UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 2006.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF For the transition period from _________ to
Commission file number: 001-16237
AIRTRAX, INC.
(Name of Small Business Issuer in its charter)
New Jersey 22-3506376
---------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 Freeway Drive, Unit One, Blackwood, NJ 08012
------------------------------------------------
(Address of principal executive offices)
(856) 232-3000
(Issuer's telephone number)
Check whether 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 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 [ ]
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 ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court: Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 10, 2006, the issuer had
23,480,157 shares of common stock, no par value, issued and outstanding.
Transitional Small Business Issuer Format (Check One): Yes [ ] No [X]
AIRTRAX, INC.
JUNE 30, 2006 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets 3
Statements of Operations and Deficit Accumulated During
Development Stage 4
Statements of Cash Flows 5
Notes to Financial Statements 6
Special Note Regarding Forward Looking Statements
Item 2. Management's Discussion and Analysis or Plan of Operations 11
Item 3. Controls and Procedures 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits 17
SIGNATURES 18
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AIRTRAX, INC.
FINANCIAL STATEMENTS
JUNE 30, 2006
(Unaudited)
AIRTRAX, INC.
BALANCE SHEET
June 30, December 31,
2006 2005
(Unaudited) (Audited)
------------ ------------
ASSETS
Current Assets
Cash $ 2,670 $ 19,288
Accounts receivable 407,610 94,357
Inventory 1,651,100 2,005,139
Vendor advance 167,637 163,517
Deferred tax asset 1,326,552 977,302
------------ ------------
Total current assets 3,555,569 3,259,603
Fixed Assets
Office furniture and equipment 157,522 157,521
Automotive equipment 21,221 21,221
Shop equipment 53,668 43,349
Casts and tooling 273,017 270,688
------------ ------------
505,428 492,779
Less, accumulated depreciation 328,636 301,886
------------ ------------
Net fixed assets 176,792 190,893
Other Assets
Advances to Filco Gmbh 1,000,000 2,000,000
Patents - net 151,262 154,263
Deferred Charges - 388,392
Deposits 27,157 65
------------ ------------
Total other assets 1,178,419 2,542,720
------------ ------------
TOTAL ASSETS $ 4,910,780 $ 5,993,216
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities
Accounts payable $ 891,657 $ 885,463
Accrued liabilities 308,877 266,556
Obligation for outstanding options 1,372,649 1,330,948
Warrants and conversion option liability 2,198,648 3,516,462
Shareholder loans payable 142,748 186,961
------------ ------------
Total current liabilities 4,914,579 6,186,390
Long Term Convertible Debt 2,246,248 2,048,000
------------ ------------
TOTAL LIABILITIES 7,160,827 8,234,390
------------ ------------
Stockholders' Deficiency
Common stock - authorized, 100,000,000 shares
without par value; issued and
outstanding - 23,484,824 and 21,939,360,
respectively 24,292,515 21,385,638
Paid in capital - warrants 1,458,038 1,042,400
Preferred stock - authorized, 500,000,000
shares without par value; 375,000 issued and
outstanding 545,491 545,491
Deficit during development stage (16,751,086) (16,751,086)
Deficit from operations (11,795,005) (8,463,617)
------------ ------------
Total stockholders' deficit (2,250,047) (2,241,174)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY
$ 4,910,780 $ 5,993,216
============ ============
The accompanying notes are an integral part of these
financial statements.
3
AIRTRAX, INC.
STATEMENTS OF OPERATIONS
For the Six Months Ended June 30,
2006 2005
---- ----
SALES $ 1,271,277 $ 167,545
COST OF GOODS SOLD 1,193,815 160,126
------------ ------------
Gross Profit 77,462 7,419
OPERATING AND ADMINISTRATIVE EXPENSES 3,200,705 2,007,882
------------ ------------
OPERATING LOSS (3,123,243) (2,000,463)
OTHER INCOME AND EXPENSE
Conversion Expense (760,184) -
Interest expense (107,275)
(74,430)
Revaluation income 1,106,039 600,349
Interest income 85 14,301
Other income 211
------------ ------------
NET LOSS BEFORE INCOME TAXES (2,884,578) (1,460,032)
INCOME TAX BENEFIT (STATE): ------------ ------------
Current 349,250 185,434
NET LOSS BEFORE DIVIDEND (2,535,328) (1,274,598)
DEEMED DIVIDENDS ON PREFERRED STOCK 652,310 479,167
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS (3,187,638) (1,753,765)
PREFERRED STOCK DIVIDENDS PAID (143,750) (51,563)
DEFICIT ACCUMULATED $ (3,331,388) $ (1,805,328)
============ ============
NET LOSS PER SHARE - Basic and Diluted $ (.14) $ (.09)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,249,454 19,435,015
The accompanying notes are an integral part of these
financial statements.
