UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB/A
(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, 2005.
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 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 Identification No.)
incorporation or organization
200 Freeway Drive, Unit One, Blackwood, NJ 08012
(Address of principal executive offices)
(856) 232-3000
(Issuer's telephone number)
870B Central Avenue, Hammonton NJ 08037
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
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 [ ]
Indicate by check whether the registrants is a shell company (as defined in rule
12b of the Exchange Act). yes [ ] no [X]
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 04, 2005, the issuer had
21,695,735 shares of common stock, no par value, issued and outstanding.
Transitional Small Business Issuer Format (Check One): Yes [ ] No [X]
Explanatory Note
Certain errors effecting the June 30, 2005 financial statements have been
discovered during an internal review. The corrections resulted in a change in
the amount of net loss attributable to common shareholders with resultant
changes in deficit accumulated during development stage, certain changes in the
statement of cash flows and certain changes in balance sheet account balances as
of June 30, 2005.
The corrections result from a change in the method of accounting for embedded
derivatives contained in convertible notes and warrants. They had been accounted
for under the provisions of EITF 98-5 and EITF 00-27. As further described in
Note 2, they are now accounted for under the provisions of EITF 00-19.
For the convenience of the reader, this Form 10-QSB/A sets forth the original
Form 10-QSB in its entirety. However, this Form 10-QSB/A only amends our
financial statements and the footnotes to our financial statements, along with
the corresponding changes to our Management's Discussion and Analysis. We also
corrected typographical errors and have revised our controls and procedures
disclosure as a result of these restatements. No other information in the
original Form 10-QSB is amended hereby. In addition, pursuant to the rules of
the SEC, the original Form 10-QSB has been amended to contain currently dated
certifications from our Principal Executive Officer and Principal Financial
Officer, as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
The certifications of our Principal Executive Officer and Principal Financial
Officer are attached to this Form 10-QSB/A as Exhibits 31.1, 31.2 and 32.1,
respectively
AIRTRAX, INC.
JUNE 30, 2005 QUARTERLY REPORT ON FORM 10-QSB
TABLE OF CONTENTS
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets 2
Statements of Operations and Deficit Accumulated During
Development Stage 2
Statements of Cash Flows 4
Notes to Financial Statements 5
Special Note Regarding Forward Looking Statements 12
Item 2. Management's Discussion and Analysis or Plan of Operations 12
Item 3. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits 19
SIGNATURES 22
1
AIRTRAX, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, 2005 December 31,
(Unaudited) 2004
(Restated) (Audited)
------------ ------------
ASSETS
Current Assets
Cash $ 1,098,691 $ 641,477
Accounts receivable 2,445 -
Accrued interest receivable 244,666 86,667
Inventory 1,673,435 709,281
Prepaid expenses - 5,113
Vendor advance 173,017 52,017
Deferred tax asset 448,860 224,414
------------ ------------
Total current assets 3,641,114 1,718,969
------------ ------------
Fixed Assets
Office furniture and equipment 111,786 90,714
Automotive equipment 21,221 21,221
Shop equipment 43,619 24,553
Casts and tooling 236,484 205,485
------------ ------------
413,110 341,973
Less, accumulated depreciation 266,592 248,386
------------ ------------
Net fixed assets 146,518 93,587
------------ ------------
Other Assets
Advances to FiLCO GmbH 5,266,136 2,670,000
Patents - net 145,152 117,402
Bond discount 479,167 -
Utility deposits 65 65
------------ ------------
Total other assets 5,890,520 2,787,467
------------ ------------
TOTAL ASSETS $ 9,678,152 $ 4,600,023
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 559,506 $ 394,959
Accrued liabilities 424,555 459,565
Warrant and conversion liability 2,623,436 1,219,750
Shareholder deposits for stock - 1,403,174
Shareholder notes payable 33,460 33,455
------------ ------------
Total current liabilities 3,640,957 3,510,903
Long Term Convertible Debt 500,000 -
------------ ------------
TOTAL LIABILITIES 4,140,957 3,510,903
------------ ------------
Stockholders' Equity
Common stock - authorized, 100,000,000 shares
without par value; issued
and outstanding - 21,639,926 and
15,089,342, respectively 20,565,123 10,822,854
Paid in capital - warrants 1,708,312 -
Preferred stock - authorized, 5,000,000 shares
without par value; 275,000 issued and outstanding 12,950 12,950
Deficit accumulated during development stage (16,542,238) (9,539,732)
Deficit prior to development stage (206,952) (206,952)
------------ ------------
Total stockholders' equity 5,537,195 1,089,120
TOTAL LIABILITIES AND
------------ ------------
STOCKHOLDER'S EQUITY $ 9,678,152 $ 4,600,023
============ ============
The accompanying notes are an integral part of these financial statements.
