the unique shaped wheels, motors, and frames, have been
designed by Airtrax and are specially manufactured for us.
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.
During
the year ended December 31, 2006, we continued development of the COBRA and
KING
COBRA scissor lifts and the Omni-Directional power chair. We anticipate
incurring more costs on these products and plan to begin production of the
first
COBRA and the KING COBRA models in 2007. The growth and development of our
business will require a significant amount of additional working capital. We
currently have limited financial resources and based on our current operating
plan, we will need to raise additional capital in order to continue operations.
However, we are in discussions with lenders to raise capital in order to
continue operating. We currently do not have adequate cash to meet our short
or
long term objectives. In the event additional capital is raised, it may have
a
dilutive effect on our existing stockholders. There can be no assurance that
additional financing will be available at terms that are suitable to
us.
We
have
incurred losses and experienced negative operating cash flow since our
inception. For the twelve month period ended December 31, 2006 and 2005,
we had
net losses attributable to common shareholders of approximately $4.4 million
and
$15.2 million, respectively. The net loss in both periods includes conversion
expenses of $1 million and $6.6 million in 2006 and 2005, respectively, offset
by revaluation income $3.5 million and $1 million in 2006 and 2005,
respectively, in connection with the repricing of the conversion ratios of
convertible debenture issues and of warrant conversion prices. We also wrote
down the advances to Filco of $4.7 million and $2 million in 2006 and 2005,
respectively (See Note 13 in the financial statements). We expect to continue
to
incur significant expenses. Our operating expenses have been and are expected
to
continue to outpace revenue and result in additional 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. While we are in discussions with several
prospective lenders, we
do not
currently have commitments for these funds and there can be no assurance
that
additional financing will be available, or if available, will be on acceptable
terms.
Restatement
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, 2006 filed on Form 10-KSB on April 16, 2007, together with our quarterly
report on Form 10-QSB for the period ended September 30, 2006 was necessary
due
to the
issuance of Modification Agreements, 2% Unsecured Convertible Debentures and
Stock Purchase Warrants to the note holders of the October 2005 private
placement of $1,548,000 in full settlement of liquidated damages resulting
from
our not filing a registration statement for the shares and warrants underlying
the private placement, which were not recorded in our financial statements.
In
July 2006, we issued 2% Unsecured Convertible Debentures aggregating $359,549
and Stock Purchase Warrants to acquire 110,808 shares of our common stock at
$1.65 per share. The conversion price of the shares underlying the note was
$1.56. Both the conversion price and the warrants purchase price have been
adjusted to $.45 due to the pricing of the February 20, 2007 private
placement.
On
April
30, 2007, the Company also determined that a restatement of its December
31,
2006 financial statements on Form 10-KSB, together with its quarterly reports
on
Form 10-QSB for the quarters ended March 31, 2006, June 30, 2006 and September
30, 2006 was necessary to correct an error in accounting for derivatives
associated with the private placement of 1,640,000 shares of common stock
in
November 2004, which was accompanied by warrants to purchase common
stock.
Results
of Operations for the Year Ended December 31, 2006 Compared to the Year Ended
December 31, 2005
Liquidity
constraints and limited access to additional capital for production in 2004
and
2005 and the unexpected death of our Chief Executive Officer and President,
Peter Amico in August 2006 have limited production and sales of omni-directional
technology. Consequently, management believes that the year-to-year comparisons
described below are not indicative of future year-to-year comparative
results.
In
September 2006, Airtrax was awarded a $415,000 contract to design and build
a
customized MP2 Equipment Handling Unit for the Israeli Air Force. The contract
includes an option to build five additional units at $95,000 each upon the
acceptance of the first unit. It is estimated that the follow on orders that
could result from this contract would be from 29 to 100 units over the next
one
to three years. The Critical Design Review was completed in November 2006,
the
design was approved and initial deliverables were provided. As a result, we
received a first process payment of $170,000 on December 12
2006.
We expect to begin the Acceptance Test Procedure in mid April 2007 and upon
successful completion, will receive a second payment of $162,000. We cannot
predict whether we will be able to successfully pass all of the acceptance
tests
and complete the contract, or that if we do so, that any subsequent orders
will
result.
We
believe that the joint cooperation between us and the United States Navy with
the MP2 contract, including building the ETU-110 omni-directional engine handler
and our contract to design and build a customized MP2 Equipment Handling Unit
for the Israeli Air Force, 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 in connection with the
Israeli contract.
Revenue
Revenue
for the twelve-month period ended December 31, 2006 was approximately $1.3
million, representing an increase of approximately $600,000 from revenue of
$719,000 for the comparable period in 2005. This increase in revenue, is
primarily, attributed to sales of our SIDEWINDER ATX-3000.
Cost
of Goods Sold
Our
cost
of goods sold for the twelve month period months ended December 31, 2006
amounted to approximately $1.5 million, an increase of approximately $800,000
from $729,000 for the twelve months ended December 31, 2005. This increase
in
cost of goods sold, is primarily, attributed to sales of our SIDEWINDER
ATX-3000.
Operating
and Administrative Expenses.
Operating
and administrative expenses which include administrative salaries, depreciation
and other expenses for the twelve month period ended December 31, 2006 totaled
$4.7 million which represents an decrease of approximately $400,000 from $5.1
million incurred in the twelve month period ended December 31, 2005. The
decrease is primarily due to recording of stock option expenses of $1.1 million
in 2005, compared to $76,000 in 2006, partially by additional expenses relating
to the increase in production of our SIDEWINDER ATX-3000 and Cobra and King
Cobra scissor lift and Omni-Directional Power Chair development
costs.
Loss
Attributable to Common Shareholders.
Loss
attributable to common shareholders for the twelve months ended December
31,
2006 was approximately $(4.4) million compared with a loss of $(15.2) million
for the same period in 2005. The decrease is due primarily to the recording
of
stock option expenses of approximately $1.1 million in 2005, compared with
$76,000 in the current period, and conversion expense recorded in the twelve
months ended December 31, 2005 of approximately $6.6 million compared with
$1.0
million in 2006. Additionally, we recorded revaluation income of $3.5 million
in
2006 compared with $1 million in 2005 in connection with the repricing of
certain conversion ratios of convertible debenture issues and of warrant
conversion prices. We also wrote down the remaining Filco advance of $2.
million
during 2006 compared with $4.7 million in 2005. We also recorded approximately
$300,000 of deemed dividend expense in each year.
Research
and Development
We
incurred $519,134 and $544,933 in research and development expenses during
the
year ended December 31, 2006 and 2005, 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 Company
and a
vendor’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 sales of convertible debt. During the twelve months ended
December 31, 2006 and 2005, we raised net of offering costs approximately $1.3
million and $5.9 million, 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. In the years
2006 and 2005, we recorded credits of $493,258 and $867,413, respectively,
from
the sale of our losses and credits.
We
have
consistently demonstrated our ability to meet our cash requirements through
private placements of our common stock and convertible notes. We have continued
to similarly satisfy those requirements during the twelve months ended December
31, 2006. However, there can be no assurances that we will be successful in
raising the required capital to continue our current operating
plan.
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 with production of its
Omni-Directional lift truck and the start of Cobra and King Cobra
(Scissors-Lift) production.
We
will
require additional funds to continue our operations beyond the initial
production run. We anticipate that operating capital in the amount of
approximately $3 to 5 million will be required during the next 12 months to
sufficiently fund operations. 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 rate to
larger-scale production. While we are in discussions with several prospective
lenders, we
do not
currently have commitments for additional funds and there can be no assurance
that additional financing will be available, or if available, will be on
acceptable terms. If
we are
unable to obtain sufficient funds during the next six months we will further
reduce the size of our organization and may be forced to reduce and/or curtail
our production and operations, all of which could have a material adverse impact
on our business prospects.
As
a
result of our liquidity issues, we have experienced delays in the repayment
of
certain promissory notes upon maturity and payments to vendors and others.
If in
the future, the holders of our promissory notes may demand repayment of
principal and accrued interest instead of electing to extend the due date and
if
we are unable to repay our debt when due because of our liquidity issues, we
may
be forced to refinance these notes on terms less favorable to us than the
existing notes, seek protection under the federal bankruptcy laws or be forced
into an involuntary bankruptcy filing.
As
of
December 31, 2006, our working capital deficit was $3,037,686. Fixed assets,
net
of accumulated depreciation, and total assets, as of December 31, 2006 and
2005,
were $283,920 and $190,893, respectively. Current liabilities as of December
31,
2006 were $5,489,101 compared with $6,186,390 as of December 31,
2005.
February
2007 Financing
On
February 20, 2007, we entered into a Securities Purchase Agreement with certain
accredited and/or qualified institutional investors pursuant to which we sold
an
aggregate of $3,734,040 principal amount secured convertible debentures
convertible into shares of our common stock at a conversion price equal to
$0.45
for an aggregate purchase price of $3,219,000. In addition, we issued to the
investors (i) warrants to purchase 8,297,866 shares of our common stock at
an
exercise price equal to $0.54 per share, which represents 100% of the number
of
shares issuable upon conversion of the debentures; (ii) callable warrants to
purchase 4,148,933 shares of our common stock at an exercise price equal to
$0.75 per share, which represents 50% of the number of shares issuable upon
conversion of the debentures; and (iii) callable warrants to purchase 4,148,933
shares of our common stock at an exercise price equal to $1.25 per share, which
represents 50% of the number of shares issuable upon conversion of the
debentures.
The
debentures mature on February 20, 2009. We may in our discretion redeem the
debentures, subject to certain equity conditions being met by us as set forth
in
the debentures, at a price equal to 150% of the principal balance, accrued
interest, and all liquidated damages, if any, thereon that are requested to
be
redeemed. Our obligations under the securities purchase agreement, the
debentures and the additional definitive agreements with respect to this
transaction are secured by all of our assets. In addition, our wholly owned
subsidiaries, Airtrax Financial Services LLC and Airtrax Manufacturing Corp.,
are guaranteeing the satisfaction of our obligations under the securities
purchase agreement, the debentures and the additional definitive agreements
with
respect to this transaction.
Off-Balance
Sheet Arrangements.
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenue, results of
operations, liquidity or capital expenditures.
Liquidated
Damages
In
connection with financings we entered into with various investors in November
2004 and October 2005, we provided such investors registration rights. Pursuant
to those registration rights, in the event that we did not file a registration
statement by a certain date registering for resale shares of common stock
issuable upon conversion of their securities or have such registration statement
effective by another date, we agreed to pay to such investors liquidated
damages. To date, we have not filed such registration statement, and as a
result, we have accrued the required obligation for liquidated damages.
During
2006, to the investors in the November 2004 financing, we issued an aggregate
principal amount $198,248 of our 4% Unsecured Convertible Debentures and 5
year
warrants to purchase an aggregate of 72,201 shares of our common stock in
exchange for the settlement of $244,632 in accrued liquidated damages through
June 30, 2006. The debentures mature on March 1, 2008, and September 30, 2008,
respectively, pay simple interest at a rate of 4% per annum and are convertible
into shares of our common stock at a price equal to $0.45 per share. The
warrants are exercisable into shares of our common stock at a price equal to
$1.56 per share. In addition, the investors agreed to forego any future accrual
and payment of such liquidated damages.
In
July
2006 we issued 2% Unsecured Convertible Debentures to the investors in the
October 2005 financing, aggregating $359,549 and Stock Purchase Warrants to
acquire 110,808 shares of our common stock at $1.65 per share, in full
settlement of liquidated damages resulting from our not filing a registration
statement by a certain date registering for resale shares of common stock
issuable upon conversion of their securities. The conversion price of the shares
underlying the note was $1.56. Both the conversion price and the warrants
purchase price have been adjusted to $.45 due to the pricing of the February
20,
2007 private placement.
Critical
Accounting Policies and Estimates
Revenue
Revenues 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.
Revenue
from research and development activities relating to firm fixed-price contracts
are generally recognized as billing occurs. Revenue 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.
