UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2004
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __ TO __
001-16237
Commission File Number
AIRTRAX, INC.
(Name of small business issuer in its charter)
New Jersey 22-3506376
---------- ----------
State or other jurisdiction IRS Employer
of incorporation Identification No.
200 Freeway Drive, Unit One, Blackwood, NJ 08012
(Address of principal executive offices)
Issuer's telephone number: (856) 232-3000
Securities registered under Section 12(b) of the Exchange Act: None.
Securities registered under Section 12(g) of the Exchange Act: Common Stock, no
par value.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act, during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X ] No [ ]
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ].
State the registrant's revenues for its most recent fiscal year: $0 for the year
ended December 31, 2004.
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: $94,474 as of March 24, 2005.
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. As of March 31, 2005, the registrant
had 21,256,215 shares of common stock, no par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business.........................................3
Item 2. Description of Property........................................14
Item 3. Legal Proceedings..............................................15
Item 4. Submission of Matter to Vote of
Security Holders ..............................................15
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters........................................................16
Item 6. Management's Discussion and Analysis
or Plan of Operation ..........................................19
Item 7. Financial Statements ................................... F-1 to F-26
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ......................................31
Item 8A. Controls and Procedures .......................................31
Item 8B. Other Information .............................................31
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act ............32
Item 10. Executive Compensation ........................................33
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters ...............................37
Item 12. Certain Relationships and Related Transactions ................38
Item 13. Exhibits . ....................................................40
Item 14. Principal Accountant Fees and Services ........................41
Signatures and Certifications..................................42
2
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," "will," and similarwords 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
INTRODUCTION
Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Omni-directional technology
creates vehicles which 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. Such
joystick movements are first routed to a micro-processor, from the
micro-processor to the motor controllers, and finally to the motor. Many of the
components, including the unique shaped wheels, motors, and frames, have been
specially designed by us and specially manufactured. Four pilot models of the
commercial omni-directional lift truck are currently operational.
We have commenced and are near completion of getting the parts together for our
initial production run consisting of 10 units of our Sidewinder ATX-3000
Omni-Directional Lift Truck. Substantially all of the parts including frames,
motors, controllers, and micro-processors have been ordered and received by us,
and are partially assembled. The initial production run will be completed upon
receipt of wheels and other components from suppliers which is expected in the
first quarter of 2005. Unit assembly is undertaken by us at the H&R Industries
facility at 100 Park Avenue, Warminster, PA 18974. UL and final ANSI testing is
expected to be completed from 30 to 90 days from production completion.
Following required testing, we expect to sell these units to select dealers in
the United States. We have received orders for our initial run production run of
10 units.
We have incurred losses and experienced negative operating cash flow since our
formation. For the years ended December 31, 2004 and 2003, we had a net loss of
$(2,272,200) and $(2,282,946), respectively. We expect to continue to incur
significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our principal executive offices are located at 870B Central Avenue, Hammonton,
NJ 08037 and our telephone number is (609) 567-7800. We are incorporated in the
State of New Jersey.
3
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. 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. A Swedish inventor patented an early stage
omni-directional wheel. Thereafter, the technology was purchased by the United
States Navy and was advanced at the Naval Surface Warfare Center. The US Navy
held the patent until its expiration in 1990. In 1996, the Navy transferred this
technology to us for commercialization through a Cooperative Research and
Development Agreement (CRADA).
TECHNOLOGY DESCRIPTION
Since the technology transfer under the CRADA agreement, we have examined and
redesigned many aspects of the system for use in various applications including
forklifts and other material handling equipment. In this regard, we refined
control software and hardware, and tested a variety of drive component features
on our pilot omni directional lift trucks and scissor-lifts. Extensive
demonstrations of prototype vehicles for commercial and military users in
combination with market research enabled us to direct our initial development
efforts towards the material handling products, offering the best probability
for successful market entry.Our management designed other aspects of our machine
to complement the unique functionality of our omni-directional technology. In so
doing, we achieved a virtually maintenance free unit which allows the operator
free and unrestricted movement during operation. Each vehicle is powered with AC
motors eliminating brushes and commutators of conventional DC motors. The AC
motors also are lubricated for life thereby eliminating the need for additional
greasing and fittings. The transmission uses a synthetic lubricant, and is
sealed for life. The joystick controls all vehicle movement; therefore
conventional drive trains, steering racks, hydraulic valve levers, and foot
petals for braking and acceleration are all non-existent.
On a four-wheel omni-directional vehicle employing our technology, each wheel
has a separate electric motor, making the vehicle capable of traveling in any
direction. The motion of the vehicle is controlled by coordinating all four
wheels through a microprocessor that receives input from an operator-controlled
joystick. The joystick controls all vehicle movement (starting, steering, and
stopping). The framework of our omni-directional lift truck consists primarily
of a steel frame mobilized with four omni-directional wheels. The AC electric
motor for each wheel turns its own wheel hub. Each wheel hub is encircled with
multiple tapered rollers that are offset 45 degrees. The tapered rollers,
covered with polyurethane, are extremely durable. By independently controlling
the forward or rearward rotation of each wheel, the vehicle has the capability
of traveling in any direction. The technology allows the vehicle to move
forward, laterally, diagonally, or completely rotate within its own footprint,
thereby allowing it to move into confined spaces without difficulty. The
navigational options of an omni-directional vehicle are virtually limitless. The
omni-directional wheel can be manufactured in different sizes depending upon the
application. For instance, our management believes the wheel can be used on
miniature vehicles or massive load-carrying vehicles.
EXISTING AND PROPOSED PRODUCTS
Sidewinder Omni-Directional Lift Truck. We anticipate that our Sidewinder
Omni-Directional lift truck will be available with rated lift capacities ranging
from 3000 pounds and higher. Our SIDEWINDER ATX-3000 Omni-Directional lift
truck, which is our 3,000-pound model, features our revolutionary
omni-directional technology. Conventional steering racks and foot petals are
non-existent allowing impediment free ingress and egress. This lift truck will
deliver unequaled maneuverability providing significantly improved operating
efficiencies in the materials handling industry. The dealer price is expected to
retail at prices similar to or slightly higher than high-end, comparably sized
standard forklifts. The "street prices" of similar rated, standard
(non-omni-directional) forklifts range from $16,000 to $31,000 per unit. Other
specialty forklifts, that are multi-directional sell for $42,000 and greater,
and vehicles considered very narrow aisle (VNA), are priced from $75,000 and
higher per unit. We believe that, due to its unique features, the
omni-directional lift truck will support a price slightly higher than the
average selling price of a conventional forklift.
4
Airtrax Conventional Forklift. In the event of the successful acquisition of
Filco GmbH, we expect to use the Filco plant and operations to produce and sell
a line of conventional forklifts manufactured under the Airtrax or Filco name
for distribution in the United States and other geographical markets. It also is
contemplated that the SIDEWINDER Omni-Directional lift truck will be assembled
or partially assembled at the Filco plant and distributed by Filco or us to
European or Middle East markets or partially assembled at Filco for distribution
to the United States for final assembly.
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"
incorporated our omni-directional technology along with an MEC platform and lift
mechanisms. The vehicle contains features presently unavailable on conventional
aerial work platforms. For example, similar to our lift truck, the aerial work
platform's movement is controlled by a joystick. Movement to a particular spot
or location at a job site can be accomplished easily due to the omni-directional
technology, thereby eliminating the back and forth positioning typically
associated with conventional platforms. Our designed control systems allow the
operator to move at very regulated and easily controlled acceleration and speed,
virtually eliminating operator error. The machine can climb over obstacles that
would impede other machines. Our aerial work platform has the ability to climb
over obstacles up to a height of one-third the overall wheel diameter. The wheel
used on the aerial work platform has a 17" total diameter. Accordingly, this
vehicle can climb over obstacles more than 5.66" high. The ability to "climb
over" obstacles is an inherent advantage of our omni-directional technology.
This is a feature which we believe no other aerial work platform can perform, or
if another aerial work platform can perform, it is to a very limited degree.
Generally, any "wheeled" vehicle can "climb" over some obstacles, however, other
"wheeled" vehicles cannot climb over obstacles as high as the one-third of the
wheel's diameter. We believe that, similar to our lift truck, the improved
functionality of the aerial work platform will result in increased productivity
at the job-site.
On March 13, 2004, we entered into a draft Product Development, Sales and
Representation Agreement with MEC. The draft agreement calls for the joint
development of a proto-type and production versions of an omni-directional
aerial work platform called the "Phoenix". During the development stage, each
party will provide the parts, which apply to that party's area of
responsibility. We will provide all of the parts required for the
omni-directional traction system and related control systems, and MEC will
provide all of the parts required for the scissor lift and lifting apparatus.
After development of the prototype version, the parties will establish the cost
of a commercial product, and if the cost of a commercial product is considered
commercially viable, the parties will jointly develop a commercial version of
the aerial work platform. If commercial production results, we will be
responsible for product manufacturing, the traction system and frame, and MEC
will manufacture the scissors lifting and upper frame sections. MEC or its
affiliate will be responsible to promote, market and sell the product to their
network of approximately 200 distributors. This product will also be
manufactured under the COBRA name and distributed exclusively by us. Aerial work
platform sales made by MEC will be subject to a royalty to us and, likewise
sales made by us will be subject to a royalty to MEC. The amount of the
respective royalties will be subject to agreement by the parties. Orders placed
by MEC will be financed by MEC subject to agreed production schedules. The
parties expect to enter into a more formal agreement to further define the
relationship of the parties. At this time, we cannot predict whether a formal
agreement will be entered into between the parties, or whether any sales will
result form the aerial work platform to be developed by the parties.
Omni-directional Wheelchair. Over 43 million disabled and aging Americans are
protected by the Americans with Disabilities Act of 1990 (ADA). This law became
effective in 1991, and now requires businesses with over 15 employees to comply
with specifications which enable persons with disabilities access buildings. As
a result of increased physical access, we believe that persons with disabilities
will experience an increased number of employment and other opportunities. We
have conducted a preliminary design of an omni-directional wheel for wheelchair
applications. Based upon the preliminary design, we believe that we can retail
an omni-directional wheelchair for under $6,000. Wheelchair pricing ranges from
$3,500 for a standard unit to $30,000 for units with improved functionality such
as stair climbing capability.
We will require additional funds to complete a structural and ergonomic design
of a proto-type wheelchair, and to construct the proto-type for further
evaluation and testing. We cannot predict whether we will be able to
successfully develop this product.
5
Military Products. During 1999, we were awarded a Phase I research contract
under the Department of Defense's Small Business Innovation Research program
(SBIR) to develop an omni-directional Multiple Purpose Mobility Platform (MP2).
Under the Phase I base contract, we studied the application of the
omni-directional technology for military use and were supervised by the Naval
Air Warfare Center Aircraft Division (NAWC-AD) in Lakehurst, New Jersey. The
contemplated use includes the installation of jet engines on military aircraft
and the transportation of munitions and other military goods. We completed the
Phase I base contract in 1999 and were subsequently awarded a Phase I option
from NAWC-AD to further define the uses of the MP2. In July 2000, we were
awarded a Phase II research contract under the SBIR program. Under the Phase II
contract, we are studying the feasibility of the MP2 for military purposes, and
will culminate with the construction of one or more proto-type devices. This
contract (with the option) was extended twice for 6 months each past the
42-month contract time period. Contract revenues were $750,000. Through December
31, 2003 we completed the vehicle concept design of the MP2. A completed
proto-type MP2 was delivered to the US Navy during the end of the first quarter
of 2004 for testing purposes. A second vehicle, an omni-directional jet engine
installation machine is being constructed for the US Navy. We have been advised
by the US Navy that a non-SBIR sponsor for the MP2 program must be identified
before a Phase II option is exercised. A Phase III contract could be awarded
without such a sponsor. Although our management believes the underlying
omni-directional technology for the proposed MP2 has significant potential for
both commercial and military applications, we cannot predict whether any sales
beyond the Phase II contract will result from the SBIR program. It is the belief
of management that sales to the military for products such as the MP2 or the
MHU-110 engine handler will not materialize until the omni-directional
technology achieves commercial acceptance. We do believe, however, that products
such as the ATX-3000 or the Cobra AWP can and will be sold to the US government,
possibly including the military.
In connection with the MP2, on December 11, 2003, we entered into a Teaming
Agreement with United Defense, L.P., Arlington, Virginia. Under the agreement,
United Defense agreed to provide the exclusive manufacture, marketing and
support for the MP2 and any derivative products in respect to any contracts
awarded to us by U.S. Department of Defense and any international military
customers under the SBIR arrangement.
We have also developed a traditional helicopter ground handling machine which
has been marketed by us on a limited basis. This vehicle, Helitrax, was a
patented design using technology that we purchased in 1995 under our predecessor
company, Air Track Inc. The patented device was redesigned by us to include many
features which we believe are needed by industry maintenance crews and by
pilots. Helitrax was sold from 1995 through 2001 in limited amounts, in no more
than approximately 30 units total, and sales were discontinued because of time
constraints required getting the Sidewinder Omni-Directional lift truck to
market.
CURRENT OPERATIONS
Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of its components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. Four pilot models of the commercial
omni-directional lift truck are currently operational.
We have commenced and are near completion of our initial production run
consisting of 10 units of our Sidewinder ATX-3000 Omni-Directional Lift Truck.
Substantially all of the parts including frames, motors, controllers, and
micro-processors have been ordered and received by us, and are partially
assembled. The initial production run will be completed upon receipt of wheels
and other components from suppliers which is expected in the first quarter of
2005. Unit assembly is undertaken by us at H&R Industries for the first 10
units. We will conduct future assembly in the United States in facilities to be
leased early in the second quarter of 2005. ANSI's (American National Standards
Institute) testing was completed in the first quarter of 2005 and UL
(Underwriters Laboratories) testing is expected to be completed at the end of
the first quarter, or in the beginning of the second quarter of 2005. Following
required testing, we expect to sell these units to select dealers in the United
States. We have received purchase orders for our initial production run of 10
units.
6
ANSI testing refers to a series of tests including tilt testing the vehicle with
each of the masts it will use to make certain that it will not fall over with a
raised load at specified tilt angles. In addition, ANSI testing includes drop
testing specified loads on the overhead guard to make certain that the overhead
guard will not fail and crush the operator. These tests require us to turn the
vehicle over to prove that the battery door lockwill contain the battery in the
event the vehicle is overturned. ANSI testing is performed by us and we must
certify and document that the tests have been completed and the vehicle has
passed in all respects. This testing is required prior to the vehicle being sold
to the public in the United States.
UL testing is completed on lift trucks because we believes it is more productive
to sell vehicles that have passed the extra safety and performance test
requirements mandated by UL. Generally UL testing hinges around electrical
issues that could cause fires to the vehicles and/or property. Most of the more
prominent lift truck manufacturers complete UL testing on electrically operated
lift trucks. Completion of UL testing is generally considered the mark of
companies who will take extra steps and precautions to protect their customers.
UL approval is a feature that salespersons can use to their advantage when
selling vehicles because many insurers will not insure premises that use lift
trucks that are not UL rated.
TRANSACTION WITH FILCO GMBH
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expires on December
31, 2005.
In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the Filco
operation prior to the consummation of the transaction. All other conditions and
terms of the agreement between the parties shall remain the same.
The consideration for the proposed acquisition consists of the issuance of
options to Mr. Filipov to purchase 900,000 shares of our common stock at an
exercise price of $0.01. No more than 12.5% of such options can be exercised
during any one year. Accordingly, Mr. Filipov cannot exercise the options to
receive more than an aggregate of 112,500 shares of our common stock per year.
Any increase on this exercise limit is subject to the approval of our board of
directors. It is anticipated that the option's three year exercise period will
be extended to allow 100% of the options to be exercised at the 12.5% exercise
limit permitted each year. In addition, we agreed to loan Filco GmbH
approximately $1,300,000, which, if the acquisition is completed, may, at our
exclusive election, be converted into equity of Filco GmbH along with
approximately 1,300,000 Euros currently owed to Fil Filipov by Filco GmbH.
Finally, the agreement in principal provided for Mr. Filipov to be appointed a
director of our company and to receive an additional 100,000 options of our
common stock for serving as a director. In December 2004, Mr. Filipov was
appointed as a director of our company. Although the proposed acquisition with
Filco has not yet been completed, we have appointed Mr. Filipov a director of
our company because management believes that his credentials are extremely
viable and valuable to our credibility in the investment and materials handling
communities, particularly in Europe. Mr. Filipov has been employed in the
materials handling industry virtually all of his life. We believe that his
associations and relations in this industry can and will aid us as we pursue our
business objectives.
7
The agreement in principal provides that we will register with the Securities
and Exchange Commission all of the shares issuable to Mr. Filipov, including
those underlying the described stock options.
We have not yet finalized nor executed the acquisition agreement but have loaned
Filco GmbH an aggregate principal amount of $2,700,000 pursuant to a series of
unsecured promissory notes. We have used proceeds from the private placement
offerings that we completed during 2004 to fund such loans. Filco GmbH has
informed us its estimated working capital needs during the next year will be
approximately $5,000,000, with $1,500,000 needed during the first quarter of
2005, in order for it to achieve profitable operations. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines or
through additional sales our securities. Prior to the completion of the
acquisition, we remain a creditor until we could guarantee sufficient funding
sources and to provide an adequate line of credit for Filco's operations. In
addition to funding and the procuring a line of credit, the closing of the
acquisition is contingent upon the completion of a final definitive agreement.
Should we complete the acquisition of Filco GmbH, we will need to raise
additional capital or secure sufficient credit lines in order to fund the
working capital needs of Filco GmbH.
The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
The loans are to be repaid on or prior to December 31, 2005. We believe that our
secured and unsecured loans to Filco are recoverable if the proposed acquisition
is not completed. We expect to begin collecting on our loans, including
principal and interest, from Filco when the company becomes fully operational
and profitable, which we anticipate will occur during 2006. If this is not
realized, we intend to obtain security interests in Filco's plant machinery,
equipment and other plant property, and intellectual property, including designs
and drawings for over 100 models of Clark lift trucks. We intend to have Filco
engage an independent appraiser in 2005 to appraise and value Filco's equipment
and machinery. Such appraisal may not include the valuation of Filco's
intellectual property, which Filco and we believe have significant value.
We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005 exclusive of interest
at 8% per annum, pursuant to a series of unsecured promissory notes. During
2005, we intend to secure our loans with Filco's plant machinery, equipment and
other plant property, and intellectual property, including designs and drawings.
We intend to provide another $5 million to Filco, either in the form of
guaranteed credit lines or through additional sales our securities. We have
contacted several financial institutions attempting to secure credit lines for
Filco in the amount of $5 million. Thus far, we have received interest in
providing said credit line to Filco under the conditions that any proposed
credit line is guaranteed by us and that Filco is operational and able to repay
such debt from current earnings. The condition that FiLCO be able to repay from
current earnings makes the credit line from these sources unobtainable at this
time.
We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines or
through additional sales our securities. We have contacted several financial
institutions attempting to secure credit lines for Filco in the amount of $5
million. Thus far, we have received interest in providing said credit line to
Filco under the conditions that any proposed credit line is guaranteed by us and
that Filco is operational and able to repay such debt from current earnings. The
condition that FiLCO be able to repay from current earnings makes the credit
line from these sources unobtainable at this time.
There are a number of business purposes for our consideration of a potential
acquisition of Filco GmbH. Clark Material Handling Co., one of the largest
forklift manufacturers in Europe, owned approximately 50% of the assets and
completed 50% of the sales of Clark Forklift. Clark was bought by Terex in 1994
and sold for $140 million in 1996. During that period, Terex was managed by Fil
Filipov, who negotiated and completed acquisitions for Terex. Clark declared
bankruptcy in 2003. Filco GmbH was formed by Fil Filipov in May of 2003 and
Filco purchased the assets of Clark Europe. The term "assets" included
intellectual property, inventory, machinery and equipment, existing cliental and
a trained workforce. Since that time Filco has operated with very limited
operating capital and has had problems with its employee's unions. As a result,
Filco has not operated profitably. We have been knowledgeable of the transaction
involving the Filco purchase of Clark assets and subsequent operations since.
Should the acquisition be completed, Filipov will maintain 24.9% ownership and
we will maintain a 75.1% ownership interest.
8
The proposed acquisition of Filco, if completed, would include a leased
manufacturing facility, with an experienced workforce, inventory, intellectual
property, and machinery sufficient to fill 200,000 square feet of assembly and
manufacturing. It is anticipated that the potential acquisition will also
include cliental throughout Europe and the Middle East. We believe that the
proposed acquisition could provide us with the ability to sell a complete line
of lift trucks beyond the limited sized Sidewinder Omni-Directional Lift Truck.
This is a huge advantage when selling to regular customers. The potential
acquisition could also give us the ability to provide manufacturing or assembly
for our products. In addition to the Sidewinder, this includes MEC's and our
aerial work platforms. Currently, we purchase certain parts in Europe. These
include the frames from Bulgaria, motors and controllers manufactured in the
Czech Republic and Sweden, and transmissions, brakes and seats manufactured in
Germany. The mast could be manufactured for us at the Filco plant. The frames
will be powder coated at Filco, then partially assembled vehicles would be
shipped to the United States for final assembly. Wheels and other parts for
vehicles to be sold in Europe or Middle Eastern countries will be shipped from
the United States to complete the manufacturing at Filco.
Accordingly, we believe that if completed, this acquisition would give us a
financial tie to Mr. Filipov and to some extent, companies with whom he is
affiliated. It could give us complete manufacturing capabilities in Europe and
the United States which would compliment existing vehicle part suppliers. The
proposed acquisition could provide us with the ability to move into the top 20
of forklift manufactures in the world in the current year. This potential
acquisition has given a lot of credibility to our financial capabilities and
future outlook.
No assurance can be given that the acquisition agreement will be finalized, or
that if the agreement is finalized, that the conditions to closing will be
satisfied, or that we will raise sufficient funds or secure sufficient credit
lines to finance Filco operating capital needs to warrant completing the
acquisition agreement. Further, in the event that we consummate the acquisition
agreement, no assurance can be given that we will be able to continue to raise
sufficient funds to meet the working capital needs of Filco, as well as our own
working capital needs. Our inability to raise sufficient capital as discussed
herein may impair Filco's operations as well as our own operations.