4
AIRTRAX, INC.
STATEMENTS OF OPERATIONS
For the Three Month Periods Ended June 30,
2006 2005
------------ ------------
SALES $ 612,301 $ 90,554
COST OF GOODS SOLD 666,137 107,765
------------ ------------
(53,836) (17,211)
OPERATING AND ADMINISTRATIVE EXPENSES 2,179,132 1,284,288
------------ ------------
OPERATING LOSS (2,232,968) (1,301,499)
OTHER INCOME AND EXPENSE
Conversion expense (178,746) -
Interest (expense) income (58,524) (34,158)
Revaluation (expense) income (837,440) 226,859
Interest income 85 7,151
Other income - 75
------------ ------------
NET LOSS BEFORE INCOME TAXES (3,307,593) (1,101,572)
INCOME TAX BENEFIT (STATE):
Current 264,766 127,289
------------ ------------
NET LOSS BEFORE DIVIDEND (3,042,827) (974,283)
DEEMED DIVIDENDS ON PREFERRED STOCK 652,310 479,167
------------ ------------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS (3,695,137) (1,453,450)
PREFERRED STOCK DIVIDENDS PAID (143,750) (51,563)
DEFICIT ACCUMULATED $ (3,838,887) $ (1,505,013)
============ ============
NET LOSS PER SHARE - Basic and Diluted $ (.17) $ (.07)
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,249,454 21,477,816
The accompanying notes are an integral part of these
financial statements.
5
AIRTRAX, INC.
STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
2006 2005
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(3,187,638) $(1,753,765)
Adjustments to reconcile net income to net cash consumed by
operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 29,750 21,666
Amortization of bond discount 20,833
Equity securities issued for services 903,839 717,593
Stock issued in settlement of interest obligations 36,986
Expense of settling certain liquidated damages 44,267
Conversion expense 760,184
Value of options granted for services 41,700
Deemed dividend 652,310 479,167
Increase in accrual of deferred tax benefit (349,250) (185,434)
Impairment 1,000,000
Revaluation of liabilities for warrants and conversion (1,106,039) (600,349)
privileges
Interest accrued on shareholder loan 6,234 2,007
Changes in current assets and liabilities:
Increase in accounts receivable (313,253) (2,445)
Increase in vendor advances (4,120) (121,000)
Increase in deposits (27,092)
Increase (decrease) in accounts payable 6,194 45,945
Increase (decrease) in accrued liabilities 297,553 -
Decrease (increase) in inventory 354,039 (964,154)
----------- -----------
Net cash consumed by operating activities (891,322) (2,302,950)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (12,649) (71,137)
Additions to patent cost - (31,460)
Advances to FiLCO GmbH - (2,596,136)
----------- -----------
Net cash consumed by investing activities (12,649) (2,698,733)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of issuance of convertible debt 819,800 4,277,500
Net proceeds of common stock sales 29,500 55,000
Proceeds of convertible loan 409,913
Proceeds from exercise of warrants 718,486
Proceeds from warrant extensions 88,500
Proceeds of stockholder loans 49,813
Repayment of stockholder loans (100,260) (2,002)
----------- -----------
Net cash provided by financing activities 887,353 5,458,897
----------- -----------
Net (decrease) increase in cash (16,618) 457,214
Balance at beginning of period 19,288 641,477
----------- -----------
Balance at end of period $ 2,670 $ 1,098,691
=========== ===========
The accompanying notes are an integral part of these
financial statements.
6
AIRTRAX, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2006
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of AirTrax, Inc. ("the Company") as
of June 30, 2006 and for the three and six month periods ended June 30, 2006 and
2005 have been prepared in accordance with accounting principles generally
accepted in the United States of America. In the opinion of management, such
information contains all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of such periods.
The results of operations for the quarter ended June 30, 2006 are not
necessarily indicative of the results to be expected for the full fiscal year
ending December 31, 2006.
Certain information and disclosures normally included in the notes to financial
statements have been condensed or omitted as permitted by the rules and
regulations of the Securities and Exchange Commission, although the Company
believes the disclosure is adequate to make the information presented not
misleading. The accompanying unaudited financial statements should be read in
conjunction with the financial statements of the Company for the year ended
December 31, 2005.
2. ACCOUNTING PRONOUNCEMENTS
On January 1. 2006 the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 123 (R), "Accounting for Stock-Based Compensation," using
the modified prospective transition ("MPT") method. This change had a negligible
effect on results of operations.