Intangibles
We
continually evaluate whether events and changes in circumstances warrant revised
estimates of useful lives or recognition of an impairment loss of our
intangibles, which as of December 31, 2006, consist mainly patents and licensing
agreements. The conditions that would trigger an impairment assessment of our
intangible assets include a significant, sustained negative trend in our
operating results or cash flows, a decrease in demand for our products, a change
in the competitive environment and other industry and economic factors.
Accounting
for Income Taxes
As
part
of the process of preparing our financial statements, we are required to
estimate our income taxes. This process involves estimating our actual current
tax exposure together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes. These differences
result in deferred tax assets and liabilities, which are included within our
consolidated balance sheet. We must then assess the likelihood that our deferred
tax assets will be recovered from future taxable income. If there is not
persuasive evidence that recovery will occur, we would establish a valuation
allowance. To the extent we establish a valuation allowance or increase this
allowance in a period, we must include an expense within the tax provision
in
the consolidated statement of operations.
Significant
management judgment is required in determining our provision for income taxes,
our deferred tax assets and liabilities and any valuation allowance recorded
against our net deferred tax assets. We have recorded a valuation allowance
of
$8,257,629 as of December 31, 2006, due to uncertainties related to our ability
to utilize some of our deferred tax assets, primarily consisting of certain
net
operating losses carried forward before they expire and certain accrued
expenses, which are deferred for income tax purposes until paid. The valuation
allowance is based on our estimates of taxable income and the period over which
our deferred tax assets will be recoverable. The net deferred tax asset as
of
December 31, 2006 was $919,889, net of the valuation allowance.
Issuances
of Common Stock
Because
of the significant liquidity issues we have faced since our inception, we have
been required to issue common stock to third party vendors and others in order
to pay for services rendered. Such issuances are recorded as an expense in
the
period in which the services are performed. During 2006, we issued an aggregate
of 651,257 shares of common stock to third parties in exchange for services
performed. These services were valued at $$859,856 for year ended December
31,
2006.
Recent
Accounting Pronouncement
The
Financial Accounting Standards Board (FASB) has recently issued “FASB Staff
Position EITF 00-19-2 which modifies the accounting treatment of derivatives
that flow from financings involving embedded derivatives. This Staff Position
is
effective for financial statements for periods beginning January 1, 2007.
Management believes that this will cause some change in the way we account
for
derivatives. Management is evaluating this position and has not made a
determination as to the effective it will have on our financial
statements.
The
Company has reviewed other accounting pronouncements issued during 2006 and
has
concluded that they will have no effect on our financials
statements.
RISK
FACTORS
In
addition to other information contained in this Form 10-KSB, the following
Risk
Factors should be considered when evaluating the forward-looking statements
contained in this Form 10-KSB:
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 because we have incurred losses and experienced negative
operating cash flow since our formation. For our fiscal years ended December
31,
2006 and 2005, we had a net loss attributable to common stockholders of
approximately $(4.4 million) and $(15.2 million), 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 anticipate that our cash requirements to fund operating or
investing cash requirements over the next 12 months will be greater than
our
current cash on hand. We may never be able to reduce these losses, which
will
require us to seek additional debt or equity financing. We do not currently
have
commitments for additional funds and there can be no assurance that additional
financing will be available, or if available, will be on acceptable terms.
If we
are unable to obtain sufficient funds during the next 12 months we will further
reduce the size of our organization and may be forced to reduce and/or curtail
our production and operations, all of which could have a material adverse
impact
on our business prospects.
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.
THE
PRICING POLICY FOR OUR LIFT TRUCKS 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 lift truck 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 lift trucks 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
lift
trucks 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 LIFT TRUCK. 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 lift truck. 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 a license
agreements for the algorithms used to control vehicular movement, and a patent
for this technology has been applied for. 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 lift truck. 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 LIFT TRUCK PRODUCT
LINE.
We
do not
have an established channel of distribution for our lift truck 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 ROBERT WATSON, OUR CHIEF EXECUTIVE
OFFICER, 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 Robert Watson,
our President and Chief Executive Officer. We have entered into an employment
agreement with Mr. Watson, however, we do not maintain key man life insurance
with respect to Mr. Watson. 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 lift trucks 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 lift truck 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 lift trucks, 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 lift
truck. In addition, many of our competitors have long-standing arrangements
with
equipment distributors and carry one or more of competitive products in addition
to lift trucks. 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.
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
24,376,887 shares of common stock outstanding as of April 12, 2007, and we
had
convertible notes which require the issuance of 5,336,740 additional shares
of
common stock pursuant to our May and October 2005 private placements and 20740
note issuances, in which the conversion price has been adjusted resulting from
the February 20, 2007 issuance of $3,734,040 Secured Convertible Promissory
Notes, convertible into 8,297,867 additional shares of common stock at $0.45
per
common share. Additionally, warrants which require the issuance of 10,494,131
additional shares of common stock pursuant to our November 2004, and February,
May, and October 2005 private placements and 2006 note issuances. Further,
we
issued 16,959,726 warrants in connection with the February 20, 2007 issuance
of
$3,734,040 Secured Convertible Promissory Notes. 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.
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.
Index
to Consolidated Financial Statements
|
|
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
|
Consolidated
Balance Sheets as of December 31, 2006 and 2005
|
F-2
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2006 and
2005
|
F-3
|
|
|
Consolidated
Statement of Changes in Shareholders' Equity (Deficiency) for the
years
ended December 31, 2006 and 2005
|
F-4
|
|
|
Consolidated
Statements of Cash Flows for the year ended December 31, 2006 and
2005
|
F-5
|
|
|
Notes
to Consolidated Financial Statements as of December 31, 2006 and
2005
|
F-6
|
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and shareholders
Airtrax,
Inc.
We
have
audited the accompanying balance sheet of Airtrax, Inc. (the "Company") as
of
December 31, 2006 and the related statements of operations, changes in
shareholders' deficit and cash flows for the years ended December 31, 2006
and
2005. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits 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, we 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. We believe that our audits provide
a
reasonable basis for our opinion.
In
our
opinion, based on our audits, the financial statements referred to above present
fairly, in all material respects, the financial position of Airtrax, Inc. as
of
December 31, 2006, and the results of its operations and its cash flows for
the
years ended December 31, 2006 and 2005 in accordance with U.S. generally
accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As shown in the accompanying
consolidated financial statements, at December 31, 2006, the Company had
a
working capital deficiency of $3.0 million as well as an accumulated deficit
of
$29.5 million. In addition, the Company has had a continuing record of losses.
These factors among other things, discussed in Notes 15 to the financial
statements, raise substantial doubt about the ability of the Company to continue
as a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or
the amounts or classification of liabilities that might be necessary should
the
Company be unable to continue in operation.
/S/
Robert G. Jeffrey, Certified Public Accountant
Robert G. Jeffrey, Certified Public Accountant
May
2,
2007
Wayne,
New Jersey
AIRTRAX,
INC.
Balance
Sheets
As
of December 31, 2006 and 2005
Assets
|
|
2006
|
|
2005
|
|
Current
Assets: |
|
(Restated) |
|
|
|
Cash
|
|
$
|
327,737
|
|
$
|
19,288
|
|
Accounts
receivable
|
|
|
50,704
|
|
|
94,357
|
|
Inventory
|
|
|
1,049,457
|
|
|
2,005,139
|
|
Vendor
advance
|
|
|
103,628
|
|
|
163,517
|
|
Deferred
tax asset
|
|
|
919,889
|
|
|
977,302
|
|
Total
current assets
|
|
|
2,451,415
|
|
|
3,259,603
|
|
Property
and
Equipment, net of accumulated |
|
|
|
|
|
|
|
depreciation
of $339,216 and $301886, respectively
|
|
|
283,920
|
|
|
190,893
|
|
Other
Assets
Advances
to Filco Gmbh
|
|
|
-
|
|
|
2,000,000
|
|
Patents,
net
|
|
|
148,151
|
|
|
154,263
|
|
Deferred
charges
|
|
|
-
|
|
|
388,392
|
|
Other
|
|
|
65
|
|
|
65
|
|
Total
other assets
|
|
|
148,216
|
|
|
2,542,720
|
|
Total
Assets
|
|
$
|
2,883,551
|
|
$
|
5,993,216
|
|
Liabilities
and Shareholders’
Deficiency |
|
|
|
|
|
|
|
Current
Liabilities: |
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
1,097,361
|
|
$
|
885,463
|
|
Notes
payable, shareholder
|
|
|
75,713
|
|
|
186,961
|
|
Convertible
notes payable
|
|
|
2,129,797
|
|
|
-
|
|
Obligation
for outstanding options
|
|
|
1,407,299
|
|
|
1,330,948
|
|
Warrant
and conversion option liability
|
|
|
316,958
|
|
|
3,516,462
|
|
Accrued
liabilities
|
|
|
461,973
|
|
|
266,556
|
|
Total
current liabilities
|
|
|
5,489,101
|
|
|
6,1
86,390
|
|
|
|
|
|
|
|
|
|
Convertible
Notes Payable
|
|
|
557,797
|
|
|
2,048,000
|
|
|
|
|
-
|
|
|
-
|
|
Total
Liabilities
|
|
|
6,046,898
|
|
|
8,234,390
|
|
Shareholders’
Deficiency; |
|
|
|
|
|
|
|
Preferred
stock, no par value; 5,000,000 shares authorized, |
|
|
|
|
|
|
|
275,000
issued and outstanding
|
|
|
12,950
|
|
|
12,950
|
|
|
|
|
|
|
|
|
|
Common
stock,
no par value; 100,000,000 shares authorized, |
|
|
|
|
|
|
|
24,260,352
and 21,939,360 shares issued and outstanding, respective
|
|
|
25,133,164
|
|
|
21,712,179
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital, warrants
|
|
|
1,194,725
|
|
|
1,042,400
|
|
Accumulated
Deficit
|
|
|
(29,504,186
|
)
|
|
(25,008,703
|
)
|
Total
shareholders'
(deficiency)
|
|
|
(3,163,347
|
)
|
|
(2,241,1
74
|
)
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholders'
Deficiency
|
|
$
|
2,883,551
|
|
$
|
5,993,216
|
|
|
|
|
-
|
|
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
AIRTRAX,
INC.
Statements
of Operations
For
the Years Ended December 31, 2006 and
2005
(Audited)
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Restated)
|
|
|
|
|
Revenues
|
|
$
|
1,346,913
|
|
$
|
718,842
|
|
Cost
of sales and services performed
|
|
|
1,470,542
|
|
|
729,080
|
|
Gross
profit
|
|
|
(123,629
|
)
|
|
(10,238
|
)
|
Operating
Expenses
General
and administrative costs
|
|
|
4,686,763
|
|
|
5,057,596
|
|
Impairment
of Filco advances
|
|
|
2,000,000
|
|
|
4,700,839
|
|
Total
operating expenses
|
|
|
6,686,763
|
|
|
9,758,435
|
|
Operating
loss
|
|
|
(6,810,392
|
)
|
|
(9,768,673
|
)
|
Other
Income and Expenses
Conversion
expense
|
|
|
(1,009,069
|
)
|
|
(6,571,454
|
)
|
Interest
expense
|
|
|
(230,149
|
)
|
|
(488,342
|
)
|
Revaluation
income
|
|
|
3,534,179
|
|
|
993,837
|
|
Other
income and expense
|
|
|
(2,255
|
)
|
|
31,741
|
|
Loss
before income taxes and preferred stock expenses
|
|
|
(4,517,686
|
)
|
|
(15,802,891
|
)
|
IncomeTax
Benefit
|
|
|
437,803
|
|
|
867,413
|
|
Loss
before dividends
|
|
|
(4,079,883
|
)
|
|
(14,935,478
|
)
|
Deemed
dividends on preferred stock
|
|
|
(303,100
|
)
|
|
(274,978
|
)
|
Net
loss attributable to common shareholders
|
|
|
(4,382,983
|
)
|
|
(15,210,456
|
)
|
Preferred
stock dividend paid
|
|
|
(112,500
|
)
|
|
(51,563
|
)
|
Deficit
accumulated
|
|
$
|
(4,495,483
|
)
|
$
|
(15,262,019
|
)
|
Net
loss per share;
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
attributable to common shareholders
|
|
$
|
(4,382,983
|
)
|
$
|
(15,210,456
|
)
|
Preferred
stock dividends
|
|
|
68,750
|
|
|
68,750
|
|
Loss
allocable to common shareholders
|
|
$
|
(4,451,733
|
)
|
$
|
(15,279,206
|
)
|
Net
loss per share; basic and diluted
|
|
$
|
(0.19
|
)
|
$
|
(0.73
|
)
|
Weighted
average common shares outstanding -
Basic
and diluted
|
|
|
23,068,165
|
|
|
20,951,187
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
AIRTRAX,
INC.