HISTORY OF FILCO GMBH AND HISTORY OF OUR RELATIONSHIP WITH FILCO
Clark Material Handling Co. was the largest forklift manufacturer in the world
in the 1980's. Clark Material Handling Co. of Europe owned approximately 50% of
the assets and completed an estimated 50% of the sales of Clark forklifts. Clark
was bought by Terex in 1994 and sold for $140 million in 1996. During that
period it was managed by Fil Filipov, who was responsible for finding and
completing acquisitions for Terex. Clark declared bankruptcy in 2003. Filco GmbH
was formed by Fil Filipov in May of 2003 and Filco GmbH thereafter purchased the
assets of Clark Europe. The "assets" of Clark Europe included intellectual
property, inventory, machinery and equipment, existing cliental and a trained
workforce. The transaction by Mr. Filipov to acquire the Clark assets was a
purchase through the bankruptcy administrator which left all assets under his
control and ownership. Mr. Filipov paid approximately 500,000 Euros and had to
advance other fees to guarantee lease and other payments. This resulted in a
total purchase by Mr. Filipov in the amount of approximately 1,300,000 Euros.
Since that time, Filco has operated with very limited operating capital, and has
unresolved union issues. As a result, Filco has not operated profitably, or at
all.
Through the proposed acquisition, we are not trying to acquire the assets of
Filco but are attempting to secure a 75.1% ownership interest of an operational
business, once that is achieved. We believe that the proposed acquisition, if
completed, could put us in a very unique position of being able to manufacture
our products in major quantities to satisfy a world market. This acquisition
could expand our product capabilities, expand the reach of our products to a
worldwide market, and potentially put the Company in position to be a major
material handling equipment manufacturer.
The intellectual property of Filco is generally not considered "state of the
art." The intellectual property generally consists of drawings for 103 model
lift trucks, masts and various other material handling parts and supplies. The
LPG or diesel lift trucks are generally very up to date and need little in the
way of updates or re-engineering to make them sellable in the current market.
However, our management believes that the electric trucks offered by Filco are
outdated and need to be re-engineered to be sellable in the modern marketplace.
For the most part, the changes would be from DC to AC electric motors and
controllers. Engineering from us and/or Filco engineers will most likely be in
the range of 1,000 man-hours to complete these updates to AC motors. These
vehicles, whether gas, diesel or electric, are not convertible to our products
nor would this be considered. They offer us a complete product line in the event
a dealer or consumer needs a product other than our omni-directional product.
9
Our President, Peter Amico, has maintained a working relationship with Mr.
Filipov since 2002. The working relationship between Messrs. Filipov and Amico
has been centered on Mr. Filipov informing Mr. Amico where to buy parts and
access better supply chain vendors in Eastern European Countries. This has lead
to us being able to purchase frames in Bulgaria at prices about 70% less than
the frames would cost in the US. Messrs. Filipov and Amico have shared
information regarding the unions in Germany and how to best run the Filco's
business once it is acquired. There has been no personal relationship other than
the friendship that the parties have enjoyed in their working relationship.
BUSINESS PURPOSES OF THE PROPOSED ACQUISITION OF FILCO GMBH
In general, the Filco proposed acquisition could provide us access to strategic
partnerships in personnel and successful business ventures, sales and market
exposure in Europe.
The proposed acquisition of Filco may include a leased manufacturing facility,
with an experienced workforce, inventory, intellectual property, and machinery
sufficient to fill 200,000 square feet of assembly and manufacturing. Filco
could provide us with cliental throughout Europe and the Middle East. This could
provide us with the ability to sell a complete line of lift trucks beyond the
limited sized Sidewinder Omni-Directional Lift Truck. It would provide
manufacturing or assembly for our products, including, but not limited to, the
aerial work platforms or any other products we develop or can contract to
assemble with other companies.
In addition, if the acquisition is completed we anticipate that we will
establish manufacturing capability in Europe, to complement our manufacturing in
the United States. We currently purchase a high percentage of our parts in
Europe, including, but not limited to, the frames from Bulgaria, motors and
controllers manufactured in the Czech Republic and Sweden, and transmissions,
brakes and seats manufactured in Germany. The mast could be manufactured, the
frames could be powder coated (painted), and European parts could be assembled
at the Filco plant. Partially assembled vehicles would be shipped to the United
States for final assembly. Wheels and other parts for the vehicles may be sold
in Europe or Middle Eastern countries could be shipped from the United States
for the completion of manufacturing at Filco. We believe we could cut
manufacturing costs because our material handling equipment could be
manufactured in the continent in which it is sold, i.e., Europe. With our
manufacturing capabilities in the United States, this potential acquisition
would allow a portion of the Sidewinder becoming assembled and manufactured in
each of the two continents that purchase and use about 70% of all material
handling equipment worldwide.
The primary objective that must be achieved to reach the aforementioned goal(s)
is to secure the necessary financing required to fund the acquisition and
manufacturing objectives of Filco and us. There can be no assurance that we will
be able to raise sufficient capital necessary to complete the acquisition and
fund the manufacturing objectives of Filco and us.
MANUFACTURING AND SUPPLIERS
The initial production run of our lift truck is being assembled by us at H&R
Industries for the first 10 units. We will be conducting future assembly in the
United States in facilities to be leased early in the second quarter of 2005.
Schaeff Forklift also has constructed the frames and overhead guards for this
production run in accordance with our specifications. The parties operate under
the terms of written purchase orders. Parts and assemblies for the first
commercial models have been ordered and/or procured from other vendors. The
initial production run will be completed upon receipt of wheels manufactured for
us by The Timken Corporation and components from other suppliers. The initial
run will refine the assembly line, help develop procedures, and incorporate
inventory control and quality assurance. Management anticipates that the initial
run of forklifts should be completed in the first quarter of 2005. We plan to
create the framework for rapidly scalable production capacity at facilities
which we anticipate leasing early in the second quarter of 2005, and which will
be capable of ramping up for anticipated demand before year's end. We also plan
to complete partial assembly, or subcontract to certain vendors of the
omni-directional lift truck at the Filco GmbH facility for European and Middle
Eastern sales for full assemby in the United States.
10
Components for our forklifts consist of over the counter products and
proprietary products that have been specially designed and manufactured by
various suppliers in collaboration with us. We believe that continual
refinements of certain components will occur during continued production in
response to user feedback and additional product testing. We will strive to
improve product functionality which may require additional refinements in the
future. The need for additional refinements on a continuing basis may slow
projected product sales.
We consider the specially designed and manufactured products proprietary, and
have entered into exclusive contractual agreements with certain suppliers to
protect the proprietary nature of these products. These arrangements prohibit
the supplier from producing the same or similar products for other companies. In
addition, while we maintain single sources for the over the counter components,
we believe that other sources are available if necessary.
DISTRIBUTION AND PRODUCT MARKETING
We intend to establish a national and international dealer network to sell our
forklift product line to existing equipment dealers. However, we may sell
directly to select national and international accounts and retailers. National
and international accounts or retailers include, but are not limited to,
nationally recognized businesses with national or international locations having
facilities in numerous states or countries.
During the past two years, in anticipation of commercial production, we
solicited interest from targeted dealers nationwide, and in certain instances,
received contracts from a number of these dealers. Due to the delay in
establishing commercial production, the contracts were not fulfilled. In 2004,
we began soliciting dealers for distribution and during the first quarter of
2004 have reached an agreement with approximately 40 dealers nationwide.
Principal terms of the agreement reached is that these dealers will purchase our
products which include the ATX-3000, the Cobra AWP (scissor lift) and
conventional lift trucks and thereafter sell these products to their clients.
Certain of the dealers were given "exclusive" territories, such as Airtrax
Canada (Airtrax Canada is not owned or operated by us but we have authorized
their use of the Airtrax Name.) Airtrax Canada is required to purchase a minimum
of 250 units of the Airtrax Sidewinder or Cobra AWP or Filco trucks to maintain
the "exclusivity" portion of the agreement between firms. They cannot lose their
exclusivity because we cannot meet their sales requirements. This same type
arrangement was reached with Lakeland in New Zealand for 125 vehicles each year,
Airtrax Africa for 125 units each year, Omnilink in Greece and the Balkans for
125 units each year and others. The dealers in the US have not been given
exclusive territorial rights. They are required to purchase one or more
vehicles, however, to become a dealer. Credit is not authorized to any dealers
or foreign representatives. All sales are paid in advance, under terms of an
irrevocable letter of credit or COD. Not all dealers have agreed to represent
the conventional lift trucks line as some are established with other lift truck
manufacturers and representing a competing product could be a violation of their
existing agreement(s). Targeted dealers will consist of selected premier
forklift dealers, currently selling other forklift products. The dealer network
will consist of dealers who have substantial market share in the US, with a
history of being able to sell and repair forklifts and/or related material
handling solutions. Several of the targeted dealers are significant sized
entities, having annual sales in excess of $100 million. We expect to provide a
sales incentive to dealers through an aggressive pricing structure. Typically, a
dealer willearn a commission ranging from $500 to $1,000 on the sale of a
competitive forklift. Our pricing structure will enable the dealer to receive
commissions from $3,500 to $4,000 per sale of the SIDEWINDER ATX-3000.
In the materials handling industry, distributors of products like ours finance
their respective inventories in several different ways. The arrangement for
distributor financing varies, depending upon the credit worthiness, financial
capability and size of the distributor. Floor planning, which is arranged by the
dealer or by the manufacturer, usually consists of financing from 6 to 12 months
whereby the distributor pays interest only during the finance period. If at any
time during the finance period the distributor sells the product, or if the
finance period expires, the distributor is required to pay the principal. Many
dealers buy vehicles to lease or rent to consumers and finance the vehicle much
the same manner as a standard consumer. Under certain arrangements, the dealer
applies receipts against principal and interest.
11
In May 2003, we entered into contracts with two Alaskan Native Corporation (ANC)
whose primary purpose is to manage assets and conduct business for the benefit
of its nearly 3,000 Alaskan Native shareholders. The two corporations have been
granted Section 8(a), small disadvantaged business status, under the Small
Business Administration. Under their Section 8(a) status, the two corporations
can provide sole source bid to provide services and products, such as those
developed by us, for resale to the United States Government. During fiscal 2003,
we did not effect any sales through this re-seller channel, and can not predict
whether we will be able to do so in the future. A primary reason, for the
non-sales is, of course, that we have not been in production.
In addition to establishing our own dealer network, we will attempt to
capitalize on the existing distribution network of MEC if we are able to reach a
formal agreement with MEC and successfully develop the omni-directional aerial
work platform discussed above. We would seek to include our omni-directional
forklift, and the Filco truck line, if the proposed acquisition is completed,
into the distribution network of MEC, which consist of approximately 200 dealers
nationwide. We cannot predict whether a formal agreement will be entered into
between the parties, or whether any sales will result form the aerial work
platform to be developed by the parties.
We also intend to use trade shows and print and television media to advertise
and promote our omni-directional products. Print media will include
advertisements in national and international publications such as major material
handling equipment magazines, and direct mailings to targeted distributors and
end-users. Heavy equipment is rarely, if at all, advertised on television.
However, we believe that television will provide an effective media for our
product, due to its unique attributes. We believe that due to the current
economic conditions, we will be able to capitalize on favorable advertising
pricing. We also expect to be an exhibitor at industry trade shows from time to
time, including the bi-annual ProMat show located in Chicago, Illinois.
PRODUCT WARRANTY POLICIES
Our product warranty policy is similar to the warranty policies of other major
manufacturers, i.e., one-year warranties on all parts and labor, and two years
on major parts. However, our vehicles have very few parts to warranty. In
addition, manufacturers of our parts and vehicles have their own warranty
policies that, in effect, take the financial exposure from our company. There
are exceptions to this rule, such as the frame and significantly, the motors and
controllers. These parts have an eighteen-month guarantee or warranty, but the
coverage begins when the product is shipped to us and not when the product is
purchased. As a result of this policy Danaher has increased the warranty from 12
to 18 months for us.
FACILITIES
We maintain our administrative offices at 870B Central Avenue, Hammonton, New
Jersey 08361 on premises owned by our President. As of December 31, 2003, the
arrangement between the parties has been rent-free. In addition, we maintain
limited offices at H&R Industries, Inc. ("H&R Industries"), located at 100 Park
Avenue, Warminster, Pennsylvania 18974. H&R Industries provides contract
manufacturing and assembly services to us, including, but not limited to, the
rental of offices used for the engineering and manufacturing of our prototype
machines, rental space to test prototypes and for the storage of
production-readied parts. Through December 31, 2002, the arrangement between the
parties has been rent-free. Effective January 1, 2003, we agreed to pay H&R
Industries a rental fee of $3,000 per month and have the option to pay in cash
or in the form of common stock. The arrangement is on a month-to-month basis. We
also rent space at Flemington, NJ from Hall's Warehouse Corp. wherein we conduct
product testing and evaluation. We pay a rental fee of $3,500 per month on a
month-to-month basis. We are investigating the possibility of a lease for
assembly and distribution facilities in the second quarter of 2005.
12
MARKETS
FORKLIFTS
Our initial market focus will be directed to the forklift market. We believe the
commercial version of the omni-directional forklift will revolutionize the
materials handling and warehousing industries creating potential markets
globally. Industry data shows that during 2003 approximately 174,000 and 550,000
units were sold in the United States and worldwide, respectively (Modern
Materials Handling). Based upon an average per unit sale price of $28,500
(Modern Materials Handling estimate), the total market in the United States
would approximate $5 billion in 2003. This amount represents sales of a broad
range of vehicles with price ranges from $18,000 to $31,000 for a standard
3000-pound rated vehicle to $75,000 or greater for specialty narrow aisle or
side loader vehicles. Of the total market, management expects to compete with
mid-range electrical and gas powered riders, and some specialty narrow aisle or
side loader vehicles.
AERIAL WORK PLATFORMS
Aerial Work Platforms are used in the construction and warehousing industries,
and are ideally suited for omni directional technology. According to data
provided by the United States Department of Commerce, this market consists of
approximately $1.2 billion in annual sales. Aerial Work Platforms and man lifts
range in size from single user lifts to large off road machines. Of the total
market, we expect to compete with a range of indoor man lifts.
COMPETITION
We expect to confront competition from existing products, such as standard and
"very narrow aisle" forklifts, and from competing technologies. Competition with
standard forklifts, which retails from $16,000 to $31,000, will be on the basis
of utility, price, and reliability. We believe that we will compete favorably
with a standard forklift for reliability, and that a purchase decision will be
based upon weighing the operational advantages of our products against its
higher purchase price. VNA and sideloader forklifts retail at $75,000 or
greater. While our SIDEWINDER omni-directional lift truck cannot be considered
"very narrow aisle", it can perform "narrow aisle" functions at a significantly
less cost. We also are aware of multi-directional forklifts now being offered by
other manufacturers that retail from $42,000 and higher for the standard
version. These newer products have improved operational features, however, they
are unable to travel in all directions, and hence are not omni-directional.
These machines have to stop, turn all four wheels, and then proceed to drive in
the sideward direction. Despite these improved operational features, management
believes these manufacturers have adhered to older conventional methods and have
added a substantial amount of parts to their forklifts to achieve improved
functionality, which contrasts with the design and features of our product as
discussed previously herein. Therefore, to that extent, we believe that we
maintain a competitive advantage to these newer products.
We recognize that many of these manufacturers are subsidiaries of major national
and international equipment companies, and have significantly greater financial,
engineering, marketing, distribution, and other resources than us. In addition,
the patent on omni-directional technology expired in 1990. Although we have
received patent protection for certain aspects of our technology, no assurances
can be given that such patent protection will effectively thwart competition.
PATENTS AND PROPRIETARY RIGHTS
A form of our omni-directional technology was originally patented in 1973. The
original patents were 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 have worked since that time
to commercialize omni-directional products. During this period of time, we
became the only company to "drive" these vehicles instead of moving them at
walking speeds with a "tethered" joystick. As a result, we discovered that
certain features were required to make these driven vehicles usable in a
"commercial" environment." Many of the same features required with "driven"
vehicles, were common to vehicles that were used at much slower speeds.
13
We received 3 patents regarding the "redesign" of the wheel. We have received
patent protection regarding the algorithms used to control vehicular movement.
We have also applied for patents with respect to a movable operator's control
station and a munitions handler, among others. We are satisfied that it is
patent protected against infringement by other companies, most especially with
vehicles that use a wheel type such as those used and patented by us. However,
some of our competitors could reverse engineer our technology to build similar
products. In addition, omni-directional technology was invented in 1973.
Therefore, certain variations to the technology could be made whereby other
companies may find ways to circumvent our patents or use the technology without
infringing upon our intellectual property rights.
On January 22, 2002, we received US patent #6,340,065 relating to our low
vibrations wheels. On May 28, 2002, we received US patent #6,394,203
encompassing certain aspects of the omni-directional wheel with some features
specific to the forklift, and in April 15, 2003 we received US patent #6,394,203
relating to methods for designing low-vibration wheels. We also have several
patent applications pending relating to other aspects of our technology. We
expect to make future patent applications relating to various other aspects of
our omni-directional technology. We also have filed a patent application for our
hybrid power module. At this time, no foreign patents have been issued for any
of our technology. In December 1997, we were awarded a patent for an
omni-directional helicopter ground-handling device.
We also seek to protect our proprietary technology through exclusive supply
contracts with manufacturers for specially designed and manufactured components.
PRODUCT LIABILITY
Due to nature of our business, we may face claims for product liability
resulting from the use or operation of our forklifts or other products.
Presently, we do not maintain any product liability insurance. We intend to
obtain such insurance commensurate with the initial shipment of our
omni-directional forklifts
EMPLOYEES
As of April 15, 2005, we have six full time employees which includes our
President, two part time employees, and engage consultants from time to time. We
have no collective bargaining agreements with our employees and believe our
relations with our employees are good.
ITEM 2. DESCRIPTION OF PROPERTY
We maintain our administrative offices at 870B Central Avenue, Hammonton, New
Jersey 08361 on premises owned by our President. As of December 31, 2003, the
arrangement between the parties has been rent-free. In addition, we maintain
limited offices at H&R Industries, Inc. ("H&R Industries"), located at 100 Park
Avenue, Warminster, Pennsylvania 18974. H&R Industries provides contract
manufacturing and assembly services to us. As of December 31, 2002, the
arrangement between the parties has been rent-free. Effective February 1, 2003
we agreed to pay H&R Industries a rental fee of $3,000 per month and have the
option to pay in cash or in the form of common stock. The arrangement is on a
month-to-month basis. We also rent space at Flemington, NJ from Hall's Warehouse
Corp. wherein we conduct product testing and evaluation. We pay a rental fee of
$3,500 per month on a month-to-month basis. We are investigating the possibility
of a lease for assembly and distribution facilities in the second quarter of
2005
14
ITEM 3. LEGAL PROCEEDINGS.
We are not currently a party to, nor is any of our property currently the
subject of, any pending legal proceeding. None of our directors, officers or
affiliates is involved in a proceeding adverse to our business or has a material
interest adverse to our business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of the fiscal year covered by this report.
15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET FOR OUR COMMON SHARES
Our common stock has been traded on the Over-The-Counter Bulletin Board under
the symbol "AITX". The table below sets forth, for the periods indicated, the
high and low closing prices per share of the common stock as reported on the
Over-The-Counter Bulletin Board. These quotations reflect prices between
dealers, do not include retail mark-ups, markdowns, and commissions and may not
necessarily represent actual transactions. The prices are adjusted to reflect
all stock splits.
High Low
---- ----
2004 First Quarter 1.60 0.65
Second Quarter 1.45 0.75
Third Quarter 1.15 0.61
Fourth Quarter 3.35 0.81
2003
First Quarter 1.50 0.80
Second Quarter 1.68 0.87
Third Quarter 1.20 0.80
Fourth Quarter 1.01 0.65
As of March 31, 2005, there were 21,256,215 shares of common stock outstanding.
As of March 31, 2005, there were approximately 974 stockholders of record of our
common stock, respectively. This does not reflect those shares held beneficially
or those shares held in "street" name.
We have not paid cash dividends in the past, nor do we expect to pay cash
dividends for the foreseeable future. We anticipate that earnings, if any, will
be retained for the development of our business.
EQUITY COMPENSATION PLAN INFORMATION
------------------- ----------------------- -------------------- ---------------------------------
Plan category Number of securities to Weighted-average Number of securities
be issued upon exercise exercise price of remaining available
of outstanding options, outstanding options, for future issuance
warrants and rights warrants and rights under equity compensation plans
(excluding securities
reflected in column (a))
(a) (b) (c)
------------------- ----------------------- --------------------- ---------------------------------
Equity compensation -0- -0- -0-
plans approved by
security holders
------------------- ----------------------- --------------------- ---------------------------------
Equity compensation -0- -0- -0-
plans not approved
by security holders
------------------- ----------------------- --------------------- ---------------------------------
Total -0- -0- -0-
------------------- ----------------------- --------------------- ---------------------------------
16
We currently do not have an equity compensation plan for our officers,
directors, employees or consultants. However, certain of our officers are
compensated with stock options to purchase shares of our common stock. A
description of these options can be found in this annual report under the
heading "Item 10", "Executive Compensation".
RECENT SALES OF UNREGISTERED EQUITY SECURITIES
In February and May of 2005, 30,000 shares of common stock to two public
relations consulting firm as compensation for services performed on our behalf.
On February 11, 2005, we entered into a Subscription Agreement pursuant to which
we sold an aggregate of $5,000,000 of principal amount promissory notes
convertible into shares of our common stock, no par value, at a conversion price
equal to $1.30 per share, and an aggregate of 2,884,615 Class A and Class B
share purchase warrants to purchase shares of our common stock to certain
purchasers who are a party to the Subscription Agreement. First Montauk
Securities Corp. acted as selling agent in connection with the offering. We
issued a total of 384,616 warrants on February 11, 2005 to the selling agent as
partial consideration for services performed in connection with the offering.
The Class A warrants are exercisable at a price equal to $1.85 from the date of
issuance until 5 years after the closing date. The Class B warrants are
exercisable at a price equal to $2.11, representing 101% of the 3 day average
closing bid prices of our common stock on the trading day immediately preceding
the closing date, from the date of issuance until 5 years after the closing
date. The Class A and Class B warrants both have a cashless feature.