3.CONVERTIBLE NOTE FINANCING AND STOCK SALES
During the first six months of 2006, the Company issued $819,800 of 8%
Convertible Notes, due on February 13, 2007. The notes together with related
interest thereon have been converted to stock at the specified conversion price
of $1.56. Accompanying the notes were 525,513 warrants to purchase common stock,
exercisable at $1.75 per share for a period of five years, starting immediately.
Previous Convertible Issues had contained "Most Favored Nations" clauses that
guaranteed the investors that subsequent issues of stock or notes would not be
made on more favorable terms. As a result of the issuance of these convertible
notes, the following warrant and conversion prices were adjusted:
1. The exercise price for warrants associated with the May $500,000
convertible offering was adjusted from $2.11 per share to $1.56 per
share.
2. The conversion price for the October 2005 $1,548,000 issue was
adjusted from $2.00 per share to $1.56 per share.
3. The exercise price for the 774,000 warrants associated with the
October 2005 issue was adjusted from $3.25 per share to $1.56 per
share.
The affect of these changes is included in the calculation of the $1,106,039
revaluation income.
On March 1, 2006, the Company issued $150,000 of 4% Convertible Notes, due on
March 1, 2008. The notes are convertible at $1.56 per share over two years. The
warrants are exercisable at $1.65 per share over five years. On June 30, 2006,
the Company issued an additional $48,248 in 4% convertible notes, due June 30,
2008 in settlement of liquidated damages. These notes are also convertible at
$1.56 over two years with associated warrants exercisable for five years at
$1.65 per share. The notes, as further referred to in Note #5 (Supplemental Cash
Flow Information), in settlement of accrued liquidated damages which the Company
owed to the investors for the Company's inability to cause the SEC declare its
registration statement on Form SB-2 effective within the specified timeframe as
set forth in the Registration Rights Agreement dated November 22, 2004. In
addition, the investors agreed to forego any future accrual and payment of such
liquidated damages. As of June 30, 2006 all damages are considered settled.
7
Included in the funds raised during 2004 through stock sales was $1,312,000
raised through the sale of 1,640,000 shares under a Purchase Agreement dated
November 22, 2004. That agreement required, among other things, that a
registration statement be filed with the SEC and that the registration statement
be declared effective by the SEC within a prescribed time. The Company did not
fulfill these obligations. As a result, it is subject to penalties equal to 2%
of the amount invested for each 30 day period following the default date. On May
31, 2005, the Company entered into a letter agreement with a representative of
this shareholder group under which $120,429 was paid to settle the penalties
which had accrued. Under the May 31, 2005 agreement, no further penalties would
accrue until after June 30, 2005. The obligation concerning effectiveness of the
registration statement has not been satisfied and penalties have accrued since
June 30, 2005 at the rate of approximately $26,240 per month. The penalties paid
thusfar, and penalties that accrued subsequent to June 30, 2005, were charged to
expense during the periods in which they accrued. For the year ended December
31, 2005 an additional $160,851 of unpaid liquidated damages had accrued.
Effective with the issuance of the 4% debentures and associated warrants on June
30, 2006, all damages are settled for this issue.
There were three private placement offerings during 2005. Under the provisions
of the first of these offerings, penalties will not accrue as the registration
requirements of that offering have been satisfied. Under the second such
offering, there is no provision for penalties. Under the third such offering,
penalties were effective 150 days after October 18, 2005. Such penalties will
accrue at the rate of 2% per month of the amount raised in that offering, which
was $1,548,000. The pro rata portion ($108,360) of penalties has been recorded
in the first six months of 2006.
There was no provision for damages in the convertible issue sold in 2006.
4.WARRANTS
The Company has issued warrants both as part of "stock units" and as an integral
part of convertible note issues. The convertible notes include prices for
conversion to stock. The value of the warrants and conversion options classified
as liabilities are revalued each reporting period based upon their comparative
fair values. These values are determined from a Black Scholes valuation model,
consistent with the requirements of SFAS No.133.
The following is a summary of warrants outstanding at June 30, 2006:
Warrants outstanding at December 31, 2005 10,875,558
Warrants issued with 2006 convertible notes 597,713
----------
Warrants outstanding June 30, 2006 11,473,271
==========
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $0 and $4, respectively, for the quarters ended June
30, 2006 and June 30, 2005. There was no cash paid for income taxes during
either the 2006 or 2005 quarters.
There were no noncash investing activities during either the 2006 or 2005
periods. The following noncash financing activities occurred during these
periods.
8
In 2006, 567,223 shares of common stock were issued for services.