2
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Six Month Periods Ended June 30, 2005 and 2004
(Unaudited)
May 19, 1997
(Date of Inception)
2005 to June 30, 2005
(Restated) 2004 (Restated)
------------ ------------ ------------
SALES $ 167,545 $ - $ 1,190,668
COST OF GOODS SOLD 160,126 - 630,497
------------ ------------ ------------
Gross Profit (Loss) 7,419 - 560,171
OPERATING AND ADMINISTRATIVE EXPENSES 2,007,882 848,141 10,956,103
------------ ------------ ------------
OPERATING LOSS (2,000,463) (848,141) (10,395,932)
OTHER INCOME AND EXPENSE
Revaluation income (expense) 600,299 - (263,981)
Interest expense (74,430) (13,730) (249,494)
Interest income 172,300 10,127 258,967
Other income 211 94 78,505
Conversion expense (5,600,139) - (5,955,609)
------------ ------------ ------------
NET LOSS BEFORE INCOME TAXES (6,902,222) (851,650) (16,527,544)
INCOME TAX BENEFIT (STATE):
Current 224,446 67,770 224,446
Prior years - - 717,142
------------ ------------ ------------
Total Benefit 224,446 67,770 941,588
------------ ------------ ------------
NET LOSS DURING DEVELOPMENT STAGE (6,677,776) (783,880) (15,585,956)
DEEMED DIVIDENDS ON PREFERRED STOCK 273,167 - 461,579
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (6,950,943) (783,880) (16,047,535)
PREFERRED STOCK DIVIDENDS DURING DEVELOPMENT STAGE (51,563) (85,937) (494,703)
------------ ------------ ------------
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE $ (7,002,506) $ (869,817) $(16,542,238)
============ ============ ============
NET LOSS PER SHARE:
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (6,950,943) $ (783,880)
ADJUSTMENT FOR PREFERRED STOCK DIVIDENDS (34,375) (34,375)
------------ ------------
LOSS ALLOCABLE TO COMMON SHAREHOLDERS $ (6,985,318) $ (818,255)
============ ============
NET LOSS PER SHARE - Basic and Diluted $ (.36) $ (.08)
WEIGHTED AVERAGE SHARES OUTSTANDING 19,435,015 10,267,532
The accompanying notes are an integral part of these financial statements.
3
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE
For the Three Month Periods Ended June 30, 2005 and 2004
(Unaudited)
May 19, 1997
(Date of Inception)
2005 to June 30, 2005
(Restated) 2004 (Restated)
------------ ------------ ------------
SALES $ 90,554 $ - $ 1,190,668
COST OF GOODS SOLD 107,765 - 630,497
------------ ------------ ------------
Gross Profit (Loss) (17,211) - 560,171
OPERATING AND ADMINISTRATIVE
EXPENSES 1,284,288 549,332 10,956,103
------------ ------------ ------------
OPERATING LOSS (1,301,499) (549,332) (10,395,932)
OTHER INCOME AND EXPENSE
Revaluation income (expense) 373,440 - (263,981)
Interest expense (34,158) (6,126) (249,494)
Interest income 111,156 10,127 258,967
Other income 75 94 78,505
Conversion expense (467,446) - (5,955,609)
------------ ------------ ------------
NET LOSS BEFORE INCOME TAXES (1,318,432) (545,237) (16,527,544)
INCOME TAX BENEFIT (STATE):
Current 166,301 41,811 224,446
Prior years - - 717,142
------------ ------------ ------------
Total Benefit 166,301 41,811 941,588
------------ ------------ ------------
NET LOSS DURING DEVELOPMENT STAGE (1,152,131) (503,426) (15,585,956)
DEEMED DIVIDENDS ON PREFERRED STOCK 273,167 - 461,579
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS (1,425,298) (503,426) (16,047,535)
PREFERRED STOCK DIVIDENDS DURING DEVELOPMENT STAGE (51,563) (40,104) (494,703)
------------ ------------ ------------
DEFICIT ACCUMULATED DURING DEVELOPMENT STAGE $ (1,476,861) $ (543,530) $(16,542,238)
============ ============ ============
NET LOSS PER SHARE:
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (1,425,298) $ (503,426)
ADJUSTMENT FOR PREFERRED STOCK DIVIDENDS (17,188) (17,188)
------------ ------------
LOSS ALLOCABLE TO COMMON SHAREHOLDERS $ (1,442,486) $ (520,614)
============ ------------
NET LOSS PER SHARE - Basic and Diluted $ (.07) $ (.05)
WEIGHTED AVERAGE SHARES OUTSTANDING 21,477,816 11,430,485
The accompanying notes are an integral part of these financial statements.