On November 22, 2004, we entered into a Purchase Agreement (the "Purchase
Agreement") pursuant to which we sold and issued 1,125,000 shares of common
stock, no par value, and common stock purchase warrants to purchase 562,500
shares of our common stock to several accredited investors who are a party to
the Purchase Agreement for an aggregate purchase price of $900,000. Thereafter,
on November 23, 2004, we entered into Joinders to the Purchase Agreement
pursuant to which we sold and issued an additional 515,000 shares of common
stock and warrants to purchase an additional 257,500 shares of our common stock
to several accredited investors who are a party to the Joinders to the Purchase
Agreement for an aggregate purchase price of $412,000. The closing price for our
common stock on November 22 and November 23, 2004 was $1.56 and $1.40 per share,
respectively. The stock had a per share purchase price equal to $.80. First
Montauk Securities Corp. acted as placement agent in connection with the
offering. We issued 125,000 warrants on November 22, 2004 and 51,500 warrants on
November 23, 2004 to the placement agent and to certain partners of the
placement agent as partial consideration for services performed in connection
with the issuance of common stock and warrants to the purchasers pursuant to the
Purchase Agreement to purchase 62,500 and 25,750 shares of our Common Stock,
respectively. The warrants are exercisable from November 22, 2004 until November
22, 2009 and from November 23, 2004 until November 23, 2009, each at an exercise
price of $1.25 per share.
In October 2004, we issued an aggregate of 114,324 shares of common stock to 6
of our directors as compensation for services performed on our behalf in each of
their capacities as directors of our company. The closing price for our common
stock on October 15, 2004 was $1.04 per share, resulting in an aggregate value
of $118,897 for this compensation.
In October 2004, we issued an aggregate of 86,050 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price for our common stock on October 15,
2004 was $1.04 per share, resulting in an aggregate value of $89,492 for this
compensation.
In October 2004, we issued an aggregate of 24,000 shares of common stock to a
certain public relations consulting firm as compensation for services performed
on our behalf. The closing price for our common stock on October 15, 2004 was
$1.04 per share, resulting in an aggregate value of $24,960 for this
compensation.
Between September 8, 2004 and December 20, 2004, we received subscriptions for
an aggregate of 1,812,403 shares of our common stock and an aggregate of 906,200
shares of common stock issuable upon exercise of common stock purchase warrants
to 33 accredited investors pursuant to a private placement offering. The stock
was sold at $.80 per share. The closing price of our common stock between
September 8, 2004 and December 20, 2004 ranged from a low of $.80 to a high of
$1.58 per share. The warrants are exercisable at a price equal to $1.25 for a
period of 5 years from the date of issuance.
In June and October 2004, we issued an aggregate of 47,850 shares of common
stock to a certain vendor as compensation for dealer account solicitation
services performed on our behalf. The closing price of our common stock on June
15, 2004 and October 15, 2004 was $1.05 and $1.04 per share, respectively,
resulting in an aggregate value of $50,003.25 for this compensation.
In May 2004, we and several accredited investors entered into a Subscription
Agreement whereby the investors agreed to purchase an aggregate of 3,600,125
shares of common stock at a price of $0.80 per share for an aggregate purchase
price of $2,855,100. In addition, the investors received warrants, exercisable
at $1.25 per share, to purchase 50% of the shares issued. The closing price of
our common stock on May 13, 2004, the closing date for this private placement,
was $.99 per share.
17
On April 15, 2004, we issued an aggregate of 10,767 shares of common stock to
Basile & Testa, PA, as compensation for legal services performed on our behalf.
One of our former directors, Mr. Frank Basile, was a partner at this firm. This
represented payment of $7,866.54 at $.73 per share for services performed from
February 28, 2002 through April 14, 2004. The share price on April 15, 2004 was
$.99 per share.
On March 31, 2004, we issued an aggregate of 14,529 shares of common stock to a
certain engineering firm as compensation for electrical engineering services
performed on our behalf. The closing price of our common stock on March 28, 2004
was $1.04 per share, resulting in an aggregate value of $15,010.16 for this
compensation.
In October 2003, we issued an aggregate of 345,000 shares of common stock to a
certain consulting firm as compensation for services performed on our behalf.
The closing price of our common stock on October 15, 2003 was $.99, resulting in
an aggregate value of $341,550 for this compensation.
In August 2003 and February 2004, we issued an aggregate of 12,500 shares of
common stock to an employee as compensation for services performed on our
behalf. The closing price of our common stock was $1.05 and $.67, resulting in
an aggregate value of $10,750 for this compensation.
From July to September 2003, we issued an aggregate of 91,020 shares of common
stock to a certain investor relations consulting firm as compensation for
services performed on our behalf. The average closing price of our common stock
between July and September of 2003 was $.99, resulting in an aggregate value of
$90,109.80 for this compensation.
In June and September 2004, we issued an aggregate of 6,174 shares of common
stock to certain consultants for computer programming services performed on our
behalf. The closing price of our common stock on September 15, 2004 was $.82,
resulting in an aggregate value of $5,062.68 for this compensation.
On June 10, 2003, we issued an aggregate of 30,000 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price of our common stock on June 10, 2003
was $1.45, resulting in an aggregate value of $43,500 for this compensation.
On May 8, 2003, we issued an aggregate of 350,000 shares of common stock to
third parties pursuant to certain sales agreements. The closing price of our
common stock on May 8, 2003 was $1.50, resulting in an aggregate value of
$525,000 for this compensation.
In April and November of 2003, we issued an aggregate of 57,139 shares of common
stock to a certain financial consultant as compensation for services performed
on our behalf. The closing price of our common stock was $1.05 and $.85,
resulting in an aggregate value of $54,282.05 for this compensation.
In April and June of 2003, we issued an aggregate of 60,000 shares of common
stock to 6 of our directors as compensation for services performed on our behalf
in each of their capacities as directors of our company. The closing price of
our common stock was $1.01 and $1.45, resulting in an aggregate value of $73,800
for this compensation.
On January 20, 2003, we issued options to purchase an aggregate of 180,000
shares of common stock to our President, Peter Amico, as compensation for
services performed on our behalf under Mr. Amico's Original Employment
Agreement. Of the options, 1/5 of the options were exercisable for a total
consideration of a $1.00, 1/2 of the options were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding exercise for each
year of the contract, and the remaining options were exercisable at 15% of the
lowest price paid for the stock in the 30 day period preceding exercise. The
closing price of our common stock on July 1, 2002 was $2.20 share.
From October 2002 through April 2005, we issued an aggregate of 137,500 shares
of common stock to three of our employees as compensation for services performed
on our behalf, and as employee incentive bonuses.
In August 2002, we issued an aggregate of 25,000 shares of common stock to one
of our directors, and options to purchase 5,000 shares of common stock to our
Secretary, each as compensation for services performed on our behalf in their
respective capacities. The closing price of our common stock on August 15, 2002
was $1.86 share.
On July 23, 2002, we issued an aggregate of 160,000 shares of common stock to a
certain investor relations consulting firm as compensation for services
performed on our behalf. The closing price of our common stock on July 23, 2002
was $1.50, resulting in an aggregate value of $240,000 for this compensation.
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In April 2002, we issued an aggregate of 1,930 shares of common stock to a
certain engineering firm as compensation for electrical engineering services
performed on our behalf. The closing price of our common stock on April 15, 2002
was $1.01, resulting in an aggregate value of $1,949.30 for this compensation.
From January 2002 through April 2005, we issued an aggregate of 60,200 shares of
our common stock to Harry Schmidt Associates, PA as rental payments under
certain leases which we entered into with said firm. These stock payments
represented lease payments of $3,000.00 per month from January 2002 through
April 2005, or 40 months, totaling $120,000.00.
* All of the above offerings and sales were deemed to be exempt under rule 506
of Regulation D and Section 4(2) of the Securities Act of 1933, as amended. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to a limited number of persons, all of whom were
accredited investors, business associates of Airtrax or executive officers of
Airtrax, and transfer was restricted by Airtrax in accordance with the
requirements of the Securities Act of 1933. In addition to representations by
the above-referenced persons, we have made independent determinations that all
of the above-referenced persons were accredited or sophisticated investors, and
that they were capable of analyzing the merits and risks of their investment,
and that they understood the speculative nature of their investment.
Furthermore, all of the above-referenced persons were provided with access to
our Securities and Exchange Commission filings.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Some of the information in this annual report contains forward-looking
statements that involve substantial risks and uncertainties. You can identify
these statements by forward-looking words such as "may", "will", "expect",
"anticipate", "believe", "estimate" and "continue", or similar words. You should
read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our financial
condition; and
o state other "forward-looking" information.
We believe it is important to communicate our expectations. However, there may
be events in the future that we are not able to accurately predict or over which
we have no control. Our actual results and the timing of certain events could
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including those set forth under "Risk Factors,"
"Business" and elsewhere in this prospectus. See "Risk Factors."
OVERVIEW
Since 1995, substantially all of our resources and operations have directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured. Four pilot models of the commercial
omni-directional lift truck are currently operational.
We have commenced and are near completion of getting the parts together for our
initial production run consisting of 10 units of our Sidewinder ATX-3000
Omni-Directional Lift Truck. Substantially all of the parts including frames,
motors, controllers, and micro-processors have been ordered and received by us,
and are partially assembled. The initial production run will be completed upon
receipt of wheels and other components from suppliers which is expected in the
third and fourth quarters of 2004. Unit assembly for the first 10 unites will be
completed by us at the H&R Industries facility in Warminster, PA. UL and final
ANSI testing is expected to be completed from 30 to 90 days from production
completion, although some parts of the final UL testing must be completed at the
plant of final assembly. Following required testing, we expect to sell these
units to select dealers in the United States. We have received orders for our
initial run production run of 10 units.
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We have incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2004 and 2003, we had a net
loss of $(2,272,200) and $(2,282,946), respectively. We expect to continue to
incur significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our principal executive offices are located at 870B Central Avenue, Hammonton,
NJ 08037 and our telephone number is (609) 567-7800. We are incorporated in the
State of New Jersey.
COMPANY HISTORY
We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.
Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name. Further, Filco GmbH has entered into an 18-month
lease agreement with the current property owner with an option to purchase the
200,000 square foot building and land for 4.7 million euros, and Filco GmbH has
been operating this plant since July 1, 2003. Filco's option to purchase the
200,000 square foot building and land for 4.7 million euros expires on December
31, 2005
In October 2004, Mr. Filipov and we agreed to modify our agreement in principal
so as to increase the number of shares of the capital stock of Filco GmbH which
we will acquire, if we finalize the acquisition, from 51% to 75.1%. The purpose
of this change is to give us control of Filco GmbH in accordance with USGAAP and
German law considerations regarding consolidation and capitalization. Further,
this change was offered and accepted in consideration of our agreeing to advance
Filco additional funds, in the form of a loan, to fund the start up of the Filco
operation prior to the consummation of the transaction. All other conditions and
terms of the agreement between the parties shall remain the same.
We have not yet finalized nor executed the acquisition agreement but have loaned
Filco GmbH an aggregate principal amount of $2,700,000, exclusive of interest at
8% per annum, pursuant to a series of unsecured promissory notes. During 2005,
we intend to secure our loans with Filco's plant machinery, equipment and other
plant property, and intellectual property, including designs and drawings. We
have used proceeds from the private placement offerings that we completed during
2004 and 2005 to fund such loans. Filco GmbH has informed us its estimated
working capital needs during the next year will be approximately $5,000,000,
with $1,500,000 needed during January 2005, in order for it to achieve
profitable operations. Should we complete the acquisition of Filco GmbH, we will
need to raise additional capital through equity or proper lines of credit in
order to fund the working capital needs of Filco GmbH.
We have not yet completed the acquisition because we have not raised sufficient
funding to provide adequate operating capital for Filco, as set forth in the
closing conditions in the Acquisition Agreement. We want to ensure that Filco
has the necessary capital to achieve profitable and full operations before the
acquisition is completed. Our ability to obtain funding has been limited. Due to
Filco's monthly cash burn rate, adequate funding from us is necessary to
complete the acquisition. We anticipate completing the acquisition upon the
effectiveness of this registration statement and upon obtaining adequate funding
following such effectiveness.
We have continued to fund Filco during the time when its plant was closed for
much of 2004 in order to assist the company in reopening its plant and achieving
the recommencement of operations. Loans provided by us have been used by Filco
to pay some debt, to pay employee payroll at a 20% short work rate (employees
have been working 20% of the time and unemployment has compensated the balance
of their payroll), to pay current heating, lighting and power, telephones,
leases and to order parts to get into production.
In general, the Filco transaction could provide us access to strategic
partnerships in personnel and successful business ventures, sales and market
exposure in Europe.
The proposed acquisition of Filco may include a leased manufacturing facility,
with an experienced workforce, inventory, intellectual property, and machinery
sufficient to fill 200,000 square feet of assembly and manufacturing. Filco
could provide us with cliental throughout Europe and the Middle East. This could
provide us with the ability to sell a complete line of lift trucks beyond the
limited sized Sidewinder Omni-Directional Lift Truck. It would provide
manufacturing or assembly for our products, including, but not limited to, the
aerial work platforms or any other products we develop or can contract to
assemble with other companies.
20
In addition, if the acquisition is completed we anticipate that we will
establish manufacturing capability in Europe, to complement our manufacturing in
the United States. We currently purchase a high percentage of our parts in
Europe, including, but not limited to, the frames from Bulgaria, motors and
controllers manufactured in the Czech Republic and Sweden, and transmissions,
brakes and seats manufactured in Germany. The mast could be manufactured, the
frames could be powder coated (painted), and European parts could be assembled
at the Filco plant. Partially assembled vehicles would be shipped to the United
States for final assembly. Wheels and other parts for the vehicles may be sold
in Europe or Middle Eastern countries could be shipped from the United States
for the completion of manufacturing at Filco. We believe we could cut
manufacturing costs because our material handling equipment could be
manufactured in the continent in which it is sold, i.e., Europe. With our
manufacturing capabilities in the United States, this potential acquisition
would allow a portion of the Sidewinder becoming assembled and manufactured in
each of the two continents that purchase and use about 70% of all material
handling equipment worldwide.
The primary objective that must be achieved to reach the aforementioned goal(s)
is to secure the necessary financing required to fund the acquisition and
manufacturing objectives of Filco and us. There can be no assurance that we will
be able to raise sufficient capital necessary to complete the acquisition and
fund the manufacturing objectives of Filco and us.
Loans to Filco GmbH
From May 5, 2003 through September 2, 2003, we loaned Filco $365,435 to acquire
our initial interest in Filco. Such funds were provided in the form of a loan
because we were not able to come up with sufficient funding to acquire our
initial interest. Filco repaid principal and interest under this loan to us.
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide sufficient funding, which the
parties estimated would be approximately $1.3 million to be allocated in the
form of equity in Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. A later addendum to the tentative agreement stated that we
would acquire 75.1% controlling ownership interest in Filco.
The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
The loans are to be repaid on or prior to December 31, 2005. We believe that our
secured and unsecured loans to Filco are recoverable if the proposed acquisition
is not completed. We expect to begin collecting on our loans, including
principal and interest, from Filco when the company becomes fully operational
and profitable, which we anticipate will occur during 2006. If this is not
realized, we intend to obtain security interests in Filco's plant machinery,
equipment and other plant property, and intellectual property, including designs
and drawings for over 100 models of Clark lift trucks. We intend to have Filco
engage an independent appraiser in 2005 to appraise and value Filco's equipment
and machinery. Such appraisal may not include the valuation of Filco's
intellectual property, which Filco and we believe have significant value.
We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005 exclusive of interest
at 8% per annum, pursuant to a series of unsecured promissory notes. During
2005, we intend to secure our loans with Filco's plant machinery, equipment and
other plant property, and intellectual property, including designs and drawings.
We intend to provide another $5 million to Filco, either in the form of
guaranteed credit lines or through additional sales our securities. We have
contacted several financial institutions attempting to secure credit lines for
Filco in the amount of $5 million. Thus far, we have received interest in
providing said credit line to Filco under the conditions that any proposed
credit line is guaranteed by us and that Filco is operational and able to repay
such debt from current earnings. The condition that FiLCO be able to repay from
current earnings makes the credit line from these sources unobtainable at this
time.
Filco GmbH's Financial Condition
The improvement of Filco's financial condition and results of operations, as set
forth below, furthers our belief that we would be able to recover principal and
interest due under our unsecured loans to Filco in the event that the proposed
acquisition is not completed.
Filco manufactured approximately 550 lift trucks in 2003 and very limited
numbers in 2004. In 2004, Filco did not have adequate operating capital to
conduct business operations and had numerous issues with its worker's union to
resolve. It was and is considered by Filco's management, a better long term
negotiating tactic with unions to threaten to close the facility completely than
to attempt to run the facility during negotiations. Accordingly, for this reason
as well as the lack of funding, Filco's plant was closed for much of 2004 and
the beginning of 2005.
21
Filco reached accord with the union on March 30, 2005. Employees will be
required to work a 40-hour week instead of 35 prior to additional hires. Wages
have been decreased 20%. The resolution of the problems Filco was experiencing
with its union is critical to the future success of the company. In addition,
the loans that we granted to Filco as of the date hereof have created
considerable improvements in Filco's financial condition and results of
operations by allowing the Company to pay debt and order parts for production.
This influx of cash transferred some debt to a single creditor who is in the
process of acquiring Filco. The improvements to the Filco balance sheet and cash
flow have considerably declined in value in the past several months as Filco
continues to burn funds awaiting additional operating capital from us and parts.
As a result of the above, Filco recommenced production of standard forklifts
during the second quarter of 2005. In April 2005, Filco shipped new trucks and
at least 14 re-conditioned vehicles. In addition, Filco began the assembly of a
Russian tractor for distribution in Europe. This agreement calls for the
production of 700 units to be assembled each year at a price of 2,800 Euros
each. The Russian company will supply all parts. Filco has not yet achieved full
production of forklifts under the contract with the Russian company until we can
obtain sufficient funding to provide capital to Filco in the form of loans which
will allow the company to undertake this production and ensure continued
operations at Filco in general. It is anticipated that Filco will be in full
forklift production late in the third quarter of 2005. The final production
schedule is contingent upon supply of parts from various venders and sufficient
operating capital.
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission ("SEC") defines "critical accounting
policies" as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
Not all of the accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition.
REVENUE RECOGNITION
Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, such as when a purchase order or contract is received from
the customer, the price is fixed, title to the goods has changed and there is a
reasonable assurance of collection of the sales proceeds. We obtain written
purchase authorizations from our customers for a specified amount of product at
a specified price and consider delivery to have occurred at the time of
shipment. Revenue is recognized at shipment and we record a reserve for
estimated sales returns, which is reflected as a reduction of revenue at the
time of revenue recognition.
Revenues from research and development activities relating to firm fixed-price
contracts are generally recognized as billing occurs. Revenues from research and
development activities relating to cost-plus-fee contracts include costs
incurred plus a portion of estimated fees or profits based on the relationship
of costs incurred to total estimated costs. Contract costs include all direct
material and labor costs and an allocation of allowable indirect costs as
defined by each contract, as periodically adjusted to reflect revised agreed
upon rates. These rates are subject to audit by the other party. Amounts can be
billed on a bi-monthly basis. Billing is based on subjective cost investment
factors.
22
YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003
RESULTS OF OPERATIONS
We have been a development stage company for the 2004 and 2003 periods and have
not engaged in full-scale operations for the periods indicated. The limited
revenues for the periods have been derived from the sales of a
non-omni-directional product and from contracts with the United States Navy that
relate to the research and potential application of omni-directional technology
for military use. The available dollar limits of contracts with the United
States Navy were substantially completed during 2002, and we recognized limited
revenues from the United States Navy contract during 2003. During 2005, we
expect to transition from a development stage company to an operating company as
it completes the initial run of its forklifts. Consequently, management believes
that the year-to-year comparisons described below are not indicative of future
year-to-year comparative results.
There was no billing for the Navy MP2 project in 2004. The MP2 munitions carrier
was delivered to the Navy on/or about April 1, 2004 for their evaluation and
testing. An Omni-Direction engine handler developed for and with the Navy is
expected to be "loaned" to the Navy during 2005 for an evaluation. An ETU-110
engine handler was delivered to us by the Navy and is US government property.
The ETU-110 was cleaned, re-painted, and placed in working condition by us. We
provided all required parts, labor and technology to make this vehicle
omni-directional. The cost for the parts and labor was allocated to "Cost Of
Goods Sold" in our financial statements for fiscal 2003. Since these funds
exceeded the amount contracted with the Navy, and an option for additional
services was not agreed upon, the labor and materials provided to the Navy for
building the ETU-110 engine handler remains our property. This piece of
equipment is therefore owned jointly by the US Navy and us and will be used to
demonstrate this technology to the US government and other military services.
We believe that the joint cooperation between us and the Navy with the MP2
contract, including the building of the ETU-110 omni-directionalengine handler,
has bolstered the potential use of our technology within the military. We do not
intend to incur additional costs with the US Navy unless we incur potential
expenses in demonstrating the ETU-110 omni-directional engine handler, or other
omni-directional vehicles.
REVENUES
Revenues for fiscal 2004 were $0, representing a decrease of $21,879 from
revenues of $21,879 for the 2003 period. This decrease is revenue can be
attributed to completion of our contract with the US Navy.
COST OF GOODS SOLD
Cost of sales for 2004 was $0 which reflects a $91,283 decrease from $91,283 in
fiscal 2003. This decrease in cost of goods sold can be attributed to completion
of our contract with the US Navy.
OPERATING AND ADMINISTRATIVE EXPENSES
Operating and administrative expenses which includes administrative salaries,
depreciation and overhead for the 2004 period totaled $2,529,775 which
represents an increase of $421,405 from $2,108,370 incurred in 2003. The
increase is due primarily to consulting fees paid to various third parties in
the form of common stock which totaled $1,332,989, including, (i) $447,210 to
consulting firms; (ii) $55,870 for payment of legal services performed by our
legal counsel; (iii) $33,350 for the payment of rental expenses; (iv) $145,000
in consideration for public relations services including brochures, website, and
company videos; (v) $260,050 for services performed by our accounting
consultant; (vi) $50,500 to our directors as compensation for services
performed; (vii) $95,899 in employee stock options and bonuses; (viii) $0 in
options to our CEO; and (ix) $146,892 as compensation for public relations
services. In addition, the increase is due to costs related to the further
development of our omni-directional technology, which included preparations for
the ANSI (American National Standards Institute), compliance testing, UL
(Underwriters Laboratories) compliance and preparation for initial production.