During the first half of 2006, the Company issued $198,248 of 4% unsecured
debentures, in settlement of liquidated damages with certain investors from the
November, 2004 stock offering. It recorded a charge of $44,266, representing the
difference between accrued damages settled and the combined value of the
$198,248 of debentures issued and their associated derivatives.
6.OPERATING AND ADMINISTRATIVE EXPENSES
Details of operating and administrative expenses are presented below:
----------------------------- ------------------------ -------------------------
Six Months Ended Six Months Ended
June 30, 2006 June 30, 2005
----------------------------- ------------------------ -------------------------
Options expense $41,700 $83,650
----------------------------- ------------------------ -------------------------
Salaries and payroll taxes 348,675 287,742
----------------------------- ------------------------ -------------------------
Impairment 1,000,000
----------------------------- ------------------------ -------------------------
Marketing expense 45,229 202,978
----------------------------- ------------------------ -------------------------
Production costs 67,407 152,705
----------------------------- ------------------------ -------------------------
Professional fees 377,513 306,068
----------------------------- ------------------------ -------------------------
Commissions 57,109 -
----------------------------- ------------------------ -------------------------
Consulting - administrative 234,694 313,863
----------------------------- ------------------------ -------------------------
Settlement expense 44,266 -
----------------------------- ------------------------ -------------------------
Liquidated damages 188,815 120,429
----------------------------- ------------------------ -------------------------
Consulting - marketing 195,608
94,080
----------------------------- ------------------------ -------------------------
Rent 84,070 50,000
----------------------------- ------------------------ -------------------------
Insurance 43,183 129,879
----------------------------- ------------------------ -------------------------
Director awards 222,500 48,000
----------------------------- ------------------------ -------------------------
Employee awards 90,500
62,490
----------------------------- ------------------------ -------------------------
Office expense 48,325 46,000
----------------------------- ------------------------ -------------------------
Other expenses 111,111 109,998
---------- ----------
----------------------------- ------------------------ -------------------------
Totals $3,200,705 $2,007,882
========== ==========
----------------------------- ------------------------ -------------------------
7.CONTINGENCIES
On February 19, 2004, the Company reached a tentative agreement to purchase
capital stock of FiLCO GmgH., a German manufacturer of fork trucks (formerly
Clark Material Handling Company of Europe) with a manufacturing facility in
Mulheim, Germany (FiLCO). It was expected that the Company would acquire 75.1%
of FiLCO. While negotiations were continuing, the Company agreed to make
advances to FiLCO. Through December 31, 2005 advances totaling $6,255,462 had
thus been made.
9
On January 20, 2006, Filco filed for insolvency in Germany and a receiver was
appointed. As a result, on February 7, 2006 the Company terminated the tentative
agreement to acquired Filco stock and began negotiations with the receiver to
acquire some or all of the Filco assets. The $6,255,462 of advances to Filco
that were outstanding at December 31, 2005, were secured by liens filed against
the machinery and equipment owned by Filco which in 2003 was appraised at
$5,400,000, and by liens filed against its intellectual property, which has not
been appraised. Due to the uncertainty of the Company's position under German
bankruptcy law, the Filco advances have been written down to $1,000,000. An
auction of Filco assets was conducted by the receiver who did not acknowledge
all of Airtrax's liens against property and equipment.
8.SUBSEQUENT EVENTS
On July 26, 2006, the Company issued a Series A Convertible Note in the amount
of $400,000 with an annual interest rate of 12%. The note is convertible, at the
option of the holder, into shares of the Company's Common Stock at any time
prior to the maturity date of October 26, 2006 at a rate of $1.56 per share.
10
Item 2. Management's Discussion and Analysis and Results of Operations
Forward Looking Statements
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."
Overview
Since 1995, substantially all of our resources and operations have been directed
towards the development of the omni-directional wheel and related components for
forklift and other material handling applications. Many of the components,
including the unique shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Fourteen commercial
omni-directional lift trucks were sold to customers in the United States, Spain,
and the United Kingdom in the quarter ended June 30, 2006. These fourteen units,
which included optional equipment, produced billings of $612,301 from April 1,
through June 30, 2006.
We have commenced production and have received the parts required for production
of a total of eleven units of our Sidewinder ATX-3000 Omni-Directional Lift
Truck, but believe that as many as twenty units could be assembled by September
30, 2006 depending upon supply chain deliveries. As of June 30, 2006, we did not
have all of the parts required from every vendor for completion of the trucks
other than those heretofore noted. The assembly and sale is dependent upon
delivery of all of the required parts.
We have begun development and prototyping the Cobra and King Cobra scissor lift
in the second quarter. In addition, we have begun development and prototyping of
the Omni-directional power chair. We anticipate incurring more costs on these
products and will begin production of the Cobra and King Cobra in 2006.