Statement
of Changes in Shareholders’ Deficiency
For
the Years Ended December 31, 2006 and 2005
Restated
|
|
Common
Shares
|
|
Common
Amount
|
|
Preferred
Shares
|
|
Preferred
Amount
|
|
Warrants
|
|
Accumulated
Deficit
|
|
Total
|
|
Balance
at 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 placement
|
|
|
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 warran
|
|
|
-
|
|
|
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
|
|
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
at December 31, 2005
|
|
|
21,939,360
|
|
$
|
21,712,179
|
|
|
275,000
|
|
|
12,950
|
|
$
|
1,042,400
|
|
$
|
(25,008,703
|
)
|
$
|
(2,241,174
|
)
|
Warrants
issued in connection with
convertible
debt
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
152,325
|
|
|
-
|
|
$
|
152,325
|
|
Employee
stock awards
|
|
|
75,000
|
|
$
|
115,470
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
115,470
|
|
Shares
issued for services
|
|
|
651,257
|
|
|
859,856
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
859,856
|
|
Shares
issued to directors
|
|
|
145,000
|
|
|
222,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
222,500
|
|
Shares
issued in settlement of Note defaultt
|
|
|
184,000
|
|
|
93,490
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
93,490
|
|
Conversion
of convertible debt
|
|
|
811,033
|
|
|
1,204,519
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,204,519
|
|
Shares
issued for preferred dividend
|
|
|
418,979
|
|
|
415,610
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
415,610
|
|
Shares
issued for cash
|
|
|
35,723
|
|
|
65,500
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
65,500
|
|
Proceeds
from warrant extesions
|
|
|
|
|
|
117,000
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
117,000
|
|
Value
of debt conversion priviledge
|
|
|
|
|
|
327,040
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
327,040
|
|
Dividends
on preferred stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(112,500
|
)
|
|
(112,500
|
)
|
Net
Loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,382,983
|
)
|
|
(4,382,983
|
)
|
Balance
at December 31, 2006
|
|
|
24,260,352
|
|
$
|
25,133,164
|
|
|
275,000
|
|
$
|
12,950
|
|
$
|
1,194,725
|
|
$
|
(29,504,186
|
)
|
$
|
(3,163,347
|
)
|
The
accompanying notes are an integral part of these consolidated financial
statements
AIRTRAX,
INC.
Statements
of Cash Flows
For
the Years Ended December 31, 2006 and December 31, 2005
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities: |
|
|
(Restated)
|
|
|
|
|
Net
loss
|
|
$ |
(4,382,983
|
)
|
$
|
(15,210,456
|
)
|
Adjustments
to reconcile net loss to net cash
used
in operating activities:
Depreciation
and amortization
|
|
|
69,019
|
|
|
59,500
|
|
Cost
of conversion
|
|
|
961,569
|
|
|
7,068,174
|
|
Common
stock issued as payment for services
|
|
|
1,197,826
|
|
|
836,500
|
|
Options
granted for services
|
|
|
76,351
|
|
|
1,082,250
|
|
Cost
of settling liquidated damages
|
|
|
424,426
|
|
|
|
|
Value
of converted interest
|
|
|
66,464
|
|
|
|
|
Loss
on abandonment of vehicle
|
|
|
2,443
|
|
|
|
|
Accrued
interest on shareholder advances
|
|
|
4,693
|
|
|
4,015
|
|
Value
of shares issued to settle liabilities
|
|
|
93,490
|
|
|
149,589
|
|
Deemed
dividend on preferred stock
|
|
|
303,100
|
|
|
274,978
|
|
Decrease
in accual of deferred tax benefit
|
|
|
7,413
|
|
|
(752,888
|
)
|
Revaluation
of warrant liabilities
|
|
|
(3,534,179
|
)
|
|
(992,757
|
)
|
Impairment
of Filco investment
|
|
|
2,000,000
|
|
|
4,700,839
|
|
Change
in assets and liabilties;
Decrease
(increase) in accounts receivables
|
|
|
43,653
|
|
|
(205,857
|
)
|
Decrease
in advances
|
|
|
59,889
|
|
|
-
|
|
Decrease(
increase) in inventory
|
|
|
955,682
|
|
|
(1,295,858
|
)
|
Increase
in accounts payable
|
|
|
211,898
|
|
|
490,504
|
|
Increase
in accrued liabilities
|
|
|
569,713
|
|
|
89,592
|
|
Net
cash used in operating activities
|
|
|
(869,533
|
)
|
|
(3,701,875
|
)
|
Cash
flows from investing activities:
Acquisitions
of equipment
|
|
|
(151,577
|
)
|
|
(150,806
|
)
|
Additions
to patent cost
|
|
|
(6,800
|
)
|
|
(42,861
|
)
|
Advances
to Filco
|
|
|
-
|
|
|
(3,605,881
|
)
|
Net
cash used in investing activities
|
|
|
(158,377
|
)
|
|
(3,799,548
|
)
|
Cash
flows from financing activities:
Proceeds
from converted debt
|
|
|
1,219,800
|
|
|
4,277,500
|
|
Proceeds
from the sale of common stock
|
|
|
65,500
|
|
|
55,000
|
|
Proceeds
from convertible debt
|
|
|
-
|
|
|
1,659,138
|
|
Proceeds
from notes payable to related parties
|
|
|
35,000
|
|
|
151,493
|
|
Payment
of notes payable to related parties
|
|
|
(100,941
|
)
|
|
(2,002
|
)
|
Proceeds
from exercise of warrants
|
|
|
117,000
|
|
|
718,486
|
|
Proceeds
from exercise of options
|
|
|
-
|
|
|
19,619
|
|
Net
cash provided by financing activities
|
|
|
1,336,359
|
|
|
6,879,234
|
|
Net
increase (decrease) in cash
|
|
|
308,449
|
|
|
(622,189
|
)
|
Cash,
beginning of year
|
|
|
19,288
|
|
|
641,477
|
|
Cash,
end of year
|
|
$
|
327,737
|
|
$
|
19,288
|
|
The
accompanying notes are an
integral part of these consolidated financial statements
NOTES
TO FINANCIAL STATEMENTS
December
31, 2006
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The
Company was formed April 17, 1997. It has designed a lift truck 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 since its inception. Until the end of 2004, these
losses were financed by private placements of equity securities. During 2005
and
2006, the Company obtained financing almost exclusively from the issuance of
convertible debentures. The Company will need to raise additional capital
through the issuance of debt or equity securities to continue 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 lift truck 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.
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 lift truck 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, 2006.
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 2006 and 2005 a total of $519,314 and $544,933,
respectively, was spent on development activity.
Advertising
Costs
The
Company expenses advertising costs when the advertisement occurs. There were
no
advertising costs incurred during 2006 and 2005.
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 adopted SFAS 123R, “Share Based Payment” and SFAS 148, “Accounting for
Stock Based Compensation - Transition and Disclosure” on January 1, 2006. Prior
to 2006, these awards were accounted for under the intrinsic method as permitted
by Accounting Principles Board Opinion No. 25.
The
following presents information ($000 omitted) about the net loss and loss per
share of the year 2005 as if the Company had applied the provisions of SFAS
123R
and 148 to all options granted during the year 2005.
Net
loss as reported
|
|
$
|
(15,210
|
)
|
Less:
Stock-based employee compensation
|
|
|
|
|
determined
under the Intrinsic Method
|
|
|
1,082
|
|
Add:
Stock bases compensation determined
|
|
|
|
|
under
the Fair Value Method
|
|
|
(1,105
|
)
|
Pro
forma net loss
|
|
$
|
(15,233
|
)
|
Loss
per share:
|
|
|
|
|
Basic
and diluted as reported
|
|
$
|
(.73
|
)
|
Basic
and diluted-pro forma
|
|
$
|
(.73
|
)
|
Pursuant
to the requirements of SFAS 123R, the weighted average fair value of options
granted during 2005, as determined on the dates of grant, was $1.37. The fair
values were determined using a Black Scholes option-pricing model, using the
following major assumptions:
|
|
Volatility
|
91.10%
|
Risk-free
interest rate
|
3.71%
|
Expected
Life - years
|
4.52
|
Segment
Reporting
Management
treats the operations of the Company as one segment.
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.
Reclassifications
Certain
amounts from prior year have been reclassified to conform to current year
presentation.
On
April
25, 2007 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, 2006 filed on Form 10-KSB on April 16, 2007, together
with our quarterly report on Form 10-QSB for the period ended September 30,
2006
was necessary due to the
issuance of Modification Agreements, 2% Unsecured Convertible Debentures and
Stock Purchase Warrants to the note holders of the October 2005 private
placement of $1,548,000 in full settlement of liquidated damages resulting
from
our not filing a registration statement for the shares and warrants underlying
the private placement, which were not recorded in our financial statements.
In
July 2006, we issued 2% Unsecured Convertible Debentures aggregating $359,549
and Stock Purchase Warrants to acquire 110,808 shares of our common stock at
$1.65 per share. The conversion price of the shares underlying the note was
$1.56. Both the conversion price and the warrants purchase price have been
adjusted to $.45 due to the pricing of the February 20, 2007 private
placement.
In
addition, on March 15, 2007, management of the Company determined, after
consultation with its independent registered public accounting firm, that a
restatement of its Quarterly Reports on Form 10-QSB for the three and six months
ended June 30, 2005 and the three months ended March 31, 2005 was necessary
in
light of the Company’s review of its 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”).
On
April
30, 2007, the Company also determined that a restatement of its December
31,
2006 financial statements on Form 10-KSB, together with its quarterly reports
on
Form 10-QSB for the quarters ended March 31, 2006, June 30, 2006 and September
30, 2006 was necessary to correct an error in accounting for derivatives
associated with the private placement of 1,640,000 shares of common stock
in
November 2004, which was accompanied by warrants to purchase common
stock.
The
Company concluded that its 8% Series A Convertible Promissory Notes (“Notes”)
and the Class A and Class B Warrants (collectively, the “Warrants”) issued to
certain accredited and/or qualified nstitutional purchasers pursuant to
that
certain Subscription Agreement (the “Subscription Agreement) dated as of
February 11, 2005 contained embedded derivatives due to the registration
rights
and liquidated damages provisions contained in the Subscription Agreement.
The
embedded derivative provisions provided that the Company will pay liquidated
damages in connection with the delay in filing of a registration statement
on
Form SB-2 in the event that the Company did not file such registration
statement
which registers the shares of the Company’s common stock underlying the Notes
and the Warrants,
or
cause
the Securities and Exchange Commission to declare such registration statement
effective, each within specified time frames as set forth in the Subscription
Agreement. Accordingly,
the Company determined that it should take action to prevent future reliance
on
previously issued financial statements set forth in its Quarterly Reports
on
Form 10-QSB for
the
three and six months ended June 30, 2005 and the three months ended March
31,
2005 (collectively the “Quarterly Reports”). Such
financial statements should no longer be relied upon.
In
particular, the
Company will restate its financial statements contained in the Quarterly Reports
to reflect
the reduction in preferred stock outstanding, preferred stock dividend expense
and deemed dividend expenses recorded in 2005 and 2006. In addition,
the
Company will restate its financial statements contained in the Reports to
reflect
a
liability in connection with issuance of the Notes and the Warrants that
contained an embedded derivative and conversion privileges, as of March
31,
2005 and June 30, 2005, and will restate its quarterly report for the period
ended September 30, 2006 for the
issuance of the Modification Agreements, 2% Unsecured Convertible Debentures
and
Stock Purchase Warrants to the note holders of the October 2005 private
placement.