Interest expense payable to third party suppliers totaled $30,894 for the 2004
period, representing a $13,044 decrease from $43,938 for the 2003 period. In
2004, we posted $86,667 in other income from interest payments due from Filco
GmbH, which contrasts with $7,914 for the prior year end. Net loss before taxes
in 2004 was $2,471,023 which reflects an increase of $257,225 from $2,213,798 in
net loss before taxes for the 2003 period.
In 2004, we recorded $175,413 as the expected sale of our net operating losses
and tax credits under a New Jersey program described further in Liquidity and
Capital Resources below. This amount contrasts with $210,553 recorded during
2003.
23
Loss attributable to shareholders for 2004 was $2,272,200 which represents a
decrease of $80,543 from $2,191,657 during the 2003 period. During 2004, we paid
dividends on our preferred stock to a controlling shareholder of our company in
the amount of $131,771. For the year ended December 31, 2003, we paid dividends
on our preferred stock to a controlling shareholder of our company in the amount
of $80,749. Deficit accumulated during development stage during 2004 was
$2,403,971 (or a loss per share of $0.19 for common stockholders) which
represents an increase of $131,565 from $2,272,406 (or a loss per share of $0.29
for common stockholders) for the 2003 period.
RESEARCH AND DEVELOPMENT
We incurred $519,804 and $297,862 in research and development expenses during
the year ended December 31, 2004 and 2003, respectively. Research and
development activities during fiscal 2004 primarily involved continued testing
and evaluation of omni-directional components and preparing these components for
production in 2005. Our wheel design was changed from the "concept" to
"production" phase. This was and is an ongoing process between our and Timken's
engineers to insure manufacturability. The motors and controllers were designed
and/or changed in design in order to meet ANSI (American National Standards
Institute) and UL (Underwriters Laboratories) testing requirements. Danaher and
us revised the algorithms used in the motor controllers as well the
microprocessor that runs the machines. Research and development activities also
included further changes to existing designs and new designs that were patented
or for those patents with pending applications. Portions of the costs we
incurred due to testing and research and development were charged to the US Navy
contract as provided therein.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through the private
placement of our common stock and from loans from our President. During 2004 and
2003 we raised net of offering costs $5,103,103 and $789,000, respectively, from
the private placement of our securities.
During 2000, we were approved by the State of New Jersey for our technology tax
transfer program pursuant to which we could sell our net operating losses and
research and development credits as calculated under state law. During 2004 and
2003, we recorded credits of $198,823 and $210,553, respectively from the sale
of our losses and credits (see Note 6 to financial statements).
We have experienced negative cash flows from operations of $1,614,687 during
2004 and $705,790 during 2003. These negative results stem primarily from
operating losses of $2,272,200 in 2004 and $2,191,657 in 2003. These results are
not unusual for a company in the development state; it is noteworthy that
significant portions of the losses result from non cash charges, primarily from
equity securities issued for services.
We have consistently demonstrated our ability to meet our cash requirements
through private placements of its common stock. We have continued to similarly
satisfy those requirements during the year ended December 31, 2004.
24
We anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, product production, and advertising in anticipation of the rollout of
its omni-directional forklift. On January 13, 2004, we entered into a placement
agency agreement with a NASD registered broker-dealer for the private placement
offering of our securities. Our securities consisted of units comprised of one
share of common stock and a stock warrant to purchase 50% of an additional share
of common stock at a unit-offering price of $0.80. The warrant is exercisable at
$1.25 per share during a five-year term. The offering is being made on a best
efforts basis, for a total minimum amount of $1,000,000 and a total maximum
amount of $4,000,000, terminating May 7, 2004. During the first and second
quarters of 2004, we received $2,880,108 net of offering costs and expenses from
the offering. The offering was made pursuant to exemptions under the Securities
Act of 1933, as amended. We completed our initial production run of the
SIDEWINDER Lift Truck in the fourth quarter of 2004. We received sufficient
funds from the offering to complete the initial production run and to complete
ANSI and UL testing, as well as some special tooling costs.
We will require additional funds to continue our operations beyond the initial
production run. These funds are in addition to the funds required by Filco GmbH
as discussed above. We anticipate that operating capital in the amount of $5
million will be required during calendar year 2005 to sufficiently fund Filco
operations. Of the total amount, approximately 70% is projected for parts and
component inventory and manufacturing costs, with the balance projected as
general operating expenditures, which includes overhead and salaries. We expect
to recognize lower per unit manufacturing and part costs in the future due to
volume discounts, as well as lower per unit shipping costs as we transition from
the initial production run to full-scale production. We partially funded these
additional cash requirements through the issuance of equity and/or debt
securities which may be similar to the offering described above. We cannot
predict whether we will be successful in obtaining sufficient capital to fund
continuing operations. If we are unable to obtain sufficient funds in the near
future, such event will delay the rollout of its product and likely will have a
material adverse impact on us and our business prospects.
As of December 31, 2004, our working capital deficit was $(572,184). Fixed
assets, net of accumulated depreciation, and total assets, as of December 31,
2004, were $93,587 and $4,600,023, respectively. Current liabilities as of
December 31, 2004 were $2,291,153.
SUBSEQUENT EVENTS
We have incurred penalties payable to the investors of our November 2004 private
placements because we did not file a registration statement on Form SB-2 within
the timeframe specified pursuant to the Registration Rights Agreement we entered
into with the investors on November 23, 2004. We were required to file the
registration statement on or prior to January 6, 2005, but it was not filed
until February 14, 2005. We have not yet accounted for these penalties, as they
were not incurred until 2005. We will account for such penalties in the first
quarter of 2005.
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 and continue as a going concern because we have
incurred losses and experienced negative operating cash flow since our
formation. For our fiscal years ended December 31, 2004 and 2003, we had a net
loss of $(2,272,200) and $(2,282,946), respectively. We expect to continue to
incur significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing. If such financing is available you may
experience significant additional dilution.
25
WE HAVE A LIMITED OPERATING HISTORY
We are development stage company, and, together with our predecessor, have been
in operation since 1995. However, since 1995, our operations have been limited
to the development of our omni-directional products, and limited revenue has
been generated during this period. Consequently, our business may be subject to
the many risks and pitfalls commonly experienced by development stage companies.
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 believe that our available short-term assets and investment income
will be sufficient to meet our operating expenses and capital expenditures
through the end of fiscal year 2005. 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. In addition to
our own need of working capital, we also will need working capital to fund the
operations of Filco GmbH. Filco has informed us that it needs working capital in
the amount of $5,000,000 in the beginning of 2005 in order for it to achieve
profitable operations. This excludes the $1,300,000 required under the Filco
agreement. As of December 31, 2004, we have loaned $2,699,999 to Filco. If we
are unable to complete the terms of the Filco agreement and loan Filco the
required amounts necessary to fund its operations, Filco may be unable to
continue its operations and the repayment of amounts loaned to Filco by us may
be jeopardized.
FINAL TESTING OF OUR PRODUCT COULD RESULT IN COMPONENT REFINEMENT OR REDESIGN,
WHICH COULD DELAY THE COMMERCIAL INTRODUCTION OR CONTINUED SALE OF THE FORKLIFT.
We have developed pilot versions of our unique, omni-directional forklift. The
commercial introduction of the product is subject, however, to additional
testing and component refinement. Due to the unique performance attributes of
the forklift, the forklift will undergo a series of unprecedented tests relating
to these attributes. Although management has performed substantially all of
these tests or is otherwise confident of the performance capabilities of the
forklift, final testing has not been completed. In addition, our product must be
sufficiently durable to withstand the day-to-day rigors of its anticipated work
environment. As stated above, although we have conducted numerous tests, the
product has not been subjected to the normal day-to-day usage typically required
of forklifts. Therefore, it is conceivable that final testing, or durability
issues after prolonged use, could result in component refinement or redesign,
which could delay the commercial introduction or continued sale of the forklift.
THE PRICING POLICY FOR OUR FORKLIFTS MAY BE SUBJECT TO CHANGE, AND ACTUAL SALES
OR OPERATING MARGINS MAY BE LESS THAN PROJECTED.
We are assessing present and projected component pricing in order to establish a
pricing policy for the SIDEWINDER Lift Truck. We have not finalized our
assessment as current prices for certain forklift components reflect special
development charges which are expected to be reduced as order volume for such
components increase and as manufacturing efficiencies improve. We intend to
price our forklifts so as to maximize sales yet provide sufficient operating
margins. Given the uniqueness of our product, we have not yet established final
pricing sensitivity in the market. Consequently, the pricing policy for its
forklifts may be subject to change, and actual sales or operating margins may be
less than projected.
WE HAVE RECEIVED LIMITED INDICATIONS OF THE COMMERCIAL ACCEPTABILITY OF OUR
OMNI-DIRECTIONAL FORKLIFT. ACCORDINGLY, WE CANNOT PREDICT WHETHER OUR
OMNI-DIRECTIONAL PRODUCTS CAN BE MARKETED AND SOLD IN A COMMERCIAL MANNER.
26
Our success will be dependent upon our ability to sell omni-directional products
in quantities sufficient to yield profitable results. To date, we have received
limited indications of the commercial acceptability of our omni-directional
forklift. Accordingly, we cannot predict whether the omni-directional product
can be marketed and sold in a commercial manner.
WE CANNOT ASSURE THAT WE WILL HAVE IN PLACE PATENT PROTECTION AND
CONFIDENTIALITY AGREEMENTS FOR OUR PROPRIETARY TECHNOLOGY. IF WE DO NOT
ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, THERE IS A RISK THAT THEY
WILL BE INFRINGED UPON OR THAT OUR TECHNOLOGY INFRINGES UPON ONE OF OUR
COMPETITOR'S PATENTS. AS A RESULT, WE MAY EXPERIENCE A LOSS OF REVENUE AND OUR
OPERATIONS MAY BE MATERIALLY HARMED.
Our success will be dependent, in part, upon the protection of our proprietary
omni-directional technology from competitive use. A form of our omni-directional
technology was originally patented in 1973 and was sold to the US Navy. We
secured a transfer of this technology from the Navy in 1996 under the terms of a
CRADA agreement (Cooperative Research and Development Agreement) and we have
worked since that time to commercialize omni-directional products. We received 3
patents regarding the "redesign" of the wheel. In addition, we have received
patent protection regarding the algorithms used to control vehicular movement.
Further, we have applied for patents for a movable operator's control station
and a munitions handler. Notwithstanding the foregoing, we believe our lack of
patent protection is a material competitive risk. Our competitors could reverse
engineer our technology to build similar products. Also, certain variations to
the technology could be made whereby our competitors may use the technology
without infringing upon our intellectual property. The patent for the
omni-directional wheel expired in 1990. We, however, have received patent
protection of certain other aspects of its omni-directional wheel, and for
features specific to our forklift. In addition to the patent applications, we
rely on a combination of trade secrets, nondisclosure agreements and other
contractual provisions to protect our intellectual property rights.
Nevertheless, these measures may be inadequate to safeguard our underlying
technology. If these measures do not protect the intellectual property rights,
third parties could use our technology, and our ability to compete in the market
would be reduced significantly. In addition, if the sale of our product extends
to foreign countries, we may not be able to effectively protect its intellectual
property rights in such foreign countries.
In the future, we may be required to protect or enforce our patents and patent
rights through patent litigation against third parties, such as infringement
suits or interference proceedings. These lawsuits could be expensive, take
significant time, and could divert management's attention from other business
concerns. These actions could put our patents at risk of being invalidated or
interpreted narrowly, and any patent applications at risk of not issuing. In
defense of any such action, these third parties may assert claims against us. We
cannot provide any assurance that we will have sufficient funds to vigorously
prosecute any patent litigation, that we will prevail in any of these suits, or
that the damages or other remedies awarded, if any, will be commercially
valuable. During the course of these suits, there may be public announcements of
the results of hearings, motions and other interim proceedings or developments
in the litigation. If securities analysts or investors perceive any of these
results to be negative, it could cause the price of our common stock to decline.
27
WE CURRENTLY LACK ESTABLISHED DISTRIBUTION CHANNELS FOR OUR FORKLIFT PRODUCT
LINE
We do not have an established channel of distribution for our forklift product
line. We have initiated efforts to establish a network of designated dealers
throughout the United States. Although we have received indications of interest
from a number of equipment distributors, to date, such indications have been
limited. We cannot predict whether we will be successful in establishing our
intended dealer network.
If we are unable to retain the services of our President and Chairman of the
Board, Mr. Peter Amico, or if we are unable to successfully recruit qualified
personnel, we may not be able to continue operations.
Our ability to successfully conduct our business affairs will be dependent upon
the capabilities and business acumen of current management including Peter
Amico. Accordingly, shareholders must be willing to entrust all aspects of our
business affairs to our current management. Further, the loss of any one of our
management team could have a material adverse impact on our continued operation.
OUR INDUSTRY AND PRODUCTS ARE CONSIDERED TO BE HIGH-RISK WITH A HIGH INCIDENCE
OF SERIES PERSONAL INJURY OR PROPERTY LOSS WHICH COULD HAVE A MATERIAL ADVERSE
IMPACT ON OUR BUSINESS.
The manufacture, sale and use of omni-directional forklifts and other mobility
or material handling equipment is generally considered to be an industry of a
high risk with a high incidence of serious personal injury or property loss. In
addition, although we intend to provide on-site safety demonstrations, the
unique, sideways movement of the forklift may heighten potential safety risks.
Despite the fact that we intend to maintain sufficient liability insurance for
the manufacture and use of our products, one or more incidents of personal
injury or property loss resulting from the operation of our products could have
a material adverse impact on our business.
If we do not successfully distinguish and commercialize our developed
proprietary products and services, we will not attract a sufficient number of
customers. Accordingly, we may be unable to compete successfully with our
competitors or to generate revenue significant to sustain our operations.
Although management believes our product will have significant competitive
advantages over conventional forklifts, we are competing in an industry
populated by some of the foremost equipment and vehicle manufacturers in the
world. All of these companies have greater financial, engineering and other
resources than us. No assurances can be given that any advances or developments
made by such companies will not supersede the competitive advantages of our
omni-directional forklift. In addition, many of our competitors have
long-standing arrangements with equipment distributors and carry one or more of
competitive products in addition to forklifts. These distributors are
prospective dealers for our company. It therefore is conceivable that some
distributors may be loath to enter into any relationships with us for fear of
jeopardizing existing relationships with one or more competitors.
THERE CAN BE NO ASSURANCE THAT WE WILL COMPLETE OUR PROPOSED ACQUISITION OF
FILCO GMBH OR RAISE SUFFICIENT FUNDS NECESSARY TO FUND THE WORKING CAPITAL NEEDS
OF FILCO. IF WE DO NOT COMPLETE THE PROPOSED ACQUISITION, WE WOULD HAVE TO
ATTEMPT TO RECOVER OUR LOANS IN THE AGGREGATE AMOUNT OF $2,670,000 MADE TO FILCO
AND THERE CAN BE NO ASSURANCE THAT WE WILL BE ABLE TO DO SO.
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide $1.3 million to be allocated in
the form of equity in Filco and Filipov would also capitalize 1.3 million Euros
that he had loaned Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. Further, once we complete the acquisition, we are responsible
to provide adequate operating capital to insure a successful business. A later
addendum to the tentative agreement stated that we would acquire 75.1%
controlling ownership interest in Filco.
There can be no assurance that we will be able to secure financing on terms
which are favorable to us, or at all, which would be sufficient to fund the
working capital needs of Filco GmbH. Accordingly, there can be no assurance that
we will complete the proposed acquisition. If we do not complete the proposed
acquisition, we would have to attempt to recover our loans in the aggregate
amount of $2,670,000, exclusive of principal and interest at 8% per annum in
accord with the loan agreements made to Filco and there can be no assurance that
we will be able to do so. If we are unable to recover our loans, we may have to
curtail our operations or seek additional financing.
RISKS RELATING TO OUR COMMON STOCK
THE MARKET PRICE OF OUR COMMON STOCK MAY DECLINE BECAUSE THERE ARE WARRANTS THAT
MAY BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE
MARKET PRICE.
The market price of our common stock may decline because there are a large
number of warrants that may be available for future sale, and the sale of these
shares may depress the market price. As of March 31, 2005, we had approximately
21,256,215 shares of common stock issued and outstanding and 7,725,238
outstanding options and warrants to purchase up to 7,725,238 shares of common
stock. The sale of these shares may adversely affect the market price of our
common stock.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
28
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.
29
ITEM 7. FINANCIAL STATEMENTS
AIRTRAX, INC.
(A Development Stage Company)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
DECEMBER 31, 2003
Page
------
Report of Independent Certified Public Accountants.......................F - 1
Balance Sheet............................................................F - 2
Statements of Operations and Deficit Accumulated
During Development Stage.................................................F - 3
Statements of Changes in Stockholder's Equity............................F - 4
Statements of Cash Flows.................................................F - 5
Notes to Financial Statements............................................F - 6
30
ROBERT G. JEFFREY
CERTIFIED PUBLIC ACCOUNTANT
61 BERDAN AVENUE
WAYNE, NEW JERSEY 07470
LICENSED TO PRACTICE TEL: 973-628-0022
IN NEW YORK AND NEW JERSEY FAX: 973-696-9002
MEMBER OF AICPA E-MAIL: rgjcpa@erols.com
PRIVATE COMPANIES PRACTICE SECTION
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
AirTrax, Inc.
I have audited the accompanying balance sheet of AirTrax, Inc. (a development
stage company) as of December 31, 2004, and the related statements of operations
and deficit accumulated during development stage, changes in stockholders'
equity, and cash flows for the years ended December 31, 2004 and 2003, and for
the period from May 19, 1997 (inception) to December 31, 2004. These financial
statements are the responsibility of the Company management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted the audit in accordance with the standards of Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor was I engaged to perform, an audit of its internal control over
financial reporting. My audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate under the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, I express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of AirTrax, Inc. as of December 31,
2004, and the results of its operations and its cash flows for the years ended
December 31, 2004 and 2003, and for the period from May 19, 1997 (inception) to
December 31, 2004, in conformity with U.S. generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, certain errors were
discovered in the financial statements of the year ended December 31, 2003.
Accordingly, the 2003 statement of operations and deficit accumulated during
development stage has been restated to correct the errors and the balances of
common stock and deficit accumulated during development stage of 2004 have been
restated to correct the opening balances.
Robert G. Jeffrey
Certified Public Accountant
Wayne, New Jersey
October 3, 2005, except for Notes 4, 6, and 13, which is December 30, 2005.
F-1
AIRTRAX, INC.
(A Development Stage Company)
BALANCE SHEET
December 31, 2004
ASSETS
Current Assets
Cash $ 641,477
Accrued interest receivable 86,667
Inventory 709,281
Prepaid expenses 5,113
Vendor advance 52,017
Deferred tax asset 224,414
------------
Total current assets $ 1,718,969
Fixed Assets
Office furniture and equipment 90,714
Automotive equipment 21,221
Shop equipment 24,553
Casts and tooling 205,485
------------
341,973
Less, accumulated depreciation 248,386
------------
Net fixed assets 93,587
Other Assets
Advances to Filco Gmbh 2,670,000
Patents - net 117,402
Utility deposits 65
------------
Total other assets 2,787,467
------------
TOTAL ASSETS $ 4,600,023
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 394,959
Accrued liabilities 459,565
Shareholder deposits for stock 1,403,174
Shareholder notes payable 33,455
------------
Total current liabilities $ 2,291,153
------------
Stockholders' Equity
Common stock - authorized, 20,000,000 shares without
par value; 15,089,342 issued and outstanding 10,822,854
Preferred stock - authorized, 500,000 shares without
par value; 275,000 issued and outstanding 12,950
Deficit accumulated during the development stage (8,319,982)
Deficit prior to development stage (206,952)
------------
Total stockholders' equity 2,308,870
TOTAL LIABILITIES AND ------------
STOCKHOLDERS' EQUITY $ 4,600,023
============
The accompanying notes are an integral part of these financial statements.
F-2
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
May 19, 1997
(Date of Inception)
YEAR 2004 YEAR 2003 to December 31, 2004
--------- --------- --------------------
CONSULTING REVENUE $ -- $ 21,879 $ 1,023,123
COST OF PROVIDING CONSULTING REVENUE -- 91,283 470,371
------------- ------------ --------------
Gross Profit (Loss) -- (69,404) 552,752
OPERATING AND ADMINISTRATIVE EXPENSES 2,529,775 2,108,370 (8,948,221)
------------- ------------ --------------
OPERATING LOSS (2,529,775) (2,177,774) (8,395,469)
OTHER INCOME AND (EXPENSE)
Interest expense (30,894) (43,938) (175,064)
Interest income 86,667 7,914 86,667
Other income 2,979 -- 78,294
------------- ------------ --------------
NET LOSS BEFORE INCOME TAXES (2,471,023) (2,213,798) (8,405,572)
------------- ------------ --------------
INCOME TAX BENEFIT (STATE):
Current 198,823 210,553 198,823
Prior years -- -- 518,319
------------- ------------ --------------
Total Benefit 198,823 210,553 717,142
------------- ------------ --------------
NET LOSS BEFORE DIVIDENDS (2,272,200) (2,003,245) (7,688,430)
DEEMED DIVIDENDS ON PREFERRED STOCK -- 188,412 188,412
------------- ------------- --------------
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS (2,272,200) (2,191,657) (7,876,842)
PREFERRED STOCK DIVIDENDS DURING
DEVELOPMENT STAGE (131,771) (80,749) (443,140)
------------- ------------- --------------
DEFICIT ACCUMULATED $ (2,403,971) $ (2,272,406) $ (8,319,982)
============= ============= ==============
EARNINGS PER SHARE:
NET LOSS ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ (2,272,200) $ (2,191,657)
ADJUSTMENT FOR PREFERRED SHARE DIVIDENDS
ACCUMULATED BUT UNPAID 68,750 68,750
------------- -------------
LESS ALLOCABLE TO COMMON SHAREHOLDERS $ (2,340,950) $ (2,260,407)
============= =============
NET LOSS PER SHARE - Basic and Diluted $ (.19) $ (.29)
============= =============
WEIGHTED AVERAGE SHARES OUTSTANDING 12,075,448 7,818,400
============= =============
The accompanying notes are an integral part of these financial statements.
