UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB
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
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AIRTRAX, INC.
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(Exact name of small business issuer as specified
in its charter)
New Jersey 22-3506376
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Freeway Drive, Unit One, Blackwood, NJ 08012
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(Address of principal (Zip Code)
executive offices)
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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.
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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 |X|
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 |X|
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 |X|
AIRTRAX, INC.
2006 FORM 10-KSB ANNUAL REPORT
TABLE OF CONTENTS
Page
PART I ....................................................................2
Item 1. Description of Business.............................................2
Item 2. Description of Property.............................................9
Item 3. Legal Proceedings...................................................9
Item 4. Submission of Matters to a Vote of Security Holders.................9
PART II ....................................................................10
Item 5. Market for Common Equity and Related Stockholder Matters............10
Item 6. Management's Discussion and Analysis or Plan of Operation...........12
Item 7. Financial Statements................................................F-1
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure............................................22
Item 8A. Controls and Procedures.............................................22
Item 8B. Other Information...................................................22
PART III ...............................................................23
Item 9. Directors, Executive Officers, Promoters and Control Persons:
Compliance with Section 16(a) of the Exchange Act..................23
Item 10. Executive Compensation..............................................26
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholders.................................27
Item 12. Certain Relationships and Related Transactions,
and Director Independence...........................................28
Item 13. Exhibits ...........................................................29
Item 14. Principal Accountant Fees and Services..............................32
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PART I
NOTE REGARDING FORWARD LOOKING INFORMATION
Various statements in this Form 10-KSB and in future filings by us with the
Securities and Exchange Commission, in our press releases and in oral statements
made by or with the approval of authorized personnel constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are based on current expectations and are
indicated by words or phrases such as "anticipate," "could," "currently
envision," "estimate," "expect," "intend," "may," "project," "seeks," "we
believe," and similar words or phrases and involve known and unknown risks,
uncertainties and other factors that may cause actual results, performance or
achievements to differ materially from any future results, performance or
achievements expressed or implied by those forward-looking statements.
These forward-looking statements are based largely on our expectations and
are subject to a number of risks and uncertainties, many of which are beyond our
control. Actual results could differ materially from these forward-looking
statements as a result of the facts described in "Risk Factors." We undertake no
obligation to update publicly or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In light of these
risks and uncertainties, we cannot assure you that the forward-looking
information contained in this Form 10-KSB will, in fact, transpire.
Our fiscal year ends on December 31. References to a fiscal year refer to
the calendar year in which such fiscal year ends.
Item 1. Description of Business
Corporate Information and History
We were incorporated in the State of New Jersey on April 17, 1997. On May
19, 1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.
Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"),
and were the surviving company in the merger. Pursuant to the Agreement and Plan
of Merger, as amended, each share of common stock of MAS was converted to
0.00674 shares of our company. After giving effect to fractional and other
reductions, MAS shareholders received 57,280 of our shares as a result of the
merger.
In March 2004, we reached an agreement in principal, subject to certain
closing conditions, with Fil Filipov to acquire 51% of the capital stock of
Filco GmbH, a German corporation. In October 2004, Mr. Filipov and we agreed to
modify our agreement in principal so as to increase the number of shares of the
capital stock of Filco GmbH which we 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.
Introduction
Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.
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.
2
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.
3
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.
4
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 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.
5
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. Frank Cooper, 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.
6
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.
7
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.
COMPETITION
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.
8
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. This amount will be increased to $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.
9
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.
10
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.
Equity Compensation Plan Information
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
Number of securities Number of securities
to be issued upon remaining available for
exercise of Weighted average uture issuance under equity
outstanding options, exercise price of compensation plans
warrants and rights outstanding options, f (excluding securities
Plan category warrants and rights reflected in column (a)
-------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
-------------------------------------------------------------------------------------------------------------------
Equity compensation plans approved -0- -0- -0-
by security holders
Equity compensation plans not -0- -0- -0-
approved by security holders
Total -0- -0- -0-
Currently, we do not have a formalized equity compensation plan under which our
common stock is authorized for issuance.