The
effect on the Company’s previously issued audited December 31, 2006 financial
statements are summarized as follows:
|
|
Previously
|
|
Increase
|
|
As
|
|
|
|
Reported
|
|
(decrease)
|
|
Restated
|
|
General
and Administrative expense
|
|
$
|
4,452,179
|
|
$
|
(234,584(A
|
))
|
$
|
4,686,793
|
|
Operating
Loss
|
|
|
(6,575,808
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation
Income
|
|
|
3,054,716
|
|
|
135,478
(A
|
)
|
|
3,534,179
|
|
|
|
|
|
|
|
343,985
(D
|
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(4,762,565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to common shareholders
|
|
$
|
(4,627,862
|
)
|
$
|
244,879
|
|
$
|
(4,382,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per share-basic and diluted
|
|
$
|
(.18
|
)
|
|
|
|
|
|
|
Balance
Sheet as of December 31, 2006:
|
|
|
Previously
Reported
|
|
|
Increase
(Decrease)
|
|
|
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
$
|
2,451,415
|
|
$
|
--
|
|
$
|
2,451,415
|
|
All
Other Assets
|
|
|
432,136
|
|
|
--
|
|
|
432,136
|
|
Total
Assets
|
|
$
|
2,883,551
|
|
|
--
|
|
$
|
2,883,551
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,790(D)
|
|
|
|
|
Warrant
and Conversion Option Liability
|
|
$
|
249,971
|
|
|
18,197(C
|
)
|
$
|
316,958
|
|
Accrued
Liabilities
|
|
|
740,613
|
|
|
(278,640(C
|
))
|
|
461,973
|
|
Total
Current Liabilities
|
|
|
5,700,754
|
|
|
(211,653
|
)
|
|
5,489,101
|
|
Long
Term Debt
|
|
|
198,248
|
|
|
359,549(C
|
)
|
|
557,797
|
|
Total
Liabilities
|
|
|
5,899,002
|
|
|
147,896
|
|
|
6,046,898
|
|
Stockholders’
Deficit:
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
25,133,164
|
|
|
--
|
|
|
25,133,164
|
|
Warrants
|
|
|
1,587,500
|
|
|
(392,775)(D
|
)
|
|
1,194,725
|
|
Preferred
stock
|
|
|
12,950
|
|
|
--
|
|
|
12,950
|
|
Accumulated
deficit
|
|
|
(29,749,065
|
)
|
|
244,879(A
|
)
|
|
(29,504,186
|
)
|
Total
Stockholders’ Deficiency |
|
|
(3,015,451 |
) |
|
(147,896 |
) |
|
(3,163,347 |
)
|
Total
Liabilities and Shareholders’ Deficiency
|
|
$
|
2,883,551
|
|
$
|
--
|
|
$
|
2,883,551
|
|
|
|
|
|
|
|
|
|
|
(A)
Effect on the statement of Operations due to the settlement of liquidated
damages.
(B)
Deemed dividends on preferred stock were previously omitted from this
calculation.
(C)
Effect
on
the liabilities due to the settlement of liquidated damages.
(D)
Correction of accounting for derivatives contained in the November 2004 issuance
of common stock with accompanying warrants.
3.
RELATED PARTY TRANSACTIONS
The
Chairman of the Board of Directors made periodic loans to the Company during
2006. The loans did not accrue interest and were due on demand. The combined
loans amounted to $35,000. The unpaid balance of principal on these loans at
December 31, 2006 was $0. The Majority shareholder of the corporation and the
Company President has made loans to the Company from time to time. Certain
related notes accrued interest at 12% and are due on demand. The combined unpaid
balance of principal and interest on these notes at December 31, 2006 was
$75,713.
During
2006, the Board of Directors received 145,000 shares for services as directors;
these were valued at $222,500, reflecting the fair market value of the stock
at
time of award.
On
August
25, 2006, the Company’s CEO, President and Chairman (“President”) died. The
President’s employment contact expired on June 30, 2006 and was not renewed. The
employment agreement did not provide for the exercise of the options upon death.
The options granted in 2004 to the president were 550,000 options, valued at
$187,500 and in 2005 he President was granted 750,000 options, valued at
$975,000. Subsequent to his death, the Board of Directors extended for one
year
from the date of the termination of the employment contract, the time during
which the options can be exercised.
In
2006,
the Company granted 300,000 options to its Chief Executive Officer
4.
STOCK OPTIONS
The
Company has periodically awarded stock 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.
|
|
2006
|
|
2005
|
|
|
|
Weighted
|
|
Weighted
|
|
|
|
Average
|
|
Average
|
|
|
|
Exercised
|
|
Exercised
|
|
|
|
Shares
|
|
Price
|
|
Shares
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding at beginning of year
|
|
|
1,375,000
|
|
$
|
.80
|
|
|
620,000
|
|
$
|
.73
|
|
Options
granted during year
|
|
|
350,000
|
|
|
.46
|
|
|
800,000
|
|
|
.83
|
|
Options
exercised during year
|
|
|
(7,500
|
)
|
|
|
|
|
(45,000
|
)
|
|
.44
|
|
Options
outstanding at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,715,500
|
|
$
|
.73
|
|
|
1,375,000
|
|
$
|
.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average Fair Value of options granted
|
|
|
|
|
$
|
0.34
|
|
|
|
|
$
|
1.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average remaining life of outstanding options -
years
|
|
|
|
|
|
4.79
|
|
|
|
|
|
4.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5.
PRIVATE PLACEMENT OFFERINGS
During
2006, there have been five issuances of convertible debt. None contains a
liquidated damages provision. The first, $819,800 of 8% convertible debt, has
been converted into equity, along with associated interest, at $1.56 per share,
resulting in the issuance of 534,352 additional shares of stock. This issue
was
accompanied by an equal number of warrants, exercisable at $1.75 for a period
of
five years.
A
second
2006 issue was $400,000 of 12% convertible debt due October 20, 2006. After
commissions, the Company received net proceeds of $342,500. The debt is
convertible to stock at $1.56 per share. The issue was accompanied by 282,052
warrants exercisable at $1.56 for five years.
The
third
and fourth issues, of 4% convertible debt, which totaled $198,248, were made
in
settlement of liquidated damages associated with a November, 2004 issue,
as
described in Note 12.
In
July
2006, we issued 2% Unsecured Convertible Debentures aggregating $359,549 and
Stock Purchase Warrants to acquire 110,808 shares of our common stock at $1.65
per share. The conversion price of the shares underlying the note was $1.56.
Both the conversion price and the warrants purchase price have been adjusted
to
$.45 due to the pricing of the February 20, 2007 private placement.
At
December 31, 2006, the Company was in default on its 12% Series A Convertible
Note in the principal amount of $400,000 which the Company issued to a qualified
institutional buyer on July 26, 2006. All principal and accrued and unpaid
interest was due on October 20, 2006. The Company did not repay the note in
the
amount of $412,000, inclusive of principal and accrued and unpaid interest,
on
or prior to October 20, 2006. The Company negotiated with the holder to extend
the note through the payment of cash, and the issuance of shares of common
stock. The Note is due and payable in full, including all unpaid Interest on
November 29, 2007.
On
March
22, 2007, the Company made a $100,000 principal payment and paid interest of
$30,233. The Note was reduced to $300,000 and interest on the Note was reduced
to 10%. Additionally, the Company issued 184,000 shares of common stock as
settlement of the default period and paid a fee of $15,000 to Source Capital
Group, Inc., a registered representative of the Note-holder. The Company also
agreed to make monthly interest payments. The conversion price was reset per
the
terms of the original Note.
On
March
1, 2006, the Company issued $150,000 of 4% Convertible Notes due March 1, 2008,
accompanied by 48,077 warrants to purchase common stock at $1.65 over a five
year period. On June 30, 2006, the Company issued an additional $48,248 in
4%
convertible notes due September 30, 2008, accompanied by 24,124 warrants
exercisable at $1.65 per share over five years in settlement of the liquidated
damages described above. These notes are also convertible at $1.56 over two
years. As of June 30, 2006, all damages payable to all of the investors in
the
Company’s November 2004 private placement have been settled, and pursuant to a
modification agreement which the Company entered into with such investors on
March 1, 2006 and June 30, 2006, no liquidated damages will accrue for the
non-effectiveness of the registration statement after the date of the
modification agreements.
The
Company’s private placements of convertible notes and common stock purchase
warrants in 2005 contained liquidated damages provisions, one of which has
been
settled as discussed above. For the two other financings, February and May,
no
liquidated damages have accrued despite the fact that the shares underlying
the
notes and warrants issued in such private placements have not been registered,
since the payment of damages is linked to the effectiveness of the registration
statement which was initially filed in February 2005 and said registration
statement has been withdrawn.
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 was converted
in 2005 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 that have
not
yet been converted to stock, bear interest at 8% and have two year conversion
terms. They are further described below:
Balance
of 2005 convertible notes and Warrants issuances;
|
|
|
|
Exercise
|
Remaining
debt
|
Conversion
Price
|
Warrants
|
Price
|
$
246,797
|
$.45
|
384,615
|
$.45
|
1,483,000
|
$.45
|
774,000
|
.45
|
$
1,729,797
|
|
|
|
Balance
of 2006 convertible notes and Warrants
issuances;
|
|
|
|
Exercise
|
Remaining
debt
|
Conversion
Price
|
Warrants
|
Price
|
$
150,000
|
$1.56
|
48,077
|
$1.56
|
48,248
|
$1.56
|
24,124
|
$1.56
|
400,000
|
$.45
|
282,051
|
$.45
|
359,549
|
$.45
|
110,808
|
.45
|
$
957,797
|
|
|
|
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 funds raised during 2004 through stock sales was $1,312,000 raised 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 satisfy its obligation to cause the SEC to declare
the
registration statement effective within the timeframe specified in the November
2004 Registration Rights Agreement. As a result, it was subject to, and accruing
liquidated damages in an amount 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 liquidated damages, which had accrued. Under
that agreement, no further liquidated damages would accrue until after June
30,
2005. The obligation concerning effectiveness of the registration statement
has
not been satisfied and liquidated damages accrued since June 30, 2005 at the
rate of approximately $26,240 per month. The liquidated damages paid thus far,
and liquidated damages that accrued subsequent to June 30, 2005, were charged
to
expense during the periods in which they accrued. For the year ended December
31, 2005 an additional $160,851 had accrued; and $88,126 accrued during 2006.
All liquidated damages for this issue were settled by the issuance on June
30,
2006 of convertible notes, which are described below.
There
were 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 began to accrue on March 18, 2006, and would have accrued for a
period
of nine months. A settlement was reached with the investors of this issue
on
July 21, 2006, under which the penalties were cancelled in exchange for $359,549
of convertible debt, which is described in Note 12.
On
February 20, 2007, the Company entered into a Securities Purchase Agreement
(the
"Purchase Agreement") with certain accredited and/or qualified institutional
investors pursuant to which we sold an aggregate of $3,734,040 principal amount
secured convertible debentures (the "Debentures") convertible into shares of
our
common stock, no par value (the "Common Stock") at a conversion price equal
to
$0.45 (the "Conversion Price"), for an aggregate purchase price of $3,219,000.