F-3
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Year Ended December 31, 2004
DEFICIT DEFICIT
COMMON PREFERRED ACCUMULATED PRIOR
STOCK STOCK DURING TO
----------------------- ---------------------- DEVELOPMENT DEVELOPMENT
Shares Amount Shares Amount STAGE STAGE TOTAL
--------- -------- -------- -------- ------------- ------------- ------------
Balance, December 31, 2002 6,247,730 $ 3,663,424 275,000 $ 12,950 $ (3,643,605) $ (206,952) $ (174,183)
Adjustment (21,912)
Sales of stock under
Regulation D offering 715,000 659,000 659,000
Shares issued for services 1,509,003 1,618,411 1,618,411
Shares in lieu of preferred
dividends 246,731 269,161 (80,749) 188,412
Net loss for the period (2,191,657) (2,191,657)
--------- ------------ --------- ----------- ----------- ----------- -----------
Balance, December 31, 2003 8,696,552 6,209,996 275,000 12,950 (5,916,011) (206,952) 99,983
Issuance of shares sold in the
prior year 130,000 130,000 130,000
Sales of stock under
Regulation D offering 5,500,125 3,727,802 3,727,802
Exercise of warrants 75,000 93,750 93,750
Shares issued for services 687,665 661,306 661,306
Dividends - outstanding (131,771) (131,771)
Dividends paid
Net loss for the period (2,272,200) (2,272,200)
---------- ------------ --------- ----------- ------------ ------------ -----------
Balance, December 31, 2004 15,089,342 $ 10,822,854 275,000 $ 12,950 $ (8,319,982) $ (206,952) $ 2,308,870
========== ============ ========= =========== ============ ============ ===========
The accompanying notes are an integral part of these financial statements.
F-4
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2004 and 2003
May 19, 1997
(Date of Inception)
Year 2004 Year 2003 to December 31, 2004
--------- --------- --------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(2,272,200) $(2,191,657) $(7,876,842)
Adjustments to reconcile net income to net cash
consumed by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 100,507 36,214 301,197
Value of equity securities issued for services 812,643 1,332,989 2,939,223
Deemed dividends on preferred stock 188,412 188,412
Interest accrued on shareholder loan 4,566 11,478 21,641
(Increase) decrease in accrual of deferred
tax benefit (23,409) (150,262) (224,414)
Changes in current assets and liabilities:
Decrease (increase) in inventory (324,527) (197,914) (709,281)
(Increase) decrease in receivables (138,684) 50,936 (138,684)
Increase (decrease) in accounts payable
and accrued liabilities 226,417 214,014 920,321
Increase in prepaid expense -- -- (146,957)
----------- ----------- -----------
Net Cash Consumed By
Operating Activities (1,614,687) (705,790) (4,725,384)
----------- ----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Acquisitions of equipment (49,306) (90,045) (348,284)
Additions to patent cost (80,939) (9,385) (157,931)
Advances to Filco Gmbh (2,670,000) (2,670,000)
----------- ----------- -----------
Net Cash Consumed By
Investing Activities (2,800,245) (99,430) (3,176,215)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of common stock sales 5,103,103 789,000 8,572,611
Proceeds from exercise of warrants 93,750 -- 93,750
Proceeds of option exercises 5,944 5,900 14,344
Proceeds of sales of preferred stock -- -- 12,950
Proceeds (repayment) of stockholder loans (52,005) (3,298) 35,120
Preferred stock dividends paid in cash (131,771) -- (185,274)
Partial repayment of equipment note -- (425) (425)
----------- ----------- -----------
Net Cash Provided By
Financing Activities 5,019,021 791,177 8,543,076
----------- ----------- -----------
Net Increase (Decrease) In Cash 604,089 (14,043) 641,477
Balance at beginning of period 37,388 51,431 --
----------- ----------- -----------
Balance at end of period $ 641,477 $ 37,388 $ 641,477
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company was formed April 17, 1997. It has designed a forklift vehicle using
omni-directional technology obtained under a contract with the United States
Navy Surface Warfare Center in Panama City, Florida. The right to exploit this
technology grew out of a Cooperative Research and Development Agreement with the
Navy. Significant resources have been devoted during the past four years to the
construction of a prototype of this omni-directional forklift vehicle.
The Company has also developed a traditional helicopter ground handling machine
which has been marketed by the Company on a limited basis.
Development Stage Accounting
The Company is a development stage company, as defined in Statement of Financial
Accounting Standards No. 7. Generally accepted accounting principles that apply
to established operating enterprises govern the recognition of revenue by a
development stage enterprise and the accounting for costs and expenses. From
inception to May 19, 1997, the Company has been in the development stage and all
its efforts have been devoted to the development of a forklift vehicle with
omni-directional technology that is suitable for market. Only relatively small
amounts of revenue have been realized through December 31, 2004.
Basis of Presentation
The Company has incurred losses from inception of the development stage to May
19, 1997 of $7,876,842. Activities have been financed primarily through private
placements of equity securities. The Company may need to raise additional
capital through the issuance of debt or equity securities to fund its
operations.
Cash
For purposes of the statements of cash flows, the Company considers all
short-term debt securities purchased with a maturity of three months or less to
be cash equivalents.
Inventory
Inventory consists principally of component parts and supplies which will be
used to assemble forklift vehicles. Inventories are stated at the lower of cost
(determined on a first in-first out basis) or market.
F-6
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. (continued)
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 forklift vehicle is
expensed as incurred.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimated.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which include cash
equivalents, accounts receivable, accounts payable and accrued liabilities,
approximate their fair values at December 31, 2004. This applies also to the
advances to FILCO GmBH, since they are fully secured.
Research and Development Cost
The Company expenses all research and development cost unless the criteria
required by FASB #2 are met. To date there have been no research and development
cost capitalized. During the years 2004 and 2003 a total of $519,804 and
$297,862, respectively, was spent on development activity.
Advertising Costs
The Company expenses advertising costs when the advertisement occurs. There were
no advertising costs incurred during 2004 and 2003.
F-7
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. (continued)
Stock Options
Stock options are awarded to employees as compensation for services. Such awards
have been immediately exercisable. The Company accounts for stock-based
compensation under the intrinsic method permitted by Accounting Principles Board
Opinion No. 25. The following represents information about net loss and loss per
share as if the Company had applied the provisions of Statement of Financial
Accounting Standards ("SFAS")123. Accounting for Stock Based Compensation, to
all options granted.
Year Ended December 31,
($000's)
2004 2003
---- ----
Net loss as reported $(2,272) $(2,192)
Less Stock-based employee compensation
determined under the Intrinsic Method 223 35
Add: Stock based compensation determined
under the Fair Value Method -260 -35
Pro forma net loss $(2,309) $(2,192)
-------- --------
Loss per share:
Basic and diluted as reported $ (.19) $ (.29)
======== ========
Basic and diluted-pro forma $ (.19) $ (.29)
======== ========
Pursuant to the requirements of SFAS 123, the weighted average fair value of
options granted during 2004 and 2003 were $.49 and $.98, respectively, on the
dates of grant. The fair values were determined using a Black Scholes
option-pricing model, using the following major assumptions:
2004 2003
---- ----
Volatility 91.45% 130.4%
Risk-free interest rate 3.63% 2.51%
Expected Life - years 4.33 3.89
F-8
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
In December 2004, the FASB issued SFAS 123 (revise 2004), Share-Based Payment
("SFAS 123R"), which revised SFAS 123, Accounting for Stock-Based Compensation.
SFAS 123R also supersedes APB 25, Accounting for Stock Issued to Employees, and
amends SFAS 95, Statement of Cash Flows. In general, the accounting required by
AFAS 123R is similar to that of SFAS 123. However, SFAS 123 gave companies a
choice to either recognize the fair value of stock options in their income
statements or to disclose the pro forma income statement effect of the fair
value stock options in the notes to the financial statements. SFAS 123R
eliminates that choice and requires the fair value of all share-based payments
to employees, including the fair value of grants of employee stock options, be
recognized in the income statement, generally over the option vesting period.
SFAS 123R must be adopted no later than July 1, 2005.
SFAS 123R permits adoption of its requirements using one of two transition
methods:
1. A modified prospective transition ("MPT") method in which compensation cost
is recognized beginning with the effective date (a) for all share-based payments
granted after the effective date and (b) for all awards granted to employees
prior to the effective date that remain unvested on the effective date.
2 A modified retrospective transition ("MRT") method which includes the
requirements of the MPT method described above, but also permits restatement of
financial statements based on the amounts previously disclosed under SFAS 123's
pro forma disclosure requirements either for (a) all prior periods presented or
(b) prior interim periods of the year of adoption.
The Company is currently evaluating the timing and manner in which it will adopt
SFAS 123R.
As permitted by SFAS 123, the Company currently accounts for share-based
payments to employees using APB 25's intrinsic value method. The Company will
adopt SFAS 123R (fair value method) in 2006. This change is not expected to
impact overall financial position. The impact of adoption of SFAS 123R on
results of operations cannot be predicted at this time because it will depend on
levels of share-based payments granted in the future.
RECENT ACCOUTNING PRONOUNCEMENTS
Except for the expected effect of SEAS 123R which is described in Note 1 under
Stock Options, the Company does not expect adoption of rectly issued accounting
pronouncements to have a significant effect on the Company's results of
operations, financial position or cash flows.
Segment Reporting
Management treats the operations of the Company as one segment.
Revenue Recognition
Revenue will be realized from product sales. Recognition will occur upon
shipment to customers, and where the following criteria are met: persuasive
evidence of an arrangement exists; delivery has occurred; the sales price is
fixed or determinable; and collectability is reasonably assured. Some revenue
has been realized from performing services. Revenue from services is recognized
when the service is performed and where the following criteria are met:
persuasive evidence of an arrangement exists; the contract price is fixed or
determinable; and collectability is reasonably assured.
Common Stock
Common stock is often issued in return for product, services, and as dividends
on the preferred stock. These issuances are assigned values equal to the value
of the common stock on the dates of issuance.
F-9
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
2. RESTATEMENTS
Certain errors affecting the 2003 financial statements have been discovered
during an internal review. Correcting these errors resulted in changes in the
net loss attributable to common shareholders with a resultant increase in the
deficit accumulated during development stage, an increase in common stock, and
certain changes in the statement of cash flows as of December 31, 2003 and for
the year then ended. The 2003 financial statements have, therefore, been
restated to correct these errors. The restated amounts are compared with the
amounts previously reported, in the following table.
STATEMENT OF OPERATIONS AND DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE
As Originally
Presented Adjustments As Restated
Operating and Administrative
Expenses $ 2,199,659 $ 91,289 (1) $ 2,108,370
----------
Loss Accumulated During
Development Stage $(2,282,946) $ 91,289 $(2,191,657)
==========
STATEMENT OF CASH FLOWS
As Originally
Operating Activities Presented Adjustments As Restated
Net Loss $ 2,282,946 $ 91,289 (2) $(2,191,657)
Value of equity securities
issued for services 1,424,278 (91,289)(1) 1,332,989
---------
Net Cash Consumed By
Operating Activities $ (705,790) $ - $ (705,790)
=========
(1) Correction of recording expenses of stock options and stock grants.
(2) Net amount of Changes on Statement of Operations and Deficit Accumulated
During Development Stage.
These corrections caused changes in the opening balances of the deficit
accumulated during development stage, as follows:
Retained Deficit At Beginning
of year: 2004 2003
As previously reported $ (5,804,156) $(3,440,461)
Adjustment to correct accounting
for stock options and stock grants (111,855) (203,144)
Balance at beginning of year, as
Restated (5,916,011) (3,643,605)
Net loss, as restated (2,272,200) (2,191,657)
Dividends on preferred stock (131,771) (80,749)
------------- ------------
Retained Deficit at End of Year $(8,319,982) $(5,916,011)
------------------------------- ============= ============
F-10
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
3. RELATED PARTY TRANSACTIONS
The majority shareholder corporation and the Company president make loans to the
Company from time to time. The related notes accrue interest at 12% and are due
on demand. The combined unpaid balance of principal and interest on these notes
was $33,455 at December 31, 2004.
During 2003, two Company employees exercised options, receiving a total of 7,500
shares of common stock in return for $877. The same two employees each received
bonuses of 15,000 shares. Each member of the Board of Directors was awarded
10,000 shares for services as directors; these shares were valued at a total of
$47,500. One director purchased 10,000 shares in return for $5,000; an
additional $5,000 was treated as compensation of the director. An affiliate of a
director received $3,940 for legal services. The Company president exercised
options for 180,000 shares (see Note 9) in return for $25,202.
During 2004, each member of the Board of Directors received 10,000 shares for
services as directors; these were valued at $50,500, reflecting the stock price
at time of award.
In 2004, the president of the Company was granted 550,000 options, valued at
$187,500.
Three employees were previously entitled under their employment contracts to
25,000 options each for each year of their contracts. One of these employees
retired during 2004, exercising his remaining options. Another employee
exercised his prior options and his 2004 options, for a total cost of $5,943.
The last employee has outstanding options granted during 2002, 2003, and 2004.
Since June 1999 the Company has made its headquarters in premises owned by the
company president which to date has been rent free. If rent was charged for this
space, it would be insignificant.
F-11
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
4. ADVANCES TO FILCO GMBH
The Company has a tentative agreement to purchase the capital stock of FiLCO
Gmbh(FILCO), which is described in Note 13. In connection therewith the Company
has made advances to FILCO which totaled $2,670,000 at December 31, 2004. These
advances are due December 31, 2005 and bear interest at 8%. Additional advances
were made to FILCO in 2005. All of the advances are collateralized by all the
machinery and equipment owned by FiLCO. The due date of all FILCO advances was
subsequently extended to December 31, 2006.
5. STOCK OPTIONS
The Company has awarded options under employment contracts with four employees.
These options entitle the employees to purchase Company stock at discounted
prices. These options have been immediately exercisable. There are no expiration
dates to these options; and none was forfeited during either year. A summary of
option activity is presented below.
2004 2003
---- ----
Weighted Weighted
Average Average
Excerised Excerised
----------- ------------
Shares Price Shares Price
----------------- ----------------
Options outstanding at beginning of year 115,000 $.38 247,500 $.20
Options granted during year 600,000 .74 50,000 .41
Options exercised during year (95,000) .39 (182,500) .14
--------- ---------
Options outstanding at end of year 620,000 $.73 115,000 $.38
========= =========
Weighted average Fair Value of
options granted $.47 %.92
Weighted average remaining
life of outstanding options 4.33 3.89
6. PRIVATE PLACEMENT OFFERINGS
The Company conducted private placement offerings during 2004 and 2003,
primarily through an NASD registered broker dealer. These offerings were exempt
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder. A total of 7,218,687 shares of common stock was sold
under the offerings during 2004, and 845,000 shares were sold during 2003. These
sales resulted in net proceeds of $5,103,103 and $789,000, respectively. Of the
shares sole during 2004, 1,718,562 had not been issued at year end. There were
130,000 shares which had similarly not been issued at the end of 2003; these
were issued in 2004.
Included in the funds raised during 2004 through stock sales was $1,312,000
raised through the sale of 1,640,000 shares under a Purchase Agreement dated
November 22, 2004. That agreement required, among other things, that a
registration statements be filed with the SEC and that the registration
statement be declared effective by the SEC within a prescribed time. The Company
did not fulfill these obligations. As a result, it is subject to penalties equal
to 2% of the amount invested for each 30 day period following the default date.
On May 31, 2005, the Company entered into a letter agreement with a
representative of this shareholder group under which $120,429 was paid to settle
the penalties which had accrued. These penalties will be charged to expense
during 2005. Under the May 31, 2005 agreement, no further penalties will accrue
until after June 30, 2005. The obligation concerning effectiveness of the
registration statement has not been satisfied and penalties have accrued since
June 30, 2005 at the rate of $26,240 per month. The penalties paid thusfar, and
penalties that accrue subsequent to June 30, 2005, will be charged to expense
during 2005.
There have been three private placement offerings during 2005. Under the
provisions of the first of these offerings, penalties will not accrue as the
registration requirements of that offering have been satisfied. Under the second
such offering, there is no provision for penalties. Under the third such
offering, penalties will accrue beginning 150 days after October 18, 2005. Such
penalties would accrue at the rate of 2% of the amount raised in that offering,
which was $1,000,000.
On February 11, 2005, the Company issued $5,000,000 of 6% convertible promissory
notes, which were convertible into Company common stock and two classes of
warrants to purchase Company common stock. The notes were to mature on August
10, 2005. The Company retained the right to require conversion of the notes at a
price of $1.30 per shae. Conversion occurred on March 29, 2005 and 3,846,154
shares of common stock were issued. In addition, warrants to purchase common
stock were issued in connection with this the sale of the promissory notes, as
follows: 1,923,077 Class A warrants and 961,538 Class B warrants. The Class A
warrants are exercisable for a five year period at a price per share of $1.85.
The Class B warrants are exercisable for a five year period at a price per share
of $2.11. As partial compensation, the broker-dealer which arranged this
transaction was awarded 484,616 warrants to purchase common stock, 384,616 at
$1.85 per share, and 100,000 at $1.00 per share. These transactions will be
accounted for under the requirements of Emerging Issues Task Force (EITF) 98-5,
F-12
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios", and EITF 00-27, "Application of
Issue No. 98-5 to Certain Convertible Investments". Accordingly, expense will be
increased by $944,500 representing the value of the warrants and by $3,269,231
representing the value of the conversion privilege.
The shares issued through the registered broker dealer were sold as units, with
each unit consisting of one share of stock and a warrant to purchase 50% of an
additional share of stock. Other warrants were issued as compensation to the
broker dealer. At December 31, 2004, there were 5,537,763 warrants outstanding
at exercise price ranging between $1.00 and $2.50 per share.
A schedule of changes in the outstanding warrants is presented below.
Warrants outstanding, December 31, 2003 845,000
Warrants issued during 2004 4,767,763
---------
5,612,763
Warrants exercised during 2004 75,000
---------
Warrants outstanding, December 31, 2004 5,537,763
=========
A total of 6,157,763 shares were reserved for options and warrants at December
31, 2004.
The 4,767,373 warrants issued during 2004, described below, relate primarily to
private placements of securities.
Shares Issued Warrants
Issuances Under Private Placements:
First quarter 2004 1,640,000 1,084,000
Third quarter 2004 260,000 206,250
Fourth quarter 2004 3,600,125 2,260,063
Fourth quarter 2004 (related stock
issued in 2005) 832,060
Total private placements 5,500,125 4,382,373
========= =========
Warrants issued for investment
relations services, partially
voided in 2005 350,000
Warrants issued for dealer sales
liaison 35,000
---------
Total warrants issued during 2004 4,767,373
=========
F-13
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
7. PREFERRED STOCK
The Company is authorized to issue 500,000 shares of preferred stock, without
par value. At December 31, 2004, 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. If payment is in
stock, it is to be valued at a price calculated at thirty percent of the lower
of the last price traded in either a public or private transaction during the
applicable quarter. This issue of preferred stock also provides a voting right
of 10 votes for each share. The holder of this preferred stock is a corporation
wholly owned by the Company president and chairman.
At December 31, 2000, $11,999 of dividends had accrued on the preferred stock
but remained unpaid. An additional $68,750 of dividends accrued during 2001. The
$80,749 combination of these two amounts was satisfied in March 2003 through the
issuance of 246,731 shares of common stock. Additional dividends of $68,750
accrued during each of the years 2002, 2003, and 2004. Cash dividends of
$131,771 were paid during 2004, leaving a balance of unpaid dividends of $74,479
at December 31, 2004.
The majority shareholder had the right at December 31, 2004 to acquire 248,263
shares of common stock as accrued and unpaid dividends under the features of the
preferred stock issue.
A deemed dividend in the amount of $188,412 was charged to operations during
2003. This deemed dividend is the excess of the fair market value of the 246,731
shares issued in satisfaction of dividends on the preferred stock during 2003
over the discounted amount at which they were issued. This deemed dividend was
added to paid in capital.
The characteristics of the remaining 225,000 preferred shares authorized have
not been specified.
During December 2004 the Board of Directors approved the issuance of 100,000
shares of preferred stock to satisfy the remaining balance of unpaid preferred
dividends. On advice of Company attorneys, the stock has not been issued pending
stockholder approval. The 100,000 shares authorized by the Board would have
characteristics identical to those of the currently outstanding preferred stock.
F-14
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
8. EQUITY TRANSACTIONS
A schedule detailing equity transactions of the Company in non-cash transactions
during the years 2004 and 2003 is presented below.
YEAR ENDED DECEMBER 31, 2003
Number Grant Grant Date
of shares Date Price Value
--------- ----- ---------- ---------
CONSULTANTS:
Financial consulting services 35,999 3/14 1.02 $ 36,719
Marketing services 200,000 1/28 1.20 240,000
Financial consulting services 200,000 4/1 0.95 190,000
40,480(1)
Legal award 50,000 4/1 0.95 47,500
Marketing services 70,000 4/2 1.00 70,000
33,754(1)
Stock in lieu of legal services 15,700 1/7 0.53 8,370
Marketing services for
government contract 350,000 5/8 1.50 525,000
(184,020)(2)
Marketing services 30,000 7/23 1.05 31,500
Contractor services 2,500 8/25 1.00 2,500
Investor relations 30,000 8/4 1.00 30,000
72,658(1)
Financial consulting services 21,165 12/30 0.68 9,124
Consulting services 17,139 12/30 .068 11,655
Marketing services 165,000 10/20 0.90 148,500
(130,600)(2)
Marketing services 15,000 12/30 0.68 13,500
------------------ ---------- ----------
Total value of shares issued 1,202,503 1,196,640
to consultants
OTHER:
Employee options exercised 187,500 - (3)
Value of employee options issued 27,999
Grants of shares to employees 30,000 12/30 0.68 20,400
Grants of shares to directors 50,000 4/1 0.95 47,500
Discount purchase by director 10,000 5/28 .71(4) 7,100
Shares in lieu of rent 29,000 1/7 1.15 33,350
Total equity instruments
issued for services 1,509,003 $1,332,989
========= ==========
(1) Amortization of the cost of grants made in prior periods.
(2) Grants were issued for commitments for future service; these are the
expenses allocated to future periods. (3) The expense associated with these
options was recognized when options were issued. (4) This is the amount of the
discount per share.