11
Unregistered Sales of Equity Securities
Following is a summary of unregistered securities issued during the fourth
quarter of 2006.
o 194,000 shares of common stock were issued for professional services
valued at $141,919.
o 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.
o 41,666shares of common stock were issued in exchange of a $65,000 of
convertible note.
o 5,000 shares were issued as an Employee bonus valued at $3,570.
o All of the above offerings and sales were deemed to be exempt under
rule 506 of Regulation D and Section 4(2) of the Securities Act of
1933, as amended. No advertising or general solicitation was employed
in offering the securities. The offerings and sales were made to a
limited number of persons, all of whom were accredited investors,
business associates of Airtrax or executive officers of Airtrax, and
transfer was restricted by Airtrax in accordance with the requirements
of the Securities Act of 1933. In addition to representations by the
above-referenced persons, we have made independent determinations that
all of the above-referenced persons were accredited or sophisticated
investors, and that they were capable of analyzing the merits and
risks of their investment, and that they understood the speculative
nature of their investment. Furthermore, all of the above-referenced
persons were provided with access to our Securities and Exchange
Commission filings.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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.
12
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 $4.5 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 $3.1 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 $6.6 million and $2 million in 2006 and
2005, respectively (See Note 13in 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.
Results of Operations for the Year Ended December 31, 2006 Compared to the Year
Ended December 31, 2005
Due to 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 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.
13
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 twelve month period ended December
31, 2006 totaled $4.5 million which represents an decrease of approximately
$600,000 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 $(4.6) 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 revaluation expense recorded in
the twelve months ended December 31, 2005 of approximately $6.6 million compared
with $1.1 million in 2006. Additionally, we recorded revaluation income of $3.1
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 and Timken's
engineers to insure manufacturability. The motors and controllers were designed
and/or changed in design in order to meet ANSI (American National Standards
Institute) and UL (Underwriters Laboratories) testing requirements. Danaher and
us revised the algorithms used in the motor controllers as well the
microprocessor that runs the machines. Research and development activities also
included further changes to existing designs and new designs that were patented
or for those patents with pending applications. Portions of the costs we
incurred due to testing and research and development were charged to the US Navy
contract as provided therein.
14
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 $3,249,339. 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 $5,700,754 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.
15
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.
As of December 31, 2006, an aggregate amount of approximately $279,514 has
been accrued in liquidated damages payable to the investors in our October 2005
financing. We have begun discussions with the lead investor and intend to engage
in negotiations with the remaining investors, to settle the liquidated damages
which we currently, and in the future will, owe to such investors.
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.
16
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.
17
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 of approximately $(4.6
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. As of March 31, 2007, we have loaned
$6,275,881 to Filco.
On January 20, 2006, Filco filed for insolvency in Germany and a receiver
was appointed. As a result, on February 7, 2006, we 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 our 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, $413,174 of our
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 our liens against property and equipment.
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.
18
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.
19
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.
20
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 5,505,227 additional
shares of common stock pursuant to our May and October 2005 private placements
and 2006 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
10,383,323 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.
21
Item 7. Financial Statements.
Index to Consolidated Financial Statements
Page
----
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2006 and 2005 F-3
Consolidated Statements of Operations for the years ended December 31, 2006 and 2005 F-4
Consolidated Statement of Changes in Shareholders' Equity (Deficiency) for the years F-5
ended December 31, 2006 and 2005
Consolidated Statements of Cash Flows for the year ended December 31, 2006 and 2005 F-6
Notes to Consolidated Financial Statements as of December 31, 2006 and 2005 F-7
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 was I 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, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. 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 $3.3 million as well as an
accumulated deficit of $29.8 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
April 16, 2007
Wayne, New Jersey
F-2
AIRTRAX, INC.