In addition, the Company issued to the investors (i) warrants to purchase
8,297,866 shares of the Company’s Common Stock (the "Warrants") at an exercise
price equal to $0.54 per share, which represents 100% of the number of shares
issuable upon conversion of the Debentures; (ii) callable warrants to purchase
4,148,933 shares of our Common Stock at an exercise price equal to $0.75 per
share, which represents 50% of the number of shares issuable upon conversion
of
the Debentures; and (iii) callable warrants to purchase 4,148,933 shares of
our
Common Stock at an exercise price equal to $1.25 per share, which represents
50%
of the number of shares issuable upon conversion of the Debentures
(collectively, the "Callable Warrants"). (see “Note 16 Subsequent
Events”)
Previous
Convertible Issues and the warrants accompanying the November 2004 private
placement of common stock contain “Most Favored Nations” clauses that guaranteed
the investors that subsequent issues of stock or notes would not be made
on more
favorable terms. If the Company subsequently issues any shares of common
stock
or securities convertible or exercisable into common stock at a per share
purchase price which is less than the conversion or exercise prices of
outstanding notes
and
warrants, such conversion or exercise prices would be adjusted downward in
accordance with their respective terms. As a result of the issuance of the
convertible notes on February 20, 2007, the following warrant and conversion
prices were adjusted:
1. |
The
exercise price of the warrants associated with the May 2005 convertible
debenture offering and the conversion price of that offering, which
were
previously adjusted to $1.56 per share, are now set at
$0.45.
|
2. |
The
conversion price of the October 2005 issuance of the convertible
debentures, which was previously adjusted from $2.00 per share to
$1.56
per share, is now set at $0.45.
|
3. |
The
exercise price of the warrants issued pursuant to the October 2005
debenture offering, which was previously adjusted from $3.25 per
share to
$1.56 per share, is now set at $0.45
|
4. |
The
exercise price of the warrants associated with the November 2004
stock
offering was adjusted form $1.25 per share to $0.45 per
share
|
5. |
The
exercise price associated with the July 2006 convertible debentures
was
adjusted form $1.56 per share to $0.45 per
share
|
6. |
The
warrant exercise price associated with the warrants issued with the
July
2006 convertible debentures was adjusted from $1.65 per share to
$0.45 per
share.
|
The
affect of these changes will be included in the calculation of revaluation
income during the first quarter of 2007.
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 estate of the Company’s former President and Chairman.
Dividends
of $68,750 accrued on the preferred stock during each of the years 2002 through
2006. 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. In addition, common shares will be issued in 2007 to satisfy $112,500
of unpaid dividends. The balance of unpaid dividends at of December 31, 2006
was
$47,916.
On
March
21, 2007,the Company determined, after consultation with its independent
registered public accounting firm, that a restatement of its financial
statements for the year ended December 31, 2005 filed on Form 10-KSB is
necessary due to the
issuance of the Company’s preferred stock as payment of dividends in lieu of
cash dividends on April 1, 2005 with respect to previously issued shares of
preferred stock. The Company’s original Articles of Incorporation, as amended,
including on April 30, 2000, 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
The
Company’s Articles of Incorporation, as amended, including on April 30, 2000,
similarly do not support the calculation used by the Company in determining
the
number of shares of common stock used to pay preferred stock dividends. The
difference being the date used in determining the stock price at the end of
each
preferred dividend period, as opposed to the lowest common stock price during
the preferred dividend period, subject to a 70% discount, for calculating the
number of common shares issued as payment of the period’s preferred stock
dividend. Accordingly, the number of shares were greater than the number of
shares required, and were issued in error resulting in increased preferred
dividend expenses and preferred stock equity. The Company has determined that
the number of shares deemed the equivalent of the preferred stock dividend
will
be recalculated based on the Company’s Articles of Incorporation, as amended,
including on April 30, 2000. (see “Note 2 Restatements”)
The
Company has determined that the number of shares deemed the equivalent of the
preferred stock dividend will be recalculated based on the Company’s Articles of
Incorporation, as amended, including
on April 30, 2000. Accordingly, the Company will issue 136,041 shares of common
stock to the sole holder of the preferred stock as payment of $51,561 of
preferred stock dividends less other adjustments resulting from the
recalculation of the number of common shares required to pay preferred stock
dividends, subsequently approved. During the period January 1, 2003 through
June
30, 2006, 200,238 shares of common stock were issued in excess of the amount
required.
7.
SHARES ISSUED FOR SERVICES
Stock
options were granted to two Company employees during 2006 and 2005. In addition,
there were shares awarded as compensation for other services. These issuances
for 2006 are detailed below by type of service performed.
The
following shares were issued for services in
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
Price
at
|
|
Value
at
|
|
Services
Rendered
|
|
Shares
|
|
Date
|
|
Date
|
|
Grant
Date
|
|
Employee
awards
|
|
|
32,500
|
|
|
1/26
|
|
$
|
1.64
|
|
$
|
53,250
|
|
Investor
relations
|
|
|
22,500
|
|
|
1/26
|
|
|
2.13
|
|
|
47,925
|
|
Professional
Services
|
|
|
2,500
|
|
|
1/26
|
|
|
2.20
|
|
|
5,500
|
|
Professional
Services
|
|
|
6,712
|
|
|
2/1
|
|
|
1.57
|
|
|
10,534
|
|
Legal
Services
|
|
|
25,000
|
|
|
2/5
|
|
|
1.95
|
|
|
48,750
|
|
Professional
Services
|
|
|
5,000
|
|
|
2/9
|
|
|
1.73
|
|
|
8,650
|
|
Product
Development services
|
|
|
30,000
|
|
|
2/28
|
|
|
1.49
|
|
|
44,700
|
|
Marketing
services
|
|
|
25,000
|
|
|
3/27
|
|
|
1.08
|
|
|
27,000
|
|
Software
Consulting services
|
|
|
1,440
|
|
|
3/22
|
|
|
1.31
|
|
|
1,886
|
|
Legal
Services
|
|
|
1,304
|
|
|
3/22
|
|
|
1.51
|
|
|
1,969
|
|
Investor
relations
|
|
|
85,000
|
|
|
4/12
|
|
|
1.49
|
|
|
126,650
|
|
Professional
Services
|
|
|
5,847
|
|
|
4/12
|
|
|
1.49
|
|
|
8,712
|
|
Employee
awards
|
|
|
25,000
|
|
|
4/12
|
|
|
1.49
|
|
|
37,253
|
|
Professional
Services
|
|
|
5,599
|
|
|
5/1
|
|
|
1.64
|
|
|
9,182
|
|
Director
awards
|
|
|
145,000
|
|
|
5/1
|
|
|
1.53
|
|
|
222,500
|
|
Investor
relations
|
|
|
26,000
|
|
|
5/10
|
|
|
1.27
|
|
|
33,020
|
|
Professional
Services
|
|
|
6,142
|
|
|
5/10
|
|
|
1.27
|
|
|
7,804
|
|
Professional
Services
|
|
|
26,000
|
|
|
5/11
|
|
|
1.30
|
|
|
33,800
|
|
Investor
relations
|
|
|
15,000
|
|
|
6/1
|
|
|
1.64
|
|
|
24,600
|
|
Professional
Services
|
|
|
22,900
|
|
|
6/5
|
|
|
1.80
|
|
|
41,220
|
|
Marketing
services
|
|
|
10,000
|
|
|
6/22
|
|
|
1.85
|
|
|
18,500
|
|
Professional
Services
|
|
|
6,750
|
|
|
6/22
|
|
|
1.85
|
|
|
12,488
|
|
Professional
Services
|
|
|
25,000
|
|
|
6/30
|
|
|
1.90
|
|
|
47,500
|
|
Professional
Services
|
|
|
15,000
|
|
|
7/1
|
|
|
1.27
|
|
|
19,050
|
|
Professional
Services
|
|
|
13,560
|
|
|
9/9
|
|
|
1.31
|
|
|
17,764
|
|
Employee
awards
|
|
|
12,500
|
|
|
9/28
|
|
|
1.71
|
|
|
21,400
|
|
Investor
relations s
|
|
|
75,000
|
|
|
9/28
|
|
|
1.61
|
|
|
120,736
|
|
Professional
Services
|
|
|
100,000
|
|
|
10/9
|
|
|
.75
|
|
|
74,800
|
|
Marketing
services
|
|
|
35,000
|
|
|
10/20
|
|
|
.71
|
|
|
24,990
|
|
Legal
Services
|
|
|
10,000
|
|
|
10/20
|
|
|
.71
|
|
|
7,140
|
|
Professional
Services
|
|
|
49,000
|
|
|
10/20
|
|
|
.84
|
|
|
34,986
|
|
Employee
awards
|
|
|
5,000
|
|
|
10/20
|
|
|
.84
|
|
|
3,570
|
|
Total
shares issued for services |
|
|
871,257
|
|
|
|
|
|
|
|
|
1,197,826
|
|
The
following shares were issued for services in
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
|
|
Price
at
|
|
Value
at
|
|
Services
Rendered
|
|
Shares
|
|
Date
|
|
Date
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
728,657 |
|
Other
Issuances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
awards
|
|
|
20,000
|
|
|
various |
|
|
2.40
|
|
|
48,000
|
|
Shares
issued in lieu of rent
|
|
|
19,200
|
|
|
various
|
|
|
|
|
|
48,000
|
|
Shares
issued as partial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
compensation
of financing
|
|
|
5,000
|
|
|
various |
|
|
|
|
|
14,700
|
|
Amortization
of cost of grants made
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
prior periods
|
|
|
|
|
|
|
|
|
|
|
|
5,113
|
|
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
|
|
8.
WARRANTS
The
Company has issued warrants both as part of “stock units” and as an integral
part of convertible note issues. The value of the warrants and conversion
options which are classified as liabilities are revalued each reporting period.
These values are determined by a Black Scholes valuation model, consistent
with
the requirements of SFAS No.133. The following is a schedule of changes in
warrants outstanding during the years 2006 and 2005. Each of these warrants
is
exercisable over five year periods from dates of issuance at prices ranging
from
$0.45-$1.56 per share. They were recorded at fair values determined by a
Black
Scholes valuation model.
|
|
|
|
|
|
Balance
December 31, 2004
|
|
|
|
5,537,763
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
Warrants
issued in conjunction with
issuances of 2006 convertible debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
issued with $819,800 convertible debt through May, subsequently
converted
to equity
|
|
|
|
|
|
525,513
|
|
|
|
|
|
|
|
|
|
Warrants
issued with $150,000 convertible debt, March
|
|
|
|
|
|
48,077
|
|
|
|
|
|
|
|
|
|
Warrants
issued with $48,248 convertible debt, June
|
|
|
|
|
|
24,124
|
|
|
|
|
|
|
|
|
|
Warrants
issued with $400,000 convertible debt, July
|
|
|
|
|
|
282,051
|
|
|
|
|
|
|
|
|
|
Warrants
issued with $359,549 convertible debt, July
|
|
|
|
|
|
110,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
warrants issued during 2006
|
|
|
|
|
|
990,573
|
|
Balance
December 31, 2006
|
|
|
|
|
|
10,494,131
|
|
9. OPERATING
AND ADMINISTRATIVE
EXPENSES
Details
of operating and administrative expenses are presented below:
|
|
Twelve
Months ended December 31, 2006
|
|
Twelve
Months ended December 31, 2005
|
|
Salaries
and payroll taxes
|
|
$
|
1,123,791
|
|
$
|
626,450
|
|
Options
expense
|
|
|
93,000
|
|
|
1,082,250
|
|
Investor
relations
|
|
|
11,629
|
|
|
0
|
|
Marketing
expense
|
|
|
228,501
|
|
|
272,879
|
|
Development
costs
|
|
|
519,134
|
|
|
544,933
|
|
Professional
fees
|
|
|
665,945
|
|
|
580,961
|
|
Consulting
- administrative
|
|
|
411,433
|
|
|
610,550
|
|
Settlement
expense
|
|
|
531,655
|
|
|
281,281
|
|
Liquidated
damages
|
|
|
214,247
|
|
|
0
|
|
Depreciation
& Amortizations
|
|
|
69,019
|
|
|
59,500
|
|
Rent
|
|
|
160,571
|
|
|
87,627
|
|
Insurance
|
|
|
145,379
|
|
|
179,739
|
|
Director
awards
|
|
|
222,500
|
|
|
0
|
|
Office
expense
|
|
|
59,617
|
|
|
224,235
|
|
Other
expenses
|
|
|
230,342
|
|
|
507,191
|
|
Totals
|
|
$
|
4,686,763
|
|
$
|
5,057,596
|
|
`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, 2006 the Company had
NOL
carryforwards of $25,257,084 available for Federal taxes and $17,091,769 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
|
|
2026
|
|
|
6,847,810
|
|
During
the year 2006, the Company realized $445,216 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 2005. These potential New Jersey
offsets for periods prior to 2006 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
|
|
$
|
919,889
|
|
$
|
8,257,629
|
|
$
|
9,177,518
|
|
Valuation
Allowance
|
|
|
--
|
|
|
8,257,629
|
|
|
8,257,629
|
|
Balance
Recognized
|
|
$
|
919,889
|
|
$
|
--
|
|
$
|
919,889
|
|
The
entire balance of the valuation allowance relates to Federal taxes. Since state
tax benefits for years prior to 2005 have been realized, no reserve is deemed
necessary for the benefit of state tax losses of 2006. The valuation reserve
increased by $2,413,868 during the year.