F-15
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
YEAR ENDED DECEMBER 31,2004
Number Grant Grant Date
of shares Date Price Value
---------- ----- ---------- ---------
CONSULTANTS:
Consulting services 10,000 1/2 $ 1.29 $12,900
Marketing services 15,000 6/14 1.12 16,800
122,680(2)
Investor relations 26,020 6/14 1.12 29,142
Consulting services 24,075 6/14 1.12 26,964
Investor relations 5,000 6/14 1.12 5,600
Consulting services 40,000 9/8 0.89 34,000
(5,113)(1)
Investor relations 50,000 8/9 0.86 43,000
Marketing services 165,000 3/15 1.05 173,250
145,110(2)
Investor relations 15,000 2/2 0.68 10,200
Industrial Relations and
marketing services 16,500 10/14 1.05 17,325
Industrial Relations and
marketing services 69,550 10/20 1.01 70,245
Consulting services 23,775 10/1 0.82 19,258
Marketing services 24,000 10/30 0.9 21,600
--------- ---------
Total of shares issued to
consultants 483,920 742,961
OTHER:
Stock issued to settle
accounts payable 37,421 -
Employee options exercised 104,324 10,182(3)
Stock issued in lieu of rent 12,000 various .75 9,000
Director awards 50,000 10/20 1.01 50,500
Total equity instruments --------- --------
issued for services 687,665 $ 812,643
========= ========
(1) Grants were issued in return for commitments for future service; this is the
expense allocated to future periods. (2) Amortization of the cost of grants
issued in prior periods. (3) Some issuances were compensated by eliminating
liabilities owed to the optionee; if the required option price exceeded the
liability, the excess was charged to expense.
Information detailing all equity transactions since inception of the development
stage is presented in the following schedule.
F-16
Common Preferred
Shares Stock
---------------------- ----------------------- Deficit Deficit Treasury
Number Amount Number Amount Pre-Development Development Stock Total
---------- ---------- ---------- ---------- --------------- ------------ ---------- ----------
Shares to incorporators 1997 177,547 $ 1,630 $ 1,630
Subsequent sale to
incorporators 1997 275,000 2,750 2,750
Redemption of initial
preferred stock 1997 88,340 (275,000) (20,000) (20,000)
Stock issued in conjunction
with merger 1997 3,127,500 214,768 (206,952) 7,816
2004 57,434
----------- -----------
3,184,934 214,768
----------- -----------
Exchange of common stock
for preferred stock 1997 (1,500,000) (30,200) 275,000 10,200 20,000
Stock sold in private
placements 1997 83,213 148,984 148,984
1998 471,962 493,119 493,119
2004 614,552 872,268 872,268
2000 330,719 430,858 430,858
2001 235,999 348,600 348,600
2002 392,834 396,630 396,630
2003 715,000 659,000 659,000
2004 5,630,125 3,857,802 3,857,802
---------- ---------- ----------
8,474,404 7,207,261 7,207,261
---------- ---------- ----------
Stock issued for services 1997 30,000
1998 79,708
1999 18,629 17,238 17,238
2000 65,331 62,767 62,767
2001 97,183 95,746 95,746
2002 423,659 413,899 413,899
2003 1,509,003 1,618,411(A) 1,618,411
2004 687,665 661,306(A) 661,306
---------- ---------- ----------
2,911,178 2,869,367 2,869,367
---------- ---------- ----------
(A) See Note 13 for reconciliation with Statements of Cash Flows.
F-17
AIRTRAX, INC.
CUMULATIVE STATEMENT OF CHANGE IN STOCKHOLDERS' EQUITY
May 19, 1997 to December 31, 2004
Common Preferred
Shares Stock Deficit Deficit Treasury
Number Amount Number Amount Pre-Development Development Stock Net
---------- ---------- ---------- ---------- --------------- ------------ ---------- ----------
Net losses during
development stage 1997 (129,313) (129,313)
1998 (490,014) (490,014)
1999 (685,615) (685,615)
2000 (497,381) (497,381)
2001 (811,700) (811,700)
2002 (798,962) (798,962)
2003 (2,191,657) (2,191,657)
2004 (2,272,200) (2,272,200)
----------- -----------
(7,876,842) (7,876,842)
----------- -----------
Stock split 1998 1,021,825
Dividends paid in
common stock 1999 305,737 120,366 (120,366)
2000 95,558 56,751 (56,751)
2003 246,731 269,161 (80,749) 188,412
---------- ---------- ----------- -----------
648,026 446,278 (257,866) 188,412
---------- ----------
Dividends paid
in cash 1998 (13,005) (13,005)
1999 (40,498) (40,498)
2004 (131,771) (131,771)
----------- -----------
(185,274) (185,274)
----------- -----------
Adjustment 2003 (21,912)
Warrants exercised 2004 75,000 93,750 93,750
Redemptions of
promissory note 1997 30,000 20,000 20,000
Balances, December
31, 2004 15,089,342 $10,822,854 275,000 $12,950 $(206,952) $(8,319,982) $ 0 $2,308,870
========== =========== =========== ========== ========== ============ ========== ===========
F-18
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
9. LOSS PER SHARE
Stock options were granted to two Company employees during 2004. In addition,
dividends accrued on the preferred stock during 2004 and 2003 (see Note 4) which
at the option of the preferred shareholder could be paid in common stock. There
also were warrants outstanding to purchase common stock (see Note 3). These
shares and warrants were not included in the calculation of earnings per share
because such inclusion would have an antidilutive effect.
10. Operating and Administrative Expenses
Included in Operating and Administrative Expenses are the following:
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Payroll $ 217,454 $ 190,266
Officer's Compensation 185,000 114,978
Cost of stock options 202,000
Consulting Expense:
Administration 721,361 665,908
Marketing - 214,478
Marketing Expense 205,320 47,301
Production Development Cost 369,567 127,168
Director Awards 50,500 47,500
Other Expenses 578,573 700,771
----------- -----------
Total Operating &
Administarive
Expense $2,529,775 $ 2,108,370
=========== ===========
11. 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, 2004, the Company had NOL
carryforwards of $8,099,640 available for Federal taxes and $2,493,486 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
F-19
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
During the year 2004, the Company realized $175,414 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 2003. Similar sales of New Jersey
tax benefits were made in prior years. These potential New Jersey offsets for
periods prior to 2004 are, thus, no longer available to the Company.
Under Statement of Financial Accounting Standards No. 109, recognition of
deferred tax assets is permitted unless it is more likely than not that the
assets will not be realized. The Company has recorded deferred tax assets as
presented below, all stemming from NOL'S.
Current Non-current Total
-------- ------------- -------
Deferred Tax Assets $995,899 $ 1,806,175 $ 2,802,074
Valuation Allowance 771,485 1,806,175 2,577,660
-------- ------------ -----------
Balance Recognized $224,414 $ - $ 224,414
======== ============ ===========
The entire balance of the valuation allowance relates to Federal taxes. Since
state tax benefits for years prior to 2004 have been realized, no reserve is
deemed necessary for the benefit of state tax losses of 2004.
12. RENTALS UNDER OPERATING LEASES
At present, the Company is not obligated under any operating lease. The Company
rents warehouse space on a month to month basis.
Rent expense amounted to $49,500 in 2004 and $36,000 in 2003.
13. SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION
Cash paid for interest and income taxes is presented below:
2004 2003
---- ----
Interest $26,329 $35,828
Income taxes 0 500
Equipment purchases of $5,971 were paid with a promissory note. There were no
other noncash investing activities during either 2004 or 2003. The following
additional noncash financing activities occurred:
a. Shares of common stock were issued for services during 2004 and 2003; these
totaled 687,665 and 1,509,003 shares, respectively.
b. During 2004, 130,000 shares were issued in settlement of stock sales which
took place during 2003.
c. Liabilities were cancelled in consideration for option exercises of $25,202
in 2003.
d. Liabilities were cancelled in 2004 in return for capital stock in the amount
of $125,778.
There traditionally is a difference between the amounts of "Equity Instruments
Issued for Services" as reported on the Statements of Cash Flow and the amounts
of "Shares Issued for Services" as reported on the Statement of Changes in
Stockholders' Equity. The differences usually result when the expense of shares
issued in one year is spread over more than one year. These differences are
detailed in the following schedules:
2004
Equity securities issued for services as reported
on the Statements of Cash Flows $ 812,643
Change in unamortized cost of shares
issued for services:
Balance 12/31/04 $ 5,113
Balance 12/31/03 (267,790) (262,677)
------- ---------
Expense of options issued during 2004, but not
exercised at year end (15,307)
Stock issued in settlement of liabilities 125,778
Other 869
---
Stock issued for services as reported on the
Statement of Changes in Stockholders' Equity $661,306
=======
2003
Equity securities issued for services
as reported on the
Statements of Cash Flows $1,332,989
Change in unamortized cost of shares
issued for service:
Balance 12/31/03 $ 267,790
Balance 12/31/02 (146,892) 120,898
------- -------
Expense of options issued during 2003,
but not exercised at year end (21,376)
Option exercises in 2003, but accounted
for as expense in prior years 154,798
Non-cash consideration for option exercise 25,202
Cash consideration for option exercise 5,900
Stock issued for services as reported on the
Statement of Changes in Stockholders'
Equity $1,618,411
=========
F-20
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
14. CONTINGENCIES
On February 19, 2004, the Company reached a tentative agreement to purchase
capital stock of FiLCO GmbH., a German manufacturer of fork trucks (formerly
Clark Material Handling Company of Europe) with a manufacturing facility in
Mulheim, Germany (FiLCO). It is expected that the Company will acquire 75.1% of
FiLCO. Until the tentative agreement is finalized and closed, the Company agreed
to make advances to FiLCO. Through December 31, 2004, advances totaling
$2,670,000 had been made. The seller, who will continue to own the remaining
24.9% of the FiLCO stock, has agreed that if the Company converts $1,220,000 of
its advances to capital he also will convert to FiLCO capital a loan of
1,225,000 Euros that FiLCO owes to him. As additional consideration for this
FiLCO stock purchase, FiLCO would pay the seller 12,750 Euros and the Company
would issue to the seller 900,000 warrants to purchase Company stock; these
warrants would be exercisable at $.01 per share. The Company has appointed the
seller of the FiLCO stock a director of the Company and, if the purchase is
concluded, would grant him options to purchase 100,000 shares of Company stock
for $.01as consideration for his service as a director. Additionally, the
Company agreed to advance funds, if needed, to FiLCO to provide for its working
capital needs. Any advances made under the latter provision would be
collateralized by the remaining 24.9% of FiLCO stock and would be repaid only
from dividends paid on the stock.
The Company also agreed as part of the tentative agreement to make available to
the management of FiLCO 100,000 shares of Company common stock and options to
purchase another 100,000 shares.
As of March 28, 2005, the Company had not concluded the contract and had not
issued any of the warrants or options contemplated by the tentative agreement.
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 of 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.
The Company has experienced losses and negative cash flows during each of its
years of existence. These raise doubts as to the ability of the Company to
continue as a going concern. Management of the Company has consistently been
successful in raising capital, principally through sales of equity securities.
Substantial sales of equity securities occurred during 2004 and other such
capital sales are expected in the future. These are expected to sustain the
Company as it progresses to full operations. For that reason, the financial
statements do not include any adjustments that might be necessary if the Company
was unable to continue as a going concern.
F-21
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2004
15. SUBSEQUENT EVENTS
On April 6, 2005, the certificate of incorporation of the Company was amended to
increase the number of authorized shares, as follows:
Common 100,000,000 shares of no par stock Preferred 5,000,000 shares of no par
stock
The characteristics of these shares are unchanged from the shares previous
authorized.
On February 11, 2005, the Company sold $5,000,000 of convertible debentures with
two issues of detachable warrants. Conversion of these bonds occurred on March
29, 2005 and 3,846,154 shares of common stock were issued in place of the bonds.
F-22
FiLCO GmbH
Audited Financial Statements
Year ended December 31, 2004 and the
period from May 1, 2003 (date of
formation) to December 31, 2003
Contents
Report of Independent Auditors.................................................1
Balance Sheets.................................................................2
Statement of Operations........................................................3
Statement of Cash Flows........................................................4
Notes to Financial Statements..................................................5
Report of Independent Auditors
To the Shareholder
FiLCO GmbH
We have audited the accompanying balance sheets of FiLCO GmbH (the Company), a
German limited liability corporation, as of December 31, 2004 and 2003, and the
related statements of operations and cash flows for the year ended December 31,
2004 and the period from May 1, 2003 (date of formation) to December 31, 2003.
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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of FiLCO GmbH as of December 31,
2004 and 2003, and the results of its operations and its cash flows for the year
ended December 31, 2004 and the period May, 1, 2003 (date of formation) through
December 31, 2003 in conformity with accounting principles generally accepted in
the United States.
/s/ Fiondella, Milone, & LaSaracina LLP.
----------------------------------------
Manchester, Connecticut
August 11, 2005
1
FiLCO GmbH
Balance Sheets
December 31
2004 2003
------------------- -------------------
Assets
Current assets:
Cash and cash equivalents $ 31,654 $ 247,920
Restricted cash 598,071 539,316
Trade accounts receivable, net of allowance of
$21,776 and $20,041 in 2004 and 2003, respectively 133,954 431,944
Total inventories, less obsolescence reserve of
$108,273 and $99,647 in 2004 and 2003, respectively 1,415,987 3,012,788
Other receivables 293,821 97,421
Other current assets 107,879 231,201
------------------- -------------------
Total current assets 2,581,366 4,560,590
Property, plant and equipment, net 3,616,788 4,622,054
Intangible assets, net 66,520 95,258
------------------- -------------------
Total assets 6,264,674 9,277,902
=================== ===================
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable 964,698 1,806,049
Accrued salaries & benefits 1,610,566 287,283
Accrued indemnities 416,824 451,738
Liability to German receiver 501,302 99,019
Other accrued liabilities 373,740 478,519
Deferred revenue 916,807 879,122
Shareholder note payable 1,832,880 1,629,047
Related party loans 3,294,196 317,796
Short-term debt 719,934 746,766
------------------- -------------------
Total current liabilities 10,630,947 6,695,339
Deferred tax liability 1,448,601 1,478,589
------------------- -------------------
Total liabilities 12,079,548 8,173,928
Shareholders' Equity (Deficit):
Capital shares, no par value, 3 and 2 shares
authorized and outstanding, at December 31, 27,938 27,938
2004 and 2003, respectively
Additional paid-in capital 3,170,607 3,170,607
Accumulated deficit (7,682,791) (1,707,620)
Accumulated other comprehensive income -
foreign currency translation (1,330,628) (386,951)
------------------- -------------------
Total shareholders' equity (deficit) (5,814,874) 1,103,974
------------------- -------------------
Total liabilities and shareholders' equity (deficit) $ 6,264,674 $ 9,277,902
=================== ===================
See accompanying notes.
2
FiLCO GmbH
Statement of Operations
Year ended Period from May 1,
December 31 2003 to December
2004 31, 2003
------------------- -----------------------
Net sales $ 1,366,143 $ 7,726,962
Cost of sales (2,427,721) (5,649,998)
------------------- -----------------------
Gross (loss) margin (1,061,578) 2,076,964
Selling and administrative (4,652,310) (4,372,666)
------------------- -----------------------
Operating loss (5,713,888) (2,295,702)
Other income 60,307 583,749
Currency exchange gains (losses) 14,735 (32,467)
Other expenses (98,597) (48,516)
Interest expense (381,753) (97,493)
------------------- -----------------------
Loss before income taxes (6,119,196) (1,890,429)
Income tax benefit 144,025 182,809
------------------- -----------------------
Net loss $ (5,975,171) $ (1,707,620)
=================== =======================
See accompanying notes.
3
FiLCO GmbH
Statement of Cash Flows
Year ended Period from
December 31, 2004 May 1, 2003 to
December 31, 2003
------------------ ---------------------
Cash flows from operating activities
Net loss $ (5,975,171) $ (1,707,619)
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization expense 907,477 527,670
Bad debt expense - 18,505
Deferred taxes (144,025) (182,809)
Changes in operating assets and liabilities:
Accounts receivable 335,382 (451,985)
Inventories 1,857,603 (2,586,846)
Other receivables (187,967) (66,028)
Other current assets 143,336 (231,201)
Accounts payable (997,693) 1,806,049
Accrued expenses 1,078,194 1,217,541
Liabilities to receiver 393,711 99,019
Deferred revenue (38,416) 879,122
----------------- ------------------
Net cash used in operating activities (2,627,569) (678,582)
Cash flows from investing activities:
Business acquisition, net of cash - (1,040,254)
Purchases of property and equipment (12,088) -
Investment in restricted cash (58,755) (539,316)
----------------- ------------------
Net cash used in investing activities (70,843) (1,579,570)
Cash flows from financing activities:
Net proceeds from shareholder note - 1,569,625
Net proceeds from related party loans 3,099,579 415,206
Net proceeds from short-term debt - 1,455,646
Payments on short-term debt (163,505) (689,632)
-------------- -----------------
Net cash provided by financing activities 2,936,074 2,750,845
-------------- ------------------
Effect of exchange rate changes on cash (453,928) (244,773)
Net (decrease) increase in cash (216,266) 247,920
Cash and cash equivalents; beginning of year 247,920 -
--------------- -----------------
Cash and cash equivalents; end of year $ 31,654 $ 247,920
====================================
See accompanying notes.
4
FiLCO GmbH
Notes to Financial Statements
1. The Company
Effective May 1, 2003, FiLCO GmbH (the Company) was formed as a German limited
liability corporation located in Mulheim, Germany. The Company manufactures and
sells commercial grade forklifts to retailers, resellers and directly to end
users. In addition, the Company refurbishes used forklifts for resale. The
Company's customers are located primarily in Europe and the Middle East.
In 2004 and 2003, a significant portion of the revenues were derived from two
customers. These two customers represented 70% and 72%, of revenues in the
statement of operations in 2004 and 2003, respectively, and 0% and 21%, of
accounts receivable balances as of December 31, 2004 and 2003, respectively.
On May 1, 2003, the Company acquired certain assets and assumed certain
liabilities of the former company, Clark Material Handling GmbH (Clark), through
a German Receiver (the Acquisition) for $558,750 and a note in the amount of
$481,504. Effective February 1, 2003, the German Receiver (Seller) was assigned
to oversee the affairs of Clark when the company declared insolvency under
"German Insolvency" law. The Company has made the Acquisition to penetrate the
forklift truck market, which they are currently not involved in. The assets and
liabilities of the Acquisition were recorded at estimated fair values as
determined by Company's management based on information available and on
assumptions made. The Company provided to the Seller on the effective date of
the Acquisition an advanced payment in the amount of $100,575 for future
operating costs. In addition, the sole shareholder of the Company was required
to provide a $1,117,500 personal security payable on first call by the Seller.
The Company was also responsible to make an offer of employment to at least 250
employees of Clark by the effective date of August 1, 2003 or pay the Seller a
penalty in the amount of $22,350 per person. The purchase price allocation for
this Acquisition has not resulted in the recognition of the goodwill based on
the assets acquired and liabilities assumed. The statement of operations
includes the result of this business from the effective date of acquisition or
formation.
2. Liquidity
At December 31, 2004, the Company had an accumulated deficit of $7,682,791,
incurred a net loss of $5,795,171 for the year ended December 31, 2004 and had
negative cash flows from operations of $2,627,569 and $678,582 for 2004 and
2003, respectively.
Management believes that cash provided by capital raising activities from
current investors will be sufficient to fund the Company's operating and capital
needs. Failure to generate sufficient cash flows from raising additional capital
could have a material adverse effect on the Company's ability to continue as a
going concern and to achieve its intended business objectives.
5
FiLCO GmbH
Notes to Financial Statements (continued)
3. Accounting Policies
Use of Estimates
The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States. Financial
statements prepared in conformity therewith require management to make estimates
and assumptions that affect the amounts reported in them, including the
accompanying notes. While management believes that the estimates and related
assumptions used in the preparation of these financial statements are
appropriate, actual results could differ.
Certain Risks and Uncertainties
The Company's products and services are concentrated in highly competitive
markets characterized by rapid technological advances, frequent changes in
customer requirements and evolving regulatory requirements and industry
standards. Failure to anticipate or respond adequately to technological
advances; changes in customer requirements and changes in regulatory
requirements or industry standards could have a material adverse effect on the
Company's business and operating results. Additionally, certain other factors
could affect the Company's future operating results and cause actual results to
differ materially from expectations, including but not limited to, dependence on
a third party manufacturer, difficulties in managing growth, difficulties in
attracting and retaining qualified personnel, dependence on key personnel,
enforcement of intellectual property rights, and the lengthening of sales
cycles.
Accounting Principles
The Company's financial statements and accompanying notes are prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles in the United States.
Cash and Cash Equivalents
All highly liquid investments with a maturity date of three months or less when
purchased are considered cash equivalents. The carrying amounts reported in the
balance sheet for cash and equivalents approximate those assets at fair value.
Restricted Cash
Restricted cash represents cash that is being utilized so that the Company could
enter into a lease agreement, with the Seller, for their manufacturing facility
located in Mulheim, Germany. In addition, the Company has arrangements with
certain customers which required them, prior to doing business, to set aside
cash with bank institutions which will be used as collateral for the specific
projects.
6
FiLCO GmbH
Notes to Financial Statements (continued)
3. Accounting Policies (continued)
Foreign Currency Translation
The functional currency for the Company is their local currency the EURO. These
financial statements have been translated into the U.S dollar for balance sheet
accounts at the current year-end exchange rate; income statement accounts are
translated at the average exchange rate for the year or period. Resulting
translation adjustments are made directly to a separate component of
shareholders' deficit-"Accumulated other comprehensive income (loss) - foreign
currency translation".
Revenue Recognition/Accounts Receivable
The Company recognizes revenues from sales when products are shipped to the
customer. The carrying amounts reported in the balance sheet for accounts
receivable approximate those assets fair value. Accounts receivable are reserved
for at the time that management determines them to be uncollectible.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined by the
first-in, first-out method.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of property,
plant and equipment is computed using the straight-line method over a period of
five to seven years based on the asset.
Impairment of Long-Lived Assets
Statement of Financial Accounting Standards (SFAS) No. 144. "Accounting for the
Impairment or Disposal of Long-Lived Assets," (SFAS 144), requires that
long-lived assets and certain intangible assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. No impairment losses have been recognized in 2004 or
2003.
7
FiLCO GmbH
Notes to Financial Statements (continued)
3. Accounting Policies (continued)
Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This statement
requires the Company to recognize deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's balance sheet or tax returns. Under this method, deferred tax assets
and liabilities are measured based on the difference between the balance sheet
carrying amounts and the respective tax bases of assets and liabilities and net
operating loss carryforwards available for tax reporting purposes. A valuation
allowance is recorded on deferred tax assets unless realization is determined to
be more likely than not.