4
AIRTRAX, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Six Month Periods ended June 30, 2005 and 2004
(Unaudited)
May 19, 1997
(Date of Inception)
2005 to June 30, 2005
(Restated) 2004 (Restated)
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (6.950,943) $ (783,880) $(16,047,535)
Adjustments to reconcile net loss to net cash
consumed by operating activities:
Charges not requiring the outlay of cash:
Depreciation and amortization 21,666 18,106 322,830
Amortization of bond discount 20,833 - 20,833
Equity securities issued for services 717,593 278,244 3,656,816
Revaluation expense (income) (600,299) - 263,981
Conversion expense 5,600,139 - 5,955,609
Stock issued in settlement of interest obligations 36,986 - 36,986
Increase in accrual of deferred tax benefit (224,446) (67,770) (448,860)
Deemed dividends on preferred stock 273,167 - 461,579
Interest accrued on shareholder loan 2,007 2,925 23,648
Changes in current assets and liabilities:
Increase in accrued interest receivable (157,999) - (244,666)
Increase in accounts receivable (2,445) (37,485) (2,445)
Increase in vendor advances (121,000) - (173,017)
Increase (decrease) in accounts payable and accrued liabilities 45,945 (345,261) 966,299
Increase in prepaid expenses - - (146,957)
Increase in inventory (964,154) (33,833) (1,673,435)
------------ ------------ ------------
Net Cash Consumed By Operating Activities (2,302,950) (968,954) (7,028,334)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of equipment (71,137) (25,412) (419,421)
Additions to patent cost (31,460) - (189,391)
Advances to Filco GmbH (2,596,136) (1,000,000) (5,266,136)
------------ ------------ ------------
Net Cash Consumed By
Investing Activities (2,698,733) (1,025,412) 5,874,948)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds of issuance of convertible debt 4,277,500 - 4,277,500
Net proceeds of common stock sales 55,000 2,457,212 8,627,611
Proceeds of convertible loan 409,913 - 409,913
Proceeds from exercise of warrants 718,486 - 812,236
Proceeds of sales of preferred stock - - 12,950
Proceeds from exercise of options - - 14,344
Borrowings (repayments) of stockholder loans (2,002) (52,005) 33,118
Preferred stock dividends paid in cash - (85,937) (185,274)
Principal payments on installation note - (471) (425)
------------ ------------ ------------
Net Cash Provided By
Financing Activities 5,458,897 2,318,799 14,001,973
------------ ------------ ------------
Net (Decrease) Increase In Cash 457,214 324,433 1,098,691
Balance at beginning of period 641,477 37,388 -
------------ ------------ ------------
Balance at end of period $ 1,098,691 $ 361,821 $ 1,098,691
============ ============ ============
The accompanying notes are an integral part of these financial statements.
5
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
1. BASIS OF PRESENTATION
The unaudited interim financial statements of AirTrax, Inc. ("the Company") as
of June 30, 2005 and for the three month and six month periods ended June 30,
2005 and 2004, respectively, have been prepared in accordance with accounting
principles generally accepted in the United State 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 for such
periods. The results of operations for the quarter ended June 30, 2005 are not
necessarily indicative of the results to be expected for the full fiscal year
ending December 31, 2005.
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, 2004.
2. COMMON STOCK AND WARRANTS
The certificate of incorporation was amended on March 28, 2005 to increase the
number of authorized shares to 100,000,000 for the common no par stock, and to
5,000,000 for the preferred no par stock.
On February 11, 2005, the Company issued $5,000,000 of 8% 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 share. 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 transaction 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 384,616 warrants to purchase common stock at $1.85 per share, 100,000
warrants to purchase common stock at $1.00 per share.
The issuance of convertible promissory notes and warrants was accounted for
under the provisions of Emerging Issues Task Force (EITF) 98-5, "Accounting for
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios", and EITF 00-27, "Application of Issue No. 98-5 to Certain
Convertible Investments". This accounting was corrected in these restated
financial statements to apply the provisions of EITF 00-19, "Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in, a
Company's Own Stock". See Note 3 for further details.
6
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
2. COMMON STOCK AND WARRANTS (Continued)
On May 14, 2005, the Company issued a $500,000 8% convertible note. The note is
schedule for maturity in two years. During that period, it can be converted to
stock at a rate of $1.30 per share, which would translate to 384,615 shares.
Accompanying the convertible note were 384,615 warrants to purchase common stock
at $2.11 per share; these warrants are exercisable over a five year period.
A total of 8,536,298 warrants was outstanding at June 30, 2005 as follows:
Other Total
Class A Class B Warrants Warrants
--------- --------- --------- ---------
Outstanding at December 31, 2004 - - 5,537,763 5,537,763
Increases:
Warrants issued in connection with sale of
$5,000,000 of convertible notes
1,923,077 961,538 484,616 3,369,231
Warrants issued in conjunction with $500,000 of
convertible debt - 384,615 - 384,615
Other warrants issued - - 37,689 37,689
Reductions:
Warrants exercised - - (593,000) (593,000)
Warrants voided - - (200,000) (200,000)
--------- --------- --------- ---------
Outstanding, June 30, 2005 1,923,077 1,346,153 5,267,068 8,536,298
========= ========= ========= =========
Shares of common stock were issued during the second quarter and first six
months of 2005 as follows:
Second
Quarter Six Months
-------- ---------
Conversion of $5,000,000 notes - 3,846,154
Private placement sales - 68,750
Shares issued based on warrants exercised 130,858 593,000
Issuance of shares sold in prior year - 1,749,827
Shares issued for services 264,400 264,400
Shares issued in settlement of interest on convertible notes 28,453 28,453
-------- ---------
Total shares issued 423,711 6,550,584
======== =========
7
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
3. RESTATEMENTS
Certain errors affecting the June 30, 2005 financial statements have been
discovered during an internal review. Correcting these errors resulted in a
change in the amount of net loss attributable to common shareholders with
resultant changes in deficit accumulated during development stage, certain
changes in the statement of cash flows and certain changes in balance sheet
account balances as of June 30, 2005. The financial statements for the three and
six month periods ended June 30, 2005 and for the period May 19, 1997 to June
30, 2005 have, therefore, been restated to correct these errors. The restated
amounts are compared with the amounts previously reported in the tables below.