11.
RENTALS UNDER OPERATING LEASES
At
present, the Company is not obligated under any operating lease.
Rent
expense amount to $160,571 in 2006 and $87,627 in 2005.
12.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash
paid
for interest and income taxes is presented below:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,971
|
|
$
|
9,741
|
|
Income
taxes
|
|
|
500
|
|
|
500
|
|
There
were no non-cash investing activities during either 2006 or 2005. The following
non-cash financing activities occurred:
|
a)
|
Shares
of common stock were issued for services during 2006 and 2005; these
totaled 687,665 and 330,895 shares,
respectively.
|
|
b)
|
During
2006, the following amounts were converted from debt to
equity:
|
· $819,800
of convertible debt was converted into 525,513 shares of common
stock.
· $253,203
of the May 2005 convertible debt issue was converted into 180,925 shares of
stock.
· $65,000
of the October, 2005 convertible debt issue was converted into 41,666 shares
of
common stock.
c)
During
2005, $5,000,000 of convertible debt was converted into 3,846,154 shares of
common stock.
d)
During
2006, the holder of the preferred stock issue elected to receive common stock
in
lieu of $112,500 of cash dividends. A total of 218,742 shares of common stock
will be issued to satisfy this dividend.
|
During
2005, the holder of the preferred stock issue also elected to receive
common stock in lieu of a $51,563 cash dividend. A total of 136,041
shares
will be issued to satisfy this
dividend.
|
|
e)
|
During
2006, $66,464 of interest that had accrued on the May, 2005 convertible
debt issue and the $819,800 2006 convertible issue were settled by
the
issuance of 54,373 shares of common
stock.
|
f) During
2006, the Company issued $198,248 of 4% debentures as part of a Modification
Agreement with investors, whereby the investors yielded their rights to
liquidated damages on the November, 2004 stock issue.
|
g)
|
During
2005, the Company issued 1,749,827 shares in settlement of stock
sales
that took place during 2004.
|
|
h)
|
During
2005, the Company issued 28,453 shares in settlement of interest
due to
investors.
|
|
i)
|
During
2005, the Company issued 187,939 shares in settlement of third party
debt
of a German company that the Company planned to acquire - see Note
on
FiLCO acquisition.
|
|
j)
|
During
2006, the Company issued 2% Unsecured Convertible Debentures aggregating
$359,549 and Stock Purchase Warrants to acquire 110,808 shares
of our
common stock at $1.65 per share. The issuance satisfies an obligation
for
liquidated damages which would have totaled $278,647 by December
31,
2006.
|
13.
PROPOSED ACQUISITION OF FILCO
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 $6,275,881 of advances to Filco
that were outstanding at December 31, 2005, were secured by liens filed against
the machinery and equipment owned by Filco which in 2003 was appraised at
$5,400,000, and by liens filed against its intellectual property, which had
not
been appraised. Due to the uncertainty of the Company’s position under German
bankruptcy law, $4,275,881 of the Filco advances were written off in 2005,
and
the remaining $2,000,000 was written off in 2006. In addition, $413,000 of
Company inventory stored at the Filco plant was abandoned and written off during
2006. During 2006, an auction of Filco assets was conducted by the receiver
who
did not acknowledge the Airtrax liens against property and
equipment.
14.
RECENT ACCOUNTING PRONOUNCEMENTS
The
Financial Accounting Standards Board (FASB) has recently issued “FASB Staff
Position EITF 00-19-2 which modifies the accounting treatment of derivatives
that flow from financings involving embedded derivatives. This Staff Position
is
effective for financial statements for periods beginning January 1, 2007.
Management believes that this will cause some change in the way the Company
accounts for derivatives. Management is evaluating this position and has not
made a determination as to the effective it will have on its financial
statements.
The
Company has reviewed other accounting pronouncements issued during 2006 and
has
concluded that they will have no effect on the Company's financials
statements.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As shown in the financial statements, the
Company had a material working capital
deficiency and an accumulated deficit as of December 31, 2006 and has
experienced continuing losses. These factors raise substantial doubt about
the
ability of the Company to continue as a going concern. The financial statements
do not include adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should the Company
be
unable to continue in operation. The Company’s present plans, the realization of
which cannot be assured, to overcome these difficulties include but are not
limited to the continuing effort to raise capital in the public and private
markets.
16.
|
COMMITMENTS
AND CONTINGENCIES
|
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.
In
connection with the Acquisition Agreement, Mr. Filipov was to receive options
to
purchase 900,000 shares of the Company’s common stock at an exercise price of
$0.01. The Company did not issue such options because the Acquisition Agreement
was terminated and the conditions for such issuance were never fulfilled. Mr.
Filipov has indicated that he believes that the conditions were fulfilled and
that the Company owe’s him the options. The Company and Mr. Filipov are
endeavoring to reach a mutually acceptable settlement.
On
February 20, 2007, the Company entered into a Securities Purchase Agreement
(the
"Purchase Agreement") with certain accredited and/or qualified institutional
investors pursuant to which we sold an aggregate of $3,734,040 principal amount
secured convertible debentures (the "Debentures") convertible into shares of
our
common stock, no par value (the "Common Stock") at a conversion price equal
to
$0.45 (the "Conversion Price"), for an aggregate purchase price of $3,219,000.
In addition, the Company issued to the investors (i) warrants to purchase
8,297,866 shares of the Company’s Common Stock (the "Warrants") at an exercise
price equal to $0.54 per share, which represents 100% of the number of shares
issuable upon conversion of the Debentures; (ii) callable warrants to purchase
4,148,933 shares of our Common Stock at an exercise price equal to $0.75 per
share, which represents 50% of the number of shares issuable upon conversion
of
the Debentures; and (iii) callable warrants to purchase 4,148,933 shares of
our
Common Stock at an exercise price equal to $1.25 per share, which represents
50%
of the number of shares issuable upon conversion of the Debentures
(collectively, the "Callable Warrants").
The
Debentures mature on February 20, 2009. The Company may in our discretion redeem
the Debentures, subject to certain equity conditions being met by us as set
forth in the Debentures, at a price equal to 150% of the principal balance,
accrued interest, and all liquidated damages, if any, thereon that are requested
to be redeemed. The Company’s obligations under the Purchase Agreement, the
Debentures and the additional definitive agreements with respect to this
transaction are secured by all of our assets. The Conversion Price of the
Debentures is subject to adjustments for any failure by the Company to cause the
Securities and Exchange Commission (the "SEC") to declare the initial
registration statement covering the shares underlying the Debentures, the
Warrants and the Callable Warrants effective.
The
Conversion Price of the Debentures and the respective exercise prices of the
Warrants and the Callable Warrants are subject to adjustment in certain events,
including, without limitation, upon the Company’s consolidation, merger or sale
of all of substantially all of the Company’s assets, a reclassification of our
Common Stock, or any stock splits, combinations or dividends with respect to
the
Company’s Common Stock.
In
addition, after such time as the SEC declares the registration statement
effective, if (i) the volume weighted average price for each of the 10
consecutive trading days (the "Measurement Period") exceeds $1.50 per share
with
respect to the $0.75 Callable Warrants and $2.50 with respect to the $1.25
Callable Warrants, (ii) the daily volume for each trading day in such
Measurement Period exceeds 250,000 shares of Common Stock per trading day,
and
(iii) the holder is not in possession of any information that constitutes,
or
might constitute, material non-public information, then we may, within one
trading day of the end of such Measurement Period, call for cancellation of
all
or any portion of the Callable Warrants which have not yet been exercised at
a
price equal to $.001 per share.
Under
the
Registration Rights Agreement we entered into with the investors on February
20,
2007, we are obligated to file a registration statement on Form SB-2 to effect
the registration of 130% the Common Stock issuable upon conversion of the
Debentures and exercise of the Warrants, the Callable Warrants and the selling
agent warrants (as described below) on the earlier of (i) 15 calendar days
from
the filing of our annual report on Form 10-KSB for the fiscal year ended
December 31, 2006, or (ii) April 15, 2007 (the "Filing Date"). We are obligated
to use our best efforts to cause the registration statement to be declared
effective no later than 90 days after the Filing Date. If we do not file the
registration statement by the Filing Date, or if the registration statement
is
not declared effective by the SEC within the deadline specified in the preceding
sentence, we shall pay to the investors, as liquidated damages, an amount equal
to 1.25% of the principal amount of the Debentures on a pro rata basis for
each
30-day period of such registration default.
On
March
22, 2007, the Company made a $100,000 principal payment and paid interest of
$30,213. The Note was reduced to $300,000 and interest on the Note was reduced
to 10%. Additionally, the Company issued 184,000 shares of common stock as
settlement of the default period and paid a fee
of
$12,000
to
Source Capital Group, Inc., a registered representative of the Note-holder.
The
Company also agreed to make monthly interest payments. The conversion price
was
reset per the terms of the original Note.
On
August
25, 2006, the Company’s CEO, President and Chairman (“President”) died. The
President’s employment contact expired on June 30, 2006 and was not renewed. The
employment agreement did not provide for the exercise of the options upon death.
The options granted in 2004 to the president were 550,000 options, valued at
$187,500 and in 2005 he President was granted 750,000 options, valued at
$975,000. On April 11, 2007, the Board of Directors extended the option for
an
18 month period commencing on the date Mr. Amico’s contract
expired.
Item
8. Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
Item
8A. Controls and Procedures
(a)
Evaluation of disclosure controls and procedures.
The
Company, under the supervision and with the participation of its management,
including the recently appointed principal executive officer and acting
principal financial officer, have evaluated the effectiveness of the design
and
operation of its disclosure controls and procedures as defined in Rule 13a-15(e)
of the Securities Exchange Act of 1934, as amended (the “Act”) as of the end of
the period covered by this report (the “Disclosure Controls”). Based upon the
Disclosure Controls evaluation, the recently appointed principal executive
officer and acting principal financial officer have concluded that the Company’s
disclosure controls and procedures were not effective in connection with
preparing this Annual Report on Form 10-KSB due to a material weakness in
the
Company’s internal control over financial reporting, mainly its financial
closing, review and analysis process and its ability to maintain adequate
records. The
Company determined that a restatement of its financial statements was
necessary due to the issuance of convertible debentures and warrants
(collectively, the “Securities”) in July 2006 for the settlement of liquidated
damages from its October 2005 private placement. The Securities were not
previously recorded on the Company’s books and records. Additionally, the
Company determined that a correction of the accounting for the settlement
of
liquidated damages in July 2006, in connection with its November 2004 private
placement, was also required.
The
Company believes that the issues surrounding the restatement of this report,
mainly the internal controls related to the financial closing, review,
and
analysis process and its ability to maintain adequate records has been
addressed
and the Company has taken steps to avoid the reoccurrence of this condition
by
adding additional qualified staff with SEC experience in the financial
reporting
and analysis area. The Company has instituted a policy requiring the controller,
at the end of each quarter, to reconcile the accounting records to the
securities issuance report prepared and maintained by the corporate secretary
to
ensure that all issuances have been properly recorded and that appropriate
adjustments to previously issued securities are recorded, if necessary.
The
Company believes that the efforts taken by new management since the end
of 2006
to strengthen the Company’s internal controls will be effective in future
periods.
A
control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there
are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems,
no
evaluation of controls can provide absolute assurance that all control
issues
and instances of fraud, if any, within the Company have been detected.
Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and not be detected.
The
Company’s internal control over financial reporting has been modified during the
Company’s most recent fiscal quarter to add additional staff to address
deficiencies in the financial closing, review and analysis process, and improve
the Company’s record keeping, which has materially affected the Company’s
internal control over financial reporting.