Balance Sheets
As of December 31, 2006 and 2005
2006 2005
Assets
------------------ -------------------
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 0 388392
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 249,971 3,516,462
Accrued liabilities 740,613 266,556
------------------ -------------------
Total current liabilities 5,700,754 6,186,390
Convertible Notes Payable 198,248 2,048,000
- -
------------------ -------------------
Total Liabilities 5,899,002 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,
respectively 25,133,164 21,712,179
Additional paid-in capital, warrants 1,587,500 1,042,400
Accumulated Deficit (29,749,065) (25,008,703)
------------------ -------------------
Total shareholders' (deficiency) $ (3,015,451) $ (2,241,174)
================== ===================
Total Liabilities and Shareholders' Deficiency $ 2,883,551 $ 5,993,216
================== ===================
- -
The accompanying notes are an integral part of
these consolidated financial statements
F-3
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 4,452,179 5,057,596
Impairment of Filco advances 2,000,000 4,700,839
---------------------- ------------------
Total operating expenses 6,452,179 9,758,435
---------------------- ------------------
Operating loss (6,575,808) (9,768,673)
Other Income and Expenses
Conversion expense (1,009,069) (6,571,454)
Interest expense (230,149) (488,342)
Revaluation income 3,054,716 993,837
Other income and expense (2,255) 31,741
---------------------- ------------------
Loss before income taxes and preferred stock expenses (4,762,565) (15,802,891)
IncomeTax Benefit 437,803 867,413
---------------------- ------------------
Loss before dividends (4,324,762) (14,935,478)
Deemed dividends on preferred stock (303,100) (274,978)
---------------------- ------------------
Net loss attributable to common shareholders (4,627,862) (15,210,456)
Preferred stock dividend paid (112,500) (51,563)
---------------------- ------------------
Deficit accumulated $ (4,740,362) $ (15,262,019)
====================== ==================
Net loss per share;
Loss attributable to common shareholders $ (4,324,762) $ (14,935,478)
Adjustment for preferred shares dividends accumulated but unpaid 34,375 68,750
---------------------- ------------------
Loss allocable to common shareholders $ (4,359,137) $ (15,004,228)
====================== ==================
Net loss pershre; basic and diluted $ (0.18) $ (0.71)
====================== ==================
Weighted average common shares outstanding -
Basic and diluted 24,151,352 20,951,187
====================== ==================
The accompanying notes are an integral part of
these consolidated financial statements
F-4
AIRTRAX, INC.
Statement of Changes in Shareholders' Deficiency
For the Years Ended December 31, 2006 and 2005
Restated
Common Common Preferred Preferred Accumulated
Shares Amount Shares Amount Warrants 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
warrants - 181,000 - - 181,000
Conversion of convertible debt 3,846,154 4,277,500 - - - - 4,277,500
Conversion benefit capitalized - 3,596,154 - - - - 3,596,154
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 - - - - $ 333,325 - $ 333,325
Warrants no longer subject to
revaluation - - - - 211,775 - 211,775
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 default 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 - - - - - (4,627,862) (4,627,862)
---------- ----------
------------------------------------------------------------------------------------------
Balance at December 31, 2006 24,260,352 $25,133,164 275,000 $ 12,950 $ 1,587,500 $(29,749,065) $(3,015,451)
==========================================================================================
The accompanying notes are an integral part of
these consolidated financial statements
F-5
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 $ (4,627,862) $(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 44,266
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 (3,054,716) (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 715,279 89,592
-------------------- ---------------------
Net cash used in operating activities (869,543) (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 308,439 (622,189)
Cash, beginning of year 19,288 641,477
==================== =====================
Cash, end of year $ 327,727 $ 19,288
==================== =====================
The accompanying notes are an integral part of
these consolidated financial statements
F-6
AIRTRAX, INC.
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 from inception to December 31, 2005, of
$24.8 million and $4.6 million in 2006. 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.
F-7
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 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 $ (15,416)
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 $ (15,393)
----------
Loss per share:
Basic and diluted as reported $ (.72)
==========
Basic and diluted-pro forma $ (.72)
==========
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.
F-8
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.
2. RESTATEMENTS
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,
together with its subsequent quarterly reports on Form 10-QSB for the periods
ending June 30 and September 30, 2005 and March 31, June 30, and September 30,
2006, respectively (collectively, the "Reports"), 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, prohibit 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
determined that it should take this action to prevent future reliance on
previously issued financial statements set forth in its Reports. Such financial
statements should no longer be relied upon.
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 that
the number of shares required, and were issued in error resulting in increased
preferred dividend expenses and preferred stock equity. 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. On April 1, 2005, the
preferred shares were issued. 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.
F-9
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").