These restatements are the result of a change in the method of accounting for
embedded derivatives contained in convertible notes and warrants. They had been
accounted for under the provisions of EITF 98-5 and EITF 00-27. As further
described in Note 2, they are now accounted for under the provisions of EITF
00-19. In addition, it was determined that a dividend on the preferred stock had
been incorrectly calculated. Correcting for this dividend resulted in changes in
the balances of the accounts making up stockholders equity and a reduction in
the amount of deemed dividends.
Statement Of Operations
For The Six Month Period Ended June 30, 2005
As Originally
Presented Adjustments As Restated
------------ ------------ --------------
Revaluation expense $ - $ 600,299 (2) $ 600,299
Interest expense (4,288,161) 4,213,731 (4) (74,430)
Conversion expense - (5,600,139)(1) (5,600,139)
Deemed dividends on preferred stock (479,167) 206,000 (5) (273,167)
------------
Net loss attributable to common shareholders $ (6,370,834) $ (580,109) $ (6,950,943)
============ ============ ==============
Statement Of Operations
For The Three Month Period Ended June 30, 2005
As Originally
Presented Adjustments As Restated
------------ ------------ --------------
Revaluation income $ - $ 373,440 (2) $ 373,440
Conversion expense - (467,446)(1) (467,446)
Deemed dividends on preferred stock (479,167) 206,000 (5) (273,167)
------------
Net loss attributable to common shareholders $ (1,537,292) $ 111,994 $ (1,425,298)
============ ------------ ==============
Statement Of Operations
For The Period May 19, 1997 To June 30, 2005
As Originally
Presented Adjustments As Restated
------------ ------------ --------------
Revaluation expense $ - $ (263,981)(2) $ (263,981)
Interest expense (4,463,225) 4,213,731 (4) (249,494)
Conversion expense - (5,955,609)(1) (5,955,609)
Deemed dividends on preferred stock (667,579) 206,000 (5) (461,579)
------------
Net loss attributable to common shareholders $(14,247,676) $(1,799,859) $ (16,047,535)
========== ============ =============
8
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
3. RESTATEMENTS (continued)
Statement Of Cash Flows
For The Six Month Period Ended June 30, 2005
As Originally
Presented Adjustments As Restated
------------ ------------ --------------
Net loss $ (6,370,834) $ (580,109) $ (6,950,943)
Revaluation income - (600,299)(2) (600,299)
Value of warrants issued 944,500 (944,500)(4) -
Deemed dividends on preferred stock 479,167 (206,000)(5) 273,167
Conversion benefit 3,269,231 (3,269,231)(4) -
Conversion expense - 5,600,139 (1) 5,600,139
------------
Cash consumed by operating activities $(2,302,950) $ - $(2,302,950)
=========== ============ ===========
Statement Of Cash Flows
For The Period May 19, 1997 To June 30, 2005
As Originally
Presented Adjustments As Restated
------------ ------------ -------------
Net loss $(14,247,676) $(1,799,859) $ (16,047,535)
Revaluation expense - 263,981 (2) 263,981
Value of warrants issued 944,500 (944,500)(4) -
Deemed dividends on preferred stock 667,579 (206,000)(5) 461,579
Conversion benefit 3,269,231 (3,269,231)(4) -
Conversion expense - 5,955,609 (1) 5,955,609
-----------
Cash consumed by operating activities $( 7,028,334) $ - $ (7,028,334)
============ =========== ==============
9
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
3. RESTATEMENTS (continued)
Balance Sheet
June 30, 2005
Liabilities and Stockholders' Equity
As Originally
Presented Adjustments As Restated
------------ ------------ --------------
Current liabilities:
Liability for warrants and conversion options $ - $ 2,623,436(1)(2) $ 2,623,436
Total current liabilities 1,017,521 2,623,436 3,640,957
------------ ------------ --------------
Total liabilities 1,517,521 2,623,436 4,140,957
------------ ------------ --------------
Stockholders' equity:
Common stock 19,911,659 326,541 (5) 20,565,123
(3,269,231)(4)
3,596,154 (1)
Paid in capital - warrants 2,652,812 (944,500)(4) 1,708,312
Preferred stock 545,491 (532,541)(5) 12,950
Deficit accumulated during development stage (14,742,379) (3,596,154)(1) (16,542,238)
(2,003,985)(1)
600,299 (2)
4,213,731 (4)
(1,219,750)(1)
206,000 (5)
Total stockholders' equity 8,160,631 (2,623,436) 5,537,195
------------ ------------ --------------
Total Liabilities and Stockholders' Equity $ 9,678,152 $ - $ 9,678,152
============ ============ ==============
Explanations:
(1) Conversion expense associated with stock conversion and immediately
exercisable warrants, not previously recorded.
(2) Revaluation income (expense) of derivatives, not previously recorded.
(3) Elimination of expense associated with convertible bond issue. The
recording of interest was required by EITF 98-5; it is not appropriate
under EITF 00-19.