4. Inventories
Inventories consist of:
December 31
2004 2003
--------------- ----------------
Raw materials $ 1,086,133 $ 2,062,229
Work-in-process 95,370 620,343
Finished goods 234,484 330,216
--------------- ----------------
$ 1,415,987 $ 3,012,788
=============== ================
5. Property, Plant and Equipment
Property and equipment consist of the following:
December 31
2004 2003
-------------------- --------------------
Machinery and equipment $ 4,376,960 $ 4,376,960
Tooling 618,060 607,176
Office equipment 148,467 148,467
Computer equipment 44,173 44,173
Less accumulated depreciation 1,570,872 554,722
-------------------- --------------------
$ 3,616,788 $ 4,622,054
==================== ====================
Depreciation expense for the year ended December 31, 2004 and the period May 1,
2003 through December 31, 2003 was $882,600 and $512,211, respectively.
8
FiLCO GmbH
Notes to Financial Statements (continued)
6. Intangible Assets
Intangible assets consist of the following:
December 31
2004 2003
---------------- ----------------
Forklift Schematics, net of amortization of
$45,480 for 2004 and $16,742 for 2003 $ 66,520 $ 95,258
---------------- ----------------
$ 66,520 $ 95,258
================ ================
Amortization expense for the year ended December 31, 2004 and the period May 1,
2003 through December 31, 2003 was $24,877 and $15,459, respectively. Estimated
amortization expense for the next five years is as follows: 2005- $24,877, 2006-
$24,877, 2007- $24,877 and 2008- $9,418.
7. Leases
The Company occupies a facility in Mulheim, Germany. The lease agreement for
this facility commenced on August 1, 2003 and expired January 31, 2005, and
provided for monthly rent of $40,932. Rent expense under the above lease was
$447,790 and $186,579 for year ended December 31, 2004 and the period May 1,
2003 through December 31, 2003, respectively. The Company was required to make a
deposit of $223,895 with a financial institution as collateral, classified as
restricted cash, based on the requirements of the Acquisition and Industrial
Tenancy Agreement to obtain the lease.
Total future minimum lease payments under the above lease agreements are as
follows:
2005 $40,932
8. Debt
Short term debt consists of the following:
December 31
2004 2003
------------------- ----------------------
Demand note payable to sole shareholder with
interest at 6% $ 1,832,880 $ 1,629,047
Demand note payable to related party, Fanger,
with interest at 6% 366,355 317,796
Term note payable to Vectra Ltd. with interest
at 12%; matured on January 31, 2004 719,934 746,766
Demand note payable to related party, Airtrax,
with interest at 8% 2,927,841 -
------------------- ----------------------
$ 5,847,010 $ 2,693,609
============================================
9
FiLCO GmbH
Notes to Financial Statements (continued)
8. Debt (continued)
The intangible asset of the Company has been pledged as collateral for the
demand note payable to Fanger.
The Company has pledged with regard to the term note payable to Vectra Ltd. two
capital shares of the Company as collateral. In addition, the Company assigned
the proceeds of several identified customer's accounts receivable to Vectra Ltd.
to secure the outstanding balance of the term note payable.
All debt related costs are being expensed in the current year in lieu of all
debt being classified as current.
The carrying value of the amounts due under the above debt agreements
approximates fair values at December 31, 2004 and 2003, respectively.
9. Legal Proceedings
The Company is not aware of any pending legal proceedings that, individually or
in the aggregate, would have a material adverse effect on the Company's
business, operating results, or financial condition. We may in the future be
party to litigation arising in the ordinary course of business, including claims
that allegedly infringe upon third-party trademarks or other intellectual
property rights. Such claims, even if not meritorious, could result in the
expenditure of significant financial and managerial resources.
10. Income Taxes
The provision for income taxes consisted of the following:
December 31
2004 2003
--------------------- --------------------
Current income tax expense:
Foreign $ - $ -
Deferred income tax expense:
Foreign (144,025) (182,809)
--------------------- --------------------
Total income tax expense/(benefit) $ (144,025) $ (182,809)
===================== ====================
10
FiLCO GmbH
Notes to Financial Statements (continued)
10. Income Taxes (continued)
Significant components of deferred income taxes follow:
December 31
2004 2003
--------------------- --------------------
Gross deferred tax assets:
Net operating losses $ 2,293,506 $ 457,162
Reserves 39,665 38,300
--------------------- --------------------
2,333,171 495,462
Gross deferred tax liability:
Fixed assets (1,488,266) (1,516,889)
--------------------- --------------------
844,905 (1,021,427)
Less - valuation allowance 2,293,506 457,162
--------------------- --------------------
Net deferred tax asset/(liability) $ (1,448,601) $ (1,478,589)
===================== ====================
Due to the Company's net operating loss position, the Company has recorded a
full valuation allowance against its deferred tax asset because management does
not believe it is more likely than not that this asset will be realized.
The deferred tax liability represents the tax effect of the fixed assets
adjustment to estimated fair value as a result of the acquisition. This deferred
tax liability will reverse as the fixed assets are depreciated and will not
impact future tax payments or require any additional cash outflows.
As of December 31, 2004 and 2003, the effective tax rate differs from the
statutory rate primarily due to the increase in the valuation allowance.
As of December 31, 2004 and 2003, the Company had approximately $7,519,691 and
$1,428,631, respectively, of foreign net operating loss carry forwards that
carry forward indefinitely.
11. Shareholder's Equity
The authorized capital stock of the Company consists of two capital shares
authorized and issued upon the Acquisition of the Company. Both shares of
capital shares issued are owned by the sole shareholder of the Company.
Effective February 16, 2004, the Company split the shares into three shares
authorized and outstanding to the sole shareholder.
11
FiLCO GmbH
Notes to Financial Statements (continued)
12. Related Party
The Company had an outstanding demand note payable to the sole shareholder. The
amount outstanding was $1,832,880 and $1,629,047 as of December 31, 2004 and
2003, respectively.
The Company had an outstanding demand note payable to a consultant and the
former general manager of the Company. The amount outstanding was $366,355 and
$317,796 as of December 31, 2004 and 2003, respectively.
The Company had an outstanding demand note payable to Airtrax, Inc. by which the
owner of FiLCO GmbH is a member of the board. The amount outstanding was
$2,927,841 as of December 31, 2004.
The Company maintains a consulting agreement with the former general manager of
the Company for the annual amount of $114,610 to be paid in 12 equal monthly
installments. The effective date of this contract is June 1, 2003. The contract
is indefinite and can be terminated by either party by giving one month notice.
13. Subsequent Event
Effective October 7, 2004, Airtrax, Inc. (a New Jersey company) signed a letter
of intent to purchase 75.1% of the stock of the Company. During the pendency of
the agreement, Airtrax, Inc. has agreed to make advances to the Company to fund
operations. Through August 11, 2005, the Company received loans totaling
$5,827,171. Based on the pending agreement, a portion of the loans may be
converted to capital. The sole shareholder of the Company will continue to own
the remaining 24.9% of the Company's stock. The shareholder has agreed that if
Airtrax, Inc. converts a portion of the loans to capital, the shareholder will
also convert the shareholder loan to capital, and the consultant and former
general manager, and Vectra Ltd. will exchange their notes for Airtrax stock.
Effective March 15, 2005, the Company has consummated a signed purchase order
with Mitsubishi to produce forklift engines in the amount of $1,227,960. The
delivery date for the engines are due in November 2005.
The Company is currently renegotiating a new lease agreement for their
manufacturing facility. They are currently paying rent on a month-to-month basis
until the agreement is signed. During February 2005, the Seller called the
restricted cash of $245,592 for past rent due.
12
AIRTRAX, INC.
PROFORMA CONDENSED FINANCIAL STATEMENTS
(Unaudited)
On February 19, 2004, the Company reached a tentative agreement to acquire
capital stock of FiLCO GmBH, a German manufacturer of fork trucks with a
manufacturing facility in Mulheim, Germany (FiLCO). As later amended, the
tentative agreement calls for the acquisition of 75.1% of the capital stock of
FiLCO. In return, the Company would issue to the seller 900,000 warrants to
purchase Company stock at $.01 per share; the Company would arrange for the
seller to be paid 12,750 Euros and would appoint the seller to the Company Board
of Directors.
During the pendancy of this tentative agreement, the Company agreed to make
advances to FiLCO. Through December 31, 2004, advances totaling $2,670,000 had
been made; this total was increased to $6,255,462 at September 30, 2005. The
seller, who will continue to own the remaining 24.9% of the FiLCO capital stock,
had advanced to FiLCO 1,225,000 Euros. The seller has agreed that, if the
Company converts $1,300,000 of its advances to the capital of FiLCO, he also
will convert to FiLCO capital his loan in the amount of 1,225,000 Euros.
The estimated fair value of the proposed consideration consists of the options
and the 12,750 euro payment, which are described above, and the $1,300,000
advance which would be converted to capital. The options were valued using a
Black Scholes options pricing model, using the following major assumptions:
Volatility 87.1%
Risk-free interest rate 3.95%
Expected life-years .03
The accompanying condensed financial statements illustrate the effect of the
acquisition (proforma) on the financial position of the Company and the results
of its operations. The condensed balance sheet as of September 30, 2005 is based
on the combined historical balance sheets of the Company and FiLCO as of that
date and assumes the acquisition took place on that date. The condensed
statements of operations for the year ended December 31, 2004 and for the nine
month period ended September 30, 2005 are based on the historical statements of
operations of the Company and FiLCO for those periods and assume the acquisition
took place on January 1, 2004.
The proforma condensed financial statements may not be indicative of the actual
results of the acquisition. In particular, the proforma condensed financial
statements are based on the current estimate of management of the allocation of
the purchase price; the actual allocation may differ.
The accompanying proforma financial statements should be read in conjunction
with the historical financial statements of the Company and FiLCO.
F-23
AIRTRAX, INC.
PRO-FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR YEAR ENDED DECEMBER 31, 2004
(UNAUDITED)
Pro-Forma
Airtrax Filco Combined Adjustments Amounts
------------ ------------ ------------ ------------ ------------
SALES $ - $ 1,366,143 $ 1,366,143 $ - $ 1,366,143
COST OF GOODS SOLD - 2,427,721 2,427,721 - 2,427,721
------------ ------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) - (1,061,578) (1,061,578) - (1,061,578)
SELLING, OPERATING
AND ADMINISTRATIVE
EXPENSES 2,529,775 4,652,310 7,182,085 295,000 (1) 7,477,085
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (2,529,775) (5,713,888) (8,243,663) (295,000) (8,538,663)
OTHER INCOME AND
EXPENSE:
Interest expense (30,894) (381,753) (412,647) 86,667 (2)
100,283 (3) (225,697)
Interest income 86,667 - 86,667 (86,667)(2) -
Other income 2,979 75,042 78,021 - 78,021
Other expenses - (98,597) (98,597) (98,597)
------------ ------------ ------------ ------------ ------------
LOSS BEFORE MINORITY
INTEREST AND TAXES (2,471,023) (6,119,196) (8,590,219) (194,717) (8,784,936)
MINORITY INTEREST - - - 680,522 (4) 680,522
INCOME TAX BENEFIT 198,823 144,025 342,848 - 342,848
------------ ------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE
TO COMMON
SHAREHOLDERS (2,272,200) (5,975,171) (8,247,371) 485,805 (7,761,566)
PREFERRED STOCK
DIVIDENDS DURING
DEVELOPMENT STAGE (131,771) (131,771) (131,771)
------------ ------------ ------------ ------------ -------------
DEFICIT ACCUMULATED $(2,403,971) $(5,975,171) $ (8,379,142) $485,805 $(7,893,337)
============ ============ ============= =========== =============
NET LOSS PER SHARE-
Basic and Diluted $ (.64)
WEIGHTED AVERAGE
SHARES OUTSTANDING 12,075,448
(1) To record issuances of 100,000 options to prior sole owner of FiLCO,
as per tentative acquisition agreement.
(2) Elimination of intercompany interest income against related interest
expense.
(3) Elimination of interest expense associated with loan capitalized per
tentative acquisition agreement.
(4) Minority interest in loss, provided for up to the amount of the
minority interest at 12/31/03.
F-24
AIRTRAX, INC.
PRO-FORMA CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2005
(UNAUDITED)
Pro-Forma
Airtrax Filco Combined Adjustment Amounts
SALES $ 167,545 $ 464,297 $ 631,842 $ 631,842
COST OF GOODS SOLD 160,126 455,455 615,581 615,581
------------ ------------ ------------ ------------ ------------
GROSS PROFIT (LOSS) 7,419 8,842 16,261 16,261
SELLING, OPERATING
AND ADMINISTRATIVE
EXPENSES 3,987,695 5,002,196 8,989,891 8,989,891
------------ ------------ ------------ ------------ ------------
OPERATING LOSS (3,980,276) (4,993,354) (8,973,630) (8,973,630)
OTHER INCOME AND
EXPENSE
Interest expense (4,374,595) (453,182) (4,827,774) 275,245 (1) (4,552,529)
Interest income 291,208 291,208 (275,245)(1) 15,963
Other income 211 5,861 6,072 6,072
Other expenses (53,133) (53,133) (53,133)
------------ ------------ ------------ ------------ ------------
NET LOSS BEFORE
INCOME TAXES (8,063,449) (5,493,808) (13,557,257) (13,557,257)
INCOME TAX BENEFIT 371,838 205,191 577,029 577,029
------------ ------------ ------------ ------------ ------------
NET LOSS BEFORE
DIVIDENDS (7,691,611) (5,288,617) (12,980,228) (12,980,228)
DEEMED DIVIDENDS
ON PREFERRED STOCK 480,978 - 480,978 - 480,978
------------ ------------ ------------ ------------ ------------
NET LOSS ATTRIBUTABLE
TO COMMON
SHAREHOLDERS (8,172,589) (5,288,617) (13,461,206) - (13,461,206)
------------ ------------ ------------ ------------ ------------
PREFERRED STOCK
DIVIDENDS DURING
DEVELOPMENT STAGE (51,563) - (51,563) - (51,563)
DEFICIT
ACCUMULATED $(8,224,152) $(5,288,617) $(13,512,769) $ - $(13,512,769)
============ ============ ============= =========== =============
NET LOSS PER SHARE-
Basic and Diluted $ (.75)
============
WEIGHTED AVERAGE
SHARES OUTSTANDING 18,138,064
============
(1) To eliminate intercompany interest on the Airtrax loan to FiLCO
AIRTRAX, INC.
PRO-FORMA CONDENSED BALANCE SHEETS
SEPTEMBER 30, 2005
(UNAUDITED)
Pro-Forma
Airtrax Filco Combined Adjustments Amounts
------------ ------------ ------------ ------------ ------------
ASSETS:
Current Assets $ 3,378,657 $ 2,096,945 $ 5,475,602 $ (361,912)(4)$ 5,113,690
Fixed Assets (net) 204,274 3,158,631 3,362,905 3,362,905
Intangibles 147,601 53,731 201,332 201,332
Advances to FiLCO 6,255,462 - 6,255,462 (1,300,000)(1) -
(4,955,462)(3)
Unamortized debt
fees 416,732 - 416,732 416,732
Goodwill 1,300,000 (1)
2,826,000 (6)
9,981,329 (7)4,107,329
------------ ------------ ------------ ------------ ------------
TOTAL ASSETS $10,402,726 $ 5,309,307 $15,712,033 $ 7,489,955 $23,201,988
============ ============ =========== ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable 1,258,715 1,263,155 2,521,870 2,521,870
Accrued expenses 1,504,195 2,936,176 4,440,371 295,000 (5) 4,735,371
Customer advances - 860,214 860,214 - 860,214
Short-term debt 100,000 652,967 752,967 752,967
Related party loans - 6,617,374 6,617,374 (1,300,000)(1)
(4,955,462)(3)
(361,912)(4)
Deposits for unissued
stock 70,875 70,875 70,875
Advances from
shareholders 34,474 1,875,934 1,910,408 (1,875,934)(2) 34,474
------------ ------------ ------------ ------------ ------------
Total current
liabilities 2,968,259 14,205,820 17,174,079 (8,198,308) 8,975,771
Long Term Debt 500,000 - 500,000 - 500,000
Deferred Taxes - 1,084,816 1,084,816 - 1,084,816
------------ ------------ ------------ ------------ ------------
Total Liabilities 3,468,259 15,290,636 18,758,895 (8,198,308) 10,560,587
V
Stockholders' Equity:
Common stock 20,773,723 3,198,545 23,972,268 1,300,000 (1) 26,775,657
1,875,934 (2)
2,826,000 (6)
(3,198,545)(7)
Additional Paid In
Capital-Warrants 2,366,339 - 2,366,339 2,366,339
Deficit (16,751,086) (12,941,408) (29,692,494) (295,000)(5) (17,046,086)
12,941,408 (7)
Preferred stock 545,491 - 545,491 - 545,491
Comprehensive
income - (238,466) (238,466) 238,466 (7) -
------------ ------------ ------------ ------------ ------------
Stockholders'
Equity (Deficit) 6,934,467 (9,981,329) (3,046,862) 15,688,263 12,641,401
------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $ 10,402,726 $ 5,309,307 $15,712,033 $ 7,489,955 $23,201,988
============= ============ ============ ============ ============
(1) To capitalize Airtrax advances to FiLCO, as per proposed acquisition
agreement, and reflect amount as part of goodwill in accordance with the
purchase method of accounting.
(2) To capitalize advance from FiLCO shareholder, as per proposed acquisition
agreement.
(3) To eliminate inter company advances against the related liabilities.
(4) To eliminate inter company interest receivable against the related
liability.
(5) To reflect options granted in consideration of services on Airtrax Board of
Directors, as per proposed acquisition agreement.
(6) To reflect issuance of options as required by tentative acquisition
agreement.
(7) To eliminate FiLCO stockholders' equity.
F-26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 8A. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our chief executive
officer/chief financial officer of our disclosure controls and procedures (as
defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon
this evaluation, our chief executive officer/chief financial officer concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms. There was no
change in our internal controls or in other factors that could affect these
controls during our last fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
ITEM 8B. OTHER INFORMATION
None.
31
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Directors are elected at each meeting of stockholders and hold office until the
next annual meeting of stockholders and the election and qualifications of their
successors. Executive officers are elected by and serve at the discretion of the
board of directors.
Our executive officers and directors are as follows:
Name Age Position
---- --- --------
Peter Amico 61 President and Chairman of the Board of Directors
D. Barney Harris 43 Executive Vice President and Director
James Hudson 61 Director
William Hungerville 68 Director
Fil Filipov 58 Director
Peter Amico - Mr. Amico is the founder of the Company and has been President and
Chairman of the Company and its predecessor since their inception in April 1995.
Prior to 1995, Mr. Amico was president and majority shareholder of Titan
Aviation and Helicopter Services, Inc. ("Titan"). He has an extensive background
in sales and in structural steel design. His career in sales has spanned over
thirty years and he has held sales positions at Firestone Tire & Rubber and
Union Steel Products, Inc. As a consequence of separate helicopter and airplane
accidents involving Titan, Mr. Amico filed for bankruptcy protection in 1996.
D. Barney Harris* - Mr. Harris has been a Director of the Company since December
1998 and a Vice President since July 1999. From 1997 to July 1999, Mr. Harris
was employed by UTD, Inc. Manassas, Virginia. Prior to 1997, Mr. Harris was
employed by EG&G WASC, Inc., Gaithersburg, Maryland, as a Senior Engineer and
Manager of the Ocean Systems Department where he was responsible for the
activities of 45 scientists, engineers and technicians. During this period while
performing contract services for the US Navy, he was principally responsible for
the design of the omni-directional wheel presently used by the Company. Mr.
Harris received his B.S.M.E. from the United States Merchants Marine Academy in
1982.
Fil Filipov - Mr. Filipov is the Chairman of Supervisory Board of Tatra, a Czech
Company, which is producing off highway trucks. He is the former President & CEO
of Terex Cranes, a Division of Terex Corp. From 1994 through 1996, Mr. Filipov
served as Executive Vice President of the Terex Corp., where he was responsible
for strategic acquisitions and was the Managing Director of Clark Material
Handling Company in Germany (Filco GmbH). If the acquisition of Filco GmbH is
completed Mr. Filipov will retain 24.9% of Filco GmbH.
James Hudson - Mr. Hudson has been a Director of the Company since May 1998.
From 1980 to present, he has been President of Grammer, Dempsey & Hudson, Inc.,
a steel distributor located in Newark, New Jersey.
William Hungerville - Mr. Hungerville has been a director since February 2002.
Since 1998, Mr. Hungerville has been retired from full time employment. From
1974 to 1998, he was the sole owner of a pension administrative service firm.
Mr. Hungerville is a graduate of Boston College, and attended an MBA program at
Harvard University for 2 years.
*Our engineers including the team initially lead by D. Barney Harris, Nicholas
Fenelli and Robert Mullowney designed and tested the "Airtrax" wheel which
corrected the "bumpy" ride in the technology as received from the US Navy at
speeds of 11 m.p.h. or more and alleviated it to the point wherein it was
considered acceptable in the materials handling industry. This design and
methods to achieve the design were patented by us as follows: (i) 6,340,065 -
low vibration omni-directional wheel on January 22, 2002, (ii) 6,394,203 -
method for designing low-vibration omni-directional wheels on May 28, 2002, and
(iii) 6,547,340 - low vibration omni-directional wheel on April 15, 2003.
32
CODE OF ETHICS
We have not adopted a Code of Ethics that applies to all of our directors,
officers and employees, including our principal executive officer, principal
financial officer and principal accounting officer.
COMMITTEES OF THE BOARD OF DIRECTORS
As of December 31, 2004, we have an audit committee of our board of directors,
which was formed on November 30, 2004. The audit committee's charter was adopted
on April 13, 2005.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT, AS AMENDED.