The Company concluded that its 6% Series A Convertible Promissory Notes
("Notes") and the Class A and Class B Warrants (collectively, the "Warrants")
issued to certain accredited and/or qualified institutional 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 as follows:
F-10
The effect on the Company's previously issued audited December 31, 2005
financial statements are summarized as follows:
Loss attributable to common shareholders as originally
reported at Dec. 31, 2005 $(15,416,456)
Less;
Adjustment to restate dividend expense on preferred stock (206,000)
------------
Loss attributable to common shareholders at December 31,
2005 as restated $(15,210,456)
------------
Balance Sheet as of December 31, 2005:
Previously Increase
Reported (Decrease) Restated
------------ --------- -----------
Current Assets $ 3,259,603 -- $ 3,259,603
All Other Assets 2,733,613 -- 2,733,613
------------ -----------
Total Assets $ 5,99,3216 -- $ 5,99,3216
============ ===========
Current Liabilities $ 6,186,390 -- $ 6,186,390
Long Term Debt 2,048,000 -- 2,048,000
------------ -----------
Total Liabilities $ 8,234,390 -- $ 8,234,390
------------ -----------
Stockholders' Deficit:
Common Stock $ 21,385,638 326,541 $21,712,179
Warrants 1,042,400 1,042,400
Preferred stock 545,491 (532,541) 12,950
Accumulated deficit (25,214,703) 206,000 (25,008,703)
------------ --------- -----------
Total Liabilities and Shareholders'
Deficiency $ 5,993,216 $ -- $ 5,993,216
============ ========= ===========
3. RELATED PARTY TRANSACTIONS
The Chairman of the Board of Directors made periodic loans to the Company
during 2006. The loans did not accrued 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
F-11
5. PRIVATE PLACEMENT OFFERINGS
During 2006, there have been four 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 above.
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 also contained liquidated damages provisions. For two
of the 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. Under
the third such offering, liquidated damages were effective 150 days after
October 18, 2005. Such liquidated damages accrue at the rate of 2% per month of
the amount raised in that offering, which was $1,548,000. Liquidated damages of
$278,640, which is the maximum amount allowed under the provisions of the Notes
for the October, 2005, issue have been accrued and charged to expense during
2006.
F-12
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
-----------------------------------------------------------------------------
$ 598,248
=============
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, for a period of nine
months. The full amount of these penalties ($278,640) are included in accrued
expenses. Such penalties will accrue at the rate of 2% per month of the amount
raised in that offering, which was $1,548,000. These penalties will start to
accrue on March 18, 2006 and will accrue for no more than nine months.
F-13
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 had contained "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 set forth above, the following warrant and
conversion prices were adjusted:
1. The exercise price for warrants associated with a May 2005 $500,000
convertible debenture offering, which were adjusted from $2.11 per share to
$1.56 per share, are now set at $0.45. 2. The conversion price for an October
2005 $1,548,000 issuance of convertible debentures, which were adjusted from
$2.00 per share to $1.56 per share, are now set at $0.45. 3. The exercise price
for 774,000 warrants issued pursuant to the October 2005debenture offering,
which were previously adjusted from $3.25 per share to $1.56 per share, are now
set at $0.45.
The affect of these changes will 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. The balance of unpaid dividends at of December 31, 2006
was $47,917.
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
F-14
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.
F-15
The following shares were issued for services in 2006
Number Price at
of Grant 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
========= =========
F-16
The following shares were issued for services in 2005
Number Price at
of Grant 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 15,000 4/1 2.40 36,000
----------------------------------------------------------------------------------------------------------
Public relations 20,000 5/1 2.55 51,000
----------------------------------------------------------------------------------------------------------
Facility search 5,000 5/1 2.55 12,750
----------------------------------------------------------------------------------------------------------
Marketing services 9,009 7/29 2.25 20,270
----------------------------------------------------------------------------------------------------------
Investor relations 15,000 9/6 2.25 33,750
----------------------------------------------------------------------------------------------------------
Financial services 2,500 12/1 2.60 6,500
----------------------------------------------------------------------------------------------------------
Investor relations 21,186 12/9 2.35 49,787
----------------------------------------------------------------------------------------------------------
Public relations 18,000 12/9 2.35 42,300
----------------------------------------------------------------------------------------------------------
Investor relations 15,000 12/9 2.35 35,250
----------------------------------------------------------------------------------------------------------
Total shares issued to consultants 286,695 720 687
----------------------------------------------------------------------------------------------------------
Other Issuances:
----------------------------------------------------------------------------------------------------------
Employee awards 20,000 2.40 48,000
----------------------------------------------------------------------------------------------------------
Shares issued in lieu of rent 19,200 various 48,000
----------------------------------------------------------------------------------------------------------
Shares issued as partial 5,000 various 14,700
compensation of financing
----------------------------------------------------------------------------------------------------------
Amortization of cost of grants made 5,113
in prior periods
----------------------------------------------------------------------------------------------------------
Total Value of stock issued for services 330,895 836,500