Omni-Directional means that vehicles designed and built by us can travel in any
direction. Our Omni-directional vehicles are controlled with a joystick. The
vehicle will travel in the direction the joystick is pushed. If the operator
pushes the joystick sideways, the vehicle will travel sideways. If the operator
were to twist the joystick the vehicle will travel in circles. Our
omni-directional vehicles have one motor and one motor controller for each
wheel. The omni-directional movement is caused by coordinating the speed and
direction of each motor with joystick inputs which are routed to a
micro-processor, then from the micro-processor to the motor controllers and
finally to the motor itself.
Complete assembly is conducted by us at our newly leased facilities at 200
Freeway Drive Unit One, Blackwood, NJ 08012. Approximately 50% of the frames
have been manufactured in the USA. These frames are shipped to the Blackwood
plant for complete assembly. Besides the assembly of vehicles at Blackwood,
partially assembled vehicles have been shipped to the Blackwood facility from
the Filco plant in Germany. These shipments ceased when Filco declared
insolvency on January 20, 2006. Partial assembly of approximately nineteen lift
trucks has been completed at the Filco plant, fourteen of which and have been
shipped to the USA for final assembly. To date, a total of approximately sixty
frames have been shipped from Bulgaria to the Filco plant for partial assembly.
Other parts totaling some $450,000 remain at the Filco facility awaiting release
by the receiver to us. Most of the frames manufactured in Bulgaria had to be
re-machined to be within certain tolerances required for these frames. The
re-machining charges will be back-charged to the frame manufacturer. The frame
manufacturer will adjust tooling to get the tolerances to the required
specifications for future deliveries.
11
We have incurred losses and experienced negative operating cash flow since our
formation. For the six months ended June 30, 2006 and 2005, we had net loss
attributable to common shareholders of $(3,187,638) and $(1,753,765),
respectively. The net loss in both years is has been partially offset by
revaluation income, $1,106,039 and $600,34in 2006 and 2005, respectively, in
connection with the repricing of conversion ratios of convertible debenture
issues and of warrant conversion prices. The company wrote down the advance to
Filco (See note 7 in the financial statements). We expect to continue to incur
significant expenses. Our operating expenses have been and are expected to
continue to outpace revenue and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (856) 232-3000. We are
incorporated in the State of New Jersey.
Company History
We were incorporated in the State of New Jersey on April 17, 1997. On May 19,
1997, we entered into a merger agreement with a predecessor company that was
incorporated on May 10, 1995. We were the surviving company in the merger.
Effective November 5, 1999, we merged with MAS Acquisition IX Corp ("MAS"), and
were the surviving company in the merger. Pursuant to the Agreement and Plan of
Merger, as amended, each share of common stock of MAS was converted to 0.00674
shares of our company. After giving effect to fractional and other reductions,
MAS shareholders received 57,280 of our shares as a result of the merger.
In March 2004, we reached an agreement in principal, subject to certain closing
conditions, with Fil Filipov to acquire 51% of the capital stock of Filco GmbH,
a German corporation. In April 2003, Filco GmbH acquired substantially all of
the assets of Clark Material Handling of Europe GmbH which were located at
Clark's facility in Rheinstrasse Mulheim a.d. Ruhr, Germany. These assets
consisted of all of the tooling, machinery, equipment, inventory, intellectual
property, office furniture and fixtures, and personnel necessary to build the
entire Clark line of lift trucks, but excluded the building and land, as well as
the rights to the Clark name.
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 remained the same. On January 20,
2006, Filco filed for insolvency in Germany. As a result of the filing by Filco,
we terminated the Acquisition Agreement on February 7, 2006. An auction sale of
Filco assets occurred on May 10, 2006.
Loans to Filco GmbH
We loaned Filco GmbH an aggregate principal amount of $6,275,881 through June
30, 2006, exclusive of interest at 8% per annum, pursuant to a series of secured
promissory notes. Security for these loans consisted of Filco's plant machinery,
equipment and other plant property, and intellectual property, including designs
and drawings. We used proceeds from the private placement offerings that we
completed during 2004 and 2005 to fund the Filco loans.
The loans to Filco were to be repaid on or prior to December 31, 2006. On
January 20, 2006, Filco filed for insolvency in Germany. As a result of the
filing by Filco, we terminated the acquisition agreement on February 7, 2006.
Due to the uncertainty of the Company's position under German bankruptcy law, as
of June 30, 2006, the loans have been written down to $1,000,000. We deem this
to be a reasonable recovery, however, there are no guarantees that any funds or
parts will be recovered. An auction of Filco assets was conducted by the
receiver who did not acknowledge all of Airtrax's liens against property and
equipment.