(4) Several expense items generated by the use of EITF 98-5 have been
eliminated based on the application of EITF 00-19 and replaced with items
(1) and (2)
(5) Correction of dividends on preferred
stock, with related reduction in the amount of deemed dividend charges.
10
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
4. SUPPLEMENTAL CASH FLOWS INFORMATION
Cash paid for interest was $5,803 and $10,135, respectively, for the six month
periods ended June 30, 2005 and June 30, 2004. There was no cash paid for income
taxes during either the 2005 or 2004 six month periods.
There were no noncash investing activities during either the 2005 or 2004
periods. The following noncash financing activities occurred during these
periods.
a. During the second quarter of 2005, the Company issued 24,853 shares in
settlement of the interest obligation on its $5,000,000 convertible issue
prior to the conversion of the notes to stock.
b. Shares of common stock were issued for services in 2005 and 2004; these
totaled 224,000 shares and 163,745 shares, respectively.
c. Shares were issued in 2005 and 2004 in settlement of shares paid for in
prior years. These amounted to 1,749,827 shares and 30,000 shares,
respectively.
11
AIRTRAX, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
(Unaudited)
5. OPERATING AND ADMINISTRATIAVE EXPENSE
The following details expenses incurred during the six month periods ended June
30, 2005 and 2004:
2005 2004
---------- ---------
Options Expense $ 83,650 $ -
Payroll 254,894 150,573
Marketing 202,978 32,617
Production Costs 152,705 56,175
Professional Fees 306,068 66,674
Consulting Expenses 407,943 285,275
Insurance 129,879 54,480
Penalties 120,429 -
Other Expense 349,336 202,347
---------- ---------
Totals $2,007,882 $ 848,141
========== =========
6. CONTINGENCY
The Company has a tentative agreement to purchase 75.1% of the stock of FiLCO
GmbH (FiLCO)., a German manufacturer of fork trucks with a manufacturing
facility in Mulheim, Germany. During the pendency of this tentative agreement,
the Company agreed to make advances to FiLCO. Through March 31, 2005, loans
totaling $3,825,000 had been made. These loans may be converted to capital on
the books of FiLCO. The seller, who will continue to own the remaining 24.9% of
the FiLCO stock, has agreed that, if the Company converts its loan 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, the Company
agreed to pay the seller 12,750 Euros and to 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 would grant him options to purchase 100,000 shares of Company
stock for $.01. 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.
As of June 30, 2005, the Company had not concluded the contract and had not
issued any of the warrants or options contemplated by the tentative agreement.
12
Item 2. Management's Discussion and Analysis and Results of Operations Forward
Looking Statements
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expect," "plan," "anticipate,"
"believe," "estimate," "predict," "potential" or "continue," the negative of
such terms, or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially from those in the
forward-looking statements as a result of various important factors. Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, such should not be regarded as a representation by AIRTRAX, Inc., or
any other person, that such forward-looking statements will be achieved. The
business and operations of AIRTRAX, Inc. are subject to substantial risks, which
increase the uncertainty inherent in the forward-looking statements contained in
this report.
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 uniquely shaped wheels, motors, and frames, have been specially
designed by us and specially manufactured for us. Four pilot models of the
commercial omni-directional lift truck are operational and have been used for
extensive testing over the past few years.
We have completed our initial production run consisting of 10 units of our
Sidewinder ATX-3000 Omni-Directional Lift Truck. Two of these vehicles have been
sold to consumers while several of the other eight trucks will be used for
additional testing including UL (Underwriters Laboratories) compliance. Unit
assembly for the first 10 units was completed by us at the H&R Industries
facility in Warminster, PA. ANSI testing is completed using specified mast and
will be continued throughout the second and third quarters on optional mast to
be used with this vehicle. Final UL compliance must be completed at the plant of
initial and final assembly. Following required compliance testing, we expect to
sell the remainder of these units to select dealers in the United States. We
have received orders for these units.
We have incurred losses and experienced negative operating cash flow since our
formation. For the three months ended June 30, 2005 and 2004, we had a net loss
of $(1,425,298) and $(503,426), respectively. We expect to continue to incur
significant expenses. Our operating expenses have been and are expected to
continue to outpace revenues and result in significant losses in the near term.
We may never be able to reduce these losses, which will require us to seek
additional debt or equity financing.
Our principal executive offices are located at 200 Freeway Drive, Unit One,
Blackwood, NJ 08012 and our telephone number is (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.
13
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.
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 pursuant to a series of
unsecured promissory notes. 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 in order to fund the
working capital needs of Filco GmbH.
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.
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.
13
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
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 $2.6 million during the first haft 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.
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. For this reason, as well as
the lack of funding, Filco's plant was closed for much of 2004 and the beginning
of 2005.
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.
14
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. 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.
Results of Operations - Three Months Ended June 30, 2005 compared with Three
Months Ended June 30, 2004
We have been a development stage company for the periods ended June 30, 2005 and
2004 and have not engaged in full-scale operations for the periods indicated.
The limited revenues for the periods have been derived from the first sales of
the Sidewinder Omni-Directional Lift Truck. During 2005, we expect to transition
from a development stage company to an operating company as we begin production
and sales of the Sidewinder Omni-Directional Lift Truck. Consequently,
management believes that the year-to-year comparisons described below are not
indicative of future year-to-year comparative results.