Item
8B - Other Information
None.
PART
III
Directors
and Executive Officers
Name
|
Age
|
Position
|
Robert
M. Watson
|
59
|
Chief
Executive Officer, Acting Chief Financial Officer and
Director
|
D.
Barney Harris
|
46
|
Director
|
James
Hudson
|
64
|
Director
|
William
Hungerville
|
71
|
Director
|
Fil
Filipov
|
60
|
Director
|
Andrew
Guzzetti
|
59
|
Chairman
of the Board of Directors
|
Peter
Amico, Jr.
|
42
|
Director
|
Robert
Borski, Jr.
|
58
|
Director
|
Nicholas
Fenelli
|
52
|
Chief
Operations Officer
|
Directors
serve until the next annual meeting and until their successors are elected
and
qualified. The Directors of our company are elected by the vote of a
majority in interest of the holders of the voting stock of our company and
hold
office until the expiration of the term for which he or she was elected and
until a successor has been elected and qualified.
A
majority of the authorized number of directors constitutes a quorum of the
Board
for the transaction of business. The directors must be present at the meeting
to
constitute a quorum. However, any action required or permitted to be taken
by
the Board may be taken without a meeting if all members of the Board
individually or collectively consent in writing to the action.
Officers
are appointed to serve for one year until the meeting of the board of directors
following the annual meeting of stockholders and until their successors have
been elected and qualified.
The
principal occupations for the past five years (and, in some instances, for
prior
years) of each of our executive officers and directors, followed by our key
employees, are as follows:
Robert
Watson - Mr.
Watson has been our Chief Executive Officer and a Director since November 1,
2006. From 2001 until October 2006, Mr. Watson was President and CEO of Hartz
& Company, a manufacturer of tailored clothing, with two production
facilities in the United States with sales and marketing offices in New York
City. From 1996 to 2001, Mr. Watson served as the Vice President, CFO and COO
of
America's Best Contacts and Eyeglasses, a retail chain with 118 locations,
a
full service laboratory and distribution center. His experience in the public
arena was with Continental Can Company, from 1967 through 1986, where he served
as Controller for the food packaging company with 29 manufacturing facilities
and sales in excess of $1 billion. Mr. Watson received a BS in accounting from
Fairleigh Dickinson University and an EMBA from the University of New
Haven.
D.
Barney Harris -
Mr.
Harris has been a Director 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.
James
Hudson
- Mr.
Hudson has been a Director 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.
Fil
Filipov
- Mr.
Filipov has been a Director since December 2004. Mr. Filipov has served as
the
Chairman of Supervisory Board of Tatra, a Czech Company, which is producing
off
highway trucks. . Mr. Filipov was President & CEO of Terex Cranes, a $1
billion dollar business segment of Terex Corporation. He was responsible for
strategic acquisitions and served as President and CEO from March 1995 through
December 2003. From 1994 through 1996, Mr. Filipov was the Managing Director
of
Clark Material Handling Company in Germany (Filco GmbH).
Andrew
Guzzetti - Mr.
Guzzetti has
been a
director since April 1, 2006 and Chairman since August 31, 2006. 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.
Peter
Amico, Jr. - From
1988
to the present, Mr. Amico has served as a police officer in the State of New
Jersey where he has managed and trained personnel and directed police
operations. Mr. Amico served as a Police Investigator from 1994 to 1995 and
was
promoted to Supervisor in 1996. From 1983 to 1987, he served in the United
States Marine Corps. where his service included police duties and training
coordination. In addition, Mr. Amico received an Associates Degree in Law
Enforcement from Gloucester County College in 2003.
Robert
Borski, Jr. - From
1982
to 2003, Mr. Borski represented the Third Congressional District of Pennsylvania
for ten terms in the United States House of Representatives, where he was a
senior member of the House Transportation and Infrastructure Committee and
a
vocal advocate for an improved national transportation system. He was awarded
the American Public Transportation Association’s National Distinguished Service
Award in 2002 and the Silver Order of the de Fleury Medal from the Army
Engineering Association. In 2003, Mr. Borski formed Borski Associates, a
government relations firm specializing in transportation and economic
development issues. He is a driving force behind efforts to revitalize the
North
Delaware riverfront, an area of abandoned industrial sites, into a center of
residential and commercial activity. Currently, Mr. Borski serves on the Board
of Directors of the Northeast-Midwest Institute, an organization promoting
economic vitality for Northeastern and Midwestern states, and on the Board
of
Directors of Pennoni Associates, a civil engineering firm. Mr.
Borski
received
a Bachelor of Arts degree from the University of Baltimore in 1971.
Nicholas
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.
COMMITTEES
OF THE BOARD
We
currently have no audit committee, compensation committee, nominations and
governance committee of our board of directors.
INDEBTEDNESS
OF EXECUTIVE OFFICERS AND DIRECTORS
No
executive officer, director or any member of these individuals' immediate
families or any corporation or organization with whom any of these individuals
is an affiliate is or has been indebted to us since the beginning of our last
fiscal year.
FAMILY
RELATIONSHIPS
There
are
no family relationships among our executive officers and directors.
LEGAL
PROCEEDINGS
As
of the
date of this prospectus, there are no material proceedings to which any of
our
directors, executive officers, affiliates or stockholders is a party adverse
to
us.
CODE
OF ETHICS
We
have
not adopted a Code of Ethics within the meaning of Item 406(b) of Regulation
S-B
of the Securities Exchange Act of 1934.
Section
16(a) Beneficial Ownership Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers and persons who beneficially own more than ten percent of
a
registered class of our equity securities to file with the SEC initial reports
of ownership and reports of change in ownership of common stock and other equity
securities of our company. Officers, directors and greater than ten percent
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4
and
amendments thereto furnished to us under Rule 16a-3(e) during the fiscal year
ended December 31, 2006, and Forms 5 and amendments thereto furnished to us
with
respect to the fiscal year ended December 31, 2006, we believe that during
the
year ended December 31, 2006, our executive officers, directors and all persons
who own more than ten percent of a registered class of our equity securities
complied with all Section 16(a) filing requirements.
Item
10. Executive
Compensation
Name
& Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan Compensation ($)
|
|
Change
in Pension Value and Non-Qualified Deferred Compensation
Earnings
($)
|
|
All
Other Compensation ($)
|
|
Total
($)
|
|
Peter
Amico,
CEO,
President & Director
|
|
|
2006
2005
|
|
|
$168,269
$303,751
|
|
|
$0
$0
|
|
|
0
0
|
|
|
0
$975,000
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
$168,269
$303,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nicholas
Fenelli, Vice President & COO
|
|
|
2006
2005
|
|
|
$96,798
$78,202
|
|
|
$0
$0
|
|
|
0
0
|
|
|
$24,000
$53,500
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
$96,798
$78,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
M. Watson. CEO, President & Director
|
|
|
2006
2005
|
|
|
$11,538
$0
|
|
|
$50,000
0
|
|
|
|
|
|
$45,000
0
|
|
|
0
0
|
|
|
0
0
|
|
|
0
0
|
|
|
$61,538
0
|
|
Outstanding
Equity Awards at Fiscal Year-End Table.
The
following table sets forth information with respect to grants of options to
purchase our common stock to the named executive officers at December 31,
2006.
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
-Robert
M. Watson
|
-300,000
|
-0
|
-400,000
|
-$0.46
|
-Nov.
30, 2008
|
-0
|
-0
|
-0
|
-0
|
Director
Compensation
The
following table sets forth with respect to the named directors, compensation
information inclusive of equity awards and payments made at December 31,
2006.
Name
(a)
|
Fees
Earned or Paid in Cash
($)
(b)
|
Stock
Awards
($)
(c)
|
Option
Awards
($)
(d)
|
Non-Equity
Incentive Plan Compensation ($)
(e)
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
(f)
|
All
Other Compensation
($)
(g)
|
Total
($)
(h)
|
-Andrew
Guzzetti
|
-
|
20,000
-
|
$32,800 |
0
-
|
0
-
|
0
-
|
$32,800
-
|
-Robert
M. Watson
|
-
|
-0
|
-
|
0-
|
0-
|
0-
|
-
|
James
Hudson (1)-
|
-
|
35,000-
|
-$52,300
|
0-
|
0-
|
0-
|
--$52,300
|
William
Hungerville (1)-
|
-
|
35,000-
|
-$52,300-
|
0-
|
0-
|
0-
|
-$52,300-
|
D.
Barney Harris-(1)
|
-
|
35,000
|
-$52,300-
|
0-
|
0-
|
0-
|
-$52,300-
|
Fil
Filipov-
|
-
|
0
|
-
|
0-
|
0-
|
0-
|
-
|
Robert
Borski-
|
-
|
20,000-
|
$32,800-
|
0-
|
0-
|
0-
|
$32,800-
|
Peter
Amico, Jr,-
|
-
|
0
-
|
-
|
0-
|
0-
|
0-
|
- |
(1.)
Includes 15,000 shares issued for director fees earned in 2005.
EMPLOYMENT
AGREEMENTS
On
December 26, 2006, we entered into an Employment Agreement dated as of December
1, 2006 with Robert M. Watson, our President and Chief Executive Officer.
Pursuant
to the Employment Agreement, we will employ Mr. Watson for a period of 2 years
commencing December 1, 2006 unless terminated upon 30 days prior written notice
by either party pursuant to the terms set forth therein. From December 1, 2006
through November 30, 2007, Mr. Watson will be paid an annual base salary of
$150,000 (“Base Salary”). In addition, Mr. Watson was paid a start-up bonus in
the amount of $50,000 for services rendered by him to our company prior to
the
execution of the Employment Agreement and Mr. Watson will be issued options
to
purchase 300,000 shares of our common stock at a price equal to $0.46 per share.
From December 1, 2007 through November 30, 2008, Mr. Watson’s Base Salary will
increase to $200,000 per year. On December 1, 2007 and June 1, 2008, Mr. Watson
shall be issued options to purchase 200,000 and 200,000 shares of our common
stock, respectively, each at a price equal to $0.46 per share. Further, Mr.
Watson will be eligible to earn an annual cash bonus at the discretion of our
Board of Directors based on meeting performance objectives and bonus criteria.
During
the term of his employment and for a period thereafter, Mr. Watson will be
subject to confidentiality and non-competition provisions, subject to standard
exceptions.
Item
11.
Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
The
following table sets forth certain information regarding beneficial ownership
of
our common stock as of April 12, 2007.
· by
each
person who is known by us to beneficially own more than 5% of our common stock;
· by
each
of our officers and directors; and
· by
all of
our officers and directors as a group.
NAME
AND ADDRESS
OF
OWNER
|
TITLE
OF
CLASS
|
NUMBER
OF
SHARES
OWNED (1)
|
PERCENTAGE
OF CLASS (2)
|
|
|
|
|
Robert
M. Watson
|
Common
Stock
|
320,000
(4)
|
1.30%
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
D.
Barney Harris
|
Common
Stock
|
221,562
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
James
Hudson
|
Common
Stock
|
140,800
(3)
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
William
Hungerville
|
Common
Stock
|
221,000
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Fil
Filipov
|
Common
Stock
|
60,000
|
*
|
200
Freeway Drive, Unit 1
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Andrew
Guzzetti
|
Common
Stock
|
190,000
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Peter
Amico, Jr.
|
Common
Stock
|
52,500
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Robert
Borski, Jr.
|
Common
Stock
|
78,504
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
Nicholas
Fenelli
|
Common
Stock
|
138,500
|
*
|
200
Freeway Drive, Unit 1
|
|
|
|
Blackwood,
NJ 08012
|
|
|
|
|
|
|
|
All
Officers and Directors
|
Common
Stock
|
1,442,866
|
5.9%
|
As
a Group (9 persons)
|
|
|
|
|
|
|
|
*
Less
than 1%.
(1)
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of common stock subject to options
or
warrants currently exercisable or convertible, or exercisable or convertible
within 60 days of April 12, 2007 are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.
(2)
Based
upon 24,376,887 shares
issued and outstanding on April 12, 2007.