12
CRITICAL ACCOUNTING POLICIES
The Securities and Exchange Commission defines "critical accounting policies" as
those that require application of management's most difficult, subjective or
complex judgments, often as a result of the need to make estimates about the
effect of matters that are inherently uncertain and may change in subsequent
periods.
Not all of the accounting policies require management to make difficult,
subjective or complex judgments or estimates. However, the following policies
could be deemed to be critical within the SEC definition.
REVENUE RECOGNITION
Revenue on product sales is recognized when persuasive evidence of an
arrangement exists, such as when a purchase order or contract is received from
the customer, the price is fixed, title to the goods has changed and there is a
reasonable assurance of collection of the sales proceeds. We obtain written
purchase authorizations from our customers for a specified amount of product at
a specified price and consider delivery to have occurred at the time of
shipment. Revenue is recognized at shipment and we record a reserve for
estimated sales returns, which is reflected as a reduction of revenue at the
time of revenue recognition.
Revenue from research and development activities relating to firm fixed-price
contracts are generally recognized as billing occurs. Revenue from research and
development activities relating to cost-plus-fee contracts include costs
incurred plus a portion of estimated fees or profits based on the relationship
of costs incurred to total estimated costs. Contract costs include all direct
material and labor costs and an allocation of allowable indirect costs as
defined by each contract, as periodically adjusted to reflect revised agreed
upon rates. These rates are subject to audit by the other party. Amounts can be
billed on a bi-monthly basis. Billing is based on subjective cost investment
factors.
Results of Operations - Three Months Ended June 30, 2006 compared with Three
Months Ended June 30, 2005
We had been a development stage company for much of 2005 and all of 2004 periods
and had not engaged in full-scale operations for the periods indicated. The
revenue for the periods in 2005 and the first two quarters of 2006 have been
derived from the sales of omni-directional lift trucks. The available dollar
limits of contracts with the United States Navy were substantially completed
during 2002, and we recognized limited revenue from the United States Navy
contract during 2003. During 2006, we hope to commence full production.
Consequently, management believes that the year-to-year comparisons described
below are not indicative of future year-to-year comparative results.
Revenue
Revenue for the three-month period ended June 30, 2006 were $612,301,
representing an increase of $521,747 from revenue of $90,554 for the comparable
period in 2005. This increase in revenues can be attributed to sales of our
Sidewinder ATX-3000.
Cost of Goods Sold.
The Company's cost of goods sold for the three months ended June 30, 2006
amounted to $666,137, an increase of $558,372 from $107,765 for the three months
ended June 30, 2005. The Company's increase in cost of goods sold reflects the
cost associated with our realized revenue from increased sales of $521,747.
The Company is entitled to a benefit for the effect on income taxes on the net
operating loss. Accordingly, a benefit in the amount of $264,766 has been
recorded for the three months ended June 30, 2006 and $127,289 was recorded
during the three months ended June 30, 2005.
13
Operating and Administrative Expenses.
Operating and administrative expenses which include administrative salaries,
depreciation and other expenses for three-month period ended June 30, 2006
totaled $2,179,132 which represents an increase of $894,844 from $1,284,288
incurred in the three-month period ended June 30, 2005. The increase is due
primarily to expenses related to the write down of the Filco advance of
$1,000,000 and additional expenses relating to the increase in production of our
Sidewinder ATX-3000 and Cobra and King Cobra scissor lift and Omni-Directional
Power Chair development costs.
Income (Loss) Before Income Taxes.
Net loss before taxes in the three months ended June 30, 2006 was $(3,307,593)
which reflects an increase of $2,206,021 from $(1,101,572) in net loss before
taxes for the three months ended June 30, 2005. The increase is due primarily to
expenses related to the write down of the Filco advance of $1,000,000 and
additional expenses relating to the increase in production of our Sidewinder
ATX-3000 and Cobra and King Cobra scissor lift and Omni-Directional Power Chair
development costs.
Loss Allocable to Shareholders
Income allocable to shareholders for the three months ended June 30, 2006 was
$(3,717,012), which represents an increase of $2,240,125 from $(1,476,887) in
loss allocable to shareholders during the three months ended June 30, 2005. The
increase is due primarily to expenses related to the write down of the Filco
advance of $1,000,000 and additional expenses relating to the increase in
production of our Sidewinder ATX-3000 and Cobra and King Cobra scissor lift and
Omni-Directional Power Chair development costs.