Revenues
For the three-month period ended June 30, 2005, the Company had sales revenue of
$90,554. This compares to revenues of $-0- for the three months ended June 30,
2004. The increase in sales revenue represents the first sales of the SIDEWINDER
Omni-Directional Lift Truck to Airtrax Canada, a non-affiliate.
Cost of Goods Sold
The Company's cost of goods sold for the three months ended June 30, 2005
amounted to $107,765. For the three months ended June 30, 2004, the Company's
cost of goods sold was $-0-. The Company's $107,765 cost of goods sold reflects
the cost of the lift trucks sold during the three months ended June 30, 2005.
Operating and Administrative Expenses
Operating and administrative expenses includes administrative salaries and
overhead. For the three months ended June 30, 2005, the Company's operating and
administrative expenses totaled $1,284,288. Operating and administrative
expenses totaled $549,332 for the three months ended June 30, 2004. For the
three months ended June 30, 2005 operating and administrative expenses increased
$734,956 compared with the same period of 2004. These changes are a result of
the time and material costs preparing for production of the SIDEWINDER and other
production related issues including labor and materials used to outfit the new
Airtrax assembly plant in Blackwood NJ.
Research and Development
We had no research and development costs for the three months ended June 30,
2005.
Loss Before Income Taxes
Loss before income taxes for the three month period ended June 30, 2005 totaled
$1,318,452. For the three months ended June 30, 2004, loss before income taxes
totaled $545,237. The increase in loss before income tax for the three months
ended June 30, 2005 compared with the same period of 2004 was caused by the time
and material allocations preparing for production of the SIDEWINDER and other
production related issues including labor and materials used to outfit the new
Airtrax assembly plant in Blackwood NJ.
Preferred Stock Dividends
For the three months ended June 30, 2005, the Company will issue 131,771 shares
of common stock to satisfy $51,563 dividends on preferred stock. During the
three months ended June 30, 2004, the Company paid cash dividends on preferred
stock in the amount of $40,104. The preferred stock dividends are payable to a
company that is owned by our President.
Results of Operations - Six Months Ended June 30, 2005 compared with Six Months
Ended June 30, 2004
We have been a development stage company for the six months ended June 30, 2005
and 2004 and have not engaged in full-scale operations for the periods
indicated. The limited revenues for the periods have been derived from the first
sales of the Sidewinder Omni-Directional Lift Truck. During 2005, we expect to
transition from a development stage company to an operating company as we begin
production and sales of the Sidewinder Omni-Directional Lift Truck.
Consequently, management believes that the year-to-year comparisons described
below are not indicative of future year-to-year comparative results.
15
Revenues
For the six-month period ended June 30, 2005, the Company had sales revenue of
$167,545. This compares to revenues of $-0- for the six months ended June 30,
2004. The increase in sales revenue represents the first sales of a total of 4
SIDEWINDER Omni-Directional Lift Trucks plus batteries and chargers.
Cost of Goods Sold
The Company's cost of goods sold for the six months ended June 30, 2005 amounted
to $160,126. For the six months ended June 30, 2004, the Company's cost of goods
sold was $-0-. The Company's $160,126 cost of goods sold reflects the cost of
the lift trucks sold during the six months ended June 30, 2005.
Operating and Administrative Expenses
Operating and administrative expenses includes administrative salaries and
overhead. For the six months ended June 30, 2005, the Company's operating and
administrative expenses totaled $2,007,882. Operating and administrative
expenses totaled $848,141 for the six months ended June 30, 2004. For the six
months ended June 30, 2005 operating and administrative expenses increased
$1,159,741 compared with the same period of 2004. These changes are a result of
the time and material costs preparing for production of the SIDEWINDER and other
production related issues including labor and materials used to outfit the new
Airtrax assembly plant in Blackwood NJ.
Research and Development
We had no research and development costs for the six months ended June 30, 2005.
16
Loss Before Income Taxes
Loss before income taxes for the six month period ended June 30, 2005 totaled
$6,902,222. For the six months ended June 30, 2004, loss before income taxes
totaled $851,650. The principal reason for the increase in loss before income
taxes for the six months ended June 30, 2005 compared with the same period of
2004 was a $5.6 million charge for conversion expense resulting principally from
conversion during the period of convertible debt to common stock, which is
described in Note 2 to the financial statements. Other factors contributing to
the increase in the 2005 loss were time and materials devoted to preparing for
production of the SIDEWINDER and preparing the new assembly plant in Blackwood
New Jersey.
Liquidity and Capital Resources
As of June 30, 2005, the Company's cash on hand was $1,098,691 and working
capital was $157. Since its inception, the Company has financed its operations
through the private placement of its common stock. During the six months ended
June 30, 2005, the Company sold an aggregate of 68,750 shares of common stock to
accredited and institutional investors and issued 3,846,154 shares of common
stock in conversion of $5 million of convertible notes. During the six months
ended June 30, 2004, the Company sold an aggregate of 3,610,125 shares of common
stock to accredited and institutional investors and issued an aggregate of
163,840 shares of common stock in consideration for services rendered.