----------------------------------------------------------------------------------------------------------
Value of options granted for services - 1,082,250
----------------------------------------------------------------------------------------------------------
Value of equity items issued for services 330,895 1,918,750
======= =========
----------------------------------------------------------------------------------------------------------
F-17
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 are 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
-----------
-------------------------------------------------------------------------------
Total warrants issued during 2006 875,765
-----------
-------------------------------------------------------------------------------
Balance December 31, 2006 10,383,323
===========
-------------------------------------------------------------------------------
F-18
9. OPERATING AND ADMINISTRATIVE EXPENSES
Details of operating and administrative expenses are presented below:
-------------------------------- ---------------------- ------------------------
Twelve Months ended Twelve Months ended
December 31, 2006 December 31, 2005
-------------------------------- ---------------------- ------------------------
Salaries and payroll taxes $1,123,791 $ 626,450
-------------------------------- ---------------------- ------------------------
Options expense 93,000 1,082,250
-------------------------------- ---------------------- ------------------------
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 151,495 281,281
-------------------------------- ---------------------- ------------------------
Liquidated damages 359,823 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 $4,452,179 $5,057,596
========= ==========
-------------------------------- ---------------------- ------------------------
F-19
10. INCOME TAXES
`The Company has experienced losses each year since its inception. As a
result, it has incurred no Federal income tax. The Internal Revenue Code allows
net operating losses (NOL's) to be carried forward and applied against future
profits for a period of twenty years. At December 31, 2006 the Company had NOL
carryforwards of $25,191,409 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 6,782,135
------------- -----------------
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 2005 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 $3,018,282 $6,159,236 $9,177,518
---------------------------------- ---------- ------------------- --------------
Valuation Allowance 2,098,393 6,159,236 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.
F-20
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:
o $819,800 of convertible debt was converted into 525,513 shares of
common stock.
o $253,203 of the May 2005 convertible debt issue was converted into
180,925 shares of stock.
o $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.
F-21
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.
15. GOING CONCERN
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.
F-22
17. SUBSEQUENT EVENTS
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.
F-23
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.
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as of December 31, 2006. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures are designed at a
reasonable assurance level and are effective to provide reasonable assurance
that information we are required to disclose in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting.
We regularly review our system of internal control over financial reporting
and make changes to our processes and systems to improve controls and increase
efficiency, while ensuring that we maintain an effective internal control
environment. Changes may include such activities as implementing new, more
efficient systems, consolidating activities, and migrating processes.
There were no changes in our internal control over financial reporting that
occurred during the period covered by this Annual Report on Form 10-KSB that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
Item 8B - Other Information
None.
22
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
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.
23
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.
24
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.
25
Item 10. Executive Compensation
The following table sets forth the cash compensation (including cash
bonuses) paid or accrued by us to our Chief Executive Officer and our four most
highly compensated officers other than the Chief Executive Officer as of
December 31, 2006 and December 31, 2005.
Change in
Pension Value
and
Non-Equity on-Qualified
Incentive Deferred
Name & Stock Option Plan Compensation All Other
Principal Salary Bonus Awards Awards Compensation Earnings Compensation Total
Position Year ($) ($) ($) ($) ($) ($) ($) ($)
------------------------------------------------------------------------------------------------------------------------
Peter
Amico,
CEO,
President 2006 $168,269 $0 0 0 0 0 0 $168,269
& Director 2005 $303,751 $0 0 $975,000 0 0 0 $303,751
Nicholas
Fenelli,
Vice
President 2006 $96,798 $0 0 $24,000 0 0 0 $96,798
& COO 2005 $78,202 $0 0 $53,500 0 0 0 $78,202
Robert M.
Watson.
CEO,
President 2006 $11,538 $50,000 $45,000 0 0 0 $61,538
& Director 2005 $0 0 0 0 0 0 0
Outstanding Equity Awards at Fiscal Year-End Table.
The following table sets forth information with respect to grants of
options to purchase our common stock to the named executive officers at December
31, 2006.
Option Awards Stock Awards
------------- ------------
Name Number Number Equity Option Option Number Market Equity Equity
of of Incentive Exercise Expiration of Value of Incentive Incentive
Securities Securities Plan Price Date Shares Shares or Plan Awards: Plan
Underlying Underlying Awards: ($) or Units of Number Awards:
Unexercised Unexercised Number Units Stock of Market or
Options Options of of That Have Unearned Payout
(#) (#) Securities Stock Not Shares, Value
Exercisable Unexercisable Underlying That Vested Units or of
Unexercised Have ($) Other Rights Unearned
Unearned Not That Have Shares,
Options Vested Not Units or
(#) (#) Vested Other
(#) Rights
That Have
Not
Vested
($)
--------------------------------------------------------------------------------------------------------------------
Robert
M. Watson 300,000 0 400,000 $0.46 Nov. 30, 2008 0 0 0 0
Director Compensation
The following table sets forth with respect to the named directors,
compensation information inclusive of equity awards and payments made at
December 31, 2006.