Results of Operations - Six Months Ended June 30, 2006 compared with Six Months
Ended June 30, 2005
We had been a development stage company for much of 2005 and all of 2004 periods
and had not engaged in full-scale operations for the periods indicated. The
revenue for the periods in 2005 and the first quarter of 2006 have been derived
from the sales of omni-directional lift trucks. The available dollar limits of
contracts with the United States Navy were substantially completed during 2002,
and we recognized limited revenue from the United States Navy contract during
2003. During 2006, we hope to commence full production. Consequently, management
believes that the year-to-year comparisons described below are not indicative of
future year-to-year comparative results.
Revenue
Revenue for the six-month period ended June 30, 2006 were $1,271,277,
representing an increase of $1,103,732 from revenue of $167,545 for the
comparable period in 2005. This increase in revenue, is primarily, attributed to
sales of our Sidewinder ATX-3000.
Cost of Goods Sold.
The Company's cost of goods sold for the six months ended June 30, 2006 amounted
to $1,193,815, an increase of $1,033,689 from $160,126 for the six months ended
June 30, 2005. The Company's increase in cost of goods sold reflects the cost
associated with our realized revenue from increased sales of $1,103,732.
The Company is entitled to a benefit for the effect on income taxes on the net
operating loss. Accordingly, a benefit in the amount of $349,250 has been
recorded for the six-month period ended June 30, 2006 and $185,434 was recorded
during the six-month period ended June 30, 2005.
Operating and Administrative Expenses.
Operating and administrative expenses which include administrative salaries,
depreciation and other expenses for six-month period ended June 30, 2006 totaled
$3,200,705 which represents an increase of $1,192,823 from $2,007,882 incurred
in the six-month period ended June 30, 2006. The increase is due primarily to
expenses related to the write down of the Filco advance of $1,000,000 and
additional expenses relating to the increase in production of our Sidewinder
ATX-3000 and Cobra and King Cobra scissor lift and Omni-Directional Power Chair
development costs.
14
Income (Loss) Before Income Taxes.
Net loss before taxes in the six months ended June 30, 2006 was $(2,884,578)
which reflects an increase of $1,424,546 from $(1,460,032) in net loss before
taxes for the six months ended June 30, 2005. The increase is due primarily to
expenses related to the write down of the Filco advance of $1,000,000 and
additional expenses relating to the increase in production of our Sidewinder
ATX-3000 and Cobra and King Cobra scissor lift and Omni-Directional Power Chair
development costs.
Loss Allocable to Shareholders.
Income allocable to shareholders for the six months ended June 30, 2006 was
$(3,331,388), which represents an increase of $1,536,998 from $(1,794,390) in
loss allocable to shareholders during the six months ended June 30, 2005. The
increase is due primarily to expenses related to the write down of the Filco
advance of $1,000,000 and additional expenses relating to the increase in
production of our Sidewinder ATX-3000 and Cobra and King Cobra scissor lift and
Omni-Directional Power Chair development costs.
Liquidity and Capital Resources - Six Months Ended June 30, 2006 compared with
Six Months Ended June 30, 2005
Since our inception, we have financed our operations through the private
placement of our common stock and sales of convertible debt. During the six
months ended June 30, 2006 and 2005, we raised net of offering costs $819,800
and $4,687,413, 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 the
second quarter of 2006 and 2005, we recorded credits of $264,766 and $127,289,
respectively from the sale of our losses and credits.
We have consistently demonstrated our ability to meet our cash requirements
through private placements of our common stock and convertible notes. We have
continued to similarly satisfy those requirements during the quarter ended June
30, 2006.
We anticipate that our cash requirements for the foreseeable future will be
significant. In particular, management expects substantial expenditures for
inventory, product production, and advertising with production of its
omni-directional lift truck and the start of Cobra and King Cobra
(Scissors-Lift) production.
We will require additional funds to continue our operations beyond the initial
production run. We anticipate that operating capital in the amount of $5 million
will be required during calendar year 2006 to sufficiently fund operations. Of
the total amount, approximately 80% is projected for parts and component
inventory costs, with the balance projected as general operating expenditures,
which includes overhead and salaries. We expect to recognize lower per unit
manufacturing and part costs in the future due to volume discounts, as well as
lower per unit shipping costs as we transition from the initial production run
to full-scale production. We partially funded these additional cash requirements
through the issuance of equity and/or debt securities which may be similar to
the offering described above. We cannot predict whether we will be successful in
obtaining sufficient capital to fund continuing operations. If we are unable to
obtain sufficient funds in the near future, such event will delay production of
its product(s) and likely will have a material adverse impact on us and our
business prospects.