Based solely upon our review of copies of Forms 3, 4 and 5, and any subsequent
amendments thereto, furnished to the Company by our directors, officers and
beneficial owners of more than ten percent of our common stock, we are not aware
of any Forms 3, 4 and/or 5 which certain of our directors, officers or
beneficial owners of more than ten percent of our common stock that, during our
fiscal year ended December 31, 2004, failed to file on a timely basis reports
required by Section 16(a) of the Securities Exchange Act of 1934
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth for the fiscal year indicated the compensation
paid by our company to our Chief Executive Officer and other executive officers
with annual compensation exceeding $100,000:
Summary Compensation Table:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Other
Annual Restricted Options LTIP
Name & Principal Salary Bonus Compen- Stock SARs Payouts All Other
Position Year ($) ($) sation($) Awards($) (#) ($) Compensation
------------------- ------ ----------- ------ ----------- ------------ -------- ------ ------------
Peter Amico 2004 185,000(1) 0 187,500(3) - - - -
President and
Chairman 2003 100,000(1) 0 1,000(2) - - - -
of the Board
of Directors 2002 87,500(1) 0 89,399(2) - - - -
------------------- ------ ----------- ------ ----------- ------------ -------- ------ ------------
(1) During 2004, Mr. Amico was entitled to receive a salary of $185,000, of
which $116,825.62 was paid and the balance was deferred for future payment.
During 2003, Mr. Amico was entitled to receive a salary of $100,000, of which
$88,461.68 was paid and the balance was deferred for future payment. In 2002,
Mr. Amico was entitled to receive a salary of $87,500, of which $84,135 was paid
as salary to Mr. Amico and the balance was deferred for future payment. In 2002
and 2003, Mr. Amico received the use of a company automobile which we valued at
$1,000.
(2) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico had outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. The fair market value of the underlying common stock
was $1.14 per share (which was the closing price of our common stock on the date
of grant, July 1, 2004). Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico had outstanding options to acquire a total of 50,000
shares at a total price of $0.01. The fair market value of the underlying common
stock was $.85 per share (which was the closing price of our common stock on the
date of grant, June 30, 2004). The amount for 2002 represents the number of
options (50,000) multiplied by the fair market ($2.20) less his exercise costs
of $12,601. The fair market value of the underlying common stock was $2.20 per
share which was the closing price of our common stock on July 1, 2002, the date
of grant. The amount for 2003 represents the number of options (50,000)
multiplied by the fair market ($.85) less his exercise costs of $0.01. In
addition, for 2002 and 2003, the amounts include $1,000 for the value of an
automobile usage.
(3) The value for the year 2004 is based upon the intrinsic value of the options
granted in 2004 which were calculated in accordance with APB #25.
EMPLOYMENT AGREEMENTS
The Company and Peter Amico have entered into written employment agreements for
Mr. Amico's role as President of the Company. The parties entered into an
agreement covering the period from April 1997 to June 30, 2002 ("Original
Employment Agreement"). Effective July 1, 2002, the parties entered into a
second employment agreement for a one year term ("Second Employment Agreement").
Agreements for the year 2003 through 2004 and 2004 through 2006 were agreed to
on November30, 2004.
Under the Original Employment Agreement, Mr. Amico received an annual salary of
$75,000 per year, and received stock options to acquire up to 50,000 shares per
annum. Of the options, 10,000 shares were exercisable for a total consideration
of a $1.00 beginning in April 2000, 25,000 shares were exercisable at 30% of the
lowest price paid for the stock in the 30 day period preceding such exercise for
each year of the contract, and 15,000 shares were exercisable at 15% of the
lowest price paid for the stock in the 30 day period preceding such exercise
beginning in April 2000.
Under the Second Employment Agreement, Mr. Amico was entitled to receive an
annual salary of $100,000, and receive an option to acquire 50,000 shares of
common stock of the Company for a total exercise price of $0.01. The Company may
terminate the agreement without cause upon 14 days' written notice to the
Employee. The Company and Mr. Amico entered into new employment agreements as
further described below.
Under a one year Employment Agreement, ratified by the Board of Directors on
November 30, 2004 for the period of July, 1 2003 through June 30, 2004, Mr.
Amico was entitled to receive an annual salary of $135,000, and receive an
option to acquire 50,000 shares of our common stock for a total exercise price
of $0.01. We may terminate the agreement without cause upon 14 days' written
notice to the Mr. Amico.
34
Under a two year employment agreement (covering July 1, 2004 through June 30,
2006) ratified by the Board of Directors on November 30, 2004 for the period of
July 1, 2004 through June 30, 2005, Mr. Amico is entitled to receive an annual
salary of $200,000, and receives options to purchase up to 500,000 shares of our
common stock at a rate equal to the "bid" price of the stock per share on the
beginning date of the employment agreement. accordingly, the bid price of our
common stock on July 1, 2004, the beginning date of the employment agreement,
was $0.80 per share and all options, if exercised, will be at an exercise price
$0.80 per share. All options have a cashless exercise. We may terminate the
agreement without cause upon 14 days' written notice to Mr. Amico. under the
second year of this employment agreement, for the period of July 1, 2005 through
June 30,2006, Mr. Amico is entitled to receive an annual salary of $250,000, and
options to purchase up to 750,000 shares of our common stock at the rate equal
to the "bid" price of the stock per share on the beginning date of the
employment agreement. Accordingly, the bid price of our common stock on July 1,
2004, the beginning date of the employment agreement, was $0.80 per share and
all options, if exercised, will be at an exercise price $0.80 per share. All
options have a cashless exercise. We may terminate the agreement without cause
upon 14 days' written notice to Mr. Amico.
Two of our employees maintain annual stock options for 25,000 shares for each
year of employment during the term of their respective employment agreements.
The employment agreements may be terminated by either party with 14 days prior
notice, and do not contain a fixed term. Accordingly, the amount of stock
options issuable to such employees is 77,500 shares as of September 30, 2005.
The stock options for the 25,000 shares of our common stock are exercisable as
follows; 2,500 shares are exercisable for a total consideration of $1.00, 10,000
shares are exercisable at 35% of the lowest price paid for the stock in the 30
day period preceding exercise, and 12,500 shares are exercisable at 17.5% of the
lowest price paid for the stock in the 30 day period preceding exercise.
Accordingly, the amount of stock options issuable to such employees is 112,500
as of December 31, 2004 and 97,500 as of June 30, 2005.The 112,500 options had
not been exercised as of December 31, 2004
DIRECTORS' COMPENSATION
The Company's directors are compensated at the rate of $250 per meeting and are
reimbursed for expenses incurred by them in connection with the Company's
business. During 2002 and 2001, each director, other than Mr. Amico, received an
annual stock option to purchase 5,000 shares of common stock exercisable at
$0.50 per share. During 2003, each director received a stock grant of 10,000
shares of the Company's common stock. During 2004, each director received a
stock grant of 10,000 shares of the Company's common stock. The Company's board
of directors approved a stock grant in the amount of 20,000 shares of common
stock for its board of directors for 2005, conditional upon the Company having
revenues.
Other than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table. The Company will approve compensation to Board
members serving on the Audit Committee of the Company during the next scheduled
Board meeting.
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning options granted to executive
officers named in the Summary Compensation Table during the fiscal year ended
December 31, 2004:
Individual Grants
35
Number of
Securities % of Total Options
Underlying Granted to
Options Granted Employees in Fiscal Exercise Expiration Date
Name (#) Year Price ($/sh)
---------------------------------------------------------------------------------------------------
Peter Amico 50,000 8%(1) $ -(1) None(1)
President and Chairman 500,000 83%(1) $.85(1) None(1)
(1) Pursuant to his employment agreement for the year 2004 through 2005, Mr.
Amico has outstanding options to acquire a total of 500,000 shares at a total
price of $0.85 per share. Pursuant to his employment agreement for the year 2003
through 2004, Mr. Amico has outstanding options to acquire a total of 50,000
shares at a total price of $0.01.
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table contains information concerning the number and value, at
December 31, 2004, of unexercised options held by executive officers named in
the Summary Compensation Table:
Underlying Unexercised Value of Unexercised
Options at Options at In-the-Money
Name FY-End (#) (Exercisable/Unexercisable) (Exercisable/Unexercisable) FY-End ($)
-------------- ----------------------------------------------------------------------------------------
Peter Amico 50,000 50,000 .85 $42,500
President and
Chairman 500,000 500,000 .39 $195,000
STOCK OPTION PLANS
The Company provided a stock grant for its board of directors for 2004, as
described above under the heading entitled "Directors Compensation".
Other than as described above, the Company does not have any other form of
compensation payable to its officers or directors, including any stock option
plans, stock appreciation rights, or long term incentive plan awards for the
periods indicated in the table.
36
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT.
The following table identifies as of March 31, 2005 information regarding the
current directors and executive officers of the Company and those persons or
entities who beneficially own more than 5% of its common stock and Preferred
Stock of the Company, the number of and percent of the Company's common stock
beneficially owned by:
o all directors and nominees, naming them,
o our executive officers,
o our directors and executive officers as a group, without naming them, and o
persons or groups known by us to own beneficially 5% or more of our common
stock:
The Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of common stock beneficially owned
by them.
A person is deemed to be the beneficial owner of securities that can be acquired
by him within 60 days from March 31, 2005 upon the exercise of options, warrants
or convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that options, warrants or convertible securities that are
held by him, but not those held by any other person, and which are exercisable
within 60 days of March 31, 2005 have been exercised and converted.
Peter Amico(1) Common Stock 1,870,623 (6) 8.80% (2)
870B Central Avenue Preferred Stock 3,750,000 (3)(5) 100%
Hammonton, NJ 08037
D. Barney Harris(1) Common Stock 236,025 (7) 1.11% (2)
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
Frank Basile(1) Common Stock 142,873 (8) *
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
James Hudson(1) Common Stock 75,800 (9) *
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
William Hungerville(1) Common Stock 165,950 (10) *(2)
870B Central Avenue Preferred Stock 0 0%
Hammonton, NJ 08037
All Officers and Directors Common Stock 2,491,271 (11) 11.72% (2)
As a Group (5 persons) Preferred Stock 3,750,000 100%
Arcon Corp. Common Stock 1,580,623 (4) 7.44% (2)
870B Central Avenue Preferred Stock 3,750,000 (3)(5) 100%
Hammonton, NJ 08037
*Less than 1%
(1) The address of each beneficial owner is the address of the Company.
(2) Based on 21,256,215 shares of common stock outstanding as of March 31, 2005,
except that shares of common stock underlying options or warrants exercisable
within 60 days of the date hereof are deemed to be outstanding for purposes of
calculating the beneficial ownership of securities of the holder of such options
or warrants.
(3) Based upon 375,000 outstanding shares of preferred stock after giving effect
to the 10 for 1 voting rights. Arcon was authorized to receive an additional
100,000 shares of preferred stock in lieu of 221,892 shares of common stock of
the Company in lieu of the cash payment for the balance of the dividend.
(4) Represents 1,580,623 shares held by Arcon Corp., a corporation wholly owned
by Mr. Amico ("Arcon"), and however, excludes common stock that may be issued to
Arcon as a dividend on the preferred stock.
(5) Represents shares held by Arcon.
(6) Represents 1,580,623 shares of common stock held by Arcon as stated in
footnote (4) above, and 305,000 shares of common stock held individually by Mr.
Amico.
37
(7) Represents 200,625 shares of common stock held individually, 25,000 shares
of common stock issuable under his employment agreement, and 5,000 shares of
common stock issuable upon exercise of director's options for 2002.
(8) Represents 100,000 shares held individually, 15,000 shares of common stock
issuable upon exercise under director's options for 2002 and 2001, 12,046 shares
held by an affiliate, and 10,000 shares held by his spouse. The amount excludes
shares of common stock to the Company's that may be granted to directors during
2005.
(9) Represents 41,300 shares of common stock held by an affiliate. The amount
excludes shares of common stock to the Company's that may be granted to
directors during 2005.
(10) Represents 34,300 shares of common stock held individually, 700 shares held
by his spouse and 10,000 shares held by a family trust. The amount excludes
shares of common stock to the Company's that may be granted to directors during
2005.
(11) Includes (4), (6), (7), (8), (9), and (10).
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Arcon Corp., a corporation wholly owned by our chairman and president Peter
Amico, owns 375,000 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 375,000 shares of preferred
stock with 10 votes per share, or a total of 3,750,000 voting shares. The
aforementioned equals a total of 5,620,623 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
lowest private offering or trading price of the common stock. 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 metthod it was determined to provide a
dividend. The $5.00 per share was the price used to satisfy the issue.
38
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.
From time to time, we issue options to purchase shares of our common stock to
our President, Peter Amico, as compensation for services performed on behalf of
our company under Mr. Amico's employment agreements. For a further description
of such options, and the terms and valuations related thereto, see the section
of this annual report entitled "Executive Compensation".
Arcon Corp. and our President have made loans from time to time to us in varying
amounts. The loan is due on demand and bears interest at 12%. As of December 31,
2004, the loan balance was $33,455.
Mrs. Patricia Amico, the wife of our President, performed services to us during
2004, 2003, 2002, and 2001 for which she received $13,030, $11,579, $9,930, and
$9,126, respectively.
Mr. Frank Basile, a former director of our company, was a partner of a law firm
that performed legal services to us during fiscal 2004, 2003 and 2002. The
billing amount for such services for each year was less than $10,000.
During 2002 and 2001, each director of our company, other than Mr. Amico,
received a stock option to acquire 5,000 shares of common stock at a price per
share of $0.50, and in 2003, each director, other than Mr. Amico, received a
grant from us of 10,000 shares of common stock, and in 2004, each director
received a grant from us in the amount of 10,000 shares of common stock.
From May 5, 2003 through September 2, 2003, we loaned Filco GmbH $365,435 to
acquire our initial interest in Filco. Such funds were provided in the form of a
loan because we were not able to come up with sufficient funding to acquire our
initial interest. Filco repaid principal and interest under this loan to us.
In March of 2004, a tentative agreement was negotiated with the principals of
Filco in connection with the proposed acquisition. Our management determined to
provide Filco limited funding in the form of loans, until financing could be
obtained which would help guarantee that the operating capital needed for Filco
operations could, in fact, be obtained. The tentative agreement reached with
Filco provided that we would take a 51% controlling ownership interest in Filco.
The tentative agreement required that we provide sufficient funding, which the
parties estimated would be approximately $1.3 million to be allocated in the
form of equity in Filco. The tentative agreement required that we secure a
guaranteed credit line for Filco of not less than $5 million to be used as
operating capital. A later addendum to the tentative agreement stated that we
would acquire 75.1% controlling ownership interest in Filco.
The amounts loaned to Filco to date, even if unrecoverable, would not prevent us
from commencing the manufacture of the Sidewinder Omni-Directional Lift Truck.
The manufacture and sale of omni-directional material handling equipment is our
primary goal. During the second quarter of 2005, we realized limited revenues f
from the first sales of the Sidewinder Omni-Directional Lift Truck.
We believe that our unsecured loans to Filco are recoverable if the proposed
acquisition is not completed. Should Filco default with loan repayment, if such
payment were due and requested, it would be much easier to put Filco into
bankruptcy in Germany than it would be in the United States. Should Filco be put
into bankruptcy, we, as the largest creditor, would be in position to do a legal
takeover through bankruptcy administrators.
We loaned Filco approximately $2.7 million through the end of 2004 and loaned an
additional $1.5 million during the first quarter of 2005. We intend to provide
another $5 million to Filco, either in the form of guaranteed credit lines or
through additional sales our securities.
Fil Filipov is to be issued options to purchase 100,000 shares of our common
stock at an exercise price of $.0001 as compensation for services performed as
our director. If the proposed acquisition of Filco GmbH is completed, the
tentative agreement provides that Mr. Filipov will receive options to purchase
an additional 900,000 shares of our common stock at an exercise price of $.0001.
Accordingly, Mr. Filipov cannot exercise the options to receive more than an
aggregate of 112,500 shares of our common stock per year. Any increase on this
exercise limit is subject to the approval of our board of directors.
39
ITEM 13. EXHIBITS.
(a) Exhibits.
The following exhibits are included as part of this Form 10-KSB. References to
"the Company" in this Exhibit List mean Airtrax, Inc., a New Jersey corporation.
3.1 Certificate of Incorporation of Airtrax, Inc. dated April 11, 1997. (Filed
as an exhibit to the Company's Form 8-K filed with the Securities and Exchange
Commission on November 19, 1999).
3.2 Certificate of Correction of the Company dated April 30, 2000 (Filed as an
exhibit to Company's Form 8-K filed with the Securities and Exchange Commission
on November 17, 1999).
3.3 Certificate of Amendment of Certificate of Incorporation dated March 19,
2001 (Filed as an exhibit to Company's Form 8-K filed with the Securities and
Exchange Commission on November 17, 1999).
3.4 Amended and Restated By-Laws of the Company. (Filed as an exhibit to the
Company's Form 8-K filed with the Securities and Exchange Commission on November
19, 1999).
4.1 Form of Common Stock Purchase Warrant issued to investors pursuant to the
May 2004 private placement.
4.2 Form of Common Stock Purchase Warrant dated as of November 22, 2004 and
November 23, 2004. (Filed as an exhibit to the Company's Form 8-K filed with the
Securities and Exchange Commission on November 30, 2004).
10.1 Agreement and Plan of Merger by and between MAS Acquisition IX Corp. and
Airtrax , Inc. dated November 5, 1999. (Filed as an exhibit to the Company's
Form 8-K filed with the Securities and Exchange Commission on January 13, 2000).
10.2 Employment agreement dated April 1, 1997 by and between the Company and
Peter Amico. (Filed as an exhibit to the Company's Form 8-K/A filed with the
Securities and Exchange Commission on January 13, 2000).
10.3 Employment agreement dated July 12, 1999, by and between the Company and D.
Barney Harris. (Filed as an exhibit to the Company's Form 8-K/A filed with the
Securities and Exchange Commission on November 19, 1999).
10.4 Consulting Agreement by and between MAS Financial Corp. and Airtrax, Inc.
dated October 26, 1999. (Filed as exhibit to the Company's Form 8-K filed with
the Securities and Exchange Commission on November 19, 1999).
10.5 Employment Agreement effective July 1, 2002 by and between the Company and
Peter Amico (filed as an exhibit to the Company's Form 10-KSB for the period
ended December 31, 2002)
10.6 Agreement dated July 15, 2002 by and between the Company and Swingbridge
Capital LLC and Brian Klanica. (Filed as an exhibit to the Company's Form 8-K
filed on August 7, 2002).
10.7 Purchase Agreement, dated November 22, 2004, by and among Airtrax, Inc. and
Excalibur Limited Partnership, Stonestreet Limited Partnership, Whalehaven
Capital Fund. (Filed as an exhibit to the Company's Form 8-K filed on November
30, 2004).
10.8 Joinder to the Purchase Agreement, dated November 23, 2004, by and among
Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited Partnership
and Linda Hechter. (Filed as an exhibit to the Company's Form 8-K filed on
November 30, 2004).
10.9 Registration Rights Agreement, dated November 22, 2004, by and among
Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited
Partnership, Whalehaven Capital Fund and First Montauk Securities Corp. (Filed
as an exhibit to the Company's Form 8-K filed on November 30, 2004).
10.10 Joinder to the Registration Rights Agreement, dated November 23, 2004, by
and among Airtrax, Inc. and Excalibur Limited Partnership, Stonestreet Limited
Partnership, Linda Hechter and First Montauk Securities Corp. (Filed as an
exhibit to the Company's Form 8-K filed on November 30, 2004).
40
10.11 Subscription Agreement, dated February 11, 2005, by and among Airtrax,
Inc. and the investors named on the signature page thereto (Filed as an exhibit
to the Company's Form 8-K filed on February 11, 2005).
10.12 Form of Series A Convertible Note of Airtrax, Inc. dated as of February
11, 2005 (Filed as an exhibit to the Company's Form 8-K filed on February 11,
2005).
10.13 Form of Class A Common Stock Purchase Warrant of Airtrax, Inc. dated as of
February 11, 2005 (Filed as an exhibit to the Company's Form 8-K filed on
February 11, 2005).
10.14 Form of Class B Common Stock Purchase Warrant of Airtrax, Inc. dated as of
February 11, 2005 (Filed as an exhibit to the Company's Form 8-K filed on
February 11, 2005).
10.15 Amended and Restated Stock Acquisition Agreement effective as of February
19, 2004 by and between Airtrax, Inc. and Fil Filipov (incorporated by reference
to our registration statement on Form SB-2 filed on November 3, 2005).
10.16 Promissory Note of Filco GmbH dated as of January 15, 2005 issued to
Airtrax, Inc. (Filed as an exhibit to our registration statement on Form SB-2
filed on January 11, 2006).
10.17 Promissory Note of Filco GmbH dated as of June 5, 2005 issued to Airtrax,
Inc. (Filed as an exhibit to our registration statement on Form SB-2 filed on
January 11, 2006).
10.18 Assignment and Purchase Agreement dated as of August 25, 2005 by and
between Werner Faenger and Airtrax, Inc. (Filed as an exhibit to our
registration statement on Form SB-2 filed on January 11, 2006).
10.19 Promissory Note of Filco GmbH with Guarantees dated as of November 25,
2005 issued to Airtrax, Inc. (Filed as an exhibit to our registration statement
on Form SB-2 filed on January 11, 2006).
31.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to Sarbanes-Oxley Section 302 (filed herewith).
32.1 Certification by Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350 (filed herewith).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed for professional services rendered by our principal
accountants for the audit of our financial statements and for the reviews of the
financial statements included in our annual report on Form 10-KSB and 10-QSBs
respectively, and for other services normally provided in connection with
statutory filings were $21,012 and $19,307, respectively, for the years ended
December 31, 2004 and December 31, 2003.
AUDIT-RELATED FEES
We incurred fees of $0 and $0, respectively, for the years ended December 31,
2004 and December 31, 2003 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."
TAX FEES
The aggregate fees billed by our auditors for tax compliance matters were $780
and $745 respectively, for the fiscal years ended December 31, 2004 and December
31, 2003.
ALL OTHER FEES
We did not incur any fees for other professional services rendered by our
independent auditors during the years ended December 31, 2004 and December 31,
2003.
41
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
AIRTRAX, INC., A NEW JERSEY CORPORATION
By: /s/ Peter Amico
-----------------
Peter Amico, President,
Chief Executive Officer, Chairman of
the Board of Directors, and Acting
Chief Financial Officer
January 17, 2006
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
---------------------------- ----------------------------- -------------------
By: /s/ Peter Amico President, Chief
---------------- Executive Officer, Acting January 20, 2006
Peter Amico Chief Financial Officer
and Director
By: /s/ D. Barney Harris
-----------------------
D. Barney Harris Director January 20, 2006
By: /s/James Hudson
-----------------------
James Hudson Director January 20, 2006
By: /s/William Hungerville
-----------------------
William Hungerville Director January 20, 2006
By: /s/Fil Filipov
------------------------
Fil Filipov Director January 20, 2006
42