Name Fees Stock Option Non-Equity Incentive Change in All Other Total
(a) Earned or Awards Awards Plan Compensation ($) Pension Value Compensation ($)
Paid in ($) ($) (e) and Nonqualified ($) (h)
Cash (c) (d) Deferred (g)
($) Compensation
(b) Earnings
(f)
--------------------------------------------------------------------------------------------------------------------
Andrew - 20,000 $32,800 0 0 0 $32,800
Guzzetti -
--------------------------------------------------------------------------------------------------------------------
Robert M. - 0 - 0 0 0 -
Watson
--------------------------------------------------------------------------------------------------------------------
James Hudson - 35,000 $52,300 0 0 0 $52,300
(1)
--------------------------------------------------------------------------------------------------------------------
William - 35,000 $52,300 0 0 0 $52,300
Hungerville
(1)-
--------------------------------------------------------------------------------------------------------------------
D. Barney - 35,000 $52,300 0 0 0 $52,300
Harris (1)
--------------------------------------------------------------------------------------------------------------------
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.
26
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.
o by each person who is known by us to beneficially own more than 5% of
our common stock;
o by each of our officers and directors; and
o by all of our officers and directors as a group.
NAME AND ADDRESS TITLE OF NUMBER OF SHARES PERCENTAGE OF
OF OWNER CLASS OWNED (1) 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
27
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.
For fiscal year 2001, Arcon received 246,731 shares of our common stock in
lieu of the cash dividend which was deemed to have a fair market value of
$188.412. For explanatory purposes, in 2001 the $188,412 fair market value of
the stock represents the $68,750 yearly dividend due for 275,000 shares owned in
2001, valued at $5.00 per share, which is used to purchase common stock at a 30%
discount. This equates to $188,412 divided by 30% ($56,524) minus the difference
of the actual stock price which varied during the purchase period. For fiscal
year 2002, Arcon received a cash dividend of $17,187.50, and received 100,000
preferred shares in lieu of 221,892 shares of our common stock in lieu of the
cash payment for the balance of the dividend. The 100,000 shares of preferred
stock were issued in 2004 in satisfaction of 2002 preferred dividends. The
221,892 shares of common stock payable to Arcon were valued based upon date
obligation was settled (deemed to be April 1, 2005). The value of those shares
was $532,541, 221,892 multiplied by $2.40 per share and represents the value of
the additional shares of preferred stock. This value ($532,541) was compared to
dividends being settled in order to determine the deemed dividend ($480,978).
For fiscal year 2003, Arcon expects to receive 19,097 shares of common stock in
lieu of the cash payment of the dividend. In 2004, Arcon received payments of
$17,187.50 for dividends due in 2002, $63,020.86 for dividends due in 2003 and
$51,562.52 for dividends due in 2004, of which $17,187.50 remains payable in
accrued dividends to Arcon.
28
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 $51,561 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.
Item 13. Exhibits.
Exhibit No. Description
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.
29
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.
30
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 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).
31
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.
32
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: April 16, 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 Chief Executive Officer April 16, 2007
-------------------- (Principal Executive Officer), Acting
Robert M. Watson Chief Financial Officer
(Principal Financial and
Accounting Officer) and Director
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
/s/ ANDREW GUZZETTI Chairman of the Board and Director April 16, 2007
-------------------
Andrew Guzzetti
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
/s/ D. BARNEY HARRIS Director April 16, 2007
--------------------
D. Barney Harris
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
/s/ JAMES HUDSON Director April 16, 2007
----------------
James Hudson
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
/s/ WILLIAM HUNGERVILLE Director April 16, 2007
-----------------------
William Hungerville
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
Director April 16, 2007
---------------
Fil Filipov
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
Director April 16, 2007
--------------------
Peter Amico, Jr.
------------------------- -------------------------------------- ---------------
------------------------- -------------------------------------- ---------------
/s/ ROBERT BORSKI, JR. Director April 16, 2007
----------------------
Robert Borski, Jr.
------------------------- -------------------------------------- ---------------
33