The Company anticipates that its cash requirements for the foreseeable future
will be significant. In particular, management expects substantial expenditures
for inventory, production, and advertising in anticipation of the rollout of its
omni-directional forklift. The Company expects that it will be required to raise
funds through the private or public offering of its securities.
The Company's initial production run of ten SIDEWINDER Omni-Directional Lift
Trucks was completed in the first quarter of 2005. The Company will need
additional funds to support production requirements beyond the initial
production run of its forklift which are estimated to be $10,000,000. Of the
total amount, approximately 25% is projected for parts and component inventory
and manufacturing costs, with the balance projected as general operating
expenditures, which includes overhead and salaries and the additional funds to
complete the proposed acquisition of the 75.1% interest in Filco GmbH ("Filco"),
primarily for Filco's working capital needs. As of June 30, 2005, the Company
has loaned to Filco a total of $5,266,136. The Company intends to complete the
acquisition of Filco once operating capital for Filco is secured to finance
their operations. The Company leased facilities starting in the second quarter
of 2005 as corporate headquarters. This building will also facilitate the
assembly of the SIDEWINDER and other omni-directional products, partial assembly
of Filco lift trucks, if the proposed acquisition is completed, warranty work,
and product distribution. The Company currently rents or leases space at
Warminster PA and Flemington NJ. These leases and/or rentals will be terminated
as the workload permits.
As of June 30, 2005, our working capital was $157. Fixed assets, net of
accumulated depreciation, as of June 30, 2005 was $146,518 and total assets, as
of June 30, 2005 was $9,678,152. Fixed assets, net of accumulated depreciation,
as of December 31.2004 was $93,587and total assets, as of December 31.2004 was
$4,600,023. Current liabilities as of June 30, 2005 were $3,640,957 compared
with $3,510,093 at December 31, 2004.
17
Item 3. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
as of June 30, 2005. In designing and evaluating the disclosure controls and
procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives. In addition, the design of disclosure
controls and procedures must reflect the fact that there are resource
constraints and that management is required to apply its judgment in evaluating
the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our chief executive officer and chief financial
officer concluded that our disclosure controls and procedures were not designed
at a reasonable assurance level and were not effective to provide reasonable
assurance that information we are required to disclose in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms, and that such information is accumulated and communicated to our
management, including our chief executive officer and chief financial officer,
as appropriate, to allow timely decisions regarding required disclosure.
On March 15, 2007, we determined that a restatement of our Quarterly
Reports on Form 10-QSB for the three and six months ended June 30, 2005 and the
three months ended March 31, 2005 was necessary in light of our review of our
accounting for derivatives and based on recent interpretations of the accounting
for certain financial instruments under SFAS 133 "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") and the Emerging Issues Task
Force No. 00-19 "Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock" ("EITF No. 00-19").
We concluded that our 6% Series A Convertible Promissory Notes ("Notes")
and the Class A and Class B Warrants (collectively, the "Warrants") issued to
certain accredited and/or qualified institutional purchasers pursuant to that
certain Subscription Agreement (the "Subscription Agreement) dated as of
February 11, 2005 contained embedded derivatives due to the registration rights
and liquidated damages provisions contained in the Subscription Agreement. The
embedded derivative provisions provided that we will pay liquidated damages in
connection with the delay in filing of a registration statement on Form SB-2 in
the event that we did not file such registration statement which registers the
shares of our common stock underlying the Notes and the Warrants, or cause the
Securities and Exchange Commission to declare such registration statement
effective, each within specified time frames as set forth in the Subscription
Agreement.
In particular, we will restate our financial statements contained in the
Quarterly Reports to reflect the reduction in preferred stock outstanding,
preferred stock dividend expense and deemed dividend expenses recorded in 2005
and 2006. In addition, we will restate our financial statements contained in the
Reports to reflect a liability in connection with issuance of the Notes and the
Warrants that contained an embedded derivative and conversion privileges, as of
March 31, 2005, June 30, 2005 and September 30, 2005 as follows:
1. The accounting for the embedded derivatives within the Notes and the
Warrants was determined under the guidance of SFAS 133 and EITF No. 00-19. The
embedded derivatives are classified as a current liability in accordance with
SFAS 133, and are recorded at fair value.
2. In reporting periods subsequent to the issuance of June 30, 2005, the
embedded derivative has been revalued with the change to fair value recorded as
income/(expense).
(b) Changes in internal control over financial reporting. We regularly
review our system of internal control over financial reporting and make changes
to our processes and systems to improve controls and increase efficiency, while
ensuring that we maintain an effective internal control environment. Changes may
include such activities as implementing new, more efficient systems,
consolidating activities, and migrating processes.
We did not make any changes in our internal control over financial
reporting that occurred during the period covered by this Quarterly Report on
Form 10-QSB that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. We did
however, make such changes subsequent to the period covered by this Quarterly
Report on Form 10-QSB as a result of the needed restatements described above. We
have hired additional qualified staff with SEC experience in the financial
reporting and analysis area. We believe that this will avoid the reoccurrence of
our material weaknesses and will strengthen our internal controls related to the
financial closing, review, and analysis process so that our controls and
procedures are effective in future periods.