As of June 30, 2006, our working capital deficit was $(1,359,010). Fixed assets,
net of accumulated depreciation, and total assets, as of June 30, 2006, were
$176,792 and $190,893, respectively. Current liabilities as of June 30, 2006
were $4,914,579.
Off-Balance Sheet Arrangements.
We do not have any off balance sheet arrangements that are reasonably likely to
have a current or future effect on our financial condition, revenue, results of
operations, liquidity or capital expenditures.
15
Liquidated Damages
On May 31, 2005 we entered into a Letter Agreement (the "Letter Agreement") with
the accredited investors who participated in our November 2004 private placement
(the "November 2004 Investors") pursuant to which we agreed to pay to the
November 2004 Investors an aggregate amount of $120,429, representing an amount
equal to 2% of the aggregate amount invested by the November 2004 Investors for
each 30-day period or pro rata for any portion thereof, as liquidated damages
for our failure to file a registration statement within 45 days of November 22,
2004 and for our failure to have such registration statement declared effective
by the SEC within 90 days of November 22, 2004. The amount paid to the November
2004 Investors pursuant to the Letter Agreement represents a default of 36 days
with respect to filing the registration statement and a default of 100 days with
respect to having the registration statement declared effective by the SEC.
Under the Letter Agreement, the liquidated damages paid to the November 2004
Investors satisfied our obligations until June 30, 2005.
From July 1, 2005 through June 30, 2006, an aggregate amount of approximately
$244,632 had accrued in liquidated damages payable to the November 2004
Investors. On March 1, 2006, we issued an aggregate principal amount $150,000 of
our 4% Unsecured Convertible Debentures and 5 year warrants to purchase an
aggregate of 48,077 shares of our common stock to two of the investors in our
November 2004 private placement. On June 30, 2006, we issued an aggregate
principal amount $48,248 of our 4% Unsecured Convertible Debentures and 5 year
warrants to purchase an aggregate of 24,124 shares of our common stock to the
final two investors in our November 2004 private placement. The debentures
mature on March 1, 2008, and June 30, 2008, respectively, pay simple interest at
a rate of 4% per annum and are convertible into shares of our common stock at a
price equal to 1.56 per share. The warrants are exercisable into shares of our
common stock at a price equal to $1.65 per share. Our issuance of the
aforementioned securities were in settlement of accrued liquidated damages which
we owed to the investors for our inability to have the SEC declare our
registration statement on Form SB-2 effective within the specified timeframe as
set forth in the Registration Rights Agreement dated November 22, 2004. In
addition, the investors agreed to forego any future accrual and payment of such
liquidated damages. As of June 30, 2006, all damages are considered settled.
Liquidated Damages
On March 17, 2006, we began to accrue liquidated damages to the investors of the
first and second closings of our October 2005 private placement because we did
not register shares of our common stock underlying the Series C Unsecured
Convertible Debentures and common stock purchase warrants within 150 days from
the initial closing date of October 18, 2005. As of June 30, 2006, an aggregate
amount of approximately $108,360 has been accrued in liquidated damages payable
to the investors. We have begun discussions with the lead investor of the
October 2005 private placement, and intend to engage in negotiations with the
remaining investors, to settle the liquidated damages which we currently, and in
the future will, owe.
Item 3. 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
and 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 and 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.
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Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On June 30, 2006, we issued an aggregate principal amount $48,248 of our 4%
Unsecured Convertible Debentures and 5 year warrants to purchase an aggregate of
24,124 shares of our common stock to the final two investors in our November
2004 private placement. The debentures mature on June 30, 2008, pay simple
interest at a rate of 4% per annum and are convertible into shares of our common
stock at a price equal to 1.56 per share. The warrants are exercisable into
shares of our common stock at a price equal to $1.65 per share. Our issuance of
the aforementioned securities were in settlement of accrued liquidated damages
which we owed to the investors for our inability to have the SEC declare our
registration statement on Form SB-2 effective within the specified timeframe as
set forth in the Registration Rights Agreement dated November 22, 2004. In
addition, the investors agreed to forego any future accrual and payment of such
liquidated damages.
* 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 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
On July 26, 2006, the Company issued a Series A Convertible Note in the amount
of $400,000 with an annual interest rate of 12%. The note is convertible, at the
option of the holder, into shares of the Company's Common Stock at any time
prior to the maturity date of October 26, 2006 at a rate of $1.56 per share.
Item 6. Exhibits
(a) Exhibits.
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).
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
AIRTRAX, INC.
By: /s/ Peter Amico
-------------------------
Peter Amico, President,
Chief Executive Officer,
Chairman of the Board of
Directors, and Acting
Chief Financial Officer
August 21, 2006
18