(3)
Includes 44,500 shares owned by a corporation owned by Mr. Hudson.
(4)
Includes 300,000 options for common stock issued in connection with Mr. Watson’s
employment contract dated December 1, 2006.
Item
12. Certain
Relationships and Related Transactions, and Director Independence
Arcon
Corp., a corporation wholly owned by the estate of our former 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.
Arcon
is
entitled to a 5% dividend on the 275,000 shares of preferred stock which it
owns. This dividend is based on preferred stock value of $5 per share. The
holder of the preferred stock has the right to elect to receive its dividends
in
common stock in lieu of cash. The dividends accrued through 2001 have been
satisfied. Dividends accrued subsequent to 2001 have been paid partly in cash
and partly by the issuance of common stock, as follows:
Dividends
accrued during 2002 - 2005
|
|
|
|
|
$
|
275,000
|
|
Cash
payment during 2004
|
|
$
|
131,771
|
|
|
|
|
Dividend
to be paid in common stock
|
|
|
51,562
|
|
|
183,333
|
|
Balance
unpaid at 12/31/05
|
|
|
|
|
|
91,667
|
|
|
|
|
|
|
|
|
|
Dividends
accrued during 2006
|
|
|
|
|
|
68,750
|
|
Dividends
paid in 2006 in common stock
|
|
|
|
|
|
112,500
|
|
Balance
unpaid at 12/31/06
|
|
|
|
|
$
|
47,917
|
|
The
51.562 amount was originally satisfied by the issuance of 100,000 shares of
preferred stock. Early in 2007 it was determined that the issuance of preferred
stock to satisfy preferred dividends is not permitted by the certificate of
incorporation. The 100,000 preferred shares were, therefore, retrieved and
will
be replaced in 2007 by 136,041 shares of common stock. The $112,500 dividend
payment will be made in 2007 by the issuance of 218,742 shares of common
stock.
The
financial statements at December 31, 2004 reflect 275,000 shares of preferred
stock outstanding and disclosed that an additional 100,000 shares of preferred
stock were deemed the equivalent of 221,892 shares of common stock that would
have been required to settle an equivalent amount of preferred dividends. We
have determined that the number of shares deemed the equivalent of the preferred
stock dividend and has been recalculated based on our Articles of Incorporation,
as amended, including on April 30, 2000. Accordingly, we will issue 136,041
shares of common stock to the sole holder of the preferred stock as payment
of
$51,562 of preferred stock dividends less other adjustments resulting from
the
recalculation of the number of common shares required to pay preferred stock
dividends, subsequently approved. During the period January 1, 2003 through
June
30, 2006, 200,238 shares of common stock were issued in excess of the amount
required.
Item
13. Exhibits.
3.1
|
Certificate
of Incorporation of Airtrax, Inc. dated April 11, 1997, filed as
an
exhibit to the Current Report on Form 8-K filed with the Securities
and
Exchange Commission on November 19, 1999 and incorporated herein
by
reference.
|
3.2
|
Certificate
of Correction of the Certificate of Incorporation dated April 30,
2000,
filed as an exhibit to the Current Report on Form 8-K filed with
the
Securities and Exchange Commission on November 17, 1999 and incorporated
herein by reference.
|
3.3
|
Certificate
of Amendment of Certificate of Incorporation dated March 19, 2001,
filed
as an exhibit to the Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 17, 1999 and incorporated herein
by
reference.
|
3.4
|
Amended
and Restated By-Laws , filed as an exhibit to the Current Report
on Form
8-K filed with the Securities and Exchange Commission on November
19, 1999
and incorporated herein by
reference.
|
4.1
|
Form
of Common Stock Purchase Warrant issued to investors pursuant to
the May
2004 private placement. (To be filed at a later
date)
|
4.2
|
Form
of Common Stock Purchase Warrant dated as of November 22, 2004 and
November 23, 2004, filed as an exhibit to the Current Report on Form
8-K
filed with the Securities and Exchange Commission on November 30,
2004 and
incorporated herein by reference.
|
4.3
|
Form
of Series A Convertible Note dated as of February 11, 2005, filed
as an
exhibit to the Current Report on Form 8-K filed on February 11, 2005
and
incorporated herein by reference.
|
4.4
|
Form
of Class A Common Stock Purchase Warrant dated as of February 11,
2005,
filed as an exhibit to the Current Report on Form 8-K filed on February
11, 2005 and incorporated herein by
reference.
|
4.5
|
Form
of Class B Common Stock Purchase Warrant dated as of February 11,
2005,
filed as an exhibit to the Current Report on Form 8-K filed on February
11, 2005 and incorporated herein by
reference.
|
4.6
|
Form
of Broker's Common Stock Purchase Warrant dated as of February 11,
2005,
filed as an exhibit to the Current Report on Form 8-K filed on February
11, 2005 and incorporated herein by
reference.
|
10.1
|
Employment
agreement dated July 12, 1999, by and between Airtrax, Inc. and D.
Barney
Harris, filed as an exhibit to the Current Report on Form 8-K/A filed
with
the Securities and Exchange Commission on January 13, 2000 and
incorporated herein by reference.
|
10.2
|
Consulting
Agreement by and between MAS Financial Corp. and Airtrax, Inc. dated
October 26, 1999, filed as exhibit to the Current Report on Form
8-K filed
with the Securities and Exchange Commission on November 19, 1999
and
incorporated herein by reference.
|
10.3
|
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 Current Report on Form 8-K
filed
on March 15, 2004 and incorporated herein by
reference.
|
10.4
|
Joinder
to the Purchase Agreement, dated November 23, 2004, by and among
Airtrax,
Inc., Excalibur Limited Partnership, Stonestreet Limited Partnership
and
Linda Hechter, filed as an exhibit to the Current Report on Form
8-K filed
on November 30, 2004 and incorporated herein by
reference.
|
10.5
|
Registration
Rights Agreement, dated November 22, 2004, by and among Airtrax,
Inc.,
Excalibur Limited Partnership, Stonestreet Limited Partnership, Whalehaven
Capital Fund and First Montauk Securities Corp, filed as an exhibit
to the
Current Report on Form 8-K filed on November 30, 2004 and incorporated
herein by reference.
|
10.6
|
Joinder
to the Registration Rights Agreement, dated November 23, 2004, by
and
among Airtrax, Inc., Excalibur Limited Partnership, Stonestreet Limited
Partnership, Linda Hechter and First Montauk Securities Corp., filed
as an
exhibit to the Current Report on Form 8-K filed on November 30, 2004
and
incorporated herein by reference.
|
10.8
|
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
Current Report on Form 8-K filed on February 11, 2005 and incorporated
herein by reference.
|
10.9
|
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 Current Report
on Form
8-K filed on June 6, 2005 and incorporated herein by
reference.
|
10.10
|
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
Current Report on Form 8-K filed on June 6, 2005 and incorporated
herein
by reference.
|
10.11
|
Series
B Unsecured Convertible Debenture of Airtrax, Inc., filed as an exhibit
to
the Current Report on Form 8-K filed on June 6, 2005 and incorporated
herein by reference.
|
10.12
|
Form
of Stock Purchase Warrant of Airtrax, Inc., filed as an exhibit to
the
Current Report on Form 8-K filed on June 6, 2005 and incorporated
herein
by reference.
|
10.13
|
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 Current
Report on Form 8-K filed on June 6, 2005 and incorporated herein
by
reference.
|
10.14
|
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 Current Report
on
Form 8-K filed on October 24, 2005 and incorporated herein by
reference.
|
10.15
|
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 Current Report on Form 8-K filed on October 24, 2005 and incorporated
herein by reference.
|
10.16
|
Series
C Unsecured Convertible Debenture of Airtrax, Inc., filed as an exhibit
to
the Current Report on Form 8-K filed on October 24, 2005 and incorporated
herein by reference.
|
10.17
|
Form
of Stock Purchase Warrant of Airtrax, Inc., filed as an exhibit to
the
Current Report on Form 8-K filed on October 24, 2005 and incorporated
herein by reference.
|
10.18
|
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 Registration Statement on Form SB-2 filed on January 11, 2006
and
incorporated herein by reference.
|
10.19
|
Promissory
Note of Filco GmbH dated as of January 15, 2005 issued to Airtrax,
Inc.,
filed as an exhibit to the Registration Statement on Form SB-2 filed
on
January 11, 2006 and incorporated herein by
reference.
|
10.20
|
Promissory
Note of Filco GmbH dated as of June 5, 2005 issued to Airtrax, Inc.,
filed
as an exhibit to the Registration Statement on Form SB-2 filed on
January
11, 2006 and incorporated herein by
reference.
|
10.21
|
Assignment
and Purchase Agreement dated as of August 25, 2005 by and between
Werner
Faenger and Airtrax, Inc., filed as an exhibit to the Registration
Statement on Form SB-2 filed on January 11, 2006 and incorporated
herein
by reference.
|
10.22
|
Promissory
Note of Filco GmbH with Guarantees dated as of November 25, 2005
issued to
Airtrax, Inc., filed as an exhibit to the Registration Statement
on Form
SB-2 filed on January 11, 2006 and incorporated herein by
reference.
|
10.23
|
Form
of Subscription Agreement of Airtrax, Inc. dated as of February 13,
2006,
filed as an exhibit to the Current Report on Form 8-K filed on February
27, 2006 and incorporated herein by
reference.
|
10.24
|
Series
D Unsecured Convertible Debenture of Airtrax, Inc., filed as an exhibit
to
the Current Report on Form 8-K filed on February 27, 2006 and incorporated
herein by reference.
|
10.25
|
Form
of Stock Purchase Warrant of Airtrax, Inc., filed as an exhibit to
the
Current Report on Form 8-K filed on February 27, 2006 and incorporated
herein by reference.
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14 and Rule 15d-14(a),
promulgated under the Securities and Exchange Act of 1934, as
amended.
|
31.2
|
Certification
of the acting Chief Financial Officer pursuant to Rule 13a-14 and
Rule 15d
14(a), promulgated under the Securities and Exchange Act of 1934,
as
amended.
|
32.1
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Executive
Officer).
|
32.2
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002 (Chief Financial
Officer).
|
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 $76,803 and $23,000, respectively, for the years ended
December 31, 2006 and December 31, 2005.
AUDIT-RELATED
FEES
We
incurred fees of $47,947 and $15,000, respectively, for the years ended December
31, 2006 and December 31, 2005 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." In
addition, we incurred 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 $1,045
and
$750 respectively, for the fiscal years ended December 31, 2006 and December
31,
2005.
ALL
OTHER FEES
We
did
not incur any fees for other professional services rendered by our independent
auditors during the years ended December 31, 2006 and December 31,
2005.
The
Board
of Directors has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant's
independence.
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
AIRTRAX, INC.
|
|
|
Date:
May 3, 2007
|
By: /s/
ROBERT M. WATSON
Robert
M. Watson
|
|
Chief
Executive Officer (Principal Executive Officer) and Acting Chief
Financial
Officer (Principal Financial and Accounting
Officer)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has
been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Name
|
Position
|
Date
|
|
|
|
/s/
ROBERT M. WATSON
Robert
M. Watson
|
Chief
Executive Officer (Principal Executive Officer), Acting Chief Financial
Officer (Principal Financial and Accounting Officer) and
Director
|
May
3, 2007
|
|
|
|
/s/
ANDREW GUZZETTI
Andrew
Guzzetti
|
Chairman
of the Board and Director
|
May
3, 2007
|
|
|
|
/s/
D. BARNEY HARRIS
D.
Barney Harris
|
Director
|
May
3, 2007
|
|
|
|
James
Hudson
|
Director
|
May
3, 2007
|
|
|
|
/s/
WILLIAM HUNGERVILLE
William
Hungerville
|
Director
|
May
3, 2007
|
|
|
|
|
|
|
|
|
|
FIL
FILIPOV
|
Director
|
May
3, 2007
|
|
|
|
|
|
|
Peter
Amico, Jr.
|
Director
|
May
3, 2007
|
|
|
|
|
|
|
/s/
ROBERT BORSKI, JR.
Robert
Borski, Jr.
|
Director
|
May
3, 2007
|