18
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On May 31, 2005, we entered into a 8% Series B Unsecured Convertible Debenture
and Warrants Purchase Agreement (the "Purchase Agreement") with one accredited
investor pursuant to which we sold a $500,000 principal amount unsecured
convertible debenture (the "Debenture") convertible into shares of our common
stock, no par value, and stock purchase warrants (the "Warrants") to purchase
shares of our common stock to a certain investor who is a party to the Purchase
Agreement (the "Investor") for an aggregate purchase price of $500,000.
The Debenture matures on May 31, 2007 and pays simple interest quarterly
accruing at the annual rate of 8%, either in the form of our common stock, which
shall be valued at the conversion price in effect on the trading day prior to
the date interest is due, or cash, each at our option. The Debenture is
convertible into shares of our common stock at a conversion price equal to
$1.30, subject to adjustment in certain events, including, without limitation,
upon our consolidation, merger or sale of all or substantially all of our
assets, a reclassification of our common stock, or any stock splits,
combinations or dividends with respect to our common stock. We may in our
discretion require that the Investor convert all or a portion of the Debenture
and the Investor may in its discretion require that we redeem all or a portion
of the Debenture.
In addition, we issued 384,615 Warrants to the Investor, representing an amount
of Warrants equal to 100% of the quotient of (i) the principal amount of the
Debenture issued at the closing date divided by (ii) the conversion price on the
closing date. The Warrants are exercisable at a price equal to $2.11, subject to
adjustment in certain events, including, without limitation, upon our
consolidation, merger or sale of all or substantially all of our assets, a
reclassification of our common stock, or any stock splits, combinations or
dividends with respect to our common stock, from the date of issuance until 5
years after the closing date.
First Montauk Securities Corp. (the "Selling Agent") acted as selling agent in
connection with the offering. We issued a total of 38,462 Warrants on May 31,
2005 to the Selling Agent and the Selling Agent received gross fees of $65,000,
as consideration for services performed in connection with the issuance of the
Debenture and Warrants to the Investor pursuant to the Purchase Agreement. The
Selling Agent has no obligation to buy any Debenture or Warrants from us. In
addition, we have agreed to indemnify the Selling Agent and other persons
against specific liabilities under the Securities Act of 1933, as amended.
The issuance of the aforementioned securities was exempt from registration
requirements of the Securities Act of 1933 pursuant to Section 4(2) of such
Securities Act and Regulation D promulgated thereunder based upon the
representations of each of the purchasers that it was an "accredited investor"
(as defined under Rule 501 of Regulation D) and that it was purchasing such
securities without a present view toward a distribution of the securities. In
addition, there was no general advertisement conducted in connection with the
sale of the securities.
19
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits
(a) Exhibits.
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 Certificate of Amendment of Certificate of Incorporation dated April 1,
2005 (Filed as an exhibit to Company's Form 10-QSB filed with the
Securities and Exchange Commission on May 16, 2005).
3.5 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. (Filed previously)
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).
20
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).
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).
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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 Series B Unsecured Convertible Debenture and Warrants Purchase
Agreement, dated May 31, 2005, by and between Airtrax, Inc. and the
investor named on the signature page thereto (Filed as an exhibit to the
Company's Form 8-K filed on June 6, 2005).
10.16 Registration Rights Agreement dated May 31, 2005, by and between
Airtrax, Inc. and the investor named on the signature page thereto
(Filed as an exhibit to the Company's Form 8-K filed on June 6, 2005).
10.17 Series B Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
exhibit to the Company's Form 8-K filed on June 6, 2005).
10.18 Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
the Company's Form 8-K filed on June 6, 2005).
10.19 Letter Agreement dated May 31, 2005 by and among Airtrax, Inc. and the
investors named on the signature page thereto (Filed as an exhibit to
the Company's Form 8-K filed on June 6, 2005).
10.20 Series C Unsecured Convertible Debenture and Warrants Purchase
Agreement, dated October 18, 2005 by and between Airtrax, Inc. and the
investor named on the signature page thereto (Filed as an exhibit to the
Company's Form 8-K filed on October 24, 2005).
10.21 Registration Rights Agreement dated October 18, 2005, by and between
Airtrax, Inc. and the investor named on the signature page thereto
(Filed as an exhibit to the Company's Form 8-K filed on October 24,
2005).
10.22 Series C Unsecured Convertible Debenture of Airtrax, Inc. (Filed as an
exhibit to the Company's Form 8-K filed on October 24, 2005).
10.23 Form of Stock Purchase Warrant of Airtrax, Inc. (Filed as an exhibit to
the Company's Form 8-K filed on October 24, 2005).
10.24 Stock Acquisition Agreement dated as of February 19, 2004 by and between
Airtrax, Inc. and Fil Filipov (Filed herewith).
10.25 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).
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14 and
Rule 15d-14(a), promulgated under the Securities and Exchange Act of
1934, as amended
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14 and
Rule 15d 14(a), promulgated under the Securities and Exchange Act of
1934, as amended
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer)
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
21
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, on this 1st day of
June 2007.
AIRTRAX, INC.
By:/s/ Robert M. Watson
-------------------------------
Robert M. Watson, Chief Executive Officer,
Acting Principal Financial Officer
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